Spanish fast-fashion king Amancio Ortega, founder of the Inditex empire behind the likes of Zara, Massimo Dutti and Pull & Bear, briefly pushed Warren Buffett out of the world’s top 10 billionaires this week as the retailer’s shares surged on a strong earnings report.
The nonagenarian, who left school at 14 to become an errand boy for a shirtmaker in his hometown in northwestern Spain, saw his net worth breach $143 billion (€123 billion) on Wednesday, according to Forbes’s real-time rich list, as Inditex shares jumped as much as 5.7 per cent. Ortega owns almost three-fifths of the group.
Even as the US-Israeli war on Iran dampens consumer confidence globally, Inditex reported an 11.5 per cent increase in May revenues, comfortably outperforming analysts’ forecasts of an 8 per cent rise – as it squeezed more sales out of its stores and online, even as it closed outlets across seven of its eight brands.
The only name to see store openings across the group of late has been Lefties, a unit set up in the 1990s to flog Zara leftovers that has, in recent years, become the fastest-growing part of the chain with outlets in about 20 countries.
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With jeans priced from €17.99 and dresses starting at €9.99, it is making its mark in the low-price, high-volume space that had long been defined by Primark, which was started off as a single store under the Penneys name in 1969 in Dublin’s Mary Street by the late Arthur Ryan for the Canadian-Irish Weston family.
In the coming months Inditex plans to launch Lefties in the UK, which is Primark’s main market and home to 199 of its 473 stores.
Lefties, with 217 stores, is well off matching Primark on the bricks and mortar front. But it has a strong online presence – which has been helping Inditex, according to analysts, gain market share at Primark’s expense. Online sales account for more than a quarter of all Inditex revenues.
Primark, meanwhile, has eschewed setting up an online shop – even if it has rolled out a click-and-collect service across most of its UK stores since late 2022.
A lack of an ecommerce presence left it particularly exposed during the Covid-19 lockdowns, a period in which another low-cost online retailer, Shein, founded in China in 2008, was able to surge ahead and become the world’s largest fashion retailer.
Associated British Foods (ABF) reported in April that Primark’s sales grew by 2 per cent on the year for the six months to the end of February. However, this was driven by adding more locations and shop space as like-for-like sales fell 2.7 per cent. The decline was most pronounced in continental Europe, which makes up almost half of its sales.
It expects new openings to contribute 4 per cent to 5 per cent annual growth in total sales “for the foreseeable future”, it said.
Primark chief executive Eoin Tonge – who was confirmed in March, having served as interim boss for a year – defended the company’s online reticence in an interview with The Irish Times in April.
“The economics of online are something you have to go in with your eyes wide open. If Penneys or Primark had done that 10 years ago it wouldn’t have been a success economically. And a lot of people have fallen by the wayside by virtue of big investments they put into going online in the mid-2010s,” he said.
“It’s expensive to deliver and to fulfil the order. You’ve got to build the right technology and you’ve got the cannibalisation of your bricks and mortar. Our store business is still very strong. We’re not sitting here feeling that we have to do something. But the world keeps changing so we have to keep an eye on it.”
The market value of ABF has fallen almost 18 per cent to £13.2 billion (€15.3 billion) since the group signalled in early November it was planning to demerge Primark from the rest of the group, which includes businesses in sugar, yeast, animal feed and a stable of grocery brands from Twinings tea to Blue Dragon stir fry sauces.
In a report for Deutsche Bank clients in the past week, analyst Adam Cochrane said: “Any excitement of the Primark demerger will remain subdued until the [like-for-like sales] improve.”
He also said the food side of the business was being hamstrung by weak sugar prices and margins in the groceries division.
The Weston family plans to remain majority owner of the two businesses, which each have annual sales of close to £10 billion, following the break-up.
While Primark and ABF are each on track to emerge from the split as FTSE-100 members, RBC Capital analysts have argued there is little for investors to get excited about as the growth outlook for both “looks challenging”.
Its analysts did a deep dive on price perception of clothes retailers in the UK market last year and found that Primark was no longer viewed as the cheapest brand – even though its lowest-price products actually were.
Tonge acknowledged the perception gap in the interview, saying Primark had been working hard over the past year trying to improve this. “We were the value disrupter on the high street and in town centres,” he said. “People copied us and we’ve got to remind people who the original was.”
He has more work to do.
But if he really wants to avoid Primark drifting after being spun out next year, he needs to come up with an online strategy – and fast.
With inflation biting consumers again, the battle among discount retailers is only going to get tougher.
