Zara’s financial faux pas

Despite a year of record sales for Spanish fashion giant Zara, in which they saw sales break the £600 million mark for the first time ever, they reported a steep loss in profit following a move in head office location and mass reinvestment back into stores. Pre-tax profits reportedly dropped from £58.3m to £39.2m in a year (at 31st January 2017).

Surprising perhaps, as Zara seems to be one of the most popular fashion brands, loved by bloggers and features constantly on social media. Zara launched in the UK in the 1990s and is loved by fashionistas everywhere for its clean-cut sophisticated brand image. However, it only just makes the top 20 of women’s retailers based on market share, at 1.5%.

Zara went from 68 to 66 stores in the UK in the past year after losing stores in Oxford Circus and Gatwick Airport, however they have carried out refurbishment in many of their London stores to “keep the stores’ layout and atmosphere in line with the Zara brand image”. Maureen Hinton, director of retail research at Global Data, cited another issue being the increasing cost of expansion for retailers in the UK, saying “That will be a challenge for most retailers, Inditex (Zara’s parent company) isn’t immune from that”. She also added that the fall in profits “doesn’t denote a decline” and is simply part of the fabric of a functioning business.

Despite a loss in profits, Zara is still performing well in an uncertain time for UK high street fashion as consumers move towards online competitors such as Asos, the fall of the pound and a move away from expenditure on material goods and towards experiences. The influence of Indetix in the UK is not to go unnoticed, having just launched cheaper, but incredibly stylish sister brand, Berskha, in the US. With brands such as the ever expanding Pull and Bear and the chic Massimo Dutti under its belt, it can only expect profits to rise.


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June 2021
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