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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When it opened its newly revamped Paris store in 2022, Dior had significantly expanded the space and included features such as a restaurant and pâtisserie.
Zara and H&M shoppers may not demand fine-dining at their local outlet but fast fashion retailers can learn from their luxury peers. Fewer but bigger, well-designed stores should be one of their greatest weapons against the onslaught from online rivals such as Singapore-based Shein.
Take Zara-owner Inditex. Over the past 10 years, Inditex’s average store size has increased from about 500 square metres to 750-800, estimates RBC Capital Markets. The retailer, which also owns Pull & Bear and Massimo Dutti, is shutting smaller outlets but upgrading and expanding flagship locations. It opened its largest-ever Zara store last year in Rotterdam.
This may seem counterintuitive when sales continue to shift online. Yet it is allowing Inditex to improve sales per square metre from about €5,000/m2 in 2013 to about €8,000/m2, on RBC estimates.
Fewer, larger stores mean efficiencies — for instance requiring fewer deliveries. Crucially, they display a fuller range, tempting shoppers to spend more per visit. Shoppers visiting stores want to be inspired, says Swetha Ramachandran, head of consumer brands strategy at Artemis Fund Managers.
E-commerce and physical stores also do not operate in isolation. Web traffic can increase by nearly two-fifths in the quarter after a brand opens a store, suggested a 2023 report from ecommerce platform Shopify. Retailers are making it easier to collect web orders in-store.
So-called first-generation fast fashion retailers such as H&M and Inditex have to look for ways they can press home any advantages over Shein, whose ascendancy has been aided by video app TikTok.
H&M’s new chief executive Daniel Ervér has pledged to cut the time it takes to get new collections into stores. H&M, which trades on a forward price earnings multiple of 15.9 times compared to Inditex on 22.1 times, is slower than rivals to respond to trends.
Inditex faces questions of its own — namely how long it can continue its recent strong run. Its shares have gained 38 per cent in the last 12 months. Its strong free cash flow generation would help sustain enthusiasm for the stock: its net cash position of €11.5bn at the end of its third quarter — 15 per cent higher year on year — has prompted hopes of additional cash returns when it presents full-year results this week.
Fashion often looks to the past for inspiration. Used cleverly, stores can help in the fight against fierce competition from online rivals.
