Zara owner Inditex to close 1,200 stores as part of its digital transformation strategy

Summary

Zara owner Inditex reported that it will permanently close 16% of its global outlets (1,200 stores) by the end of 2021 and shift towards a strategy more focused on online sales. This trend of increasing online sales was already growing pre-COVID‑19, but has accelerated due to the pandemic. Inditex’ online sales increased 95% in April, and the company estimates that online sales will account for more than 25% of total sales by 2022, up from 14% in 2019. Inditex will spend 1b euros on digital investments over the next three years to support its online sales efforts. Most of the store closures will take place in Europe and Asia.

Report

Analysis

While COVID‑19 is accelerating the shift to online sales, consumers have been increasingly shifting their purchases online in recent years. Physical retailers across the board were already dealing with challenges accommodating this shift in consumer behavior, and the difficulty of competing against online-only retailers who have a structural cost advantage due to their smaller physical footprint.

As digitalization continues to increase and becomes ever more central to companies’ operations and sales, the importance of devoting sufficient resources to protect those digital assets will continue to increase as well. Retailers such as Zara often face a particular challenge due to the large numbers of staff that need to be trained in proper cyber hygiene, which is an ongoing process requiring regular refresher training.

And considering that companies are experiencing ‘two years worth of digital transformation in two months’ due to COVID‑19, the importance of investing sufficiently in cyber governance is more important than ever. Companies under financial pressure will have a particularly difficult time dealing with this, and investors need to be aware of the large impact on share price performance that cyber governance has. The Cyberhedge cyber governance indices show that the share prices of companies with strong cyber governance consistently outperform the share prices of companies with weak cyber governance.

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Denis Bolshakov

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What are the Cyberhedge Cyber Governance Indices?

These first ever benchmarks prove good cyber governance matters to shareholder value. They measure stock market performance of companies with good and with bad cyber governance scores. Scores are based on Cyberhedge’s proprietary cyber governance rating methodology. Market performance is tracked by an independent firm. The results show that companies with good cyber governance outperform their peers in US, UK, and EU markets.

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