Zara owner ramps up production over supply chain concerns

Inditex stockpiles basic garments from Asia ahead of potential difficulties in the next six months

Inditex, the global fashion group, has accelerated its sourcing of clothes from Asia in order to stockpile inventory ahead of potential supply chain difficulties in the next six months.

The owner of Zara said on Wednesday that “in the face of possible supply chain tensions”, it had temporarily increased production “in order to increase product availability without any change to commitment levels”.

Oscar García, who became the Spanish group’s chief executive last year, told analysts the move concerned garments made in Asia, where Inditex procures basic items such as underwear and T-shirts in China, India and Bangladesh.

He did not elaborate on the nature of the supply chain issues it foresaw, but the move comes after a prolonged period of coronavirus disruption and as retailers grapple with rapidly rising raw material and energy costs.

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Mr García sought to play down any perception of Inditex as an exception. “Increasing inventory at the beginning of the season is something you are hearing widely from other market participants,” he said.

Inditex’s “long-haul” sourcing of basics from Asia runs in parallel to its quick-response production of fashion items at factories in Spain and Portugal as well as sites close to Europe in Turkey and Morocco.

The Spanish company said the value of its inventory at the end of July was €3.67 billion, about 43 per cent higher than at the same time last year.

But Mr García added that in the time since then the size of the inventory had come down and stressed that the increase in production was in line with strong sales trends.

Inditex announced a 24.5 per cent rise in sales to €14.8 billion in the six months to the end of July and a 41 per cent increase in net income to €1.8 billion.

Offering an update on more recent performance, it said store and online sales between August 1st and September 11th had increased 11 per cent from the same period last year.

Shares in Inditex were up 5.2 per cent to €23.08. — Copyright The Financial Times Limited 2022