Sales of Inditex, the world’s largest fashion retailer, reached EUR 16.9bn in the first half of 2023, up 13.5% compared to last year. On the other hand, the company’s flagship, Zara, has been keeping its orders for Turkey in the warehouses of its manufacturers for some time. The brand told its suppliers, who are struggling, “Our warehouses are full. Wait. We will buy when our sales improve. Help us, support us.”
BY DIDEM ERYAR UNLU
Inditex is one of the world’s largest fashion retailers. It holds 60% of the world retail ready-to-wear market. With its eight brands, it serves 216 markets as online shopping and in more than 90 markets as store sales with approximately 6,000 stores. Inditex, whose history dates back to the 1960s, focuses on all areas of fashion production: design, production, distribution and retail.
The company, which works with many suppliers worldwide, sets specific rules when selecting its suppliers and constantly audits them to not compromise on product quality and sustainability principles. To qualify for the Inditex Certificate, suppliers undergo ethical audits and make specific commitments to sustain their performance in terms of social compliance. Inditex states that it aims to benefit the development of suppliers and contribute to the economies of the countries in which it operates with its “sustainable business model.”
The company had a powerful operating performance in the first half of 2023, with total sales reaching EUR 16.9bn, up 13.5% compared to the first half of 2022. The company’s net income increased by 40.1% to EUR 2.5bn.
Zara and Zara Home, the group’s flagship, have over 2,000 stores. 97% of Zara’s production is made by 12 supplier communities operating in Spain, Portugal, Turkey, Morocco, India, Pakistan, Vietnam, Cambodia, Bangladesh, China, Brazil and Argentina. Zara and Zara Home reached a turnover of 12.36 billion Euros in the first six months of the year, accounting for 73.3 percent of group sales.
SUPPLIERS ARE IN A DIFFICULT SITUATION
On July 31, 2022, Zara defined Argentina and Turkey as “hyperinflationary economies” and has sharply reduced its orders due to rising costs in Turkey since 2022.
According to information we have received from some sources in the sector, the company has not exhibited ethical behavior in purchasing processes for about a year.
Since Zara is a significant “game changer” in Turkey, most suppliers are afraid to react to this practice and are forced to accept the terms. However, this situation causes great losses for all players in the sector, from yarn, dyeing, weaving, apparel, accessories, packaging, and logistics.
“SUPPORT US” REQUEST
The standard practice is as follows: After Zara places the order, the preparation of the fabric, the production process, and the control process take about eight weeks. About 15 days after the delivery and acceptance of the product, Zara makes the payment within 90 days. What happened today is an entirely unsystematic practice. According to the information we received from industry sources, Zara is holding the products that are due for shipment and demanding its suppliers keep them in their warehouses. For this practice, the brand says:
“There is no space in my warehouse; sales are down; help us support us.”
However, the figures reveal that Zara has reached its highest profit rates since its establishment this year and that the gap between the brand and its competitors has widened unbridgeable.
ZARA’S ORDER WAS LIKE A “PROMISSORY NOTE.”
Sector representatives said, “Zara’s order was like a promissory note. Orders were loaded on time, and producers were not kept waiting. Today, in some orders, Zara unilaterally postpones these dates open-endedly. We are experiencing additional costs such as storage and insurance of products. Cash flow stops, which adversely affects our financial program. Also, if we delay orders ourselves, we pay penalties.”
In an attempt to make the situation a little more bearable, they asked them to “shorten the payment period as much as you lengthen the delivery time,” but they didn’t even get an answer.
OBJECTIVE: OPTIMIZATION
And when we ask the suppliers the reason for this situation, their answers are clear: Optimization. “Zara aims to keep its own store sales speed at optimum and reduce the waiting time of its products in its warehouses, even if it leaves its suppliers in a difficult situation,” they say.
** INDITEX ANSWER:
After the interview’s publication, we received an answer from Inditex official sources, saying, “Zara has not made any changes in its purchasing policies nor the payment period of the orders to its suppliers.”
