Inditex, the parent company of fashion chain Zara, reported a sales growth of €32.6bn (£28.8bn) for the year, up 17.5% from the same period last year. Despite the cost of living crisis and

rising inflation, young shoppers continued to spend on the latest trends, driving sales growth for Inditex. The Spanish retailer also reported a 4% increase in online sales to reach €7.8bn (£6.8bn) this year, indicating that online shopping remains a popular option for consumers. Inditex also experienced a 23% increase in store sales for the year, despite the uncertain economic climate.

Inditex's success is a result of its business model and its ability to develop its fashion proposition, improve the customer experience, and commit to sustainability. Zainab Atiyyah, an analyst at Third Bridge, noted that large retail groups targeting Gen Z and millennials with disposable incomes are still making a profit despite the cost of living crisis. H&M, for example, posted a 12% increase in sales for the first quarter of 2023, with its Asian market showing the most significant growth opportunity.

Atiyyah noted that H&M faces strong competition from quality brands that offer reduced prices and heavy discounters. In comparison, Primark and Shein offer cheaper products, while Zara is seen as better in quality. H&M is unlikely to experience significant sales growth in Europe and the US, but Asia presents an opportunity, albeit with challenges posed by the political landscape in China.

H&M has a large portfolio of town center stores that still represent a significant portion of its sales. However, Third Bridge experts predict that H&M is likely to close more stores and shift toward online sales in the next 5-10 years, especially in mature markets. Long-term online sales could reach 50% of total sales.

H&M faces short-term discounting due to high inventory levels, but its long-term strategy is to reduce promotion. The gross margin in 2023 is unlikely to improve due to increasing garment costs and more promotion activities.

Despite challenges posed by the cost of living crisis and rising inflation, large retail groups targeting younger generations with disposable incomes are still making a profit. Inditex and H&M's sales growth indicates that online shopping remains a popular option for consumers, but brick-and-mortar stores remain essential for many retailers. Retailers must balance short-term discounting with long-term strategies to remain competitive and profitable in uncertain economic climates. Photo by Aurelijus Valeiša, Wikimedia commons.