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Pull down the shutters! Wheel out the bargain rail! Retail stocks on both sides of the Atlantic are having a punishing time as investors fret about how shoppers will react to tariff wars and gloomy economic prospects.
Shares in Puma and Zara and Massimo Dutti owner Inditex fell sharply last week. Retail is among the worst-performing sectors on the Dow Jones Industrial Average, Euro Stoxx 50 and FTSE 100 indices so far this year.
Some retailers stand to weather any impending high street storm better than others, of course. Investors who tossed Inditex out of their shopping baskets, for instance, may have been too hasty.
Shareholders in the world’s biggest fashion retailer took fright after it said that sales in the first five weeks of its new fiscal year inched up 4 per cent year on year. Growth on the same currency-neutral sales measure had been 11 per cent in the same period in 2024.
Chief executive Óscar García Maceiras insisted Inditex’s latest clothing collections had been “well received” by shoppers. Yet analysts have since marked down expectations for first-quarter sales growth to 5.5 per cent from closer to 9 per cent before the update, according to Visible Alpha data.
Naturally, sliding consumer sentiment cannot be shrugged off. But part of Inditex’s problem is its own success. Its shares rose 27 per cent in 2024. At the high-water mark in December, it was valued at more than 27 times forward earnings, according to S&P Capital IQ. Maintaining the double-digit sales growth rates of the booming post-pandemic years was always going to be a big ask.
Inditex still has much to recommend it. Despite competition from online disrupters such as Shein and Temu, it has in recent years turned its stores into an advantage. Closing smaller outlets and opening larger, flashier premises — taking inspiration from luxury retailers’ flagship stores — has resulted in higher sales per square metre. These have risen 28 per cent between 2019 and 2024. Shoppers are willing to part with more cash when they can browse a greater variety of items under one roof.
The strategy also helps to limit operating costs, with fewer deliveries required to different destinations, for example. Rivals such as Sweden’s Hennes & Mauritz still look at its double-digit operating profit margins with envy.
But perhaps Inditex’s greatest advantage in a period of external uncertainty is that few competitors can boast similar strengths. Even before this year, H&M had been struggling to improve its appeal to shoppers, for example. If consumer jitters do turn into a protracted slowdown, Inditex’s doors should still offer the most attractive shelter.
