(Bloomberg) —
Marta Ortega will start her job as chairwoman of her father’s retail empire Inditex SA next month with an unenviable task: dealing without Russia, the Zara owner’s second-largest market in terms of stores.
Her predecessor, Pablo Isla, is leaving the company after spearheading Inditex’s expansion over 17 years. He paid a special emphasis to Russia, where the Spanish company has more than 500 stores, more than any other country besides Spain. Now those are all temporarily closed in response to the war in Ukraine.
Ortega, the 38-year-old daughter of Inditex’s founder, faces a laundry list of challenges besides Russia. Inflation and supply chain challenges are dimming the outlook for this year, while the resurgence of Covid in China threatens to weigh on consumption in another key market. Meanwhile, cut-rate price online retailer SheIn Group is steadily becoming a bigger competitor even as Inditex has been pumping 1 billion euros ($1.1 billion) into its own e-commerce business.
Inditex said Wednesday the spread of omicron wiped 400 million euros off of earnings during its key Christmas quarter. The shares fell as much as 2.2%, having lost about a quarter of their value since late November, when Inditex replaced its chief executive officer with Oscar Garcia Maceiras and announced Ortega would become chairwoman.
Investors have been concerned the new management doesn’t have the same track records as their predecessors. Isla spearheaded the company’s expansion, and the shares quintupled since he became CEO in 2005, making founder Amancio Ortega richer than Warren Buffett at one point.
Isla later ceded the CEO position but has been leading the company as executive chairman. Marta Ortega’s role will be a non-executive one.
More Glamour
Ortega has spent a decade and a half at Inditex in various jobs, though never a top management position. She’s been most involved in strengthening the brand of Zara, where she introduced a collection with Charlotte Gainsbourg and a premium line called SRPLS, adding a veneer of glamour to a chain that focuses on selling affordable fashion.
Garcia Maceiras never held a CEO position previously, unlike Isla, who headed Spanish tobacco company Altadis SA before joining Inditex. The 46-year-old executive has been a state attorney, a prestigious role in Spain and has overseen the legal team at Banco Santander, Spain’s largest bank. He also helped set up Sareb, the bad bank set up after the real estate crisis to manage non-performing real estate assets.
Inditex aims to reopen stores in Russia when possible, Garcia Maceiras told reporters. The Russian government has threatened it may nationalize businesses that are suspended in the country. The stores are leased, and Inditex continues paying employees. The company has also shuttered about 85 shops it runs in Ukraine.
Sales rose 36% in the year through January, the fastest pace since Inditex’s initial public offering two decades ago, largely due to the bounceback from the pandemic. Annual revenue of 27.7 billion euros means Inditex is a bigger company, making it harder to achieve growth rates of the past.
While Russia has been the source of 8.5% of Inditex’s operating profit, Inditex said the U.S. became its second-largest market last year, helped by online expansion as the company has only about 100 Zara stores there. Isla told reporters that’s a key market for future growth, and he’s confident in Ortega leading the company.
E-commerce should keep driving sales growth, as the company expects to get more than 30% of its revenue from its online business by 2024. Inditex also forecast a stable gross margin after it reached a six-year high.
Isla has been finishing a plan to reduce the total number of stores Inditex runs worldwide, having cut about 1,000 shops since the start of 2019. The retailer now has about 6,500.
Amancio Ortega is 85 and controls a 59% stake. His net worth is more than $50 billion, according to the Bloomberg Billionaires Index.
(Updates with CEO comment in ninth paragraph)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
