Importance of multichannel

In this latest article I talk about the crucial role physical stores play into our digital expansion. As long as you have the right balance within your portfolio.


What to make of Black Friday?

Wal-Mart Stores Inc.'s U.K. Asda Supermarket Entices Shoppers With Black Friday Deals

UK shoppers have rushed to buy Black Friday bargains, as retailers and payment firms report strong sales activity for the annual discount event. Barclaycard said it had seen a record number of transactions on Friday, while Argos, John Lewis and Currys PC World reported a surge in orders. Online retailers said initial figures indicated Black Friday, now into its third year, had topped expectations. We witnessed some crazy scenes in the past like at this ASDA (one step too far but across the pond it is even worse). But the question at Boardroom level is whether this is good for business. Here is my perspective in a debate that will go on for some years to come.

What is Black Friday?

Not sure how many people do know where it stems from. When my CEO asked me what it was called in France “Vendredi noir” I preferred to answer that all Fridays are black in France due to the amount of strikes happening at this time of year.

Black Friday is the day following Thanksgiving Day in the United States (the fourth Thursday of November). Since 1932, it has been regarded as the beginning of the Christmas shopping season in the U.S., and most major retailers open very early (and more recently during overnight hours) and offer promotional sales. Black Friday is not an official holiday, but California and some other states observe “The Day After Thanksgiving” as a holiday for state government employees, sometimes in lieu of another federal holiday such as Columbus Day. Many non-retail employees and schools have both Thanksgiving and the following Friday off, which, along with the following regular weekend, makes it a four-day weekend, thereby increasing the number of potential shoppers. It has routinely been the busiest shopping day of the year since 2005, although news reports, which at that time were inaccurate, have described it as the busiest shopping day of the year for a much longer period of time. Similar stories resurface year upon year at this time, portraying hysteria and shortage of stock

What are people looking for during Black Friday and potential psychological impact?


According to Retail Week, most consumers will be looking for electricals, as well as, clothing bargains. IMRG predicted that over £1.27bn would be spent.

Andy Webb, of the Money Advice Service, said: “A third of people felt pressure to spend more than they could afford during the whole of Christmas. That leads into debt.”

For some, this can have a serious impact on their wellbeing.

“Short-term discounts encourage consumers to purchase immediately, rather than reflecting on whether you really need to buy a product and if you can afford it,” said Katie Evans, head of research and policy at the Money and Mental Health Policy Institute.

“This can be particularly difficult for people experiencing mental health problems, who sometimes find it harder to resist impulses and might find that shopping makes them feel better, at least for a short while.”

The institute is calling for new rules to allow people to opt out of email marketing or to set a daily spending limit in online shops.

Is Black friday driving profits?

This is the question that has been going on for the last three years at Boardroom level.

Reasons to hate it:

Paul Martin, KPMG’s UK Head of Retail, said: “For retailers, it has always been questionable whether Black Friday really benefits them in the long-run, and in the current environment of rising costs and squeezed margins – perhaps it’s even more so.” I would agree that this is like taking drugs (analogy of course). Give your customers a shot to make them fill good but it has no lasting impact. Last night watching BBC news I saw Peter Ruis’s (CEO Jigsaw) interview, whereby he declared themselves Black Friday refuseniks. His main argument is “In fashion, over 50% to 60% of Black Friday purchases are returned. It stays in the supply chain two or three weeks, churns around and everyone’s lost the chance to sell it, and it just goes straight into the sale at 50% to 60% off. It is a double whammy: loss of profit, loss of margin, and that product just sitting around in supply chains”. Hard to argue against, right? Well not so sure, that is my opinion.

  • Loss of profit and margins? It is all about volumes. Retailers have to work out their equilibrium point. If you manage to drive your revenue by having greater output at a bigger pace than you increase costs (which must include your returns costs). However, I do agree that you have a loss of margins, unless you buy products specifically for the occasion.
  • Products just sitting in the supply chain. For me this is down to forecasting and being confident in your supply chain management. Very easy to write but damn complex to run.
  • Negative brand impact. Discounting is never a happy recipe for brand reputations. it devalues your products. For an established brand, discounting can have an adverse affect on value. Quality and price do not exist as isolated concepts in consumers’ minds. They are interrelated. Research has shown that deep discounts do cause the consumer to believe that something is wrong. Frequent discounting serves to lower the value of the brand because of an almost subconscious reaction by the consumer who believes that quality also has been lowered. Or, in a “value rebound,” consumers begin to perceive the everyday price as too high. The brand is then bought only on deal.

Reasons to do it:

  • Market share/share of wallet: Like any business person my aim is to increase volumes and drive costs down but the reality in a competitive environment is that it is very difficult to do either, especially if you have access to little innovation. Therefore, an event like Black friday is an opportunity worth recognising. It is even harder nowadays when you are not just competing against other high street players but arguably the all world (thank you ecommerce). I find it very difficult to argue against being part of black Friday. Not because I like it, but because if you don’t you become isolated and one or many of your competitors will jump in the space.


My question to businesses who don’t take part in Black Friday is whether they feel that their customers brand loyalty is that high that there is little risk of losing them to competitors (you must have high confidence in your product offering, pricing structure and channel distribution). If the answer is low risk then continue to sit outside but if the answer is high then I am afraid that as you read this post you will already be against it.

Now if you are a football club (low risk of switching allegiance), I would understand but even the likes of Apple answered no to this question and took part yesterday. We are talking of a premium brand with high loyalty customers.

The reality is that core customers only account for a small percentage of your database and, although the most precious segment (profit wise), how much additional incremental growth can you drive from them? Acquisition must be high on your agenda and you must invest and fight for it to grow your active database. Also recognise the channels dynamics. Your competitors are not based in a 40 miles radius, they are all over the world and are called Amazon, Zalando, etc.

Finally, you can’t ignore the macro economic factors. Inflation is kicking in and next year all imports will become more expensive. The pound is weakening and businesses have not hedged for the next 5 years.Therefore, as costs go up, businesses will be under pressure to increase prices, which will suppress demand (simple supply/demand economic model). Consumers are not ignorant to this fact and events like Black Friday can only grow in my opinion as people will be hunting for bargains.

Looking forwards to your opinions 🙂

Benoit Mercier

Inditex sales up 16% to €14.74bn in first nine months of 2015


There are some retailers out there that do really well and Inditex is one of them. My wife loves Zara and raves so much about their stores and products. I got curious and decided to take a closer look at the group that owns them.


Inditex SA, the world’s largest clothing retailer, which dates back to 1963 when it started life in a small workshop making women’s clothing. Today it has over 6,900 stores throughout the world. Years later, to the launch of the first Zara store in 1975. This was followed by the brand’s international expansion at the end of the 1980s and the successive launch of new retail concepts: Pull&BearMassimo DuttiBershkaStradivariusOyshoZara Home and Uterqüe. They have an impressive 140,000-strong workforce and more if you include the indirect people they employ though their supply chain.

Corporate Governance

They have 7 Non-Executive Directors, 1 Executive Director (Chairman & CEO) and 1 affiliate. They have an Executive Committee but as you would expect, the Audit Committee is made of Non-Execs. A typical setup.

Financial Analysis

Tool: Inditex Interim Nine Months Results

Inditex reported the fastest profit growth in more than two years as the Zara owner opened more stores and benefited from the weak euro. This trend continued in the first nine months of the year with another set of string results.

Income statement analysis

Based on a vertical and horizontal analysis, the net income grew by a huge +19.7% vs. LY and accounted for 13.7% of the net sales, which is +0.7%pts vs. LY. This is a phenomenal achievement when taking into account the macroeconomics pressure.

The common-size income statement shows that inditex had a strong performance in the first 9 periods of the year. Net sales grew by +16% in line with their costs of sales (+16.4%), which meant a respectable increase in gross profit by +15.7%.

The growth in net income is due to tighter control over their operating expenses, which grew by only +14.6%. Interesting that inditex’s results from companies consolidated by equity method grew by +135%. fyi An accounting technique used by firms to assess the profits earned by their investments in other companies. The firm reports the income earned on the investment on its income statement and the reported value is based on the firm’s share of the company assets. The reported profit is proportional to the size of the equity investment. This is the standard technique used when one company has significant influence over another.

Finally, for shareholders, one of the key metric will be to look at the Earning per share ratio, which grew by +19.7%. Looking at the last 5 years growth it has been amazingly linear and a fantastic ROI.

Balance sheet analysis

Overall, very healthy.

The most important factor for any business is to have cash. You may have the highest turnover in the world, if you have no cash coming in you will go bust. Remember, sale is vanity, profit is sanity and cash is king! In the case of Inditex, its cash position grew by +37.3%.

Their account receivable also dropped by -26.2% meaning that clients are paying their debt faster than LY. One to watch out is their inventory, which grew by +12.5% but as a % of total assets, it actually dropped by -0.5%pts and their merchandising team would have been busy keeping a tight control over it.

In order to drive their net sales, they have had to invest in tangible assets (includes the likes of machinery, buildings and land). This grew by +15.8%.

Another big one to watch out is their current liabilities has they grew by +23.3% (higher than their income) and +1.9%pts of its total liabilities. It is interesting to note that their account payable grew by +22%, which we know is not down to a cash flow issue and therefore, I can only assume that they exerce more pressures on their suppliers and have negotiated long lead time in terms of payments.

Financial ratios

There are many ratios I could focus on but i have decided to look at the basics that you should know before investing.

  • Current ratio: 1.52. A ratio under 1 indicates that a company’s liabilities are greater than its assets and suggests that the company in question would be unable to pay off its obligations if they came due at that point. This is not the case for Inditex. However, a high ratio (over 3) does not necessarily indicate that a company is in a state of financial well-being either. Depending on how the company’s assets are allocated, a high current ratio may suggest that that company is not using its current assets efficiently, is not securing financing well or is not managing its working capital well. To better assess whether or not these issues are present, a liquidity ratio more specific than the current ratio is needed.
  • Quick ratio: 0.99. The quick ratio measures the euro amount (in our inditex case) of liquid assets available for each euro of current liabilities. Thus, a quick ratio of 0.99 means that a company has 0.99 € of liquid assets available to cover each 1 € of current liabilities. The higher the quick ratio, the better the company’s liquidity position. Also known as the “acid-test ratio” or “quick assets ratio.” In this case, this is a breakeven situation and I feel that it is a good result even though above 1 would be better.
  • Cash ratio: 0.86. It improved by +11.6% vs. LY. The cash ratio is the most stringent and conservative of the three short-term liquidity ratios.Very few companies will have enough cash and cash equivalents to fully cover current liabilities, which isn’t necessarily a bad thing, so don’t focus on this ratio being above 1:1. Again for inditex this ratio is a good result.
  • Inventory turnover in Days: 157 days, which is an improvement from 162 days LY. This ratio to make sense needs to be compared against industry averages. (Sorry I don’t have any but feel free to share)
  • Debt ratio: 32.4% vs. 30.44 LY. Inditex has grown its debt and therefore is taking bigger risks. it may not be a bad thing but this metric is to watch out. Having debt is not an issue but it is the level of bad debt that is. No concern for me
  • Gross margins: 58.74%, which is flat on LY. Again stabilising margins when raw materials and labour costs are going up is a great result.
  • Net cash flows: 1,798 (€m) – please note that I have not included dividend payments as we would have to wait for the year. the reality is that it is positive and therefore healthy
    • Cash flow from operating (CFO): 3,543 (€m)
    • Cash flows from investing (CFI): -897 (€m)
    • Cash flows from financing (CFF): -848 (€m)


Overall: Invest

My recommendation is to invest in inditex as they have very healthy looking accounts and I believe that they have a lot more opportunities to come, especially internationally. Also, because I cannot help it, because my expertise lies in eCommerce the least I can say is that I am not a big fan and UX/UI is really poor in my opinion. I feel that they have a huge opportunity as far as Zara is concerned. A bon entendeur salut!

Benoit Mercier