Why Inditex tries again in the world of cosmetics: what went wrong in 1999 and what will be the keys for the project to be the definitive one

May 12 has been the day chosen by the giant Inditex to kick off Zara Beauty, the cosmetic line that will find its best workhorse at the group's main banner. The new bet of the group will be incorporated into the stores as one more section to the existing ones, as detailed by the company through a statement.

The British makeup artist Diane Kendal has been commissioned to develop a collection that includes items such as lipsticks, makeup, oils or sun powder, but also a certain risk: this would be the second attempt for the beauty project to settle within the giant textile. And if it became established, it would do so in one of the most complicated scenarios for the cosmetics sector.

Confinements, commercial and mobility restrictions, teleworking or a drastic reduction in social events are not the best of contexts. In fact, the perfumery and cosmetics industry witnessed a 10% drop in 2020 . The perfume and makeup categories, with business volumes of 16% and 7%, respectively, fluctuated as the level of social activity did, according to data from the National Perfumery and Cosmetics Association (Stanpa).

With this complex landscape, it is worth asking what this movement by the textile giant responds to, what challenges it faces and what is even more important: what fate will this new —and perhaps definitive— arrival of Inditex have.

Inditex's second attempt at cosmetics

It was the year 1999 when Inditex began to prop up the project of becoming a textile giant: it closed its last fiscal year – which ran from February 1, 1999 as of January 31, 2000– with a net profit of 34,070 million pesetas (just under 205 million euros) and its sales exceeded 337,171 million pesetas, which means talking about more than 2,023 million euros, according to the accounts of the company.

This same year, specifically in October, one more event occurred: Inditex entered the beauty sector and presented its line of perfumes and cosmetics for its flagship Zara. But both divisions would not have the same route.

Zara Fragrances materialized this first approach to the textile giant. It was a line of fragrances for its women's and men's divisions. The group explained in a statement that the project had the collaboration of Antonio Puig, the Catalan company, considered one of the companies with the most international experience in the sector. .

However, the effect was not as expected with this industrial partner and the strategy was changed. Sources close to this operation detail that Inditex chose to make changes to the perfumes based on each campaign to adapt them to the rest of the collections. "With Puig, in the years that the association lasted, there were hardly any changes." As a result, the relationship with the Catalan company was dynamited, although the perfumes were here to stay.

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Worse luck would be for cosmetics, which would end up disappearing completely. "The results were not good", say experts in the sector who prefer not to be named and who synthesize the adventure of the textile giant as "little sales and a lot of work".

Specifically, they detail that this product division occupied a space that was not profitable and that it was difficult to manage because customers did not always open the containers marked as tester. This generated a waste of product, stains on the clothes and an endless number of details that concluded with a section that returns 22 years later.

The online channel: an endorsement for Zara Beauty, although full of challenges

Many have been the steps that the textile giant has taken since its first attempt with cosmetics, including going public in 2001. But, without a doubt, the qualitative leap would not come until 2010 with the entry of Zara into the trade on-line. Interestingly, 3 years after their home division did.

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This fact has a differential role compared to the context of 1999 and therefore changes the entire game board: today, May 12, the new section is released online in all European markets, as well as in the United States , certain points of Asia or Australia. It will progressively reach the rest of the world.

Likewise, the digital channel starts from an unbeatable situation. The pandemic only strengthened the robustness of its online commerce. So much so that, in 2020, the most difficult year for the company, internet sales grew by 77%, to represent 6,612 million euros of the 20,402 million euros in which the total turnover stood.

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For Belén Valiente, a consultant in the e-commerce universe, the collection –which includes a palette of 130 colors– has everything to succeed: natural ingredients, cruelty-free products, made in Europe and innovative packaging that can be recharged and reused.

However, the expert does not overlook the complexity of selling cosmetics online. "There is a lot of competition, you can't try it on, it needs special packaging so that the shipments don't arrive broken, although the group may have already calculated this," she says. Despite these details, the expert is clear that even if the project does not provide the expected benefits, it may already have been amortized.

In the same vein, Enrique Porta, partner responsible for Consumption and Distribution of KPMG in Spain, believes that the world of color cosmetics has "its own rules, and has very expert national and international players.""It is necessary to have ranges of very wide colors and adapted to the tastes of the consumers in each market, but also to maintain a high rate of incorporation of new products", he adds.

Despite these inevitable challenges, Porta believes that this new product category will mean an additional volume of business that, among other contributions, will capitalize on the group's online strategy worldwide.

A careful selection of stores as a starting point

But beyond the trick that online sales will surely play, Inditex does not want to repeat the mistakes of the past and therefore will measure how and where. Thus, the company will only provide 22 physical stores with personalized beauty advice to discover the new collection.

Among these physical points that will have their own section are some of the group's most emblematic stores. Some of those chosen will be the one located in SOHO in New York, or its flagship in Corso Vittorio Emanuele, in Milan. In Spain there will be 4 venues and selected locations: Madrid, Barcelona, ​​Marbella, and the nerve center of the group: La Coruña.

Coro Saldaña, a consultant in the digital field of fashion, describes the project as the "biggest diversification movement since the group launched Zara Home in 2003", but stresses that the challenge for the brand inevitably involves creating one" immersive experience" for the user.

To this end, Zara has enabled Beauty VR Store, a program that allows you to virtually recreate the results of different products. "The French cosmetics giant L'Oréal has already done this with Modiface," adds the expert, who considers that this always generates extra value for the consumer.

A sector with great expectations but hit by the pandemic

Although Inditex has enough margin for error to carry out certain types of actions without fear of going into debt –its net cash in 2020 stood at 7,560 million euros, well above the rest of the textile companies– each step it takes is carefully studied.

In fact, and despite the risk of the project, for Enrique Porta this adventure makes sense. "Both product categories are the closest to the universe of fashion, they feed back with their positioning and image," he adds.

Saldaña also explains that this project arises from a concern for health, which has been amplified since the pandemic. All this, he adds, has materialized in a health economy and therefore, in an opportunity for growth.

In fact, cosmetics is one of the product areas with the greatest vision of growth in the coming years. Thus, the CB Insights forecast is that by 2023 the sector will generate more than 800,000 million dollars, approximately more than 658,000 million euros.

In 2019 —and only in Spain— the beauty industry reached a turnover of 9,910 million euros while the physical units consumed were estimated at 1,570 million, according to the latest report prepared by the National Association of Perfumery and Cosmetics (Stanpa). But COVID-19 arrived and swept away the good progress of the sector.

Thus, and after 5 years of consecutive growth, the sector was amazed at the first in which the crisis caused by the pandemic hit the industry and which resulted in a 10% drop, according to data from the employer. However, in a worse scenario was the textile trade that closed 2020 with a 40% decline in sales and that Acotex itself called a "catastrophe".

With the textile sector trying to collect the vestiges of the shipwreck and with cosmetics living its lowest hours, Inditex throws itself into a rough sea that, however, can lead it to the destination that in 1999 it failed to find.