PG Group, which holds the franchise to the Inditex-owned Zara and Zara Home brands in Malta, has been investing very heavily in growing it locally. In the past two years, the Group opened two new Zara Home outlets, and the flagship clothes shop in Sliema has been undergoing a full-scale refurbishment and expansion, which PG Group CEO Charles Borg says will make it the largest and most modern store in Europe.
“Inditex’s new policy is to go for large stores, and to move away from the smaller ones. We were ‘encouraged’ to grow our sales – even though our sales growth figures were in the first quartile,” Mr Borg told The Malta Business Observer. “After some serious and detailed discussions both internally as well as with the top executives of Inditex, we decided to embark on a significant investment program within the Alhambra Complex. Now, expanding in Sliema is no joke – you can hardly just buy up a few shops next to you – but the advantage we had is that we owned the Alhambra, and the back was still empty.”
“In January, we started building five new floors, which are almost finished. Then, we had to close in mid-July, to finalise works on the remaining two floors, the ground floor and the first floor. There will be seven floors in all, consisting of ladieswear, menswear, childrenswear, and Zara Home, as well as two floors of storage. We have had a lot of input from engineers and architects at Inditex. I must also compliment our project team which worked tirelessly and within very tight deadlines to ensure that we open the new store before the Christmas season. All the technology in store will be new, with visuals beamed in directly from Spain. It will be a very modern store.”
Mr Borg said that the million-dollar question is the exact date when the shop will open, although the goal has been set for 28th November. “The challenges when it comes to working in Sliema have been significant – finding contractors, abiding by authorities, regulations and restrictions, having to work during set hours because it’s a residential area, finding a place for the cranes, and so on. However, thank God, we are very near to the end and we should be meeting our targets.”
The Group also noted in its Annual Report that the closure of the shop for nearly five months would have an impact on its turnover and results in the current financial year. However, Mr Borg said that the company has the full support from the board, and fully expects to reap the returns from its investment, quickly offsetting the impacts of the store’s temporary closure.
“In the long-term this is going to yield a positive return on investment, pay off the debts we incurred, and render a profit. It’s a win-win situation for us, for our clients, and for Inditex. The projections are in line with our investment. We’re jealously protective of our margins, because that is the way business remains profitable.” When asked for specific figures and projections, Mr Borg said he was not in a position to divulge them – “we are a listed company and these are price-sensitive matters” – but affirmed his confidence in profitable returns, justifying the investment.
While the brick-and-mortar Zara shop has been closed since mid-summer, Maltese fans of the clothing brand have still been able to buy from the retailer through the local online shop. Mr Borg said the growing popularity of the online platform supports the physical outlet, rather than posing a threat to it. “Inditex weren’t early adopters of online shopping. We introduced the local e-commerce platform two years ago and we were one of the first franchisees worldwide to do so. It has been very successful, with a growth rate of over 75 per cent per year. Since we own the e-commerce platform, it complements the physical outlets. So whether you buy in store or online makes no difference to us – while the transport costs nibble into our margins somewhat, essentially, it’s like we opened another shop.”
The CEO observed that worldwide, “former sacred cows” on the high street such as New Look in the UK and Sears in the US were having to restructure and re-organise their business operations, and in some cases – such as BHS’s – shutting down completely because they had failed to flourish in the new competitive environment fostered by online retail. “There will always be people who will want to try on a dress before they buy it, but nowadays, many people lead such busy lives that they just don’t have the time, so they revert to online. This demographic is growing, and the shops that don’t cater to them are likely to suffer.” This does not only apply to clothes or accessories – indeed, the Group has invested in a new e-commerce platform for the supermarket, which Mr Borg said “would tap into the market of people who don’t like supermarkets. Slowly but surely, this line of work will increase our footfall.”
Mr Borg observed that the Maltese economy is going through a boom period. “And long may it last – everybody benefits in an economic boom. Consumption goes significantly up, so I think this will remain strong, at least for the next three years. That is why we have invested significantly in our new Zara store, because we believe it will continue to be profitable. If the economy is growing, we have to grow with it.”
But like any cycle, Mr Borg remarked, there are ups and downs. “The danger is that the higher you go, the harder the recession will be. It’s natural. The role of the authorities is to limit the cycle, so that the drop is not so steep. In an economic downturn, retail is the first sector to suffer, but since food is a big part of our line of business (PG Group owns the PAMA and PAVI shopping villages), we should be well protected. Since we have this balance, we believe our Group is diversified enough for any economic turnaround. And as I said at the beginning, we always make sure to grow sustainably and responsibly, never at the expense of our existing business.”
A full-length version of this interview appeared in The Malta Business Observer