Inditex's challenge: Can it continue selling more while polluting less?

Recent reports by Reuters have accused Spanish fashion giant Inditex of increasing air freight shipments from its supplier factories in India to its logistics centres in Spain by as much as 70 percent. This increase in air freight, and its associated environmental impact, calls into question the company's ability to continue growing and increasing sales while pursuing its net-zero emissions target for 2040.

According to data analysed by Reuters, Inditex made 3,865 air shipments from India to its logistics centre in Spain between August 2023 and August 2024, representing an increase of 37 percent compared to the same period in the year prior. This increase was particularly concentrated during the first eight months of 2024, during which the company made 3,352 air shipments from its Indian suppliers – a 70 percent increase compared to the same period in 2023.

In contrast, during the same period in 2023, air shipments increased by only 44 percent compared to 2022, according to customs data shared with Reuters by the Swiss NGO Public Eye. This increase in air freight from India to Spain also extended to shipments from Bangladesh to Spain, which rose by 31 percent, up from 26 percent the previous year.

Beyond Inditex's behaviour in the first months of the year, data collected by the public business entity ICEX España Exportaciones e Inversiones showed that during the first nine months of 2024, air freight shipments from Asia producing countries to Spain reached 2.48 billion euros. This represents a 28 percent increase compared to the same period the previous year, suggesting a more widespread industry trend towards air freight for goods transportation. Compared to the figures for Inditex, this places the Spanish fashion giant within the average increase of approximately 30 percent, although with that peak of 70 percent recorded between January and August 2024.

Looking at the broader context, the data is reflective of a period during which the increase in air freight came as a response to logistical tensions in the Red Sea, resulting from insecurity caused by Somali pirates and attacks by Houthi rebels in Yemen. As a result, the supply chains of Western companies with sourcing networks in Asia have been, and continue to be, impacted.

Evidence of this has continued in recent weeks, when Houthi rebels carried out attacks on the merchant vessel ‘Anadolu S’ and the US aircraft carrier USS Abraham Lincoln. The latter had been present in the region to act as a deterrent and ensure freedom of navigation, but had ultimately been attacked by the Houthis as part of their protest against countries linked to Israel. The Houthis claim their actions are in solidarity with Palestinians affected by Israel's military campaign in Gaza and other occupied territories following the October 7, 2023, Hamas attack on Israeli civilians. This escalation disrupted goods transportation through the Red Sea, causing a rise in air cargo transport by late 2023, and impacting supply chains.

Increased sales, increased GHG emissions

Focusing more specifically on Inditex and its business model, while considering Reuters report, the Zara parent company closed the 2023 fiscal year with increased turnover of 35.947 billion euros, a 10.37 percent increase compared to the previous fiscal year. This increase in turnover was accompanied by a significant increase in net profit, which soared to 5.395 billion euros, a 30 percent increase compared to results recorded at the close of 2022. This outstanding performance has since cooled considerably in 2024. But how was this reflected in the multinational's environmental footprint?

When diving into the pages of Inditex’s 2023 annual report, specifically the ‘Environment’ section, the company details how despite aiming to achieve “net-zero emissions” by 2040 through the reduction of its carbon footprint, in 2023, Inditex actually increased its greenhouse gas (GHG) emissions compared to 2022. This increase was largely widespread, with a 2.49 percent increase in Scope 1 emissions; a reduction in Scope 2 emissions of 5.21 percent; and an increase in Scope 3 emissions by 5.19 percent.

These figures not only exceeded the emissions generated in 2022, but also those generated in 2018 by 0.17 percent, the baseline year for Inditex's environmental impact reduction targets. Overall, the company closed 2023 with total GHG emissions of 16,430 kilotonnes of carbon dioxide equivalent, a result Inditex defined as “stable” compared to 2018, despite having no clear comparison to the previous year due to changes in emission calculation methodology.

GHG emissions identified by Inditex as originating from the transport and distribution of its goods accounted for 8.4 percent of the multinational's total GHG emissions. This percentage soared to 12.1 percent in 2023, highlighting the company's struggle to contain Scope 3 GHG emissions, particularly those related to transport and distribution. Given the data provided by Reuters, this figure is expected to increase again in 2024, although it remains unclear whether it will push Inditex's total Scope 3 GHG emissions upwards.

The company continues to rely on the strategies outlined in its Climate Transition Plan to achieve its environmental goals, including reducing emissions in Scope 3 categories. To this end, they are undertaking various initiatives, including the use of alternative fuels to fossil fuels in their air freight operations. This plan is being led through a strategic agreement with Repsol and Iberia, yet is currently limited to logistics operations at Madrid-Barajas Airport, and not yet at Zaragoza Airport, where air freight logistics operations between Inditex's Asian suppliers and its Spanish logistics centres are concentrated.

The (relative) weight of Asia in Inditex's supplier network

To further explore the Spain-Asia link and the increase in both GHG emissions and air freight usage to India and Bangladesh, it must be noted that the two countries are among Inditex’s top 10 supplier countries, which accounted for 98 percent of the garments produced by the company in 2023. In terms of the number of suppliers, China led with 367 suppliers, followed by Morocco (216), Turkey (186), Bangladesh (150), Spain (138), India (122), Portugal (114), Pakistan (69), Vietnam (11), and Cambodia (2).

The list highlights the accurate picture Inditex management provided of its business model, indicating that in 2023, the company had 1,733 direct suppliers in 45 countries. “A very significant proportion of the cutting, sewing, dyeing, washing, printing, and finishing factories that manufactured our garments in 2023", the company noted, was located "in Spain or nearby countries such as Portugal, Morocco, and Turkey”.

If this proximity production continues or has continued to increase in 2024, it would also allow Inditex to be more resilient and better able to contain its carbon emissions while boosting its turnover, although the impact on profits remains to be seen. The company had already warned of the potential risk to its balance sheets posed by tensions in the Red Sea and the Suez Canal, which could result in increased transportation costs. Air freight has never been the company's priority, not only because of its higher environmental cost but also its economic cost, and it is only used in exceptional circumstances.

Beyond the supplier list and the considerable weight of China, Bangladesh, India, Pakistan, Vietnam, and Cambodia in the company's value chain, it is also necessary to consider the tasks and types of garments manufactured in each country. In this regard, Inditex has focused the production of essential, more timeless garments on its Asian suppliers, while keeping the production of more seasonal garments tied to the latest trends closer to home.

This strategy is designed to protect the company from potential supply chain disruptions, enabling the faster delivery of in-demand garments to stores at a given point in the season. Its retail outlets and online platforms, however, gradually receive goods shipped by sea from its Asian suppliers with longer lead times. This methodology was refined from the beginning of the year, in response to disruptions caused by the aforementioned tensions.

When questioned by FashionUnited, Inditex, while neither confirming nor denying the accuracy of the data accessed by Reuters, reiterated this strategy, stating that most of its Asian production arrives by sea. However, the company did point out that they may resort to other modes of transport in exceptional circumstances. Even while acknowledging the "risk of increased transport costs due to higher fuel consumption and extraordinary surcharges" incurred by merchant vessels having to take alternative routes, the company continues to prioritise sea freight.

In terms of profitability, this does not seem to have significantly affected the company, which closed the first half of 2024 to July 31 with a 10.23 percent increase in net profit to 2.778 billion euros, and a 7.2 percent increase in sales to 18.065 billion euros. It remains to be seen whether this growth was achieved alongside any fluctuations in Inditex’s environmental impact, and if it was therefore able to decouple its sales and profit growth from the increase in its GHG emissions. If so, the company may be able to progress towards its core environmental objectives of reducing its emissions by more than 50 percent by 2030 compared to the 2018 baseline, and thus becoming a net-zero emissions company by 2040.

This article originally appeared on FashionUnited.ES. It was translated to English using an AI tool called Genesis and edited by Rachel Douglass..

FashionUnited uses AI language tools to speed up translating (news) articles and proofread the translations to improve the end result. This saves our human journalists time they can spend doing research and writing original articles. Articles translated with the help of AI are checked and edited by a human desk editor prior to going online. If you have questions or comments about this process email us at info@fashionunited.com