Zara Owner Adopts Sewn-In Tags and Other Ways to Track and Slash Inventory

Zara owner Inditex SA is running an ever tighter ship, even as rival Hennes & Mauritz AB struggles to reduce unsold garments.

The Spanish company, renowned for bringing clothes to market and selling them within weeks, has trimmed inventory even further as it embraces new technology such as tracking tags sewn into clothes.

The so-called RFID devices make it easier to manage shipments, freeing employees to spend more time with customers. Zara is also consolidating its store network, opening new flagships in locations such as Bilbao, Spain, where it used to have four small boutiques.

Stock-in-trade dropped 5% in the nine months through October even as sales rose 7.5%, Inditex said Wednesday. That’s a difficult feat in the apparel business, because supplies of garments that sell well need to be replenished quickly, raising the risk of an oversupply when trends shift. Swedish competitor H&M has hardly dented its $4.4 billion buildup of unsold goods.

“Our business model has always been based on very low inventory,” Inditex Chairman Pablo Isla said on a conference call. “Thanks to RFID and full stock integration, now we are able to run the company with even less.”

In Bilbao, the new Zara is selling more than the four old ones did combined, even though it has less space and runs on 20% less inventory, Isla said.

As Inditex hones its edge in technology, the company is adding Anne Lange, a French tech entrepreneur, to its board. She co-founded Mentis, a software startup specialized in the internet of things.

Inditex also reported an acceleration in sales as the Zara owner benefited from expanding the online offerings for all its brands to more than 200 markets, making it one of the most global e-commerce players.

The shares rose as much as 2% after the company maintained its forecast for comparable sales growth of 4% to 6% this year.