LONDON, United Kingdom — You know things are bad in Europe's fashion industry when even Inditex SA is having a tough time.

Shares in the Zara owner have fallen 4.5 percent in 2017, putting them on course for their worst year since 2008. While the drop is far less than for peers including Hennes & Mauritz AB (down 22 percent) and Esprit Holdings Ltd. (down 35 percent), it illustrates that even the best in the business are not immune to the challenges of ever-increasing online and discount competition.

“Even for them, they are seeing margins under some pressure, predominantly because the competitive landscape is so tough,” said Mark Phelps, chief investment officer of global concentrated equities at AllianceBernstein in London.

Third-quarter results due on December 13 are likely to prove the point. Like-for-like sales are set to show a “marked deceleration” in the second part of the period, according to Raymond James analysts, as mild European weather delayed purchases of Fall/Winter garments. Yet they maintain that Inditex has a business model that’s “unmatched in the industry.”

Renowned for revolutionising the supply chain model for fashion retail, the Arteixo, Spain-based company has gained a devoted following in the investment community. Raymond James is among 22 brokerages with a buy, outperform or equivalent recommendation on the stock; only four say sell.

Inditex’s ability to get products quickly from the catwalk into stores, along with its smaller batch sizes, appeals to a modern consumer who thrives on instant gratification, according to Macquarie Capital.

“Particularly in the younger generation, it’s a lot about see now, buy now, wear now,” said Andreas Inderst, an analyst at Macquarie who has held an outperform recommendation on Inditex since February 2016. Zara shoppers “are happily prepared to pay a higher price for more newness, for fashion which is really on trend.”

According to Inderst, the stock has been hurt by what he calls “short-term concerns” over the impact on profitability of a strong euro and a slowdown in like-for-like performance. Same-store sales growth decelerated to 6 percent in the six months to July 31, from its strongest in at least 14 years in fiscal 2017.

Not all analysts are so optimistic. Berenberg’s Michelle Wilson downgraded Inditex to sell last month due to declining confidence in the sustainability of the company’s “exceptional” revenue growth as competition increases.

The emergence of online fashion retailers have been putting pressure on traditional, store-based rivals around the world. Asos Plc’s market value surpassed that of British bellwether Marks & Spencer Group Plc for the first time last month, symbolic of a structural change that has been sweeping through the retail industry for two decades. The growth of discount rivals such as Associated British Foods Plc’s Primark has only added to the competitive landscape.

‘Not Cheap’

Such concerns prompted AllianceBernstein’s Phelps to exit his position in Inditex a couple of years ago, having closed his positions in H&M not long before that. He had owned shares in both companies since the mid-1990s, leapfrogging between the two.

While Phelps calls Inditex “a really well-run business,” he doesn’t consider the stock to be at a level that would entice him to buy. An estimated 12-month price-to-earnings multiple of 27.1 times compares with 17.3 for H&M and 20.9 for the Bloomberg World Retail Index.

“At the end of the day, I can’t invest in everything,” Phelps said. “I want to invest in those that I think are good upside and I don’t see a lot of upside today, particularly in Inditex.”

By Lisa Pham, with assistance from Thomas Mulier; editors: Celeste Perri, Paul Jarvis, Beth Mellor.