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March 24, 2016
Raghavendra Kamath, Business Standard
Mumbai, 24 March 2016
Inside
Select City Walk, New Delhi, where almost every brand that wants a
piece of the great Indian consumption story has pitched its tent, a
grand fight is in the making.
According to industry insiders, here Zara’s 17,000 square feet store pulls in about Rs 10 crore a month, or around Rs 6,000 per square feet. H&M’s 25,000 square feet store makes Rs 12.5 crore a month, or about Rs 5,000 per square feet.
Since neither label breaks down its
country-wise numbers, these numbers, although not completely
representative, are the closest reflection of their struggles in the
country.
According to industry veterans, H&M has been faster
off its feet. “Scoring point for H&M is that it is priced right for
India while Zara is relatively expensive. Zara wanted to reduce prices
but did not do so eventually,” said Dipak Agarwal, former CEO of DLF
Brands which retails brands such as Forever 21 and Mothercare.
However
the big challenge, for both, many believe would be stepping beyond the
metros in their next phase of growth. And here H&M holds an edge
unless Zara is willing to take a fresh look at its prices. Zara’s entry
range (women’s wear) retails at over Rs 2,500, but H&M starts at
around Rs 1,500. “H&M will definitely impact Zara’s sales in the
medium term,” Agarwal said.
Price, partnerships, styles
Both
Zara and H&M cater to the premium category, but a Delhi-based mall
head said, “H&M will grow faster than other global brands given
that it is more affordable, has no partners, and a balanced portfolio.”
H&M refused to comment on whether it would outgrow others, but
said, “We believe we have competitive prices, by having our own design
and buying department.” Inditex Trent, Zara’s parent company refused to
comment, but it has launched a budget chain to compete with the likes
of H&M and other fast-growing discounters like Primark and
Forever21.
Zara is also the first apparel brand to cross the
$100-million mark in India where it has spent six years and built 16
stores. But its sales growth has slowed; according to the Trent annual
report for FY15, it is down from 43 per cent in FY14 to 23 per cent in
FY15.
H&M, on the other hand, is new to game. It has just
two stores in India but its stores are turning in far better numbers
according to sources in the malls it is present in. But as a source in
Inditex Trent said, “It is easy to grow from Rs 25 crore to Rs 50 crore
but to grow from Rs 50 crore to Rs 150 crore is really difficult.”
Besides, given that 75 to 80 per cent of the market is unorganised and
brands are growing by just tapping the switch from unorganised to
organised, he believes there is enough space for new and old brands to
grow.
H&M has a wider range of styles and targets a larger
customer base too — it caters to women, men and kids unlike Zara which
focuses largely on women although it does have a men’s line. Globally,
according to a Reuters report, H&M has moved into Zara’s fast
fashion space by offering everyday styles.
Devangshu
Dutta, CEO, Third Eyesight, says both have distinct operational
strategies. H&M partners with designers to create special lines
under joint branding, whereas Zara maintains its own branding. “Zara
has a far greater number of products in its annual range, and invests
far more on product development. H&M spends a significant amount on
advertising, which Zara mostly shies away from,” he says.
The road ahead
Both
brands are at different stages of their India journey, but are
looking at non-metros. H&M’s next store will be in Bengaluru,
followed by one in Noida, Mohali and Mumbai in 2016. It is looking at
other cities as well and so is Zara.
However, the question is
whether the premium brands will tweak their pricing strategies for
small towns. According to the head of a Delhi mall, non-metros can
absorb H&M as it is more affordable. “After you move out of South
Mumbai or South Delhi, there will be more shoppers for H&M than
Zara. That’s why after 17 to 18 stores, Zara is finding it difficult to
expand,” he said.
However, in Mumbai, a senior executive with
one of the leading malls said that all global brands struggle after
four to five stores in metros, be it Zara or H&M. “It is not easy
to expand in tier II and III cities for any international brand,” he
said. Dutta however believes that
both are marquee brands that, more than hurting each other, will help
all brands by driving customers to malls. Even if they do, the fight for converting footfalls to transactions is going to be an arduous one.
(Published in Business Standard)
