Zara faces the H&M heat


March 24, 2016

Raghavendra Kamath, Business Standard

Mumbai, 24 March 2016

Sales of high value goods growing onlineInside 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)