Zara posts slowest sales growth in India; stiff competition from global rivals like H&M and Gap 


July 16, 2016

Sagar Malviya, The Economic Times

Mumbai, 13 July 2016

Spanish fashion brand Zara posted its slowest sales growth in India during the year ended March, indicating that its novelty factor may be waning as consumers shift to global rivals such as H&M and Gap, which entered the country last year.

Inditex Trent, the joint venture between Zara brand owner Inditex and Tata Group’s retail arm Trent, clocked a 17% sales growth to Rs 842.5 crore during FY16, Trent said in its annual report on Tuesday.

A year ago, its revenue increased 24% to Rs 721 crore. Zara’s sales growth has been tapering off after stellar performances following its entry into India in 2010. It posted a profit in the first year of operations and doubled sales every two years.

The joint venture plans to open more Zara stores in India over the next three to four years in the major cities, after two additions last year took its total outlet count to 18, the report said. “The primary challenge to faster expansion is the availability of high quality retail spaces, which can be expected to generate reasonable sales throughput,” Trent said.

Zara’s average sales per store was about Rs 47 crore last year, exceeding those of top apparel brands such as Louis Philippe, Levi’s and Marks & Spencer and even slightly higher than department store chains Shoppers Stop and Lifestyle.

“When Zara entered, the novelty factor was humongous but now there is a certain familiarity with the brand. Also, it has moved beyond marquee locations. In addition, aggression by ecommerce companies intensified, too,” said Devangshu Dutta, chief executive officer at Third Eyesight, a retail and consumer goods consulting company.

As the world’s second most-populated country, India is an attractive market for US and European brands, especially with youngsters increasingly embracing westernstyle clothing.

Zara, owned by Inditex, the world’s largest clothing retailer, is facing competition from similarly priced, fashion rivals including Gap, H&M and Aeropostale, which entered India last year.

US clothing brand Gap sold apparel and accessories worth Rs 23 lakh daily on average in June in its first month of operations in India, surpassing all other retailers in the country in terms of sales per square foot. Swedish company H&M clocked more than Rs 1.75 crore in sales on the opening day of its first store in India, almost double what its largest rival Zara sold on its inaugural day five years ago at the same location, Select CityWalk mall.

While sales growth of both these rivals may ease after the initial launch-related surge, experts said the market has room to expand. “Given the response we have had for global brands launched last year, it indicates preference for wellknown international brands,” said J Suresh, managing director of Arvind Retail, which holds the licence to sell brands like Gap and US Polo.

Most of Zara’s back-end logistics and merchandise sourcing are handled by Inditex, while the Tata expertise is mainly for identifying real estate and locations.

(Published in The Economic Times)