Inditex in India - a Closer Look at Zara’s Indian Experience

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- Zero Advertising – Use Money to open stores next to High Street Brand Stores

Would any brand be successful without advertising? Zara leads the way for the all Xiaomi’s and One Plus brands which doesn’t spend a lot on advertising either. The company spends the money buying storefronts next to luxury brands to own the label of affordable luxury.

“The high street is really divided per brand value,” says [Masoud Golsorkhi, the editor of Tank, a London magazine about culture and fashion], who is also a consultant for fashion brands. “Prada wants to be next to Gucci, Gucci wants to be next to Prada. The retail strategy for luxury brands is to try to keep as far away from the likes of Zara. Zara’s strategy is to get as close to them as possible.”

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- Integrated Supply Chain - Move a catwalk design from the design stage to shop floor in a span of two weeks

The Louis Vuitton fashion director Daniel Piette described Zara as "possibly the most innovative and devastating retailer in the world." They control most of the steps in the supply hain and it designs, produces and supplies itself.[pic 5]

ZARA has its production or manufacturing units at three distinct places. 50% of its manufacturing is done in Spain, 26% in Europe and 24% is done from Asia and even Africa. From the manufacturing units’ products are transported to or distributed to ZARA’s headquarter at Spain and then transferred to its outlets all around the world.[pic 6]

- Pricing Strategically – Zara lead’s the way again

Zara makes the luxury fashion affordable at a lower price than its competition. It also creates an artificial scarcity for its product by ensuring lower batch sizes forcing the customer into a “Now or Never” buying decision. This also allows the brand to sell 85 percent of the full price on its clothes, while the industry average is 60 to 70 percent. Zara’s total cost is minimized because merchandise that is marked down is reduced dramatically as compared to competitors.

“Most companies are riddled with penny-wise, pound-foolish decisions to reduce cost,” noted Kasra Ferdows, a professor at Georgetown University’s McDonough School of Business in this article on Bloomberg. “Zara understands that if they don’t have to discount as much, they can spend money on other things. They can see the benefit of this certainty and rhythm in the supply chain.”

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Inditex & Trent Retail – A Partnership of Opportunities

The Foreign Investment Promotional Board (FIPB) which regulates FDI mandates that that foreign brands find a majority partner to operate in India. Per the Indian policy on foreign direct investment (FDI), Zara entered a Joint Venture with Trent Retail - Tata Group, India, to form a joint enterprise called Inditex Trent Retail India Pvt Limited in February 2009. Inditex has a share of fifty one percent of this collaboration while Tata’s subsidiary Trent Limited holds forty nine percent

Trent Retail – A Background

Trent’s retail core business comprises West side and Landmark while it has JVs with Tesco and Inditex for Star Bazaar and Zara, respectively. Westside offers inhouse branded fashion apparels spread across 53 cities with 86 stores. Star Bazaar is Trent’s hypermarket joint venture with British grocery & general merchandise retailer Tesco, which currently holds 50% in the JV. As on FY15, there are 18 Star Banner stores. 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.[pic 7][pic 8]

Trent also operates a JV with Inditex group for Zara & Massimo Dutti where it holds 49% and the rest is owned by Inditex. Revenues of Zara as on FY15 were at | 721 crore, which currently operates 16 stores across India. The management indicated that investment in JV with Inditex is just a financial investment and is not long term strategic in nature. Operationally, this JV is purely under the control of the Inditex management. Trent also benefits from bargaining power as an anchor tenant with Zara stores as a part of JV. 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.

Inditex also leveraged its Joint venture partnership with Tata-run Trent, to launch Massimo Dutti, the high-end fashion label which is priced a notch higher than Zara.

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Indian Fashion Retail – The Changing Landscape

The Indian retail market is expected to demonstrate a promising year-on-year growth of 6% to reach USD 865 billion, by 2023. The share of apparel in India’s retail market is 8%, corresponding to a value of USD 40 billion. In addition to fashion apparel, the growing demand for fashion accessories makes the Indian fashion market both interesting and lucrative.

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Total Retail Market

Share of the Retail Market, 2013

(USD bn)

1%

2%

6%

865

2%

6%

6%

490

8%

69%

Food & Grocery

Apparel

Consumer Durables & IT

Jewelry & Watches

Pharmacy & Wellness

Furniture & Furnishings

2013

2023(P)

Footwear

Others

Source: Technopak Analysis

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