Seema Kakkar has followed a simple routine for the past few weeks. At least once a day, without fail, she makes sure she pops over to her Mecca, a glittering new store that’s opened next to hers. As the entrepreneur who launched Remanika, a women’s wear brand, Kakkar has modelled her entire business concept on Zara, one of the most successful fashion retailers in the world, known for getting the latest designs into the market before anyone else. More than five weeks ago, Zara opened its first store in Delhi, followed soon by Mumbai. The Mumbai store in the Palladium mall is a few metres away from Kakkar’s shop-in-shop outlet inside Pantaloon department store in High Street Phoenix. The chance to observe Zara’s has proved hugely beneficial. “I wanted to be an Indian Zara, so this is like a school for me,” says Kakkar.
Kakkar’s response isn’t surprising. Zara is indeed the Coca-Cola of the fashion world. Starting sometime in the mid-Seventies in Spain, Inditex, the Euro 11 billion (revenue) company that owns Zara and some other labels, built a hugely successful business model of taking the latest catwalk designs and converting them into affordable high street fashion in a matter of three weeks. Zara focusses on rapid product development and design and outsources the manufacture in small batch sizes to a network of dedicated suppliers. Its ability to bring changing fashion quickly to market has meant that while customers in Europe visit other fashion stores just three times a year, they visit Zara 17 times, according to one study.
Many entrepreneurs have tried imitating Zara, but none of them have been quite as successful. For most part, Inditex remains notoriously secretive. It attends very few industry conferences and is guarded in revealing too much about its business model.
Zara’s track record on globalisation has been enviable. Its flexible, high-speed business model has travelled from Spain to 77 markets around the world, including China. It entered mainland China in 2006 and has close to 44 stores there. Pablo Isla, the 46-year-old chief executive of Inditex, is now betting big on India. In earlier media interactions, he has also made it known that it may well be among its most challenging market entries yet.
Zara’s global model will be tested in India on three counts. One, there aren’t too many seasonal variations. In most parts of the country, winter is non-existent or at best lasts barely a couple of months. So driving new fashions every season isn’t easy. Two, there is the cultural issue: Although the new mall culture is inducing buying habits to change, Indians still don’t change their wardrobe that quickly. And it is Zara’s ability to get customers to visit and buy several times a year that enables it to achieve scale. Three, as a concept, Western women’s wear is still catching on. For most part, traditional Indian wear tends to dominate the wardrobe. And there is a strong preference for bright colours as opposed to the limited colour palette — black, white and browns — in the West.
So far, Zara has cranked out all its designs from a hub near Madrid and airlifted the finished product to its stores around the world twice a week. The added costs have been defrayed by charging a higher price in each of these foreign markets. In India, most foreign retailers have struggled to build a strong franchise based around import-led premium pricing strategy.
This is why Isla is clear that he isn’t hoping for a quick ramp-up in India. Apart from the two stores in Mumbai and Delhi, Zara will in all likelihood add two more stores in Delhi and Bangalore — and then learn from its experiments, before it begins expanding. A 2002 study says Zara follows what it calls an “oil stain” strategy. It means Zara opens its first few stores in a country to get an understanding of a market and then uses that knowledge as it expands into that market. “The most important thing for us to enter a new market is the existence of potential customers: People sensible to fashion phenomenon. And, in an operational sense, the availability of suitable locations,” says Inditex’s official spokesperson via email.
Now let’s look at its initial performance. The fact is that Zara has had an opening few foreign brands have had in India. Through the opening weekend, there were long queues outside its trial rooms as women jostled to try out clothes. According to industry sources (Zara itself is famously reticent about sharing numbers), it had sales of close to Rs. 1.25 crore in the first weekend in Delhi and nearly the same in its Mumbai store. Delhi’s Select Citywalk mall recorded 40 percent more footfalls than it usually does and Mumbai’s Palladium mall recorded close to 30 percent higher footfalls.
“Any mall owner will want Zara now for free because it has an ability to bring more people of a certain kind into the mall,” says Arjun Sharma, promoter of Delhi’s Select Citywalk mall.
Industry sources say price points are mostly below its international competitors in India, including Mango, Guess, Esprit, and French Connection. They are also in line with Zara prices in other markets including Singapore, Dubai and some European markets. This has come as a surprise to customers because international brands have tended to price above Singapore and Dubai prices because Indian duties could add 30-40 percent on retail prices, while duties in these countries are much lower. Devangshu Dutta, managing director of Third Eyesight, a retail consultancy based in the capital, reckons that Inditex may be taking a long-term view of the Indian market and relying on strategic pricing.
(This story appears in the 30 July, 2010 issue of Forbes India. To visit our Archives, click here.)
Its really great analysis.
on Oct 23, 2010Great analysis! Congrats to the writer.
on Jul 25, 2010