Spain's Inditex turns sight on India
Spain's Inditex, Europe's largest clothing retailer, plans to start opening stores of its flagship Zara brand in India next year as part of its aggressive expansion into the fast-growing Asian market.MADRID - The company, which opened its first shop in China in 2007, expects to open 25 Zara shops during its first three years in India in major cities like Mumbai and New Delhi in partnership with India's Tata conglomerate, Inditex chief executive Pablo Isla said recently.
The move is part of Inditex's strategy of hedging its dependence on Western Europe, which accounted for over half of its total sales of 10.4 billion euros (14 billion dollars) last year, said Greg Hodge, the retail research manager at London-based market research firm Planet Retail.
"Of course Asia will be affected by the global credit crisis to some extent but in the long-term, it offers great potential for growth, with consumers demanding Western brands," he told AFP.
While the Indian economy expanded by 5.3 percent in the three months to December on an annualised basis, its slowest pace in nearly six years, the United States and other major developed economies in Europe contracted sharply at the end of last year.
Investment bank Goldman Sachs predicts India, the world's second-most populous country after China, will expand annually by some 6.2 percent from 2011 to 2050.
The country will overtake Germany as the world's fifth-biggest consumer market by 2025 as the size of its middle class expands to 583 million people, or about 41 percent of the population, from about 50 million, or roughly five percent currently, according to global consultancy firm McKinsey.
Many members of this rising middle class are already familiar with Zara's stylish designs which resemble those of the big-name Italian fashion houses and are sold at moderate prices.
Sonika Mittu, who runs a garment export business with her husband in New Delhi, said she routinely asks her spouse to bring back items she has seen on Zara's website when he goes abroad on business trips.
"I love the stuff. Mainly their formal wear and winter jackets," the 37-year-old, who belongs to a group of Zara fans on the social networking site Facebook, said in an email.
While China is usually seen as the key emerging market for international retailers, India offers the best long-term growth opportunities because it has a greater amount of untapped potential in spending, said Jon Wright, head retail analyst at market research firm Euromonitor International.
Foreign retailers like Inditex will also find India an easier market to crack than China because consumers there are more open to existing Western trends, he added.
"This makes entering the Indian market a more profitable venture and one that is profitable quicker since investment in product areas is reduced," he said.
India's vast size and limited infrastructure, however, will likely pose a challenge to Inditex's innovative policy of shipping new products to its stores every few days instead of just once a season.
Inditex, whose other labels include Massimo Dutti and Bershka, posted a flat net profit of 1.25 billion euros in 2008.
Asia was the only market to perform above average, according to Isla. Spain performed below average while the rest of the world was on par, he said.
The company, whose owner Amancio Ortega Gaona is one of the richest men in the world, had 4,264 outlets in 73 countries as of the end of last year. It plans to open between 370 and 450 new stores in 2009, mostly in Europe and Asia.