Since 2009, the group Inditex, that Zara is part of, has never experienced any fall. However, last Wednesday, the net profit fell by 7.3% to €406 million quarterly to April 30 compared to the same period a year ago. Ortega, the owner and the richest Spanish, answered to this fall by an international expansion: « all of Inditex’s brands continue to expand internationally ». And we aren’t talking only about Zara but also Massimo Dutti, Bershka, Oysho, Pull & Bear… This fall doesn’t represent a threat to the group, because, on the other hand, the sales rose by 4.3% to €3.75 billion thanks to the local currencies sales.
An already well implanted company
Inditex is present in 88 market through 6,393 stores and still wants to open about 50 more stores by the end of the year. Moreover, the firm is present online in 25 countries including 21 European’s one, Canada and USA in America and China and Japan in Asia. Mexico and South Korea are now being considered by the company and will be soon reach via the Internet. The group is very much aware of where the most potential lies : China, its second biggest market after Spain.
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To strengthen its position in the Middle Kingdom, Zara is now considering and planning to join the giant on-line mall : Tmall. The brand has already an on-line website in the country (launched in 2012) but with the expansion of the e-commerce in China, and the importance of the second and third-cities in Mainland, Zara doesn’t have much of a choice.
The huge opportunity of Tmall
Let’s remember the importance of Tmall in the Chinese world, being run by Alibaba, it generates €177 billion of transactions and hosts 231 million active users. It is more than more than Amazon and Ebay combined ! As Burberry and Asos realized it, Zara can’t miss this opportunity. Especially when McKinsey Global is recently saying that the online retail sales in China will fluctuate between €310 and €480 billion by 2020. It represents more than the American, the Japanese, the UK, the German and the French market combined.
The benefit of Tmall is that it allows brand to keep control of everything except the payment. The image of the brand will not be tarnished and the Chief Executive of Inditex Pablo Isla, says that : « It is nothing different to online sales through our own webpage It is like opening a store in a shopping mall, so it’s very, very consistent with our image ». Zara will be using their own prices and own logistics so Tmall is promising. Moreover, it will help the brand to reinforce its 457 stores which represent already about 5% of its sales.
A hesitation that is no longer relevant
Even if Inditex already uses other site such, as ASOS or Pull & Bear, to sell their product, the brand is less disposed to do the same on the Chinese Internet. Nevertheless, they know that the e-commerce is highly underappreciated but could represent a quarter of the fashion market. This is the reason why, Zara will launch on Tmall for the autumn-winter 2014 collection.
The brand has a lot of market’s expectation and hope to its high-margin garments and centralized logistics to make more profit that it has never done before. After all, it already benefits from its own Chinese website so implanting on Tmall is the next logical step to reach the population and especially the Mainland one. However, the competition is the same and the brand will have to stay in alert of the other similar brand that will follow their exemple and try to win some share to the brand.
Source : Reuters