Slowed consumer spending in their recession-hit home markets has led the world’s largest fashion retailers to pursue Asia for growth. Retailers such as Inditex, H&M and Gap are now finding more fertile grounds for expansion in the region, where the effects of the economic downturn have been much less severe.

Inditex in particular is pioneering growth in the region, having opened flagships earlier this year in Japan and China. In its update last week, the Spain-based owner of the Zara chain highlighted its strong performance in Asia, which accounts for just under 15% of total sales. It also stated that future expansion will come via emerging Chinese cities such as Dalian and Qingdao. Earlier this year, Inditex also announced plans to bring the Zara chain to India, a market where GDP growth remains in the mid-single digits, compared with -3.8% in its domestic market.

India in particular remains a lucrative retail market, where fashion is the second-largest and one of the fastest-growing retail categories. The sector is much more liberal when it comes to foreign direct investment (FDI) – unlike the strict laws for supermarkets – and therefore attractive to single-brand fashion chains. Zara plans to open five stores next year, beginning in New Delhi and then followed by Mumbai and other cities. The fashion retailer will benefit not only from sourcing synergies in India, but also strong consumer demand from a burgeoning middle class with an appetite
for Western brands.

Inditex’s entry into the Indian market is also significant in that it will achieve ‘first mover’ status among its main competitors H&M and Gap, which have centred their expansion efforts on North America and Europe. Inditex is present in nearly 80 countries around the world, trading through more than 60 stores in China and 50 in Japan. In contrast, H&M trades through less than 30 stores in China and just 6 in Japan.

But despite the vast opportunity for fashion retailers in Asia, certain strategies may have to
be adapted. In India, Marks & Spencer last month embarked on a price-cutting strategy in order to reposition itself as a mid-market player. In order to fund the price reductions, it will increase sourcing from the region to 70% over the next four years, from 35%.

And it is likely to take several years for retailers to break even in markets such as India, as it takes time to set up the infrastructure to service its stores and, equally, to build up a loyal customer base.

➤ Natalie Berg, research director, Planet Retail. For more information contact us on:

Tel: +44 (0)20 7728 5600

Email: info@planetretail.net

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