85.7 F
San Fernando
Friday, Mar 29, 2024

Valley Figures Prominently in Spanish Firm’s U.S. Growth

It is known as “fast fashion” in the trade, but Inditex S.A., an $8.3 billion conglomerate, has been slow to move into the West Coast market. Until now. The Spanish company, based in a town in the Galicia region, will open its first two Zara stores in the San Fernando Valley this fall as part of a six-store expansion in the U.S. this year. The two Valley stores, at Westfield’s Topanga mall in Canoga Park and its Fashion Square center in Sherman Oaks, along with a location in Westfield’s Century City mall, will join two existing Zara stores in Southern California one in Costa Mesa and another at the Third Street Promenade in Santa Monica. Zara, a retailer of men’s and women’s apparel, is the largest of the Inditex companies, which currently count nearly 3,000 retail units operating in 64 countries, but it has just 10 stores in the U.S. market with the majority in the New York area. Indeed, Inditex operations are so few in the U.S. that the stores hardly register on the radar of retail research companies that track shopping patterns. “I think they’ve gotten some awfully good customer service experiences,” said Britt Beemer, chairman and founder of America’s Research Group, a Charleston, S.C.-based consumer behavior marketing firm. But while ARG interviews about a half million people a year, Beemer said he had precious little feedback about Zara. Not so in most of the rest of the world where the company has earned a great deal of attention, both for its financial performance and its business model. Along with Hennes & Mauritz (H & M;), Zara is one of the pioneers of a new category of retail operation, fast fashion, named for the speed with which the stores can move into (and out of) fashion trends. “Fast fashion has clearly paid off in Europe, capturing and creating loyal customers,” Bain & Co. wrote in a report for one of its clients. In the U.K., the Bain report noted, fast fashion accounts for over 20 percent of apparel purchases by 13 to 24-year-olds. What makes Zara and the other Inditex divisions so fast is an operation that spans everything from the design of the garments to the manufacture, distribution and retailing. “The key to this model is the ability to adapt the offer to customer desires in the shortest time possible,” reads the company’s press dossier. “Vertical integration enables us to shorten turnaround times and achieve greater flexibility, reducing stock to a minimum and diminishing fashion risk to the greatest possible extent.” (Inditex officials confirmed the store openings planned, but referred the Business Journal to its press dossier for further comment.) By handling all aspects of its operations in-house, Zara is able to turn its inventories 5.3 times per year, compared to 4.9 times for traditional U.S. apparel retailers and 3.4 times per year for U.S. department stores, the Bain research notes. In general, the stores take markdowns averaging 15 percent on about 15 percent of their inventory compared to U.S. department stores that take an average 40 percent markdown on about 60 percent to 70 percent of their merchandise, according to Bain’s research report. The company employs some 200 designers for Zara alone. But unlike other fashion companies that develop cutting-edge styles in hopes that they will attract the attention of shoppers, Zara’s designers react to the trends that have already appeared in the market, either on runways or as evidenced by what shoppers are buying. And because of its vertical integration, the company can move those fashions into and out of the stores at lightning speed. Zara replenishes its store shelves with new merchandise twice a week. And it takes just 48 hours from the time an order is received for Zara to deliver goods to its U.S. stores “The superior business model with a flexible supply chain and the relative cheap valuation call for outperformance,” wrote Olivier P. Muller, an equity analyst who covers the company for Credit Suisse in recommending Inditex stock. “The main driver is the successful international expansion. Additionally, positive same store sales, further gross margin gains and cost control should help to boost the bottom line in the next years.” Zara’s first store opened in New York in 1989, nearly 15 years after the company was founded. And it has continued a characteristically slow pace in its efforts to penetrate the market. “The usual way of entering a new market is to start with a small number of stores,” the press dossier reads, “which can explore the possibilities of a specific country in order to gain a critical mass of customers.” The Fashion Square store will be smaller, about 1,640 square feet, and carry women’s fashions only. The Topanga store will be about 2,460 square feet and carry both men’s and women’s lines.

Featured Articles

Related Articles