Zara to open doors in Australia, but how should local retailers respond?

The popular Zara clothing brand will finally open its doors to eager Australian shoppers in 2011, after its Spanish-based parent, retail giant Indetix, announced it will open stores in the local market and South Africa next year.

And despite a sluggish retail market, analysts say the company will establish itself well due to its high-quality brand positioning and low prices, but local fashion retailers will need to prepare themselves for the new competition.

Pablo Isla, deputy chairman and chief executive of Indetix announced the expansion at the company’s annual meeting in Spain this week and the Westfield Group is rumoured to be the first to open Australian stores.

Inditex, which this year reported net profit over $US1.8 billion, has stores in 77 countries and rolled out a huge 343 new stores in 2009 – 98% of which were outside its home market of Spain. Other brands owned by the company include Massimo Dutti, Pull and Bear and Bershka, but Zara is the largest and best known.

The expansion into Australia has been rumoured for a long time and Melbourne retail billionaire Soleman Lew has held the Australian rights for Zara since 2000. Premier Investments has a brand portfolio also including Just Jeans, Portmans and Smiggle.

Retail expert Phil Bonono says Zara’s extremely successful business model allows them to provide quality fashion at sharp price points and will give them a leg up in the Australian marketplace.

“There’s no question there’s a demand for international brands whether it be Zara, Gap or others,” he says. “There’s absolutely an appetite and pent up demand for these brands and Zara is a brand that many Aussies would be familiar with from travelling. They will benefit from that.”

Brian Walker, managing director of the Retail Doctor says we’re set to see the expansion of international brands continue. “Consumers want it and the rise of online shopping has made ranges and brands far more accessible now,” he says. “People are generally more alert to what’s going on in the world as distinct from what’s going on just in Australia.”

“On the other hand, these brands are getting smarter at operating in different geographies and hemispheres and can now bring product to markets in different areas. They need expansion to fuel growth and profitability and so they need to expand into international markets.”

While international brands in Australia will attract shoppers to centres like Westfield, increasing their sales and giving consumers more choice in fashion, there are fears that smaller local fashion retailers may lose sales and market share to the international fashion frontrunners.

Phil Bonanno says considering tight retail conditions already, the battle for market share will worsen with international competition: “All retailers large and small are going to have to take a long look in the mirror and a hard look at their business in terms of what their point of difference is. They’ll need differentiation to drive growth,” he says.

“In fashion and other sectors things aren’t growing as fast and there’s more players coming in. We’re going to continue to have more good operators losing. Not just people who don’t know how to run a business,” he says. “Being good may not be good enough anymore. That’s not just driven by overseas entrants but they are a critical element in the equation.”

Walker argues Australian fashion retailers should seize the opportunity and focus on expanding globally online. “There’s a thinking that these international retailers will come over and they’ll bombard consumers and retailers here will get smashed,” he says. “But online retailing gives everyone the opportunity to trade in other countries and create a global business.”

“If it’s possible to buy overseas products in Australia then it also highly possible for people living overseas to buy products from Australian retailers online,” he says. “Some Australian retailers are happily and successfully doing business overseas through online retail already.”

“If they have a good strategy, good operating model and established brand, if they provide a compelling customer experience and build good relationships with customers, they will be fine. They will be fit for business,” says Walker. “If they don’t have that, then yes this competition will affect them.”

As of this year, Indetix boasted 2.349 million square metres of retail space worldwide and has recently opened its first stores in Singapore, Syria, Kazakhstan, Bulgaria and India.

Despite tough retail trading conditions worldwide, Zara reported an AU$1.88 billion profit at the AGM, which was $80 million higher than 2008 and announced a sales increase of 9% in 2009.