Zara is lowering its prices. According to sources in the Indian market, the Spanish fast fashion giant began cutting prices by 10 to 12% late last year in order to better compete with other similarly situated retailers entering into the market in India, such as H&M. The Swedish fast fashion giant offers goods beginning at approximately Rs 1,500 ($22), whereas Zara’s goods tend to begin at Rs 2,200 ($33).
Although Zara is the quickest apparel and accessories brand to achieve $100 million revenues in recent years in the Indian market, where it operates 100 or so stores, its sales growth has slowed. According to the Trent annual report for 2015, Zara’s sales in India were down to 23% from a total 43% the year prior.
WHY FOCUS ON INDIA?
Despite a widespread international economic slowdown, the BRICs markets (an economic acronym that refers to Brazil, Russia, India and China), more specifically China and India, have been in the spotlight over the past few years as an important source of growth for brands. Per a recent report by Euromonitor International, India’s luxury sector, alone, is predicted to grow by 86% between 2013 and 2018 – faster than China, Malaysia and Indonesia. And much like in the west, fast fashion is also quite popular. As a result, India has proven an enticing market for luxury brands and fast fashion giants, alike, in recent years.
As the world’s second-largest market, after China, India’s market is booming. While low fuel costs have been problematic for many economies, it has “positively impacted inflation and growth” in India, according to sources. Couple this with India’s population of 300 million internet users, who are also extremely mobile-savvy, making it an e-commerce a gem for apparel and accessories brands, such as Zara, H&M, and Forever 21, which maintain India-specific sites.
Better still, the Indian online luxury market isn’t very competitive right now, according to analysts, which can prove profitable for first movers. Of the 500 leading international luxury brands, only 30% have a presence in India. (Compare that to China, which has 70%.) Between the country’s blooming economic, rising middle class, and favorable regulatory environment and FDI rules, India is an ideal market for luxury e-commerce.
Fashion experts claim that global brands – at both ends of the luxury spectrum – are expanding serious efforts in hopes of succeeding in the Indian market. But it has not been easy.
Just ask H&M: While India has always looked like a promising market for H&M, it took the company longer to establish a presence there then they had hoped. “We have known for many years, India is a significant market,” said H&M CEO Karl Johan-Persson last year. “But then we have to get approvals to go into a country. It took a little bit of time. It is a process,” he added.
H&M’s biggest hurdle was that until 2012, single-branded retail in India was limited to only 51% foreign ownership. In January 2012, single-branded ownership was reformed by India’s government, allowing companies like H&M to enter and have full ownership of their operations in India. H&M would have been able to enter the market sooner if a franchise model would work for them, but given their expansion strategy that would have been a poor business move.
IS THERE A LARGER TREND AT PLAY?
As for whether these price cuts are part of a larger plan and whether they will be coming stateside anytime soon, it is possible. A spokesperson of Inditex, Zara’s parent company, said: “Inditex sets the prices at which it sells its products independently in each of its operating markets so that their commercial positioning is the same across the board: quality products characterized for their design component that retail at compelling prices. In this sense, our price policy has remained stable in the 90 markets where we are present.”
It is worth noting that Zara, which made headlines this week for ripping off Kanye West x adidas’s Yeezy Season 2 collection, isn’t the only slashing prices. Similarly situated retailer, Uniqlo, introduced discounts last year and cut prices further in January and February. According to recent reports, retailers that raised prices last year have once again started to offer discounts, a sign the Bank of Japan’s attempts to reflate the economy are failing.