ZARA MAKES ITS MOVE
Byline: Sharon Edelson
NEW YORK — Get ready for Zara.
The trendy Spanish chain, which is a division of the $2 billion powerhouse Inditex Group, has set its sights on the U.S. market, with 40 stores planned for the next two years and the ultimate goal of as many as 400.
Zara is joining a group of aggressive and stylish international retailers that have targeted the U.S., including the Canadian Club Monaco — owned by Ralph Lauren Corp. — and Swedish Hennes & Mauritz.
In some ways, their timing comes just as department stores are struggling with sales of basic apparel and stores like the Gap have shown signs of weakness in its core business.
Zara last week opened its sixth store in the U.S. The 10,000-square-foot unit at 31 West 34th Street in New York offers style in spades. There are leather pants inspired by Gucci, ruffled dresses that owe a debt to Prada and handbags shaped like Fendi baguettes. Even more cutting-edge are the pleather ponchos, calf hair clogs and vinyl skirts.
Zara is certainly not the first company to rush trends from runways to store shelves. While the Limited and Express have gotten away from runway interpretations, they virtually had it down to a science in the mid-Eighties.
With its combination of competitive pricing — 20 percent or more below rivals — and of-the-moment styles, Zara has managed to begin building on a niche. Nothing in the 34th Street store costs more than $250. It’s mass fashion’s version of planned obsolescence.
Zara, which reportedly has been logging 40 percent same-store sales increases for the past several months, is positioning itself for significant U.S. growth. Retail experts said the company was emboldened by its experience when the Gap expanded into Europe. Analysts said Zara has been able to hold its own against the Gap overseas, giving it confidence to develop its U.S. market.
“The business in New York is spectacular,” said a Zara executive, who asked to remain anonymous — the company is notoriously secretive and press shy. “In two or three years, we will open 40 or more stores in the U.S. We are looking for real estate in Boston, Chicago, Miami, San Francisco and Los Angeles. “It’s possible that in the next two years, the U.S. will be the big country for Zara,” the executive said. “It’s necessary to do a lot of work, but we have a strong organization. The team is very small right now, but it’s very good. It’s possible to have 400 stores in the U.S.”
In Manhattan, Zara operates units at 101 Fifth Avenue and 17th Street, 580 Broadway in SoHo and 750 Lexington Avenue, and stores at the Roosevelt Field Mall in Garden City, N.Y., and Willowbrook Mall in Wayne, N.J. The Lexington Avenue store will be renovated in February to conform to the new prototype.
“There’s no question the consumer has returned to fashion, and the retailers that can do that well will prosper in the next couple seasons,” said Richard Jaffe, a retail analyst at PaineWebber. “Part of Banana Republic’s success is based on that. Club Monaco is a different take on a similar lifestyle as Banana Republic. The consumer is looking for more fashion-forward apparel.”
Zara’s women’s wear is broken into three collections: Woman, the most expensive line; Basic, which offers casual suitings and sweaters for smaller budgets; and Trafaluc, the trendiest and hippest Zara has to offer.
Bestsellers from Woman include coats, ranging from long, down-filled garments to oatmeal-colored wool blends tied with the thinnest leather cords. One coat has a belt made of twine. Zara is big on animal prints with tiger, alligator, leopard, giraffe, zebra, pony and snake skin — all imitation — spotted this season.
There’s a wool and cashmere blend group, including a poncho for $79 and sleeveless dress for $89. Other key items include a knee-length blazer with detachable fake fur collar, $179; brown fake leather pants, $66, and a black fake leather jacket, $125.
The Basic collection is actually far from basic, with cropped fair isle sweaters, a fake suede suit with drawstring waist jacket, $99, brown wool and nylon dress with ruffled V-neck, $79, and flat-front pants for $33 in a rainbow of colors. Orange has been a strong seller.
As for Trafaluc, it features a gray nylon poncho, a synthetic biker jacket for $79, vinyl skirt for $39, and snakeskin-print pants with a matching bandeau. Sizes are smaller in this collection for maximum midriff effect. There’s also lots of corduroy, gypsy blouses and jeans with imitation suede trim and feathers and ribbons on the cuffs.
Zara plans to launch cosmetics and fragrance next year, according to the executive, who added, “We are working on a lot of product categories. We are very busy.”
While no one is suggesting that the mighty Gap will be knocked from its vaunted pedestal by an upstart like Zara, there may be trouble in basics paradise. Could it be that consumers finally have enough khakis and one-pocket Ts in their closets?
“If you consider the Gap’s flat performance, the answer may be yes,” said Dana Cohen, a retail analyst at Donaldson Lufkin & Jenrette. “You had a big basics cycle for two years, and it seems to be a bit slow. There doesn’t seem to be a basic product that has replaced khakis. The basic business had a very big run for quite a while. Women are moving towards fashion.”
Same-store sales at the core Gap division have declined for the last four months.
“I’m even seeing it in department stores,” said Susan Silverstein, an analyst at Bank of America. “There seems to be a real lull on the basic front. Even your best brands are seeing a lull in their basic business.
“What is clearly working is the more fashionable product, whether it’s tighter fit or stretch or unusual fabrications or unusual treatments on the product,” she said. “Those items are selling like hotcakes, whereas plain old khakis and basic Ts and sweaters are sitting on the shelf a bit longer than they used to. Gap in the past has had a unique ability to get more fashionable when necessary. That’s always risky. They’ve proven that at times they can do it successfully. At times they haven’t.”
Fashion cycles notwithstanding, when the Gap took basics to Europe, in a mirror-image reverse strategy right in Zara’s and H&M’s backyard, Ken Pilot, president of the Gap’s international division, conceded in July that the company’s European competitors are more stylish. But that’s not troubling the Gap: “We’re classic, more democratic and our basics have far more longevity,” Pilot said at the time.
Zara manages to keep stores fresh with new deliveries to stores twice a week. The runway is not the only place the chain gets its inspiration. The company has a team of designers who travel constantly, visiting hot spots in Europe and the U.S. to find the latest looks. “We pick themes,” a Zara executive said. “For Trafaluc this season, we had three themes: the industrial revolution, techno and hippie.”
The turnaround time from sketchpad to store rack is a scant eight days, given Zara’s sophisticated network of logistics and sourcing. With 25 manufacturing companies and advanced technology, Zara is able to create more than 11,000 different designs a year. The 34th Street store represents a new prototype for Zara, a sleek white space with Spanish stone floors and glass enclosed cubbies for displaying shoes and handbags. The store, which features men’s and women’s wear, looks as if it could be happy on Madison Avenue. That is, until shoppers start rifling through the sweater displays.
By the end of the year, Zara’s parent, Inditex, should have a presence in 30 countries, including Mexico, Portugal, France, Belgium, Greece, Sweden, Norway, Turkey, Israel, China and Japan.
The other big push is Germany. Inditex entered the market through an agreement with the Otto Versand Group to open Zara stores in Cologne and Hamburg.
The company is opening a Zara store in Montreal at the end of this week through an agreement with the Reitmans Group. Stores in Vancouver and Toronto are planned for spring.
Inditex’s other chains include Pull & Bear, classics for men and women at reasonable prices, and Massimo Dutti, described as “basic, traditional styles updated by new generation fabrics in natural fibers.” Berksha, the newest retail concept, is geared to juniors with massive stores filled with giant photos and original graffiti on walls. There are areas to watch videos, listen to CDs, read magazines and buy drinks. But the Zara executive doubts that any of the these concepts will migrate to the U.S. anytime soon.
Traditionally, Zara had not put much stock in advertising. By contrast, the $9 billion Gap Inc. spends about 5 percent of sales on advertising; the company’s advertising expenditures are expected to hit $550 million in 1999.
Inditex seems to be shifting its strategy. “There are two different approaches in advertising,” the Zara executive said. “One approach is advertising to increase sales. In our opinion, we don’t need that now.
“The other type of advertising is image advertising. Soon, my company will begin to work on image advertising. This is part of the Inditex Group strategy. We are already working with top models like Amber Valletta and Bridget Hall and making a catalog, so advertising in the future is possible.”
Inditex, which is based in La Coruna, Spain, has been family owned since the early Sixties. Amancio Ortega Gaona, the group’s chairman, keeps a low profile and is rarely photographed. Despite Gaona’s reputation for privacy, there have been rumors that Inditex is considering going public in 2001.
As Zara prepares its assault, H&M, known for fast fashion, is also taking aim at the U.S. market. H&M signed a lease for a massive 50,000-square-foot store at 640 Fifth Avenue at the corner of 51st Street. The company is reportedly negotiating for space at the former Alexander’s site being developed by Vornado and plans to open a third store in the New York area.
Club Monaco is also on a growth track. Acquired in March by Polo Ralph Lauren, the Canadian chain’s executives said at the time, “Club Monaco is going to be a very important part of our growth strategy.” Ralph Lauren officials have indicated that Club Monaco has the potential to reach several hundred stores in the U.S.
“It’s way too early to determine any sort of threat to the Gap,” Bank of America’s Silverstein said. “Club Monaco is supposed to grow too. It’s more fashion forward than Banana Republic. The environment will get more competitive. The Gap will have to address the fashion issue, particularly if that’s the way the consumer is going. There are times when Gap increases the fashion content of its stores. This could be one of those times.”