Has Zara reached saturation point? Far from it, investors bet

Tue Nov 5, 2013 6:25am EST
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By Sarah Morris

MADRID (Reuters) - The world's largest fashion retailer, Inditex, (ITX.MC: Quote) shows no sign of stalling and investors are betting that its Zara "fast fashion" model has plenty of room to expand in emerging markets by appealing to the growing ranks of brand-conscious middle classes.

Amancio Ortega opened the first Zara store in 1975 and pioneered the idea of quickly imitating catwalk trends to create a global giant with more than 6,100 stores in 86 countries, making the publicity-shy Spaniard the world's third-richest man.

Inditex has weathered the global economic downturn better than rivals like H&M (HMb.ST: Quote) as its "fast fashion" model has allowed it to be more responsive to changing consumer demand, while its focus on the latest trends has made it less vulnerable to the rise of discounters like Primark (ABF.L: Quote).

Inditex, which owns seven brands other than Zara, including more upmarket label Massimo Dutti, has also expanded faster to emerging markets, with Asian markets recently overtaking Spain as its biggest source of sales for the first time.

That is part of the key to maintaining its extraordinary growth - Inditex now makes 45 percent of its sales in emerging markets, estimate analysts, compared to just 14 percent for H&M.

It has also moved faster to embrace e-commerce, opening Zara online stores in 22 markets compared to nine for H&M, with its model of stocking stores from central warehouses in Spain well suited to filling orders placed on its websites around the world.

"For three to five years, I don't think there's any threat to them maintaining their pace of growth," said Hala Fadel, a fund manager for Comgest, a shareholder in Inditex.

PREMIUM RATING   Continued...

Workers walks past a Zara store closed for renovation in downtown Madrid March 20, 2013. REUTER/Susana Vera