Zara-owner Inditex has the edge in online battle with H&M

Mon Mar 16, 2015 12:59pm EDT
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By Elisabeth O'Leary, Anna Ringstrom and Emma Thomasson

MADRID/STOCKHOLM/BERLIN (Reuters) - The families behind Zara-owner Inditex (ITX.MC: Quote) and H&M (HMb.ST: Quote) will need to fend off fast-moving competitors if they are to replicate online the winning formulae that made them the world's top two fashion retailers.

Each has borrowed ideas from the other, but their business models are quite distinct, which could put Inditex in a stronger position to tackle digital-only upstarts like Germany's Zalando (ZALG.DE: Quote) or Britain's Asos (ASOS.L: Quote).

H&M has moved into Inditex's "fast fashion" space by offering a bigger turnover of styles, a strategy summed up by a slogan in an H&M store in Berlin: “New stuff comes into the store every day. Why don’t you too?”

Inditex, for its part, has launched a budget chain to try to compete with the lower prices of H&M and other fast-growing discounters like Primark (ABF.L: Quote) and Forever21.

But by and large, each has stuck to its original approach, giving them unique advantages and disadvantages online.

Zara's slick distribution network is a big bonus though some analysts feel its cutting edge fashions may make managing stock more tricky. H&M took to the Internet earlier but its low prices and decentralized distribution network are barriers to growth.

"The higher the typical selling price of the product, the better for online growth and margins, because a higher selling price can help the retailer to bear the cost of subsidized delivery," said Societe Generale analyst Anne Critchlow.

Primark, where average prices are at least a third lower than H&M, opted out of ecommerce after a brief trial with ASOS in 2013, saying it is hard to justify selling a three pound ($4) T-shirt online when it cost the same to ship it.   Continued...

A woman holds a bag inside a Zara store in Madrid September 12, 2014. REUTERS/Andrea Comas