Inditex quietly grooms cut-price brand for budget battle

Tue Mar 18, 2014 2:18am EDT
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By Sarah Morris

ARROYOMOLINOS, Spain (Reuters) - At the Xanadu shopping mall in Madrid's suburbs, the indoor ski slope is busy with children but the designer stores are quiet. In this former mecca for high spenders, discount shop 'Lefties' looks like just another post-recession pop-up budget brand.

In fact the store belongs to the world's biggest fashion retailer Inditex - and may be its secret weapon to lure back austerity period shoppers who have turned away from its fashion brand Zara to the cheaper styles of H&M and Primark.

Since the 2008 financial crisis, mid-market retailers in developed markets have lost ground to both discounters and high-end brands as shoppers economize on basics, while treating themselves to the odd luxury.

Inditex does not break out sales figures for either Lefties or its Zara stores in Spain. But it has shrunk the number of its Zara stores in Spain from 514 in 2008 to 469 at the end of 2012 while adding five or six Lefties stores a year "in recent years", according to a spokesman. Lefties now has 86 stores in Spain and 16 in Portugal.

With consumers now wearing Primark fashions alongside luxury labels, Inditex may be changing the mix of its stores to test the waters of this new, evolved retail market, said one sector analyst.

Inditex's sales in Spain dropped 5.5 percent in 2012, to 3.5 billion euros, and accounted for only 21 percent of total sales against 37 percent in 2007 as the group has grown fast in emerging markets.

By contrast, Sweden's H&M and British Primark expanded fast in Spain during that time, as unemployment topped 26 percent and retail sales shrank steadily in the 2011-2013 period. Both brands have much lower average prices than Zara.

H&M's sales in Spain rose 5 percent to 6 billion Swedish crowns ($940.39 million) in 2013 compared with a year earlier, while its number of stores rose to 156 from 146 in the same period. Primark, owned by Associated British Foods, has grown to 39 stores since arriving in Spain in 2006.   Continued...

A woman shops at a Lefties store in Madrid March 14, 2014. REUTERS/Susana Vera