Why Does Fast Fashion Zara Decide To Brake In China?

Since 2013, Zara has planned to sink to the three or four tier cities. However, according to the current layout of Zara in China, the number of shops as high as 85% is distributed in the second tier cities, and the rest are in the economically developed cities such as Ningbo and Suzhou. The proportion of shops in three or four line cities is very small.

In recent months, news of fast fashion giant Zara has continued.

First, the market value of parent company Inditex has soared more than 100 billion US dollars, and there has been a positive report in the semi annual report: from February 1 to July 31st, the company owns

Spanish Company, Zara Home, Massimo Dutti, Bershka, Stardivarius and so on, the total profit in the first half rose 17%, about 10 billion 600 million US dollars.

Net profit rose 26%, about 1 billion 160 million dollars.

However, amid the good news, a Spanish media has disclosed a puzzling decision of Inditex: the group will suspend shop after the total number of stores in Greater China exceeds 500.

In its recent semi annual report, the company wrote that in the past six months, the Spanish Company has opened 94 new stores, of which 24 of Zara stores are located in Brussels, Amsterdam and Vladivostok.

At present, the brand has 6777 stores in the world, most of which are concentrated in Europe.

This year, Zara has opened an electronic shopping channel in Hongkong and Taiwan. At present, the brand offers 28 countries and regions online shopping platform.

This is still expanding steadily.

Why does the Chinese market make decisions on brakes in most brands that attach great importance to it?

A common misconception is that China's economy is not working.

Indeed, not long ago, the yuan had depreciated rapidly, and the Chinese stock market also experienced a sharp concussion. Many luxury goods and light luxury brands have made a decision to shrink.

However, the fashion industry also has the "lipstick effect" theory. The poor economy, the fashionable products that can improve the image will sell very well, such as lipstick.

By contrast, Zara's colleagues did not step on the brakes in China.

UNIQLO continues to open stores at the rate of 100 per cent per year, and has recently launched several sister cards under its fast selling group. H&M's shop opening plan has remained at about 80 a year. After its annual earnings report, the company has made clear that it will develop all kinds of brands, followed by high-end vice card COS, and another sub &Other Stories will also enter the Chinese market.

It can be seen that Zara and even the entire INDITEX group slow down shop in China may have its own reasons.

In the Spanish media interview, Inditex gave the reason: the early garrison in shopping centres is too urgent, and the next task will be to open flagship stores in key cities.

Zara is the first brand to enter the Chinese market in the group. In February 2006, it opened its first flagship store in Nanjing West Road, Shanghai. The total number of stores in China now reaches 166, and stores have entered more than 60 cities.

As for the whole INDITEX group, the number of stores opened in China in the past few years is very fast. Before 2011, there were only 119 stores in the country, but in 2011, it opened 156 new homes in one year, 121 in the following year, and only 61 in 2013. Only 8 stores opened in the first quarter of this year.

The rapid growth from 2011 to 2012 is not a case of Zara, but H&M, UNIQLO and other brands are also promoting the growth of sales by increasing stores.

The reason for rapid expansion is not related to the blowout of domestic commercial real estate that started in 2011. In that year, 400 new department stores were added, and 250 new homes were added in 2013.

Commercial real estate has led to the rapid development of the fast fashion brand. Because of the strong brand, the cost of entering commercial real estate is quite low, which is reflected in free shop rents and even decoration subsidies.

{page_break}

The result of radical sales may be diluted sales profits, and the location errors caused by fast opening shops will also bring down the sales of single stores. Even with rent subsidies, fast fashion brands must weigh more in accordance with business logic.

Zara's unique mode makes them more sensitive to single store sales than competitors.

The lifeline of clothing is supply chain and inventory.

Zara, which is the selling point of fashion, is based on the short and fast supply chain mode. The backlog of inventory is a major taboo. This leads to the increase in the cost of opening stores, and the logistics cost of Zara is much higher.

For example, a new store in A city needs a new 21 garment on a certain day. These goods may be shipped directly from the 13 routes in 9 countries to the store with the best route, and they can still arrive on the same day.

Zara logistics does not have the concept of urban pit. If the layout of shops is not proper, the cost of supply chain will increase linearly.

From a strategic point of view, if a store fails to achieve the expected figure, Zara should turn off the store.

Although Zara has planned to sink to the three or four tier cities in 2013, from the current layout of Zara in the domestic market, the number of shops as high as 85% Zara is distributed in the second tier cities, and the rest are in the economically developed cities such as Ningbo and Suzhou.

Enquiring about the opening of Zara in China last year, the new shop city is still a key second tier city such as Chongqing, Nanjing and Hangzhou.

Zara seems to be waiting for the three or four tier cities. They seem to be more active in e-commerce than in the channel.

The main types of stores in Zara are mainly shopping centers.

Wanda is almost every city's Zara shopping mall. Besides, the mainstream shopping centers such as Hong Kong Hui, Wangfujing and joy city are also the first choice.

We have analyzed the complementary relationship between Zara and shopping centers.

But because of the overdevelopment of the shopping center and the pre cooling of the electricity supplier, Zara has been hit by it. The fate of Zara is tied up with the shopping center.

Now the strategy of Zara is to open flagship stores in important cities.

The "important city" here refers to the non first tier cities with enough consumption.

As the competitive environment is too intense in the first tier cities, the fast fashion brands have gradually turned to the second line developed cities - the "key cities" called by the group, and set up the first store of the flagship store in China.

For example, at the end of last year, Zara opened three storey single flagship stores in Chengdu Ocean Pacific.

The flagship store is often set up in important business circles in big cities. It expands a larger shop than the general stores in a large traffic location. According to the existing flagship store model, the Zara flagship store area is above 2000 square, with sufficient supply, and more complete product display. Its decoration, experience and service will also be better.

"Opening 100 stores of 200 square meters, and opening 10 stores of 2000 square meters, obviously the latter's management cost will be lower."

POP Raymond Wong, a senior consultant of high-end trend network, told reporters that the single store has higher efficiency.

The so-called "Ping" effect, that is, the turnover that can be generated on each flat area, is an important indicator for measuring the operation of a supermarket or department store.

According to ruyd's data, the flagship store's sales performance is generally 3-4 times that of ordinary stores, with a maximum gap of 6.6 times.

In addition to the advantages of Ping efficiency, flagship stores have an unparalleled advantage in display, window design, shop decoration and other brand image.

Because of the requirement of fast fashion brand positioning, we need to reduce production cost to the greatest extent. Therefore, the advertising format that is commonly used to update products with regular season is not suitable for fast fashion, but flagship stores can make up for this defect.

Take UNIQLO as an example. UNIQLO opened a large flagship store near The Paris Opera House, which is adjacent to the old Buddha's and Wakubo Rei's stores, which is a big advertisement in Paris.

Of course, Zara

There are very different market strategies, but there is no difference between the two brands in terms of the benefits that the flagship store can bring.

In the simplest logic, because the commercial real estate tends to be saturated and the quality is not high, the profit of Zara shop is down. On the other hand, it lacks the strategy of judging the location of the three or four line cities, which leads to the establishment of a flagship store with higher efficiency and better image in the key cities.

As for last year's Zara Tmall, which opened its flagship store, there are quite a lot of things to worry about. It's too early to talk about complemented by physical stores.