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Zara’s Australian entrance to challenge local retailers

Global fashion sensation Zara has opened its first Melbourne store after launching in Sydney in April, and if local retailers aren’t gearing up for a fight, they should be.

For its Australian debut, Zara opened a giant three level store Sydney store, located in Westfield’s Pitt Street Mall, while the Melbourne store is in the Bourke Street mall. The retail giant is reportedly already eyeing other potential locations across the country.

Owned by Spanish giant Inditex, Zara has an enthusiastic following among Australian fashionista and travellers who have encountered its high-quality fashion and low prices overseas.

To understand the hype behind Zara, it’s important to look at what has made it an international success story. For starters, Zara is widely renowned for its distinctive supply chain, retaining full control of the design, manufacturing, sourcing and distribution to retail stores.

Its product turnover speed is another factor. It is believed Zara launches more than 12,000 new designs every year, taking only four to five weeks to produce and dispatch a garment into stores (compared to the industry average of six months).

In turn, this speed allows Zara to use minimal marketing, as shoppers are encouraged to regularly visit stores to browse new stock. And while Australia may be located a significant distance from Inditex’s head office, new products are expected to arrive into the new Sydney store twice a week.

Inditex’s impressive financial figures are underlined by the company’s ability to generate profits. In the 12 months to January 31 2011, the company’s total sales rose 13% to about $17.2 billion and profit surged 32% to around $2.5 billion.

Its global expansion record has also been enviable. Its flexible, high-speed business model has travelled from Spain to 77 countries, taking the overall store count to around 4000. Zara has opened 437 new stores worldwide in 2010 alone and has plans to open up to 600 stores throughout 2011.

The reason Zara is pushing in Australia is that although Australia may be substantially smaller than other parts of the world, it is viewed as a valuable market of fashion-savvy consumers with an eye for the latest fashion and international brands.

Zara joins other international brands such as Gap and Victoria’s Secret which already have a presence in the Australian market, paving a gateway for other major brands.

So what does all this mean for Australian retailers? It has been feared brands such as Sportsgirl and Witchery may see their sales impacted by Zara’s entrance, particularly because its target market is similar, if not the same.

Retailers operating in this space will not only need to ensure their product range reflects the latest fashion trends, but that they can be easily distinguishable from their competitors.

For instance, in terms of differentiation, store experience is an avenue Australian retailers could look into. This may include the way a store is merchandised, product range, fixture layout, and the overall ambience of the store including smell and sound.

Sometimes simple merchandising can go a long way so the key is not to go over the top but keep it in line with overall branding. Retailers will need to look to their customers to help guide new ideas or products.

Some retailers are already bringing their customers into the creation of new stock or incorporating the latest technology (such as the iPad) into their stores for product information or even purchase.

In addition, the online channel plays an integral role for retailers.

Over the years, we have seen Australian consumers use the internet to search for fashion trends and make purchases from online international retailers.

Particularly with the strong Australian dollar, it is no surprise that a significant portion of our share of the wallet is going offshore.

However, it is important to note that consumers are not necessarily sourcing offshore for a discounted rate, but for access to a greater product range and fashion-forward pieces.

It is not only about having an online presence but being able to transact, return/exchange products, and link their purchases with social media sites, such as Facebook. Australian retailers should not serve the Australian market but expand to new markets. If international retailers can access Australia, why should we not look internationally?

Finally, retailers need to value customers by providing them with superior customer service. Staff must have sufficient product knowledge, be fully trained and understand the importance of customer service. Most of all, staff must acknowledge and communicate with the customer whether the shopper makes a purchase or not.

These days, if consumers can purchase the same item elsewhere, it only takes them a couple of seconds to make a decision and get out of the store.

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