Zara at a luxury wedding surprises Spain – 06/23/2023 – Market

The wedding of Ricardo Gómez-Acebo Botín, nephew of Banco Santander president Ana Botín, was a high-society affair near Madrid this month, drawing extensive Elle magazine coverage of the guests’ flowered hats, rustling capes – and the fact that that some people are using Zara.

So striking was the presence of two “inspiring looks” by the Spanish brand, costing 129 euros (R$670) and 36 euros (R$190), which made headlines. But results from Inditex, which owns Zara, a few days earlier suggested that wedding pieces are not a rare case.

Inditex, which hails from an unglamorous town in Galicia, far from the Spanish capital, reported a 13% jump in sales in the first quarter, following a 17.5% increase for the full year of 2022. The growth helped lift its market value to 105 billion euros (R$550 billion), still below its 2017 peak but the highest since a pandemic from which Zara emerged as one of the winners in global retail.

Though it still sells staples like T-shirts, Zara has tried to differentiate itself from Sweden’s H&M and escape the throwaway “fast fashion” label by becoming a creator of elegant party wear. Last year, American singer Selena Gomez wore an electric blue Zara suit for 150 euros (R$ 780) to Britney Spears’ wedding. Inditex sales reflect the shift.

Óscar García Maceiras, who became chief executive last year when former president and CEO Pablo Isla stepped down, said Zara doesn’t have a new strategy to move up the class in the market. “But we are always striving to improve quality, style and design, and we want to make room for nonconformity in our fashion. That has never changed,” García told the Financial Times at Inditex’s headquarters in Arteixo.

Patricia Cifuentes, an analyst at Bestinver, said: “They repositioned themselves slightly upwards to get to the center of events. In the old days in Spain you could never wear Zara to a wedding. But now with all the influencers and celebrities wearing Zara, you can. Inditex reinforced the idea that Zara sells fashion.”

In the UK, gossip sites have been tracking Zara clothes worn by Kate Middleton, Princess of Wales, for over a decade. But the shift in consumer perceptions is more recent.

In part, that’s thanks to Marta Ortega, daughter of founder Amancio Ortega and non-executive chairman of the company since last year, who helped launch premium fashion collections with partners like New York designer Narciso Rodriguez and the South Korean brand Add Error.

Another factor is the growing use of high-profile runway photography on its website. “Customers can see the clothes in situations they wouldn’t see in the store,” said a member of Zara’s online team. “E-commerce is the best billboard we can have.”

Meanwhile, Zara has maintained its ability to move faster than competitors. Because it has its own factories in Galicia and suppliers in Portugal and Morocco, it manages to design new looks inspired by the catwalks and have them in stores in less than three weeks.

One analyst, more cautious of Inditex, said one of the main risks over the next two years is that inflation will continue to drive up operating expenses, but customers facing the cost of living crisis will resist price increases.

Rivals such as Cos, & Other Stories and Arket –all owned by H&M–, as well as Spain’s Mango, face the same challenge. But in the last quarter at least Inditex’s gross margin rose to 60.5% of revenues, 10 percentage points above H&M. García Maceiras said that Inditex has always focused on keeping prices stable “and protecting our own margins”.

Inditex, which reported 33 billion euros in sales and 4 billion euros in net profit last year, has several luxury brands including Massimo Dutti, Pull & Bear, Bershka and Stradivarius. But Zara is the juggernaut that accounted for 73% of revenue.

What she wants is more balance around the world. It operates in more than 90 countries, but Spain is still its biggest market, with more than 1,200 Inditex stores and 14% of last year’s sales.

The big shock was the demise of its second-largest operation, Russia, where Inditex froze and eventually sold its 500-store business following the country’s invasion of Ukraine. The latest figures she gave as she left Russia, in a February-March update, were that she cut sales growth by four percentage points to 13.5%. The fact that it didn’t do more damage is a testament to its strength elsewhere.

The number two new market is the United States, which in Cifuentes’ assessment account for 9% of sales. While Inditex doesn’t like to expand at breakneck speed, García Maceiras said it is capitalizing on an unexpected fallout from Covid-19.

“The appetite for fashion in the United States has spread further across the country as people have moved due to the pandemic and away from New York and California,” he said. “That’s one of the reasons we open stores in places like Nashville, Salt Lake City, Denver or San Antonio.”

Analysts reckon Inditex’s third-largest country is Mexico, followed by the UK, France and Italy, each accounting for around 5% of sales. China is also in that range, and what happens there will have a big influence on Zara’s future.

Jie Zhang, an analyst at Paris-based Alphavalue, said Zara had long positioned itself in a higher segment in China than Europe because it wanted to stay out of a market segment filled with “different and cheaper local brands”.

China’s slowing economy could also provide a boost. “We are seeing a certain change in habits among wealthy consumers. People who could have bought a luxury brand dress are now happy to buy one from Zara,” said García Maceiras.

After her own wedding, a Chinese influencer named Saneiei posted a photo of herself at the after-party and wrote, “No one would guess that this silver sequined dress that looks expensive is actually from Zara!”

Collaborating with Adrienne Klasa, in Paris, and Xueqiao Wang, in Shanghai