Zara Hits the Sweet Spot

Zara, the Spanish retailer owned by Inditex, opened their first Beijing store in The Place in the spring of this year.  The foreigners in Beijing familiar with the brand eagerly awaited the opening and after a short period of time, local consumers flooded the new store.  In the last month, Zara has pre leased space in the New Sanlitun Development as well as in the new Xidan Mall – both luxury developments still under construction – and also announced the opening of a Shenyang outlet at the end of 2007.  Based on this rapid expansion, business is clearly good, and looking at China’s demographic situation and the current state of the retail market, there are clear reasons why. 

China’s metropolitan youth and young adults (a.k.a. Chinese yuppies)  have serious fashion aspirations.  Just in the past several years of living in Beijing, I have noticed a dramatic increase in the attention that most people in Beijing pay to their appearance.  A simple search for “Zara” on a Chinese search engine brings up countless chat threads discussing their products and their competitors.  What is critical about Zara is that they are filling a niche – one that is similar to that filled by the Gap and Banana Republic in the US and one that, until Zara entered, was almost void of options.  The niche is luxury fashion at a lower price point.  Zara is famous in Europe for taking trends straight off of the runways and selling them at stores for a small portion of what luxury retailers such as Louis Vuitton and Gucci are selling them for.  The model is hugely successful in Europe and North America and has enormous potential in China also. 

The retail market is demographically driven and all major brands and department store operators are salivating over rapidly growing disposable incomes across
China.  A brand like Zara hits not only the elite class, but also is within reach of Beijing’s very large class of up and coming white collar workers.  Currently, they have a monopoly over this segment in Beijing, but they better hurry, as the American company American Apparel as well as Sweden’s H & M have disclosed ambitious
China expansions plans aiming at the same consumers. 

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