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Bigger, Faster, Better: The Foreign Fashion Giant Set to Remake U.S. Retail


They don’t know it yet, but U.S. specialty chains like Abercrombie & Fitch (ANF) and the Gap (GPS) are facing extinction.  A Spanish company called Inditex (ITX.MC) is already the world’s biggest fashion retailer and it hasn’t even bothered to attack the U.S. market in earnest.  When it does it’s game over for American specialty retail as we know it.

Gap and Abercrombie are the old school.  They strive to be on the cutting edge with a fickle youth audience. They order goods months in advance, much as U.S. retailers have been doing since the ‘80s.  That means big profits when they’re in sync with the customer, but catastrophe when they miss.  Clothes are racked and stuffed in cubes and marked down until the bitter end.  Finding an entire rack of clothes marked down 40% with no sizes larger than “medium” isn’t just possible, but par for the course.

When Abercrombie came under fire for not selling anything marked “XL” for women the chain vowed to expand sizes in limited quantities in one division starting in March.  Abercrombie may as well announced plans to colonize Mars with shirtless models for all the impact the company’s modest experiment with speed will have on the bottom line.

“Fast Fashion”

Inditex stores are about speed to market and discount fashion.  More bluntly put, they knock off hot styles and get it on the shelves fast.  The quality tends to be less than high-end, but certainly on par with what you’d find at the Gap or in a Macy’s (M).  Because of how fast Inditex can go from concept to sales rack, the looks are fresh and contemporary without being avantgarde.   

At Inditex’s flagship Zara chain, optimized systems developed with MIT, Stanford, and UCLA allow the company to order products weeks or even days ahead of time instead of months.  Once an item is sold out in any major size category it comes off the mannequin and is pushed out of the store fast.

Because it’s faster and more efficient, Zara offers 3 - 5x as many articles of clothing in a given season compared to the dinosaurs.  According to a Zara executive quoted in the rather dense study “Clearance Pricing Optimization for a Fast Fashion Retailer,” customers visit an average of 17 times per year compared to 3 or 4 visits for the companies doing business the old fashioned way.

It’s funny how loyal customers will be to a store that keeps inventory fresh and always has the item on display in your size.

Who is Inditex?

Inditex consists of 8 brands and has more than 100 different companies involved with design, textiles, and production of so-called “fast fashion” goods.  At the end of its most recent quarter the company was running 6,104 stores, more than Abecrombie, Gap, and Aeropostale (ARO) combined.

With 1,777 stores and counting, Zara is Inditex’s top brand and the most likely flagship vehicle for the company when it decides to invade the U.S.  Zara stores are big, modern, and more than a bit Euro-stuffy.  Most don’t allow food and though there are plenty of couches, lingering is clearly discouraged.  Zara stores can be off-putting to Americans used to munching something from the mall food court while looking for anything larger than a size “medium,” but the process feels more down-to-earth when you get to the cash register.

Fast, fashionable, affordable

Fashion is nice, but to reach critical mass in the U.S. a chain has to be able to compete on price.  That’s where Zara really puts space between itself and the domestic dinos. 

For the sake of comparison I ran a study of my own design called “Dress My 10-year Old.”  The goal was to, you guessed it, come up with an outfit for my 10-year old son. I decided on tan slacks, a sweater, oxford shirt, and wool jacket.  Basically I bought my kid an outfit for Thanksgiving.

As a patriot I’d rather hoped the Gap would do better.  Zara’s website was easier, enabling entire “looks” to be assembled rather than putting an outfit together piecemeal on Gap.com.  The fashions were comparable with a little more breadth at the Gap, but fresher looks at Zara.

The biggest difference was price.  My clean, basic, family-friendly outfit cost about $160 at Zara compared to $195 at Gap.  Remember, these are clothes for a 10-year old.  They’ll be outgrown before they’re worn-out and the clothes are generic enough to work at the playground, school, or Thanksgiving dinner with friends.

The technical aspects of Inditex are a merchandising wonder, but a 25% price difference is where Zara simply destroys the Gap and any other specialty retailer currently doing business in the states.

Zara is simply better at being a merchant than anything we currently have here.  It’s not even a close race.  There’s a new apex predator in the retailing kingdom, and it comes from Spain. American specialty stores are just marking time.