Spanish Franchisor and Clothing Retailer Zara Opens Up Its First Store In India, Delhi.

The Inditex Group has opened its first Zara store in Delhi, India. The Indian market shows great growth potential and will make a considerable contribution to total sales in the long term. However, several challenges remain in the form of a 51% limit on FDI and significant cultural differences. Nevertheless, Inditex's unique distribution strategy should allow it to gradually adapt to the market.

Inditex opened its first Zara store in India on May 29, 2010 in the Saket region of Delhi, having announced its plan to do so in September 2007. In accordance with Indian regulations on foreign direct investment (FDI), the Spanish fast-fashion retailer partnered with the Tata Group, India, to form a joint venture in February 2009. Inditex owns 51% of this partnership while Tata's subsidiary Trent Limited holds 49%. Due to various challenges the company faces, store expansion will remain slow, with only one further store opening planned for 2010.

Inditex has relied heavily on global expansion to maintain its sales momentum due to the heavy impact of the downturn in its domestic market. Indeed in 2009, 98% of new stores opened outside of Spain. Asian markets are a particularly strong source of growth for Inditex. It already operates stores in South Korea, China and Japan, where it opened a combined 63 stores in 2009. Similarly to China, India presents lucrative potential in the form of a rapidly growing middle class. Moreover, its clothing retail expenditure is forecast to grow at a faster rate than neighboring China with a CAGR of 6.7% in the period 2009-13, compared to China's 5.3%, according to Verdict's Global Retail Database.

However, the company faces several hurdles. Current regulations on FDI in India stipulate that foreign single-brand retailers must pass a 49% stake to a local partner. This involves the retailer sharing company details and data it would not normally divulge. Furthermore, franchising stores means that the retailer loses some control over how these are operated, which many companies fear may damage their brand. Consequently, single-brand retailers are often wary of entering the Indian market. For a clothing retailer like Zara, additional concerns include the relative lack of seasonal variation and the distinct, consolidated style of dress among Indian women which differs greatly to Zara's existing ranges.

Despite these challenges, Inditex has been the first of its main rivals, H&M and Gap, to take the leap. Zara has the advantage of having a much shorter range turnover cycle, at two weeks, and is able to respond quickly when specific categories and designs fail to sell. As such, Zara is well equipped to deal with a new and unexplored market and will benefit from capitalizing on growing demand within the retail sector.

Tags:Zara Store, Inditex, Spanish Franchisor, Franchising Stores,Clothing Retailer,GAP, HandM,international retail stores, International Franchise