Business information analysts IBISWorld have warned Zara’s success in Australia is the exception to flat retail as more than a hundred fans of the Spanish chain waited hours this morning for the brand’s first Melbourne store to open.
The three level Bourke Street store is only the second Zara outlet to set up shop in Australia after it opened in Sydney in late April. However, IBISWorld general manager Robert Bryant warns the frenzy it caused is unlikely to occur for other retail operations with the local market continuing to struggle.
“During the year to April 2011, the nation's $15 billion clothing and footwear retail sector grew by just 1.2 per cent, and its proprietors must only look on at Zara's burgeoning success with gaping mouths and fear in their hearts,” he says.
Bryant admits that with 1,500 stores in 76 countries and a very efficient business model, Zara could be a tough competitor for clothing retailers in close proximity to its stores.
“With almost total control of its own supply chain, Zara can design, produce and distribute clothing and accessories at a pace and at a rate of turnover that its competitors can only dream of. More to the point, it can afford to do this at prices lower than its competitors.”
Given the deflationary spiral caused by heavy discounting during the global financial crisis, Bryant fears that Zara’s success could lead to serious trouble.
Despite this, IBISWorld predicts the clothing retail sector will grow by a mere 1.5 per cent in the coming year, to be worth $12.3 billion.
“Colorado is just one local casualty of the flat-lining retail market, today announcing it would be closing 100 Australian Colorado stores and an additional 31 stores in the company’s Mathers, Williams, Diana Ferrari and JAG chains – resulting in more than 1000 job losses,” Bryant says.
Although Zara’s average global revenue per store is $6.4 million, Bryant says that while individual stores may pose a threat to nearby competitors, it won’t impact the chain’s market share in Australia unless it expands the number of its stores.