Increasing competition and a general slowdown in consumer demand are possible reasons for the drop in profit
However, revenues at the seller of fashion clothing and accessories were up 17.7% at ₹1,438 cr
New Delhi: Spanish fashion brand Zara posted a 13.4% drop in net profit for the year ended 31 March, 2019 at ₹71.49 crore, amid increasing competition and a general slowdown in consumer demand in the market.
Revenues at the seller of fashion clothing, and accessories were up 17.7% at ₹1,438 crore, its local partner in India, Trent Ltd, said in its annual report on Friday.
Inditex SA—the world’s largest fashion retailer that owns brands such as Zara, Pull & Bear, Massimo Dutti globally—is present in India through two joint ventures with Tata Group’s retail arm Trent Ltd.
Inditex Trent Retail India, a 51:49 joint venture with Trent Ltd runs the Zara business in India.
“During the year under review, the Zara entity recorded revenues of ₹1,437.87 crores and PAT of ₹71.49 crores," Trent Ltd said in its annual report for financial released on Friday.
In the year ago period (2017-18), Zara had posted a profit of ₹82.59 crore with revenues of ₹1221.67 crores.
In FY19, Zara added two stores in India expanding to 10 cities, including its first store in Kolkata, while also selling its clothing, shoes, and accessories online—sales of which started in India in late 2017. In FY17, Zara had seen a 40% drop in profit in its India business after it took price cuts on its inventory during the financial year.
New store openings for the brand Zara, which first entered India in 2010 and found popularity among the more upmarket, urban Indian shoppers will remain calibrated, the company said. “The incremental store opening program for Zara continues to be calibrated," said Trent Ltd, which owns home grown lifestyle retail chain Westside, about Zara.
An email query sent to Trent Ltd remained unanswered.
“The numbers could reflect a dip in same store sales growth," said a retail industry expert on the condition of anonymity. “Also, during the year India saw no major new net mall additions in large cities for a brand such as Zara to open add more stores," he added.
In its annual report last year, Trent had maintained that while it plans to add more stores for Zara in India over the next three to four years, availability of high quality real estate remained a challenge. “The primary challenge to faster expansion is the availability of high quality retail spaces which can be expected to generate reasonable sales throughput," Trent Ltd said then.
“There is a general consumer slowdown across sectors," said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. While Zara entered India to a strong reception, over the last few years it has entered markets where demand for its fashion clothing is limited, Dutta added.
Massimo Dutti Private Limited, the second joint venture between Inditex and Trent that runs the more premium Massimo Dutti brand in India posted revenues of ₹63.58 crores for the year up 39% from the year ago period. During the year, the company added no new stores for the brand that has three stores here.
Zara’s drop in numbers come at a time when its rival Swedish brand H&M has been opening stores at a much faster clip in India. The brand, which entered India in 2015, much after Zara, already has over 40 stores in the country— a number it plans to take to 50 by 2020.
Sales at fast fashion retailer Hennes and Mauritz (H&M) India grew 29% to ₹1,108.2 crore in the year ended 30 November, 2018, the company said in its annual earnings earlier this year. During the year the fast fashion retailer known for its cheap and affordable clothing also launched an online sales channel in India. H&M follows a December to November financial year.
Indians spent ₹5.4 lakh crore on buying clothes in 2018, a jump from the ₹1.92 lakh crore they spent in 2010. The market for apparel in India grew at a CAGR of 13.8% in FY18, according to a report on India’s apparel market by CARE ratings.
However, competition in India’s apparel market is growing, especially as more consumers are shopping on discount-fuelled e-commerce websites.
Japanese retailer Uniqlo is set to enter India later in this year,making it more challenging for existing retailers such as GAP, Forever 21, H&M, and Zara to lure shoppers into their stores.
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