Inditex, the Spanish apparel retailer, is opening 3 new Zara stores a week, and none of them are in the United States. The firm, which posted profits of $2.2 billion through Q3 2012 (the firm has not yet released Q4 numbers), opened 360 stores in 2012 and recently broke the 6000-store mark.
Sales are up 17% to $15.3 billion. Zara opened stores in 54 markets in 2012, but in the amount of time it took to open 350 stores in China, they only opened one new store in the United States. Clearly, Zara is avoiding U.S.
You would think that a voracious foreign retailer with a taste for growth would find the consumer-crazy U.S. hard to avoid, but there is one unflattering reason why Zara won’t be expanding here anytime soon – our size. American’s are, well, bigger than Europeans.
“What is the problem in America? They don’t fit in the clothes. So why do it? Having to make larger sizes makes production so much more complex,” said Nelson Fraiman, Professor of Decision, Risk, and Operations at Columbia Business School.
That’s right – to expand in the United States, Zara would have to create a whole new set of fits to accommodate Americans. As of this writing, 1/3 of American adults are obese and 1/3 are overweight, leaving only 1/3 of the American adult population who even stands a chance of wearing clothes cut to fit Europeans.
American’s are the world’s wealthiest consumers, and it would be worth it to tap their market, but even if Zara did double its production line so it could make clothes for heavier people, there’s no evidence that Americans want fashionable, European clothes. Fraiman again: “Midwestern Americans shop at stores like Gap and Wal Mart. They aren’t trendy. Trendy people live in Los Angeles, New York, San Francisco, and Miami. That’s it.”
Zara has a lot more to gain by pushing its China expansion. Chinese women are fashion forward and almost all Chinese people can fit in European sizes. Building the backend to service that market also puts the company in a perfect position to meet the needs of the expanding Indian consumer class.
Of course, to maintain its legendary turn times (2 weeks from runway to retail), the company is air-freighting clothes to China from Spain. That’s fine for now, but eventually they’ll want a less expensive solution. On top of that, the company has limited manufacturing capacity in Spain.
According to Fraiman, the firm is running an average capacity utilization rate of slightly over 60 percent, which has crept up from 50 percent three years ago. The firm tries to keep at least half its capacity unbooked so it can pop out those fast designs, but higher overall demand from expansion in new markets is slowly cutting away at that free capacity.
Eventually, the firm will have to open new factories and a new design center in China, or (more likely, based on the CEO’s desire to keep the company Spanish) resign itself to slowing growth.