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Inditex Brings Massimo Dutti to New York, Challenging US Retailers

Spanish retailer Inditex is opening its first US branch of a new chain on Fifth Avenue in New York. Massimo Dutti, which targets urban professionals with fast fashion designs, is Inditex’s attempt to move past the lukewarm response their flagship chain, Zara, has received in the Big Apple. Inditex is very dominant in fast fashion worldwide, and hopes to create a foothold in the US upscale market, selling A-line dresses and suits to young New York office workers. Massimo Dutti seeks to challenge retailers such as the J. Crew, Gap, and Banana Republic.

Inditex has had trouble adjusting its model to fit the geographically scattered and saturated US market. The firm is most comfortable in urban areas, with less developed retail markets. Competition in the khaki market from Gap was also a factor in delaying the firm’s expansion, though that has diminished in recent years. The firm has focused much of its expansion on China and Europe, and only has 44 Zara stores in the US.

With Massimo Dutti, Inditex is furthering its penetration of the most developed and lucrative retail market in the world. It is a potentially difficult move. Chains in the United States show narrower margins, both due to the more competitive environment and because the large distances from cities make distribution costs higher. An initial launch in New York will give the firm time to assess its popularity and cost structure, before making a big bet on a nationwide rollout.

Massimo Dutti showed 1 billion euros in sales in the year ending January 2012. The brand was Inditex’s most profitable in 2011, with an operating margin of 24%. Sales per square foot have been growing rapidly. Inditex has prospered along with Massimo Dutti, more than doubling its annual operating profit in the past six years. Their focus on emerging markets has made this rapid expansion possible, along with their ability to rapidly respond to changing market conditions.

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The new store is a welcome alternative to traditional US retailers, who have sometimes failed to keep up with fashion trends. Many lines at stores such as Banana Republic and Gap are infrequently refreshed, particularly when compared to European fashion. This, and the 2007 recession, has flattened revenues at US retailers that have not pursued fast fashion strategies. As US customers become more acquainted with foreign chains such as H&M, Uniqlo, Zara, and now Massimo Dutti, traditional brands that fail to react can expect lose market share.

Inditex relies on an unconventional word-of-mouth advertising strategy. This encourages customers to regularly visit the store to see new designs, but can make it difficult to enter new markets. The firm will face stiff competition, but is planning a slow launch, backed by a strong and increasingly recognizable company. They now see themselves as strong enough to challenge US retailers on their home turf, and starting with New York’s fashion forward shoppers is a savvy strategy. New York fashion often sets the national tone, and a strong launch there could prime the pump in other urban areas.

The firm has been using social media to generate buzz about the store launch, and has been featured on several prominent fashion blogs. Dutti has also created the 689 5th Avenue Collection, which features a higher price point and better quality garments, and will be deployed in 40 stores worldwide.

The new store will be Zara’s largest in the United States, with three stories. The press release from Inditex reports that the store design is based on “beauty, clarity, functionality, and sustainability,” values intended to appeal to younger urban shoppers. The store opens Friday, October 12.