In order to push sales in a highly competitive retail market, Zara India has slashed its entry-level product price by more than 50% to Rs 390 from Rs 799 a year ago.The Rs 390 price point was introduced by the Spanish retailer in the sale announced by it in January this year. However, even after the sale concluded, the retailer has held on to the price point and even added more merchandise at the price. So, when you stroll into a Zara store, you won’t have to go hunting to find the one or two products at this price. There are a range of tops and Ts to be had, and that seems to be drawing in more customers. Zara didn’t reply to an email query from FE on what prompted the shift. Pinaki Ranjan Mishra, partner and national leader, retail and consumer products, EY India, said, “With the international brands going deeper in newer cities, they are introducing lower price points to attract customers. Moreover, most international brands have very efficient supply chains, the benefits of which they may be able to pass on to customers.”
Clearly, the price point seems to have worked for Zara, and even shoppers in high-street locations have access to a wide range at this price. Inditex Trent, the joint venture between Zara brand-owner Inditex and the Tata Group’s retail arm Trent, which runs Zara stores in India, witnessed a 21.4% increase in sales to Rs 1,023 crore in FY17, but the company’s net profit fell 40% to Rs 48 crore after the Spanish chain slashed prices by around 10-15% to keep in step with its competitors. Experts suggest that Zara is trying to push volumes by lowering its price points. Anil Talreja, partner, Deloitte India, said, “Reduction in price is a way to push volumes.”
What a lower price point also does is attract customers who might otherwise feel hesitant to walk into an international fast-fashion store. Once a customer walks in, its isn’t unlikely that many will move up the price range to buy other merchandise as well, said a retail professional on condition of anonymity, as he did not wish to comment on another brand. When Zara entered the country around eight years ago, its average price point was Rs 1,200 to Rs 1,400. But to hold on to this price point was difficult.
The pricing battle intensified after Hennes & Mauritz (H&M) entered a little over two and half years ago. Zara has dropped prices by about 70% to Rs 390 to take on its most aggressive competitor, H&M, which is still continuing with its stock clearance sale at a starting price point of Rs 250. Sales of H&M almost doubled for the year ended November 2017 to Rs 956.24 crore. This growth was propelled by rapid expansion of stores — from 10 to 27 during the year — and strong volume growth.
While other competing brands like Vero Moda and Forever 21 have entry-level price points of between Rs 500 and Rs 700, the battle for volumes and dominance clearly seems to be between Zara and H&M.
Zara is presently the market leader in the segment, but H&M has aggressive expansion plans. H&M has set a target to open 30 new stores in the next 30 months. Zara operates more than 21 stores at present, while H&M has 29 stores operational across the country. Arvind Singhal, chairman of retail consulting firm Technopak, said these international brands have managed to do well mainly on account of affordable pricing, while providing quality products. The battle for market share between the two global brands is proving to be good news for shoppers a la Amazon versus Flipkart. And this will likely make fashion shopping easier on the pocket this summer.