Investors are continuing to show confidence in the long term potential of Hong Kong's retail market - with leading Spanish fashion brand Zara among the latest to open a store there. Even though parent company Inditex has a long history of sourcing in the region, this is the first wholly owned and managed Zara store in Asia. Marie-Hélène Corbin meets David Konn, Inditex Asia general manager.

Madrid-listed Industria de Diseno Textil (Inditex), the parent company of Spanish retailer Zara, has a long history in sourcing from Asia, and set up Inditex Asia Ltd in Hong Kong seven years ago as its regional buying office.

But until May, when Zara opened its first store in Hong Kong, the company had no retail activity in either Hong Kong or the Chinese mainland.

According to David Konn, Inditex Asia general manager, the increasingly affluent mainland Chinese consumers - a top target for many high-end European and US brands in the city - will not be Zara's main focus.

Instead: "It is the Hong Kong market that we are aiming for, which means 7.5 million people, and 25 million fashion-conscious tourists per year," he insists.

The store, which covers 15,000 square feet, is the first totally owned by Inditex in the Asia-Pacific region.

Inditex opened its first outlet in Asia in September 1998 in Tokyo (Japan), where 11 Zara shops can now be found. In 2002, its first store in Singapore was opened; a year later a first store followed in Malaysia and Zara has now three stores in each of these countries.

"We have been watching Hong Kong for quite some time - it is an important market for us - while circumstances led us to find places in other parts of Asia," David Konn explains.

International Finance Center mall
The group has benefited from the opening last year of a new shopping mall in one of the Central district's two IFC (International Finance Center) towers, which has already be chosen by some high-end western brands (including Prada, Furla, Ferragamo and Armani Exchange) and also by Spanish competitor Mango.

But David Konn declares that competition will come only from local brands - many of which also have stores in the IFC - "and only on certain things that we do."

In common with all 661 Zara stores worldwide, the Hong Kong outlet will receive 25,000 different styles per year from its women's, men's and children's collections as well as shoes and accessories. It will focus on the best sellers according to market demand, a practice that is "very simple, and very difficult to copy," says David Konn.

"Zara's success can be attributed to two key factors," he continues. Firstly, Zara's ability to gauge what customers want, and secondly, a commitment to delivering this quickly to all stores around the world.

"Zara's store at the IFC will receive new merchandise twice a week. In essence, a shopper can come into the store every 3-4 days and see completely new merchandise in the store. New looks and collections will also be showcased in Zara's window displays, which are changed very frequently, every 2.5 weeks."

These collections will be shown 'in-store' in dedicated 'zones' - a store design feature created by Zara for all stores around the world to ensure optimal display of items as well as to provide ease of selection by customers.

For example, in the women's wear zone, all three lines from the women's collection, 'Women', 'Basic' and 'TRF' are displayed. In the men's wear section, the 'Sports', 'Moda' and 'Classic' lines are showcased.

"So far we do not see Asian specificities appear in comparison with the European markets. I guess that the differences will be more on the sizes than on the clothes, and will be stronger in winter," David Konn adds, declaring to be "very satisfied" with the early sales figures from the Hong Kong store.

"We were confident, based on our research that showed that many Hong Kong shoppers actually travel overseas to find Zara, that Zara at the IFC would be a success."

Sourcing skews
As far as sourcing goes, the items sold in Hong Kong will not be any more biased towards Asian suppliers than if they were on sale in a European store.

"Inditex carries out 65 to 70 per cent of its production in Spain, and does not invest in terms of production outside Europe," David Konn says.

"The group has manufacturing partners in Latin America, North Africa, Asia - and of course China. Some of our suppliers there have worked for us for more than ten years; loyalty is very important to us."

The end of textile quotas in 2005 will not result in a surge of Inditex sourcing in China, he affirms: "Our sourcing in China will not exceed 15 per cent of our supplies in volume. We do not want to put all our eggs in the same basket."

Chinese market caution
Inditex shows the same caution for the Chinese market, even though the Spanish group is famous for its dynamic and aggressive expansion.

In fiscal 2003 Inditex increased the pace of its international expansion, opening a total of 364 new outlets, 90 more than in the previous year. As at 31 January 2004, the group had a total of 1,922 stores in 48 countries under its six banners, including its first stores in Russia, Malaysia, Slovenia and Slovakia. Some 90 per cent of the new openings - 325 stores - were in Europe, where the group had 1,650 stores.

Currently, Inditex is now present in 53 countries with 2,055 stores. Zara represents 70 per cent of the group's total, with a turnover of €3,219.6 million in 2003, up 10.5 per cent from 2002. The chain opened 95 new stores in 2003, 68 of these in Europe, 15 on the American continent, six in the Asian-Pacific area and another six in the Middle East.

"Most of our Zara openings in the short term will take place in Europe, which represents three-quarters of our turnover. We expect a lot in Italy, where we began operating in 2001 and our two recent stores in Rome and Milan are very successful, in Germany and in England, in Eastern Europe - we have just launched a new store in Estonia, our first outlet in the Baltic countries - and in Northern Europe as well.

"We are thus continuing to consolidate our presence in the main European markets while at the same time taking advantage of other opportunities in different geographic areas," David Konn emphasises.

Whereas the Chinese market seems to him ready for Zara's clothes, "especially on the female side, very fashion-conscious," the legal and commercial barriers of entry are currently prohibitive.

"I have lived and worked in Hong Kong for seven years. I know how complex this market is," he concludes.

Besides, Zara's two other biggest competitors, US specialty retailer Gap and Swedish H&M, are neither in Hong Kong nor in China.

By Marie-Hélène Corbin.