Inditex is set to see the largest growth from its domestic market by 2020

Inditex is set to see the largest growth from its domestic market by 2020

Spanish retail giant Inditex is set to see the largest growth from its domestic market by 2020, analysts believe, thanks to its mixture of fast fashion and premium brands.

Ranked third in the global apparel and footwear market in 2015, with a 1% value share, the owner of the Zara and Massimo Dutti brands is expected to record an absolute value growth of US$3.8bn in Spain between 2015 and 2020, according to Euromonitor. The analysts say this market generated 19% of its value sales last year, and recovery can only benefit the company's total business.

Sales in Western Europe as a whole, however, have declined. In 2015, around 50% of Inditex sales were accounted for by Western Europe, down from 64% in 2010. In comparison, 63% of rival Hennes & Mauritz's (H&M) sales are still generated in the region.

Nonetheless, Western Europe is forecast total absolute value growth of $7bn over 2015 to 2020 for Inditex, as the region's recovery begins to unfold. However, analysts believe the performance by market remains mixed for the retailer, with France predicted to decline by $1.6bn, while Turkey grows by $2bn.

"Inditex's mixture of fast fashion and premium brands enabled the company to grow by a CAGR of 3% over 2010-2015, despite lingering macroeconomic weakness in many markets, as its business model is favoured by price sensitive consumers," Euromonitor analysts explain. "Cautious shopping habits persist, despite economic recovery, and this is likely to be the main reason for the launch of the low-priced 'Lefties' brand, which boasts price points that are much lower than Zara."

Despite H&M generating a larger share of sales in Western Europe than Inditex, the Spanish fashion group has been quicker to develop its online strategy, Euromonitor points out, while H&M lagged behind, diluting its global reach. 

"With online platforms fully operational in over 29 markets, Inditex is much better positioned to capitalise on the growing demand for internet retailing," analysts explain.

Inditex has also been bold with its expansion into emerging countries, and continues to benefit from first mover advantages in markets across Latin America, India and South Africa. However, a market where H&M has surpassed Inditex, is the US. 

"As the world's largest apparel and footwear market, Inditex will need to solidify its position in the US in order to secure future growth prospects," the analysts say. 

Inditex revealed strong results in its recent first-quarter thanks to its geographic expansion and sales growth across all regions. The group is now present in 91 markets after openings in Aruba, Nicaragua and Paraguay during the current year.

Inditex reveals "standout" Q1 performance

Last week, Bernstein analysts outlined how they thought Inditex was the clear winner in the fast fashion space, with the competitive distance between the company and its peers continuing to increase thanks to its efficient business model.

Why Inditex is "clear winner" in the fast fashion space