Zara Partly Cedes China Web Control to Alibaba to Aid Growth

Since opening its first website four years ago, Inditex SA has maintained full control of online sales for its flagship brand Zara. To gain a stronger foothold in China, the Spanish retailer plans to partially cede both oversight of the chain’s Web sales and a share of its profit.

This month, Zara will open an online store on Tmall, a Chinese website owned by Alibaba Group Holding Ltd. where companies such as Nike Inc., Burberry Group Plc and The Gap Inc. sell their wares. Tmall, which outranks as China’s biggest e-store, with more than 100,000 brands represented, takes 0.5 percent to 5 percent of sales made on the site.

Zara is one of the strongest Western retailers in China, where Inditex has 456 stores. But its two-year old, which will continue to exist, isn’t even among the 10,000 most popular Web destinations in China, while Tmall is No. 7, according to data tracker Alexa.

“Retailers, to launch e-commerce in China, are deciding to launch through Tmall because of the breadth of its audience,” said Jamie Merriman, an analyst at Sanford C. Bernstein & Co. “It’s not a question so much about profitability as it is about the potential to expand market share.”

Alibaba raised $25 billion this month in New York in the world’s largest initial public offering, and it’s now worth more than Inc. The IPO prospectus raised at least one red flag for retailers considering sales on its websites: The U.S. government has called Tmall’s sister-sites, and, “notorious markets” for counterfeit goods.

Anti-Counterfeit Deposits

Tmall has sought to allay concern about counterfeiting by requiring retailers to put down cash deposits as a guarantee that their products are legitimate. That anti-knock-off stance has increased the site’s appeal to companies such as Inditex, according to Christodoulos Chaviaras, an analyst at Barclays Plc in London.

Counterfeiting is “a well-documented problem in China, we have seen it in the past, and Tmall comes as a solution there,” Chaviaras said.

Bob Christie, a press official for Alibaba, didn’t respond to an e-mail seeking comment.

Key Attraction

Prior to Zara joining Tmall, Inditex sales in China were set to grow as much as 20 percent over the next few years, Barclays estimates. The bank hasn’t updated its forecast, but Chaviaras said the deal will likely boost sales growth. China accounts for about 8 percent of Inditex sales, according to Societe Generale SA. The Spanish company doesn’t break out sales data by country. Two smaller Inditex brands, Pull & Bear and Bershka, are already present on Tmall.

Inditex shares fell 0.8 percent to 21.42 euros at 11:46 a.m. in Madrid, extending their drop this year to 11 percent.

Though Alibaba takes a share of profits on Tmall, it lets retailers maintain control of their interaction with clients. That was a key part of its attraction to Inditex, according to Pablo Isla, the retailer’s chief executive officer.

“It’s no different from online sales through our own Web page, so it’s like opening a store in a shopping mall,” Isla said on a Sept. 17 conference call. Inditex will also join the website because of “how relevant China is for us and how relevant Tmall is in China.”

(An earlier version of the story corrected the month of opening in the second paragraph, and the reference to Inditex’s Chinese stores in the third paragraph.)

(Updates with Inditex shares in 10th paragraph.)
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