Zara's New Madrid Store Challenges Corte Ingles in Retail Tussle

  • Inditex’s Zara opens largest-ever store in Spanish capital
  • Retail tussle reflects changing trends in Spain’s retail habit

Entrance to the new megastore.

Source: Inditex SA

Zara is escalating its battle to win over Spanish shoppers by opening a giant new store just yards from the flagship Madrid branch of El Corte Ingles.

The 6,000 square meter (64,600 square feet) store with four floors opening Friday is the largest of the more than 2,200 Zara shops that owner Inditex SA, the world’s biggest clothes retailer, operates around the world. Situated a stone’s throw from El Corte Ingles’s main store on Madrid’s Castellana Avenue, the new shop takes Zara’s challenge right to the doorstep of the traditional Spanish retailing brand that runs Europe’s largest department store chain.

The opening of Zara’s new flagship store reflects changing trends in retail habits as a sustained three-year economic recovery drives Spaniards back out to the shops. With shoppers benefiting from cheaper financing and buoyed by falling unemployment, consumer-led spending is fueling Spain’s economic growth, bolstering performance at both Inditex, which gets 17 percent of its revenue in Spain, and Madrid-based El Corte Ingles.

“There’s a change in the retail model -- on the one hand you have the fast-fashion retailers and on the other you have the department stores such as El Corte Ingles,” said Pedro Aguilar, a fashion analyst at Euromonitor. “In both cases, they need to adapt.”

Arteixo, Spain-based Inditex opened its first Zara store in 1975 to embark on a growth story that has made founder Amancio Ortega the world’s fourth-richest man with a fortune worth more than $70 billion. The company’s formula includes stylish store design, which stresses open space and natural light, and state-of-the-art technology such as in-store mobile payment systems and radio-frequency systems to identify garments.

Quick Turn-Around

Zara’s success is also based on quick turn-around of designs and distribution to stores to offer fashions clients want to buy, said Tom Gadsby, a retail analyst at Liberum Capital in London, who rates Inditex buy. While Inditex said in 2016 that it was scaling back its brick-and-mortar expansion plans to rely more on online sales, the new store fits another strand of its retail strategy to have large, iconic shops with a distinctive identity.

“The whole business is designed to sell what people want to wear now,” said Gadsby. “It can take them as little as two weeks to decide what they want to sell, make it and have it in store.” Inditex shares are up 3.9 percent this year compared with a 1.4 percent decline in the 29-member STOXX 600 Retail (Price) Index.

Inside the new megastore.

Source: Inditex SA

Founded in 1940, El Corte Ingles takes its name, which translates as “The English Cut,” from a small tailor’s shop in Madrid.

Its 94 department stores in Spain and Portugal are the core of its business, offering everything from groceries to clothing, books and electronic devices. El Corte Ingles also runs supermarkets and DIY stores and has created a stand alone apparel brand, Sfera, to do battle with the likes of Zara and Primark. The firm’s staid image finds expression in the formal uniforms of its armies of salespeople.

“El Corte Ingles is always at the forefront of innovation and service, and
offers a wide range of products, from premium ones to very competitive ones,
aimed at all sort of consumers,” a press officer for the company said by phone. A spokesman for Inditex declined to comment.

Fast Fashion

“El Corte Ingles also creates an alternative for all those people who don’t want fast-fashion,” Aguilar said. “What El Corte Ingles does is reach these other type of consumers who seek to differentiate themselves, who seek something more than the likes of Zara.”

Inditex’s advance has seemed relentless as profit has more than tripled to more than 3 billion euros ($3.2 billion) over the past decade. Even so, Inditex’s gross margin narrowed to 57 percent from 57.8 percent in the 12 months through January in a sign of increased competition facing retailers.

Meanwhile, El Corte Ingles limped through Spain’s financial crisis. Revenue plunged from 1billion euros in 2007 to 14.2 billion euros in 2013 and recovered to 15.2 billion euros by 2015.

As shoppers were awaiting the opening of Zara’s new store this week, lawyer Manuel Alonso went to buy a gift for his girlfriend at El Corte Ingles and ended up also buying a pair of shoes for himself and having breakfast.

“You can get everything you need in one place -- it’s a brand we all know,” said Alonso, 29. Even so, it’ll be hard for El Corte Ingles customers to miss the eye-catching new Zara store.

“Inditex has developed a winning formula: it recreates catwalk looks that are ready to go in store and online at an affordable price within weeks,” said Linda Sharkey, 29, a Madrid-based personal style expert and fashion journalist who writes for magazines including Harper’s Bazaar. “That’s hard to beat.”