Inditex (Zara) and Trent(Tatas retail operation) JV

By Anas Shakil Arshiya Dogra Pallabi Baro Shivendu Gangwar Vivek Kumar

The Two Partners

Tata Group Tata is one of the largest conglomerates in India, with a corporate history dating back more than 140 years and operations spanning seven industries: information systems and communications, engineering, materials, services, energy, consumer products and chemicals. In many of these industries, Tata Group companies are among the largest in the world. The group estimates that its 2007/2008 revenues totalled $62.5 billion. Tata employs more than 350,000 people worldwide.

Inditex Inditex is one of the worlds biggest fashion retailers. Its retail presence under the Zara, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqe concepts encompasses more than 4,200 stores in 73 countries worldwide. The company has more than 86,000 employees throughout the world and posted sales of 9.4 billion euros in 2007.

Introduction

With a rotten economy and an unemployment rate of 26%, Spain's brand image may be in tatters, but not that of one particular Spanish brand - Zara. In India, where some of the best-known international labels have met their Waterloo, Zara has proven to be adept at selling fine feathers to the fashion-conscious. The world's most popular 'fast fashion' brand, Zara's Indian unit Inditex Trent - a joint venture between the brand's owner Inditex with Tata Group's retail arm Trent - has made profits in two out of the three years it has been around. In contrast, Levi Strauss continues to be in the red despite being in India for over a decade. Zara has replicated a model that has worked for it globally - creating affordable, copycat versions of the latest fashions or designer-wear and making them available to shoppers in double-quick time. Inditex not only owns Zara, it also controls almost every bit of operations - from design to distribution and a large chunk of manufacturing. If a new style is not a hit within a week, it goes off the shelves. Even popular styles don't stay long. There is no warehousing and reorders are rare.

"Zara is known for its fresh fashion delivery every week. Their weekly delivery supply chain is the best in the world. Consumers always think these clothes will go out of stock if they don't buy them quickly," said Vineet Gautam, country head for Bestseller Retail, a rival of Zara's that sells brands such as Vero Moda and Jack & Jones. In the first half of 2012, Inditex clocked revenues of US$9.3 billion (Rs. 49,000 crore). The Indian unit made profits of Rs. 38.3 crore and Rs. 22.5 crore in the previous two financial years, documents filed with the registrar of companies show. Zara declined comment for the report. Jaspal Singh Sabharwal, a partner with Everstone Capital, a private equity fund with investments in retail chains, said Zara in India churns out more than 10,000 designs in a season and that helps it stay relevant to customers. Moreover, customers visit Zara stores - there are nine of them - some 14 times on average in a year, resulting in 85% of merchandise being sold at full price compared with the industry average of 60%. Zara's early success in India reflects its global growth.

Backoffice Story
Zara in India churns out more than 10,000 designs in a season and that helps it stay relevant to customers. Moreover, customers visit Zara stores - there are nine of them - some 14 times on average in a year, resulting in 85% of merchandise being sold at full price compared with the industry average of 60%. Industry executives said demand is only part of the reason for Zara's financial success in India. It strikes hard bargains with landlords and mall owners, keeping real estate costs in control. Most of Zara's back-end and merchandise sourcing are handled by Inditex while the Tata expertise is mainly for identifying real estate and locations. Of the eight directors on the board of Inditex Trent, just three - Trent's vice-chairman Noel Tata, Inditex Trent's Chief Financial Officer P Venkatesalu, and the company's MD Sanjay Rao - are Indians. Rao, who was financial controller at Inditex in North America, moved to India to launch the operations.

The Agreement
Inditex and the Tata Group signed an agreement to form a joint venture to develop Zara stores in India. Inditex will control 51% of the venture, while Trent Limited, a Tata Group company, will control the remaining 49%. The partnership opened its first stores starting in 2010 in New Delhi, Mumbai and other major cities of India.

The reason for a one percent extra shares with inditex is that tata's joint venture with tesco another european brand doesnt allow tata to get into a jv with some other european company... thus the 5149

Inditex's Interest

too much of risk on the basis of the region involved. market was alien to them. culturally there was a huge difference ... indians relate to and believe in tata. brand name...

india is a potential market for fashion lovers... also for quick changing fashion.
also the year before india was rated top most in the global retail development index(GRDI)

Tatas Interest

zara being an amazing brand and dominant in the world from nook to corner
Tata saw great opportunities for Zara in a country which is becoming increasingly fashion conscious. Zara has proven itself capable of quickly adapting to changing consumer tastes across geographies. It will satisfy the discerning Indian consumers demand for the latest fashion trends very well, Trent Ltd managing director Noel Tata said. tata wouldnt have wanted to let go off this opportunity to any competitor.. and siezed it asap.

Success Story

The Indian unit made profits of Rs. 38.3 crore and Rs. 22.5 crore in the previous two financial years, documents filed with the registrar of companies show. Zara declined comment for the report. Jaspal Singh Sabharwal, a partner with Everstone Capital, a private equity fund with investments in retail chains, said Zara in India churns out more than 10,000 designs in a season and that helps it stay relevant to customers. Moreover, customers visit Zara stores - there are nine of them - some 14 times on average in a year, resulting in 85% of merchandise being sold at full price compared with the industry average of 60%.