Global SPA (integrated manufacturing and distribution) fashion brand Zara will close two stores in Busan at the end of this month. The industry interprets this as a strategy to focus more on the high growth rate of online malls.
According to the retail industry on the 23rd, Zara Retail Korea, which operates Zara in South Korea, plans to end the operations of two stores in Busan on the 31st. As a result, starting in February, only two stores, the Seomyeon store and the Lotte Department Store Centum City store, will remain in Busan.
Zara, owned by Spain's Inditex, entered South Korea in 2007 by establishing Zara Retail Korea in partnership with Lotte Shopping. The following year, it simultaneously opened its first stores in Myeongdong and COEX in Samseong-dong, attracting significant popularity by recording sales of 100 million won on the opening day.
Although both are SPA brands, while Uniqlo sells basic items cheaply, Zara has created a 'fast fashion' boom in South Korea by producing trendsetting clothing on a weekly basis at reasonable prices.
At one point, attracting global SPA brands was regarded as a successful strategy for complex shopping malls and department stores, leading to the number of Zara stores in South Korea soaring to 42 in 2020. However, the current number has decreased to 31. With the closure of these stores, only 29 offline stores will remain.
In light of rising prices and the emergence of SPA brands prioritizing value for money, what is the reason for Zara's store closures? The industry suggests this is a reflection of the store operation policies set by Inditex, Zara's parent company. Inditex, which also owns Massimo Dutti, Pull&Bear, and Bershka, streamlined 1,200 offline stores worldwide and strengthened online sales during the COVID-19 period in 2020.
In South Korea, efforts to enhance store efficiency have been underway, including the closure of stores such as M Plaza in Myeongdong, Lotte Department Store in Jamsil, Garosu-gil, and Bucheon. Offline stores are being restructured into 'new concept' stores linked with digital services, and sale items that used to be shipped for free will now incur a shipping fee to improve efficiency. At the same time, in line with the ESG (Environmental, Social, Governance) trend, a high-priced brand strategy was attempted, resulting in a price increase of about 5% in 2023.
As a result, sales for the 2023 fiscal year (February 2023 to January 2024) reached 611.9 billion won, reflecting an increase of about 10% from the previous year. Operating profit during the same period rose by 31% to 52.5 billion won. By channel, offline sales increased by 7%, while online sales surged by 19%. The share of online sales in total revenue exceeded 27%.
During the same period, the parent company Inditex also saw sales increase by 10% compared to the previous year, with net profit rising by 30%. The increase rate of online sales reached 16%. The share of online revenue constituted 25% of total sales, falling short of the company's target of 30%.
Globally, the SPA industry is trending toward strengthened online strategies. FRL Korea, which operates Uniqlo, also reduced its stores from over 190 to about 130 after its sales plummeted from 1 trillion won to the 500 billion won range due to the Japanese product boycott movement. As a result, last year, sales recovered to the 1 trillion won level, with operating profit recording a growth of over 5% at 132 billion won.
The online sales proportion of Uniqlo is reported to be around 30%. According to the industry, Uniqlo plans to introduce a 'reservation sales system' this year, allowing customers to pre-purchase desired items before their official launch online.
A source in the retail industry noted, 'Global SPA brands like Zara have stores located in region-based commercial districts, and their scale requires at least 1,000 pyeong, leading to significant operating expenses.' They added, 'Globally, ultra-low-cost online fashion platforms like Temu and Shein are on the rise, indicating that Zara is likely shifting its focus to online sales as a countermeasure.'
A representative from Zara Retail Korea stated, 'Zara continues to pursue store differentiation and strategic innovation to provide a high-quality store experience to customers, aiming to achieve online-offline integration, digitalization, and sustainable stores.' They noted plans to open a new store at Lotte Premium Outlet in Dongbusan in the first half of this year.