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Zara's sales slow and costs rise along with Australian expansion

Australia's love affair with Spanish fast-fashion chain Zara appears to be moderating, with the retailer's latest financial results show slowing sales momentum and rising costs.

When Zara, whose Australian offshoot is 20 per cent owned by billionaire retail mogul Solomon Lew's family, first opened in Australia three years ago it caused huge excitement among shoppers with lines out the front of its first stores in Melbourne and Sydney common.

Indeed, it was rumoured that at Zara's first Australian store in Sydney 80 per cent of its stock, - $1.2 million worth of fashion - sold out on its opening day.

But while the buzz may have died down, Zara is still a magnet for some shoppers. It's Australian revenue was up 32.1 per cent to $141.16 million for the 12 months to January 31.

Sales were supported by store openings in Canberra and Victoria, taking Zara's Australian store total to nine.

However, the double-digit revenue leap for 2014, which other Australian retailers would love to emulate, was down substantially from the 56 per cent revenue increase recorded in 2013.


Results lodged by the international retailer with the Australian Securities and Investments Commission, and reported on by Macquarie Private Wealth, also indicate average sales per store have continued to fall since Zara's local debut in 2011, down from $42.8 million in 2012 and $25.8 million in 2013 to $18.2 million in 2014.

Full-year profit for 2014 was down 8.5 per cent to $16.46 million.

The earnings slide came as costs blew out - not unexpected given its store roll-out program - with selling costs up 37.5 per cent and administration costs up 146.7 per cent for the 12 months to the end of January.

Total cost of goods sold was ahead of sales growth for 2014, up 44.7 per cent, resulting in Zara's gross margin declining to 63.6 per cent from 66.7 per cent.

However, the note from Macquarie says that overall, Zara's financials remain strong and should continue to take share from department stores such as Myer and David Jones.

Zara was one of the first blockbuster international retailers to push into the Australian market as part of a foreign invasion of the last few years.

It has been quickly followed by others such as Topshop, H&M, Uniqlo and Pottery Barn, all keen exploit what was viewed as a retail market that was underserved by the local players. When Swedish chain H&M opened its first store in Melbourne earlier this year it also attracted queues for weeks. Those queues have since gone.

Zara, whose Australian business is 80 per cent owned by the Spanish retail giant Inditex which is one of the largest fashion retail groups in the world, found a customer base in Australia desperate for its fashion offering centred around a quick turnover of range and styles often straight from the catwalk.

A global retail juggernaut, the company prides itself from taking customer feedback and daily sales analysis from its 1900-odd stores into manufacturing plans within 48 hours, sending those designs to its 1500 factories to be created and dispatched to its store network in less than three weeks.