| ARROYOMOLINOS, Spain, March 18
ARROYOMOLINOS, Spain, March 18 At the Xanadu
shopping mall in Madrid's suburbs, the indoor ski slope is busy
with children but the designer stores are quiet. In this former
mecca for high spenders, discount shop 'Lefties' looks like just
another post-recession pop-up budget brand.
In fact the store belongs to the world's biggest fashion
retailer Inditex - and may be its secret weapon to lure back
austerity period shoppers who have turned away from its fashion
brand Zara to the cheaper styles of H&M and Primark.
Since the 2008 financial crisis, mid-market retailers in
developed markets have lost ground to both discounters and
high-end brands as shoppers economise on basics, while treating
themselves to the odd luxury.
Inditex does not break out sales figures for either Lefties
or its Zara stores in Spain. But it has shrunk the number of its
Zara stores in Spain from 514 in 2008 to 469 at the end of 2012
while adding five or six Lefties stores a year "in recent
years", according to a spokesman. Lefties now has 86 stores in
Spain and 16 in Portugal.
With consumers now wearing Primark fashions alongside
luxury labels, Inditex may be changing the mix of its stores to
test the waters of this new, evolved retail market, said one
Inditex's sales in Spain dropped 5.5 percent in 2012, to 3.5
billion euros, and accounted for only 21 percent of total sales
against 37 percent in 2007 as the group has grown fast in
By contrast, Sweden's H&M and British Primark
expanded fast in Spain during that time, as unemployment
topped 26 percent and retail sales shrank steadily in the
2011-2013 period. Both brands have much lower average prices
H&M's sales in Spain rose 5 percent to 6 billion Swedish
crowns ($940.39 million) in 2013 compared with a year earlier,
while its number of stores rose to 156 from 146 in the same
period. Primark, owned by Associated British Foods, has grown to
39 stores since arriving in Spain in 2006.
Together their total outlets are still dwarfed by Inditex's
total of 1,900 for all of its brands, but H&M and Primark's
offering makes them well placed to capitalise on the latest
shopping trend: Though Spain's economy is slowly healing,
consumers remain frugal as companies freeze or cut salaries.
"No one has any money to spend," said Mercedes Granda, 38,
having a coffee with her mother Laura in Xanadu mall. "At first
I didn't fancy shopping in a cheap store like Primark. Then I
got used to it. I think the quality is good."
John Bason, chief financial officer of Associated British
Foods, insists Primark is not dependent on hard times for growth
but acknowledges that Spain's low-cost niche was underdeveloped.
"What Primark has demonstrated is the potential for growth
of the value segment in Spain," he said.
For now Inditex barely acknowledges the existence of
Lefties. The 21-year-old brand, created to sell Zara's leftover
last-season rejects, is not promoted on Inditex's corporate
website. Two foreign investors in Inditex told Reuters they
weren't aware of the brand.
And yet in recent months Lefties stores have been
redesigned. Gone are the dim rooms with haphazardly laid out
tops and trousers where shoppers rifled through odd sizes.
Instead attractively bright units display new Lefties-branded
clothing lines, surrounded by posters and TV screens on which
models show off designs.
"Women's shorts from 9.99 euros. Kids' knitwear from 7,"
reads the tickertape display above the entrance to the Lefties
store in the Xanadu mall.
Behind the scenes, Lefties is recruiting designers, pattern
makers and buyers to report to its new head Xavier Ruz -
formerly of Inditex's teenwear brand Bershka, who was appointed
in January. The label has also just launched its own newly
Inditex declined to provide information on its Lefties
strategy, investment or sales figures.
But with the boost to its stores it is clear that Lefties is
taking a larger share of its parent's Spain strategy.
"I think it's only a matter of time before Inditex treats it
as a separate brand and breaks out its figures," said Carlos
Hernandez from retail consultancy Planet Retail.
MALL TO HIGH STREET
Two-thirds of the Spanish Lefties are in shopping centres,
where sales have plummeted 25 percent since 2007.
It will be taking on a very confident Primark, which is seen
now as a desirable tenant for such malls, said David Brown,
associate director of retail capital markets for real estate
"In some centres footfall has increased by up to 30 percent
after Primark entered," he said.
Hernandez at Planet Retail noted that Inditex was replacing
some of its Zara stores with Lefties - where the goods cost a
third less - in poorer areas.
"You have a clearly impoverished society - people who can't
afford to pay 30 euros a blouse in Zara and unfortunately we're
talking about millions of people."
Already there are signs that the low-cost battle is moving
from the malls to the streets. Madrid Mayor Ana Botella has
announced that Primark will open a store on Madrid's Gran Via, a
major shopping avenue in the heart of the capital.
Hernandez believes Inditex has every incentive to treat
Lefties as a separate format - and roll it out abroad too.
"I think they could export the brand to other countries
where Inditex has a large presence like the UK and Germany," he
said. "Spain is not the only country where the crisis has taken