With more than 1,500 stores worldwide at the start of 2009, it would be hard to visit any major European city and not stumble upon an outlet of Zara. This is the Spanish retailer that has introduced 73 countries to the idea of democratic design, where short runs of merchandise ensure that whenever you venture through the doors, something new will likely be on off er. Zara is one of the originators of ‘masstige’, the phenomenon where styled and designed clothing becomes more generally available to a wider audience.

However, Zara is only one part, albeit the largest, of a larger retail empire: Inditex. Headquartered in A Coruña in Galicia in north-west Spain (which was also the location of the very first Zara store), this is a group with sales in 2008 of €10.4bn and a growth curve that most other retailers can only marvel at. Although, with a €6.8bn turnover in 2008, Zara represents around two-thirds of Inditex’s worldwide sales, outside of the Zara brand the Group has around 3,000 other retail outlets operating.

There are, in fact, seven other brands, six of which are doggedly mid-market. Pull and Bear, is the young fashion line that added the UK, Egypt and Indonesia to the countries where it trades during 2008. Barcelona-based Bershka is a “younger” casual brand that also opened in Egypt last year, as Inditex continued in its attempts to broaden its appeal beyond Zara. Then there are the minor clothing chains – Stradivarius, Oysho, Uterqüe – although there are almost 500 Stradivarius stores – and furnishings spin-off Zara Home. Finally, there is the more upmarket, Barcelona-headquartered Massimo Dutti, which Inditex has owned outright since 1995.

In 2008, the non-Zara contribution to the Inditex coffers grew by almost 1%, to around 35%, which may not sound like much, but given the substantial sales involved, it is an indication that their growth is outpacing Zara’s. Significantly, this comes precisely when some industry observers are wondering if Zara has reached saturation point and when many other High Street favourites are slyly moving upmarket. It is also interesting insofar as Zara used to be the focus of criticism for its ability to have 10 or 11 fashion ‘seasons’ a year, rather than the usual two, normally separated by ‘transitional’ stock. Retailers worth their salt moved quickly to follow suit, with Zara becoming less bugbear and more benchmark by which others judged their efforts. That period may be coming to an end in a number of markets however, as the gap between the Spanish giant and rivals such as Barcelona-based Mango, or even UK fashionista favourite Topshop, narrows.

This is perhaps why Inditex is now lavishing more attention on Massimo Dutti, where items cost 30%–40% more than in any of its siblings’ premises – evidenced by the marble-style terrazzo floors of the brand-new store on London’s cacophonous Oxford Street. Inside, an opulent balustrade staircase down to the basement, dark wood furniture and distinctly upscale sofas and rugs might make you think you have strayed into one of the boutiques of nearby Bond Street. Although with prices peaking at around €350 for a leather jacket, this is not exactly rock star or footballer territory. Nevertheless, it is a different proposition from Zara – where an imitation shearling three-quarter-length coat costs just €75 – or indeed from the noisy new Pull and Bear outlet which shares the same white-fronted building.

During the financial turmoil of the first half of 2009, Inditex opened 18 Massimo Dutti stores – exactly the same number as were opened during the period in 2008, and also added childrenswear to the mix. Although 40 Zara stores welcomed their first customers in the first half of last year, this is down on the 72 that open their doors during the same period in 2008. It is perhaps a measure of the confidence that Inditex has in its future that four of the six European countries targeted for new openings in the coming year are in Eastern Europe, where one might suppose shoppers would gravitate towards fewer frills. Currently the handful of Massimo Dutti stores in the UK are overwhelmingly within London’s M25 orbital motorway, although the brand is well represented in throughout Spain, Greece and Belgium. Unsurprisingly, perhaps, in Germany, the nation of proud bargain hunters, there are stores but a lack of brand penetration.

Javier Figar de Lacalle, who looks after Inditex’ non-Zara brands in the UK, says that Massimo Dutti is a metropolitan concept and that the pricing means that it cannot work in all locations. “We think that there is already an oversupply of luxury retailers in Germany and so it doesn’t make sense at the moment to expand in that country,” he says, adding that while there are plans in place to open a handful more stores in the UK, these are all still likely to be in the London area.

But Inditex is eyeing a far bigger prize, namely the largely unexplored Asia-Pacific region, particularly China, where the image of a slick-suited Italian, implicit in the brand’s name, may help. “The Far East is certainly a region where we see ourselves expanding,” says Lacalle. “We have already opened stores in China and Indonesia.”

Considering that there are only around 150 Inditex stores of any kind across the whole of the Asia-Pacific region, compared with, for example, Europe’s 3,650, Massimo Dutti clearly has potential. It should also play well with Far Eastern market’s love of luxury – or at least the Inditex version of it. Nevertheless, Tony Shiret, retail analyst at Credit Suisse First Boston, has his doubts: “It’s certainly a brand stretch, although it does give a certain credibility to their top-end. But I’m still not sure that people really understand it.” He continues: “It was the first brand that they bought and it has allowed them to diversify, but it’s much less well-known than Zara.”

Shiret adds: “As far as the Far East is concerned, they [Inditex] have had a habit of going into emerging markets and positioning Zara as a premium brand. I’m just not sure that Massimo Dutti is a good battering ram.”

Nonetheless, with Zara now readily available in high streets and airports across the world, albeit at differing levels of representation, perhaps a move upmarket is the best option for the retail group as it seeks to retain its position at the front of the pack. But the major issue for any luxury retailer has to be establishing a brand as something to be coveted, with huge proportions of annual budgets being used in efforts to make this a reality.

Given that Inditex has shown a reluctance to pursue this kind of strategy (in 2005 Zara spent just 0.3% of its sales on above-the-line advertising), Shiret’s words about shopper familiarity with Massimo Dutti might prove prophetic, no matter how good the shops and stock.

It’s also worth noting the designer collaborations of the kind recently seen at H&M, which worked with shoemeister Jimmy Choo to produce a limited range and created shopper frenzy in the process. By not doing this Inditex and its luxury avatar Massimo Dutti may yet be missing a trick. We may be edging towards a period where high-street advertising for Massimo Dutti and other Inditex brands will become the norm if it is to retain its dominant position in the face of its rivals’ increasingly sophisticated marketing.

THREE OTHER BRANDS TAKING THE HIGH STREET UPMARKET

Anthropologie
As the older sister brand of Urban Outfitters, until recently Anthropologie was exclusively a US act. In October, it took the transatlantic plunge and opened a jaw-dropping store on Regent Street, London, with Europe’s first vertical garden inside a shop. This is a women’s fashion-cum-homewares store with a semi-boho aesthetic, although prices are anything but reach-me-down. Early results are positive: parent Urban Outfitters said first-day sales at Regent Street made it the second-best Anthropologie opening ever. A store is in development on London’s King’s Road with a European roll-out in prospect.

Cos
Cos is Euro fashion act H&M’s older sister. The first store opened in 2007 on Regent Street, with the idea that this is what H&M shoppers would choose when they have grown older and richer than the majority of those frequenting the teen and twentysomething retailer. Prices here are a different proposition from H&M, in some cases more than double, and the smell of luxury, both in the stylish shop and the use of better fabrics is very evident. Cos stores have since appeared in Copenhagen, Berlin and there are three branches in France, two of which are outside Paris.

Abercrombie & Fitch
The London store of US casual fashion brand Abercrombie & Fitch, is the retailer’s most successful outlet — taking more money than the Fifth Avenue flagship in New York. It’s a position it has held since just after opening a couple of years ago. In the UK, the trick for Abercrombie has been to take the dollar price for an article in the US and then charge more or less the same, but in pounds sterling. Although it has only one other European store, in Milan, the policy should stand the brand in good stead when it moves to establish itself in Europe as a purveyor of high-street luxury.