Minus one: Inditex closed the Zara first store in Ukraine

The Spanish group Inditex decided to close its flagship brand Zara store in the capital’s shopping and entertainment center Karavan.

One of the world fashion retail leaders –  the Spanish group Inditex –  entered the Ukrainian market in 2008 and has since opened more than 50 outlets in the country under the brands Zara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Uterque. The band flagship brand, both abroad and in Ukraine, is Zara. Therefore, the company decides to close these brand outlets very rarely. Why did this happen in the case with the store in the shopping and entertainment center Caravan?

To leave beautifully

The group did not close its Zara stores in Ukraine, despite the serious economic turmoil in 2014-2015. The reason for the closing in the Caravan is that they do not want to speak either in the Ukrainian Inditex division, or in the shopping center Caravan. The Inditex general director in Ukraine, Sergei Drobyshev, declined to comment on this issue. In the chain SEC Caravan management company press service – DCH Real Estate – referred to commercial secrets.

Interviewed rau.ua experts are sure that the reason for the closing is not at all the high rent cost or store unprofitability. “Zara has no unprofitable shops in Ukraine. Most likely, the decision to close is not due to the outlet financial indicators, but rather to the political one and is explained by the rapid store opening in the Lavina Mall”, –  said a consulting company representative  in the  commercial real estate sphere, on anonymity condition.

Recall, Inditex leased in the SEC Lavina about 7,000 sq. m. for the stores Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara opening. The latter will take almost 3,400 sq.m. and will be the largest in Ukraine.

The Inditex group in Ukraine, and Zara stores in particular, are working more than successfully according to the UTG company director Evgenia Loktionova. “The company is developing at full speed. It adapted prices to the Ukrainian market and when all retailers raised prices, it on the contrary – lowered. Due to this, brand loyalty has been further enhanced. Now, unlike other market players, its turnover grows much faster. Therefore, it is ready to develop and is actively looking for suitable locations, including in the Ukrainian regions”, – says  Loktionova.

The Inditex activity itself indirectly confirms her words. At the 2016 end, the Spanish group entered to the Ukrainian market a new brand – Uterque, and this year it was announced about the company’s plans to enter to Ukraine the men’s clothing brand Stradivarius line, opening a new store in the SEC Sky Mall.

To eliminate cannibalism

The proximity of other, more modern and successful outlets Zara could also be an important factor in the decision favor to close the store in the SEC Caravan. “First of all, one of the oldest stores Zara was in Caravan. It is opened second after the flagship on Khreshchatyk. Then there were Dream Town and Sky Mall. Secondly, there was a “cannibalism” kind between the shops due to the short distance between the shops Zara in the Caravan, Dream Town and Sky Mall. This was well aware inside the company that in this way they are blurring their flows. Therefore, the decision to close one of the stores and concentrate on another, stronger and more promising object is quite logical and timely”, – Loktionova asks a rhetorical question.

Market participants are not surprised by the Inditex decision to close the Zara store in the Caravan. This shopping center is one of the oldest in Kiev. After the opening in 2003, it was the first SEC in the word modern sense with a unique tenants set and for a long time – one of the most successful shopping centers in the capital. “At one time the SEC Caravan was one of the retail real estate market “Titans” in Kiev. Prior to the Dream Town and Ocean Plaza opening, there here went not only from all over Kiev, but from all over Ukraine. Now the situation is, to put it mildly, not the best, and it to fix, something need to drastically change,” – says one of the Ukrainian retail real estate market experts.

It is earlier noted in the chain SEC Caravan DCH Real Estate management company (owned by the Ukrainian businessman Alexander Yaroslavsky – ed.) that in 2016 the capital Caravan was visited by about 7 million people. For comparison, the Caravan in the Dnieper last year was visited by more than 10 million people, and in Kharkov – 12.2 million. Such a strong retail-operator as Zara leaving, which itself is able to generate a large visitors stream, will exert even more pressure on traffic in the SEC. Moreover, while until the end it is unclear who of the retailers will open in its place. The main candidate for this location is LC Waikiki, which is soon to be opened in the SEC by branding on the former Zara store site. However, in LC Waikiki they say that there are no official arrangements for opening a store in the Caravan yet. “For now, we only discuss the contract and its terms”, – it is clarified in  ​​the company.

The Zara leaving from the SEC Caravan can also carry other risks for the shopping center, including reputational ones. “Inditex – fashion-brand number 1 in the world and its presence in the SEC is a quality and guaranteed visitors low indicator. If no company brand is represented in the shopping center, then the attitude towards it is immediately different”, – considers a large Ukrainian retailer working in the fashion segment.

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