Direct entry of fashion brands generates profit quickly

The presence in Romania of representatives of H&M, one of the world's leading clothing retailers, to gather information on a potential direct entry onto the Romanian market reveals the significant long-term potential of the Romanian clothing market. Direct entry onto the Romanian fashion retail market is a profitable venture from the first or second year, unlike the consumer goods sector, where investments, which are much more significant, take more than three-four years to recoup.

Over the last two years, the big companies made their way into the Romanian market using "their own weapons", without resorting to local operators, as used to happen before. Advantages such as making a high profit "as quickly as possible", better control over local development and a better visibility of the brand overshadow the risks, especially since they don't come into play unless the company decides to exit the market - in such a case losses are higher than if the company relinquished a franchise agreement.

Spanish retailer Inditex, holder of Zara, has as its main development strategy the opening of stores that it will manage on its own. Although it entered the Romanian market in 2004 with two of its eight brands, Zara and Pull & Bear through Azali Trading, two years ago it decided to do away with its franchising contract and operate directly. Over a short period of time, it reached 37 stores in Bucharest, Cluj-Napoca, Constanta, Iasi and Timisoara with nine Zara stores, seven Pull & Bear ones, six Bershka and Stradivarius stores each, four Oysho stores, two Massimo Dutti and three Zara Home stores. "On small markets or on culturally different markets the group expands its store network through franchise agreements with local leaders of the retail sector. In 2007, however, considering the significant demand for our products and the growth potential on this market, we decided to operate directly in Romania," say representatives of the Spanish retailer, whose 2008 sales were 87% generated by the company's own stores.

Clothing retailer Mango, Zara's direct competitor, also took the first step this year by opening its first store in Cotroceni Park, although it collaborates with two companies registered on the Romanian market - Solmar Trading and Peeraj Group.

"The franchise model has showed us that a store becomes profitable as early as in its first or second year. Our direct entry on the Romanian market was image-related rather than anything else, because Cotroceni Park is an important project, but we will continue to expand on a franchise basis," explains Gonzalo Llaras, Head of Area International Franchise and Expansion of Mango.