How the Biggest Fashion Brands are undervaluing Emerging Markets

Since, COVID-19 struck, the clothing industry has seen a considerable decrease in demand. The top four brands (Nike, Adidas, H&M and Zara) have seen major declines in profit with Adidas seeing a 90% drop in the first quarter of 2020. Both Zara and H&M, the leading fashion brands for women’s clothing, have their main markets in Europe and North America, two of the regions currently most affected by the Coronavirus. Although, this pandemic is the reason for the massive drop in profit, the undervaluation of the biggest emerging markets by these leading brands have made them more vulnerable than expected.

Recently, India and China have been the hottest emerging markets for many multinational corporations. However, many clothing brands seem to be late to catch on to this trend. An example of this are H&M and Zara, whose target group are female millennials. According to World Data Lab’s MarketPro, women aged 15-30 spend upwards of $7.6 billion a day in the twenty largest emerging markets¹. In comparison, the same demographic from the twenty largest developed economies² spend only around $5.5 billion a day. With COVID-19, this gap widens further. The latest projections by World Data Lab which account for the economic impact of COVID-19 see this demographic group in the twenty largest emerging markets spending even more than twice as much as in developed economies by 2030.

Figure – The fashion mismatch: Strong in rich countries, weak in emerging markets

According to H&M’s 2018 Annual Report, stores in emerging markets only had slightly fewer net sales per store compared to developed markets. Once the store costs are included, stores in emerging markets are just as profitable. Since this data is not publicly available for Zara, the assumption that stores in emerging and developed markets are equally profitable will be made. H&M and Zara combined operate over 4,400 stores in the twenty largest developed markets but only have around 1,700 stores in the twenty largest emerging markets. This means that every store in an emerging market has the potential of attracting 3.5 times the spending power compared to developed markets. Currently, Zara and H&M are missing out on $5.5 billion of potential spending power in emerging markets.

However, it is important to note that spending power is not the only factor that contributes to the profits of a company. Competition, customer loyalty, and demographic factors, play a decisive role in clothing companies’ bottom line. Furthermore, when it comes to China, H&M and Zara are well positioned. H&M has almost as many stores in China as it does in the US while Zara has over 200 stores in China, second only to its main market Spain. Although, H&M and Zara have taken bigger steps into emerging markets than their competitors, they are still undervaluing other key emerging markets. The country with the greatest potential for these brands is India.

Even though India’s middle- and upper-class spending power is 42 times greater than Switzerland, H&M only has around 50 stores in India, compared to 100 in Switzerland. India’s upper-class spending power, which is relatively small, is 13 times greater than Switzerland’s and will be 24 times greater in 2030. Zara has a similar undervaluation of the Indian market with around 20 stores in India and in Switzerland. Furthermore, by 2027 India will have a greater middle- and upper-class spending power than all of Europe. Currently, H&M and Zara have over 4,000 stores in Europe compared to around 70 in India.

During the recovery from this pandemic induced recession, expansion will be difficult. Multinational companies need to be aware that emerging markets are not only the future of global spending power, they are also the present of global spending power.


¹China, India, Indonesia, Russia, Mexico, Brazil, Pakistan, Turkey, Egypt, Philippines, Nigeria, Malaysia, Thailand, Argentina, South Africa, Colombia, Bangladesh, Iran, Vietnam, Peru.

²United States, Japan, United Kingdom, Germany, France, South Korea, Canada, Italy, Australia, Saudi Arabia, Spain, Poland, Netherlands, Chile, Belgium, Switzerland, Israel, Sweden, Austria, Portugal.

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