Zara's Expansion into China

A Zara store in China. The chain’s owner, Inditex, surpassed Gap Inc. as the world’s biggest specialty retailer in the second quarter. But the lead may already have vanished. Image: epa/Corbis Based on first-quarter results, Zara International of Spain has closed the gap on Gap Inc., becoming the world’s largest fashion retailer by revenue, the Daily Telegraph points out today. Inditex, Zara’s parent company, said first-quarter revenue rose 9 percent to 2.2 billion euros, or $3.46 billion at the time, while Gap’s sales drooped 10 percent to .

38 billion in the same period. Gap is certainly one of the mall-based retailers that has taken the hardest beating over the past year, posting double-digit declines in same-stores sales during many months as cash-strapped Americans cut back on discretionary purchasing.

Zara, on the other hand, has continued to make good. Consumers are responding to the retailer’s “fast fashion” approach of translating runway looks into retail items at lightning speed, which has meant an ever-changing assortment of cheap, fashionable items in stores.

The ability to offer inexpensive and üaut;ber-trendy looks to consumers is still relatively new, and is changing the game for anyone looking to get a share of a young woman’s wallet. Gap hasn’t adapted to the sea change all too well, having stubbornly stuck to its once-popular “practical basics” approach for too long. When times are tough, those are exactly the apparel items for which people are likely to start trading down to Walmart. Maybe it’s just Olympics fever talking, but we’re feeling particularly patriotic today, so here are a few reasons why Gap should keep its chin up:

Zara Vs

1. The bulk of Zara’s 3,900 stores are outside the U.S., where the consumer-spending environment has been significantly stronger during the first half of the year. Gap is unfortunate enough to do more than two-thirds of its business in North America.

2. An $80 million victory over Gap in sales can easily be explained away by the weakness of the dollar against the euro. Gap reports its results (not to mention, sells most of its inventory) in dollars, while Zara has the benefit of dealing in euros. (Indeed, the recent bounce in the buck would have Gap back on top if the figures were converted at today’s rate.)

3. While Zara might have perfected the formula for attracting fashion-forward young women, its men’s offerings are still nothing to write home about. New research shows that menswear is beginning to be the locus of retail growth, as a shift in mainstream men’s fashion has made it essential to buy new basics. Meanwhile, women are tending to put off buying trendy items until the economy improves. So Zara, don’t be so quick to dance on Gap’s grave, okay?