Stores that opened in place of Zara ended the year with a loss of ₽5.4 billion

Last year, JSC Novaya Moda (former JSC Zara CIS), which is developing Maag, Dub, Ecru, Vilet stores in place of the Spanish Inditex Group brands in RUSSIA, began to restore sales after 2022. At that time, the stores, also called Zara, Massimo Dutti, Pull & Bear, Oysho, Bershka and Stradivarius, were closed for most of the year. At the same time, the company, which changed its owner that year, significantly increased its expenses and eventually recorded billions in losses, according to the legal entity's financial statements, which RBC examined.

The past 2023 was the first year of operation in Russia for new clothing brands. The first Maag store in Russia, which is positioned as a replacement for Zara, opened in April 2023. Following it, Dub, Ecru and Vilet stores began to appear on the site of former Inditex outlets.

Daher Group, which bought the Russian part of Inditex's business, also received very high customer expectations. And three months after the opening, the media reported on employee departures and possible store closures due to lower revenue than Zara. Maag denied this, saying that the results of the first months of the stores' operation correspond to the expectations of the company's management, sales are growing and it does not plan to leave the market. How Zara's analogues and other Inditex brands survived their first year of operation in Russia is in the RBC article.

After the start of Russia's special military operation in Ukraine, the Spanish Inditex group (brands Zara, Bershka, Pull & Bear and Stradivarius) suspended operations in Russian stores, of which there were more than 500 at the time. It then became known that the foreign company was negotiating the sale of the Russian business to the UAE-based Daher group, which already had Zara and Massimo Dutti franchises for the Middle East. Russian authorities approved the deal in April 2023.

As a result, JSC Zara CIS, which controlled stores directly under the Zara brand, was renamed Novaya Moda. Under the management of this company, the new owners have already united all the new brands that replaced the Inditex brand. The parent company of JSC Novaya Moda is Fashion and More Management DMCC from the UAE, and the beneficiaries are Lebanese citizens Hassan Daher and Mohamad Ali Daher (both own 50% each).

Inditex also had other legal entities in Russia - OOO Massimo Dutti, Bershka CIS, Stradivarius CIS, which controlled the corresponding stores. All these legal entities are now either liquidated or are in the process of liquidation.

The revenue of JSC Novaya Moda in 2023 amounted to RUB 21 billion — more than twice as much as in 2022, when the stores of what was then Zara CIS were closed for a significant part of the year (that year, this figure was RUB 9.7 billion). There is demand for the goods of the stores that replaced Zara, Bershka, Pull & Bear and Stradivarius. According to the financial statements of JSC Novaya Moda, revenue from the sale of clothing for 2023 increased from RUB 5.4 billion in 2022 to RUB 19.8 billion, and footwear — from RUB 585.2 million to RUB 1 billion.

However, the total revenue of Novaya Moda is significantly lower than that of Zara CIS in 2021 (RUB 57.2 billion). The total revenue of the Russian division of Inditex (that is, not only Zara stores, but also other brands) in 2021 was €240 million. Russia accounted for about 8.5% of the total net operating profit of the Spanish group.

In addition, in the year of the relaunch, Novaya Moda significantly increased its expenses - from 13.8 billion rubles a year earlier to 25.6 billion rubles. In particular, material costs increased from 6.9 billion to 12.1 billion rubles, commercial expenses - from 6.9 billion to 11.2 billion rubles, according to the reporting. The average number of employees in 2023 even increased slightly compared to the previous year - it amounted to 3.9 thousand people against 3.7 thousand.

As a result, by the end of 2023, Novaya Moda had a net loss of RUB 5.4 billion against a net profit of RUB 3.9 billion a year earlier. In 2021, the net profit of the company, which then controlled only Zara stores, was RUB 6.4 billion. The figure was even higher than in pre-pandemic 2019 (RUB 5.4 billion).

According to the New Fashion report, Inditex management announced its intention to sell its business in Russia back in 2022, and the Russian government was requested to approve the transaction in March 2023. The legal entity concluded contracts with new foreign suppliers at the end of 2022, the report says. Payment was made in dirhams. Goods began to arrive at the warehouse and stores in March 2023.

At the end of 2023, Novaya Moda had 243 stores in Russia, according to its financial statements. This corresponds to the key indicator that was set for the company by the decision of the government commission for control over foreign investments in Russia - the opening of at least 240 stores in the country. Marina Malakhatko, HEAD of the retail department of CORE.XP, points out that Novaya Moda has only half the number of stores that Inditex had in Russia. Deliveries are at least partially carried out from the same factories where goods for the original Inditex are manufactured, but other collections are being developed for Russia, says Malakhatko.

RBC sent inquiries to Maag, Dub and Ecru.

The New Fashion report states that the company plans to receive profit from the sale of goods in 2024–2025, sufficient to cover the shortage of working capital. This is expected to be achieved, in particular, by expanding the business, increasing sales and revenue in stores, entering new marketplaces, and searching for potential wholesale buyers.

Last October, State Secretary and Deputy Minister of Industry and Trade Viktor Yevtukhov said that Novaya Moda was negotiating with Russian clothing factories about localizing the production of its collections in the country. There was no information about how these negotiations ended. The Ministry of Industry and Trade did not respond to RBC's request.

In Russia, according to Malakhatko, it is impossible to place such production, because local factories can only sew basic collections, and everything that requires special cutting and special machines will still have to be ordered from CHINA, Bangladesh and other countries. It is possible to localize 10-20% depending on the collections.

Regional DIRECTOR of the Real Estate Department of NF Group Evgeniya Khakberdieva agrees with her . According to the expert, it will be difficult for Novaya Moda to localize production in Russia due to the lack of capacity, the demand for which is already high. Therefore, the company will have to either place only small orders in Russia or build a factory from scratch, Khakberdieva believes. She also draws attention to the fact that many Russian designers sew clothes in Belarus, where there are enough sewing factories.

According to Malakhatko, Novaya Moda is not planning to open new stores yet. At the same time, the company has stabilized supplies and assortment in stores, so the expert predicts revenue growth and profitability for the Maag, Dub and other brands by the end of 2024. The difference in sales with the Spanish group's stores is gradually decreasing, Evgeniya Khakberdieva states.