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Lotte-Zara marriage turns sour

Lotte Department Store has recently kicked out international fashion giant Zara from one of its stores, hinting at the end of the retailer’s honeymoon with the Spanish brand.

It also suggests that the partnership between the country’s fifth-largest business conglomerate and Zara is at a crossroads, after Zara’s lackluster sales failed to impress Lotte’s management, industry watchers said.

In late January, a branch of Zara -- the flagship chain store of the Industria de Diseno Textil group -- the world’s largest apparel retailer, was removed from Lotte Department Store’s branch in Anyang, just South of Seoul. This was the first time Lotte has removed any SPA, or specialty retailer of private label apparel, from one of its stores.

Lotte currently holds a 20 percent stake in Zara Retail Korea, while the rest is held by the Industria de Diseno Textil group.

Since its official Korean launch in 2008, Lotte has shared parts of its retail network with Zara, allowing 19 out of Zara’s 40 Korean stores to operate in Lotte Department Stores.

Lotte has reportedly given Zara a 50 percent discount on rent in the hope that the sophisticated and fashionable image of Zara would attract younger customers to its stores.

But insiders say Zara has failed to live up to expectations.

According to reports, Zara Anyang’s monthly sales have been under 200 million won ($180,000) -- not even half the takings of other brands with stores of the same size. The performance has been in stark contrast to the phenomenal growth of SPA brands here. The market was worth 3 trillion won in 2013.

“It is true that SPA fashion brands are showing double-digit growth, but it‘s also time that we reassess their performance,” said a Lotte Shopping spokesman.

Rumors have long been circulating about the souring relationship between Lotte and Zara, with the latter’s Spanish operator snubbing Lotte when making important decisions.

Lotte’s public relations team said it did not have any contact information for Zara Retail Korea.

Moreover, Zara’s price policies have come under mounting criticism in Korea.

According to a research group at Seoul National University earlier this year, the average price of Zara in Korea was more than 25 percent higher than the U.S. Compared to countries like Japan and China, the price discrepancy is even larger.

Lotte, given its stake in Zara Retail, cannot be immune from blame for the policy, industry sources said.

“Zara has been famous for its trendy but cheap designs. But in Korea, the price of Zara apparel has reached the point that the brand is considered a rip-off,” said 34-year-old fashion blogger Kim Min-jung.

“I don’t think the brand would impress Koreans anymore.”

Lotte may be ready to sever its relationship with Zara and form new ones with other SPA brands, observers say.

Canadian brand Joe Fresh, H&M’s sister COS and Uniqlo’s cheaper unit GU are currently readying to launch in the Korean market.

“After all it is a business, and if (the relationship between Lotte and Zara) is not making money, then the stores will say goodbye to Zara,” an observer said.

“The removal of Zara stores will hopefully be limited to the Anyang department store,” a Lotte spokesman said.

Zara’s operator Inditex failed to reply to The Korea Herald’s requests for comment.

By Bae Ji-sook (baejisook@heraldcorp.com)