Europe's online fashion retailing is still in early days

Is online fashion retailing starting to come of age in Europe? Pablo Isla, who runs Inditex, Europe's second-largest fashion retailer after Hennes & Mauritz, thinks so. He launched Zara.com, one of the last high street brands to move online, in six European markets on Thursday. But while the sector has come a long way since the dotcom bubble, it is still in its early days.

In the early 2000s, consumers quickly grew comfortable buying items like books and music over the Internet. But it has taken longer for them to warm to buying clothes and shoes. Rising access to broadband connections and sophisticated websites with 360-degree product views and video are starting to change that. In 2008, 13% of European consumers bought clothes online, more than double the proportion in 2004, according to Datamonitor.

That makes the market increasingly difficult for retailers to ignore. In 2009, Germans spent 8.1 billion ($10.4 billion) online on clothing and footwear, according to Datamonitor. The French, Italians and Brits spent more than 3 billion each. If Inditex gained the same market share online as it has in stores in the six Zara.com launch countries, it would boost 2011 sales by 3.6 percentage points, according to Barclays Capital.

Other retailers are already seeing the uplift. When H&M launched its Dutch transaction website in 2006, sales improved 14% the following year in the Netherlands, according to BarCap. The investment bank estimates H&M makes about 4% of sales online. U.S. apparel retailer Gap Inc., which launched online in 1997, made $1.1 billion, or 8% of sales, online last year. And U.K.-listed Next, which launched home shopping in 1988, made about 20% of sales online, according to Bank of America Merrill Lynch.

Online margins, however, aren't necessarily greater than those made in-store. H&M reckons they are roughly equal: Online operations have lower rent and staff overheads, but there are other costs for distribution, catalogs, maintaining websites and the cost of taking back unwanted goods from customers. Return rates average 30% and can be as high as 40% in places like Sweden, notes Bank of America Merrill Lynch.

For retailers like Inditex, which are opening fewer new stores and growing sales at a slower pace than in the early 2000s, any boost from online sales will be welcome. But in an industry used to overnight makeovers, online is more evolution than revolution.