How Zara’s strategy made her the queen of fast fashion
Table of contents, here’s what you’ll learn from zara's strategy study:.
- How to come up with disruptive ideas for your industry.
- How finding the right people is more important than developing the best strategy.
- How best to address the sustainability question.
Zara is a privately held multinational clothing retail chain with a focus on fast fashion. It was founded by Amancio Ortega in 1975 and it’s the largest company of the Inditex group.
Amancio Ortega was Inditex’s Chairman until 2011 and Zara’s CEO until 2005. The current CEO of Zara is Óscar García Maceiras and Marta Ortega Pérez, daughter of the founder, is the current Chairwoman of Inditex.
Óscar García Maceiras, Zara’s CEO
Zara's market share and key statistics:
- Brand value of $25,4 billion in 2022
- Net sales of $19,6 billion in 2021
- 1,939 stores worldwide in 2021
- Over 4 billion annual visits to its website
- Inditex employee count of 165,042 in 2021
Humble beginnings: How did Zara start?
Most people date Zara’s birth to 1975, when Amancio Ortega and Rosalia Mera, his then-wife, opened the first shop. But, it’s impossible to study the company’s first steps, its initial competitive advantage, and strategic approach by starting at that point in time.
When the first Zara shop opened, Amancio Ortega already had 22 years of industry experience, ten years as a clever and hard-working employee, and 12 years as a business owner. Rosalia Mera also had 20 years of industry experience.
As an employee , Ortega worked in the clothing industry, first as a gofer and then as a delivery boy. He quickly demonstrated great talent for recognizing fabrics, understanding and serving customers, and making sound business suggestions. Soon, he decided to use his insights to develop his own business instead of his boss’s.
As a business owner , he started GOA Confecciones in 1963, along with his siblings, his wife, and a close friend. They started with a humble workshop making women’s quilted dressing gowns, following a trend at the time Amancio had noticed. Within ten years, that workshop had grown to support a workforce of 500 people.
And then, the couple opened the first Zara shop.
Zara’s competitive positioning strategy in its first year
The opening of the first Zara shop in 1975 wasn’t just a new store to sell clothes. It was the final big move of a carefully planned vertical integration strategy.
To understand how the strategy was formulated , we need to understand Amancio’s first steps. His first business, GOA Confecciones, was a manufacturing business. He was supplying small stores and businesses with his products, and he wasn’t in contact with the end customer.
That brought two challenges:
- A lack of insight into market trends and no direct consumer feedback about preferences.
- Very low-profit margins compared to the 70-80% profit margin of retailers.
Amancio developed several ideas to improve distribution and get a direct relationship with the final purchaser. And he was always updating his factories with the latest technological advancements to offer the highest quality of products at the lowest possible price. But he was missing one essential part to reap the benefits of his distribution practices: a store .
Amancio Ortega, founder of Zara and the Inditex Group
So, in 1972 he opened one under the brand name Sprint . An experiment that quickly proved unsuccessful and, seven years later, was shut down. Although it’s unknown the extent to which Amancio put his ideas to the test, Sprint was a private masterclass in the retail world that gave Amancio insights that would later turn Zara into a global success.
Despite Sprint’s failure, Amancio didn’t abandon the idea of opening his own store mainly because he believed that his advanced production model was vulnerable and the rise of a competitor who could replicate and improve his system was imminent.
Adding a store to his vertical integration strategy would have a twofold effect:
- The store would operate as a direct feedback source. The company would be able to test design ideas before going into mass production while simultaneously getting an accurate pulse of the needs, tastes, and fancies of the customers. The store would simultaneously reduce risk and increase opportunity spotting.
- The company would have reduced operating costs as a retailer. Since the group would control all aspects of the process (from manufacturing to distribution to selling), it would solve key retail challenges with stocking. The savings would then be passed on to the customer. The store would have an operational competitive advantage and become a potential cash cow for the company.
The idea was to claim his spot in prime commercial areas (a core and persistent strategic move for Zara) and target the rising middle class. The market conditions were tough, though, with many family-owned businesses losing their customer base, giant players owning a huge market share, and Benetton’s franchising shops stealing great shop locations and competent potential managers.
So the first Zara store had these defining characteristics that made it the successful final piece of Amancio’s strategy:
- It was located near the factory = delivery of products was optimized
- It was in the city’s commercial heart = more expensive, but with access to affluence
- It was located in the city where Ortegas had the most customer experience = knowing thy customer
- It was visibly attractive = expensive, but a great marketing trick
Amancio’s team lacked experience and expertise in one key factor: display window designing . The display window was a massive differentiator and had to be bold and attractive. So, Amancio hired Jordi Bernadó, a designer with innovative ideas whose work transformed display windows and the sales process.
The Zara shop was a success, laying the foundations for the international expansion of the Inditex group.
Key Takeaway #1: Challenge your industry’s conventional wisdom to create a disruptive strategy
Disrupting an industry isn’t an easy task nor a frequent occurrence.
To do it successfully, you need to:
- Understand the prominent business mode of your industry and the forces that contributed to its development.
- Challenge the assumptions behind it and design a radically different business model.
- Develop ample space for experimentation and failures.
The odds of instantly conquering the industry might be low (otherwise, someone would have already done it), but you’ll end up with out-of-the-box ideas and a higher sensitivity to potential disruptors in your competitive arena.
Recommended reading: How To Write A Strategic Plan + Example
How Zara’s supply chain strategy is at the core of its business strategy
According to many analysts, the Zara supply chain strategy is its most important innovative component.
Amancio Ortega and other senior members of the group disagree. Nevertheless, the Inditex logistics strategy is extraordinarily efficient and plays a crucial role in sustaining its competitive advantage. Most companies in the clothing retail industry take an average of 4-8 weeks between inception and putting the product on the shelf. The group achieves the same in an average of two weeks. That’s nothing short of extraordinary.
Let’s see how Zara developed its logistics and business strategy.
Innovative logistics: how Zara’s supply chain evolved
The logistics methods developed by companies are highly dependent on external factors.
Take, for example, infrastructure. In the early days of Zara, when it was expanding through Spain, the company considered using trains as a transportation system. However, the schedule couldn’t keep up with Zara’s needs, which had the goal of distributing products twice a week to its shops. So transportation by road was the only way.
However, when efficiency is a high priority, it shapes logistics processes more than anything else.
And for Zara, efficient logistics was – and still is – of the highest priority.
Central Headquarters of Zara in Arteixo
Initially, leadership tried outsourcing logistics, but the experiment failed and the company assigned a member of the house with a thorough knowledge of the company's operating philosophy to take charge of the project. The tactic of entrusting important big projects to employees imbued with the company’s philosophy became a defining characteristic.
So, one of Zara’s early strategic decisions was that each shop would make orders twice a week. Since the first store was opened, the company has had the shortest stock rotation times in the industry. That’s what drove the development of its logistics methods. The whole strategy behind Zara relied on quick production and distribution. And the proximity of manufacturing and distribution was essential for the model to work. So Zara had these two centers in the same place.
Even when the brand was expanding around the world, its logistics center remained in Arteixo, Spain, despite being a less-than-ideal location for international distribution. At some point, the growth of the brand, and Inditex as a whole, outpaced Arteixo’s capacity, and the decentralization question came up.
The debate was tough among leadership, but the arguments were strong. Decentralization was necessary because of:
- Safety and security. If there was a fire or any other crippling disaster there (especially on a distribution day), then the company would face serious troubles on multiple fronts.
- Arteixo’s limitations. The company’s center in Arteixo was reaching its capacity limits.
So the company decided to decentralize the manufacturing and distribution of its brands.
Zara warehouse in its logistics center
Initially, the group made the decision to place differentiated logistics centers where the management of its chain of stores was based, i.e. Bershka would have a different logistics center than Pull&Bear, although they were both part of the Inditex Group. That idea emerged after Massimo Dutti and Stradivarius became part of Inditex. Those brands already had that geographical structure, and since the group integrated them successfully into its strategy and logistics model, it made sense to follow the same pattern with its other brands.
Besides, the proximity of the distribution centers to the headquarters of each brand allowed them to consolidate them based on the growth strategy and purpose of each brand (more on this later).
But just a few years after that, the group decided to build another production center for Zara that forced specialization between the two Zara centers. The specialization was based on location, i.e. each center would manufacture products that would stock the shelves of stores in specific locations.
Zara’s supply chain strategy is so successful because it’s constantly evolving as the group adapts to external circumstances and its internal needs. And just like its iconic fashion, the company always stays ahead of the logistics curve.
Zara’s business strategy transcends its logistics innovations
Zara’s business strategy relies on four key pillars:
- Flexibility of supply
- Instant absorption of market demand
- Response speed
- Technological innovation
Zara is the only brand in the Inditex group that is concerned with manufacturing. It’s the first brand in the clothing sector with a complete vertical organization. And the production model requires the adoption or development of the latest technological innovations.
This requirement is counterintuitive in the clothing sector.
Most people believe that making big investments in a market as mature as clothing is a bad idea. But the Zara production model is very capital and labor intensive. The technological edge derived from that investment gave the company, in the early days, the capability to manufacture over 50% of its own products while maintaining an extremely high stock rotation frequency.
Zara might be one of the best logistics companies in the world, but that particular excellence is a supporting factor, or at least a highly contributing factor, to its successful business strategy.
Zara’s store in Madrid’s central Square
Zara’s business strategy is so much more than its supply chain strategy.
The company created the “fast fashion” term and industry. When other companies were manufacturing their collections once per season, Zara was adapting its collection to suit what people asked for on a weekly basis. The idea was to offer fashionable items at a fair price and faster than everybody else.
Part of its cost-cutting strategic priority was its marketing strategy. Zara didn’t – and still doesn’t – advertise like the rest of the clothing industry. Its marketing strategy starts with choosing the location of the stores and ends with advertising that the sales period has started. In the early years of the brand’s expansion, Amancio would visit potential store locations himself and choose the site to build the Zara shop.
The price was never an issue. If the location was in a commercial center, Zara would build its store there no matter how high the cost was because the company expected to recoup it quickly with increased sales.
Zara’s marketing is its own stores.
The strategy of Zara and her Inditex sisters
Despite Zara’s success (or because of it), Amancio Ortega created – or bought – multiple other brands that he included in the Inditex group, each one with a specific purpose.
- Zara was targeting middle-class women.
- Pull&Bear was targeting young people under twenty-five years old with casual clothing.
- Bershka was targeting rebel teens, especially girls, with hip-hop-style clothing.
- Massimo Dutti was targeting both sexes with more affluence.
- Stradivarius was competing with Bershka, giving Inditex two major brands in the teenage market.
- Oysho was concentrating on women's lingerie.
- Zara Home manufactures home textiles and decor.
Pull&Bear was initially targeting young males between the ages of 14 and 28. Later it extended to young females of the same age and focused on selling leisure and sports clothing. It has the slowest stock turnaround time in the group.
Bershka’s target group was girls between 13 and 23 years of age with highly individualized tastes. Prices were low, but the quality average. Almost a fiasco in the beginning, it underwent a successful strategic turnaround becoming today one of the biggest growth opportunities for the group. And out of all the Inditex chains, Bershka has the most creative designs.
Massimo Dutti was the first retail brand Amancio bought and didn’t create himself. Its strategy is very different from Zara, producing high-quality products and selling them at a high price. It’s an extension of the group’s offer to the higher end of the price spectrum in the fashion industry. It’s also the only Inditex chain brand that advertises regularly.
Stradivarius was the second acquired brand, with the purchase being a defensive move. The chain shares the same target group with Bershka, making it, to this day, a direct competitor.
Oysho started as an underwear and lingerie company. Its product lines evolved to include comfortable night and homewear along with swimwear and a very young children’s line. The brand’s strategy was aggressive from its conception, opening 286 stores in its first six years of existence.
Zara Home is the youngest brand in the Group and the only one outside the clothing sector, though still in the fashion industry. It was launched with the least confidence and with immense prior research. An experiment to extend the Zara brand beyond clothing, it was based on the conservative view that Zara could extend its product categories only to textile items for the home. But it turned out that customers were more accepting of Zara Home selling a wide variety of domestic items. So the brand made a successful strategic pivot.
Key Takeaway #2: The right people are more important than the best strategy
It might not be obvious in the story, but a key reason for Zara's and Inditex’s success has been the people behind them.
For example, a vast number of people in various positions from inside the group claim that Inditex cannot be understood without Amancio Ortega. Additionally, major projects like the development of Zara’s logistics systems and the group's international expansion had such a success precisely because of the people in charge of them.
Zara’s radically different model was a breakthrough because:
- Its leadership had a clear vision and a real strategy to execute it.
- People with a deep understanding of the company’s philosophy led Its largest projects.
Sustainability: Zara’s strategy to make fast fashion sustainable
Building a sustainable business in the fast fashion industry is a tough nut to crack.
To achieve it, Inditex has made sustainability a cornerstone of its business model. Its strategy revolves around the values of collaboration , transparency, and innovation . The group’s ambition is to make a positive impact with a vision of prosperity for the planet and its people by transforming its value chain and industry.
Inditex’s sustainability commitments and strategy to achieve them
Inditex has developed a sustainability roadmap that extends up to 2040 with ambitious goals. Specifically, it has committed to
- 100% consumption of renewable energy in all of its facilities by 2022 (report pending).
- 100% of its cotton to originate from more sustainable sources by 2023.
- 100% of its man-made cellulosic fibers to originate from more sustainable sources by 2023.
- Zero waste from its facilities by 2023.
- 100% elimination of single-use plastic for customers by 2023.
- 100% collection of packaging material for recycling or reuse by 2023.
- 100% of its polyester to originate from more sustainable sources by 2025.
- 100% of its linen to originate from sustainable sources by 2025.
- 25% reduction of water consumption in its supply chain by 2025.
- Net zero emissions by 2040.
The group’s commitments extend beyond environmental issues to how its manufacturing and supplying partners conduct their business . To bring its strategy to fruition, it has set up a new governance and management structure.
Inditex’s Sustainable Business Model
The Board of Directors is responsible for approving Inditex’s sustainability strategy. The Sustainability Committee oversees and controls all the proposals around the social, environmental, health, and safety impact of the group’s products, while the Ethics Committee makes sure operations are compliant with the rules of conduct. There is also a Social Advisory Board that includes external independent experts that advises Inditex on sustainability issues.
Finally, Javier Losada, previously the group’s Chief Sustainability Officer and now promoted to Chief Operations Officer, will be leading the sustainability transformation of the group. Javier Losada first joined Inditex back in 1993 and ascended its rank to reach the C-suite.
Inditex is dedicated to its commitment to reducing its environmental impact and seems to be headed in the right direction. The only question is whether it’s fast enough.
Key Takeaway #3: Integrating sustainability with business strategy is a present-day necessity
Governments and international bodies around the world are implementing more stringent environmental regulations, forcing companies to commit to ambitious goals and developing a realistic strategy to achieve them.
The companies that are impacted the least are those that always had sustainability as a high priority .
From the companies that require significant changes in their operations to comply with the new regulations, only those who integrate sustainability into their business strategy and model will succeed.
Why is Zara so successful?
Zara is the biggest Spanish clothing retailer in the world based on sales value. Its success is due to its fast fashion strategy that is based on a strong supply chain and quick market feedback loops.
Leading companies in the retail sale of clothing in Spain in 2021
Zara's customer-centric approach places a strong emphasis on understanding and responding to customer needs and preferences. This is reflected in the company's product design, marketing, and customer service strategies.
Zara made fashionable clothes accessible to the middle class.
Zara’s vision guides its future
Zara's vision, as part of the Inditex Group, is to create a sustainable fashion industry by promoting responsible consumption and production, respecting the environment and people, and contributing to the communities in which it operates.
The company aims to offer the latest fashion trends to its customers at accessible prices while continuously innovating and improving its operations and processes.
Growth by numbers (Inditex)
How Zara became the undisputed king of fast fashion?
Zara is one of the biggest international apparel brands. Zara invites customers from around 93 markets to its organization of 2000+ stores in upscale markets on the planet’s biggest urban communities. With these stores, Zara generates 18 billion Euros annually.
The brand has been fruitful in keeping up its central goal to give quick and reasonable designs in the world of fashion. Zara’s way to deal with configuration is firmly connected to its clients. This story is about how Zara became the undisputed king of Fast fashion.
Fashion is the imitation of a given example and satisfies the demand for social adaptation. . . . The more an article becomes subject to rapid changes of fashion, the greater the demand for cheap products of its kind. — Georg Simmel, “Fashion” (1904)
History of Zara: The Long Story Cut Short
Amancio Ortega launched the first Zara store in 1975 in Central Street in downtown A Coruna, Galicia, Spain. The main Store included low-value look-a-like designs of famous and better-quality dress styles. The store ended up being a triumph and Ortega Began opening more Zara stores throughout Spain.
During the 1980s, Ortega began changing the plan, assembling and dissemination cycle to diminish lead times and respond to new patterns in a snappier manner in what they called “Moment Fashions”.
In 1980 the company started its international expansion through Porto, Portugal in the 1990s, with Mexico in 1992. Since then Ortega has continued to grow and create brands such as Pull & Bear, Bershka , and Oysho . It has acquired groups like Massimo Dutti and Stradivarius . Even though these brands have been contributors to their parent group Inditex’s success, Zara is still the principal growth driver.
Zara’s Customer-driven Value Chain
Unlike other Inditex chains, Zara has focused on manufacturing fashion-sensitive products internally. The latest designs were continuously in production as per changing customer’s preferences. Many competitors were producing just a few thousand SKUs whereas Zara was producing several hundred of thousands of SKUs in a year. These SKUs varied as per color, size, and fabric.
Zara’s designs are not dependent on design maestros. Instead, its designers carefully observe the catwalk trends and try to implement them for the mass market. The design team continuously creates variations in a particular season. Thereafter expanding on successful designs.
Fast Supply Chain:
Zara’s flexible supply chain allows it to dispatch new ranges to shops two times per week from its central distribution center that is an approximately 400,000-square-meter facility located in Arteixo, Spain. This kind of business system called vertical integration eliminated the need for local warehouses. The strategy here was to reduce the “bullwhip effect”. Let’s see what the bullwhip effect is:
The bullwhip effect is a distribution channel phenomenon in which demand forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in consumer demand as one moves further up the supply chain. Wikipedia
It was a matter of a few weeks and a new design was on the shelf for the customers. Isn’t cool? These designs of clothes and accessories were quickly moved to fancy stores in prime locations but at a cheap price. This strategy has attracted a lot of fashion yet money conscious customers.
We want our customers to understand that if they like something, they must buy it now because it won’t be in the shops the following week. It is all about creating a climate of scarcity and opportunity. Luis Blanc, one of the former Inditex’s international directors
Zara’s Retailing Strategy
Zara instead of focusing on improving its manufacturing efficiency focused on improving its retail strategy. This retailing strategy was about following fashion trends quickly even it means there is an unmet demand. As was previously discussed, this also helped Zara in creating a FOMO for its products. The two components of its retailing strategy were dependent on its upstream operations: Merchandizing and Stores.
Read: The Torchbearers of Sustainable Fashion
Merchandising is the promotion of goods and/or services that are available for retail sale. It includes the determination of quantities, setting prices for goods and services, creating display designs, developing marketing strategies, and establishing discounts or coupons. Investopedia
- Zara placed emphasis on the freshness of its designs. It wanted to create a sense of exclusivity. It never focused on creating bulk items of one design. Zara had confidence in its fast supply chain of twice a week shipment to the store with the latest designs. Thre quarter of its merchandise gets replaced in just a month. How about that?
The success of your business is based in principle on the idea of offering the latest fashions at low prices, in turn creating a formula for cutting costs: an integrated business in which it is manufactured, distributed, and sold. Amancio Ortega
Fun Fact : An average customer visits a Zara store 17 times in a year where the number is 3-4 times for its competitors.
- Zara understood the importance of store locations very well. Zara prices are not expensive but its store location and design made its products look expensive. The brand wanted its customers to have a premium feel at a reasonable price.
We invest in prime locations. We place great care in the presentation of our storefronts. That is how we project our image. We want our clients to enter a beautiful store, where they are offered the latest fashions. Luis Blanc, one of the former Inditex’s international directors
Zara has stores in most upscale markets and shopping centers in the world. You name it and they have a store there. Champs Elysées in Paris, Regent Street in London, and Fifth Avenue in New York to name a few. As per its latest annual report the value of these properties is valued at almost 8 billion Euros. But the way these stores are managed is a strategy to learn for all retailers.
- We all love grand stores with a lot of variety. Zara has emphasized on creating a grand image of its stores. Imagine a big store at a posh location. How much impressed you would be. The average size of Zara stores has continuously increased over the years. In 2001 the average store size was 910 sq.m whereas in 2018 the size has more than doubled.
Zara’s average store size has increased by 50%: from 1,452m2 in 2012 to 2,184m2 in 2018. That growth has been driven by new store openings – larger flagship stores – as well as the fact that many of the new openings have entailed the absorption of one or more older, smaller units in the same catchment area. Inditex Annual Report
- Zara has tried to standardize the in-store experience with its store window displays and interior presentations. As the season progresses, Zara consistently evolves its interior themes, color schemes, and product placements. All these ideas come from the central team in Spain and regional teams implement with necessary region-based adaptations. So much so that the uniforms of the staff were selected twice in a season by a store manager from the latest collection.
Anti-Marketing Approach of Zara
Zara has able to maintain profitability ~13% whereas its major competitor like H&M is at 6% . This has been possible not only because of its efficient supply chain we discussed above but also because of its no advertising or limited advertising policy.
This is what makes Zara really one of a kind. The organization just spends about 0.3% of deals on promoting and does not have a lot of advertising to discuss. The usual trend in the industry is to spend 3.5% on advertising. Zara never shows its clothes at expensive fashion shows also. It first shows its designs at stores directly. But why does not Zara believe in advertising? There are primarily two reasons:
- First, as we discussed it saves Zara a lot of money. So much so that it has now one of the highest profitability.
- Second, it brings exclusivity and prevents overexposure of a design. Customers feel like if they purchase a shirt at Zara, five others won’t have that equivalent shirt at work or school.
Read: Viral Marketing over the Long-Haul ft. Burger King
Zara is a perfect case study to learn the perfect operations strategy, perfect marketing strategy, perfect pricing strategy, and whatnot. It’s all strategies are so perfect. It is also a perfect example to understand how a traditional brand is evolving itself with time to stay relevant.
As per its annual report , In 2018, Zara launched its global online store, marking a milestone in its commitment to having all of its brands available online worldwide by 2020. Zara continued to earn global accolades for its collections and initiatives, its integrated shopping experience, and its commitment to sustainability, with over 90 million garments put on sale under the Join Life label.
Zara is just not a brand of fast fashion. Its much more than that now. And that’s why it’s actually the true king of fast fashion.
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Digitalization of Zara and Fast Fashion
Over the past five to ten years, the retail industry has changed radically. These changes are clearly seen in the fashion industry, with the advent of e-commerce and fast fashion. While Amazon has transformed the e-commerce space and forced apparel companies to establish themselves online, fast fashion brands, of which Zara is one of the most synonymous, have transformed retail stores. 1
The value of Zara’s “fast fashion” model is that it allows retailers to deliver designer products to mass markets at relatively low prices and with extreme speed – bringing trends virtually straight from the catwalks to retail locations. Traditional fashion retailers are not able to manage or achieve this, as they operate on a seasonal basis and require several-month-long lead times for the production and distribution of collections. 1 Zara, on the other hand, has, through the use of digitalization and data analytics, managed to develop a nimble, efficient supply chain that cuts this production cycle down to less than three weeks. 2 The ability to master this speedy production cycle has catered to demanding, instant-gratification-minded consumers and caused Zara to thrive over the past several years while other retailers have faced declining or stagnant growth. 1
Now some of those other retailers and other fast fashion companies are attempting to replicate Zara’s quick production cycle strategy. 3 In order to remain ahead, Zara has focused on continuing to use digitalization and big-data analysis in the short term to further increase sales turnover and operate with even leaner working capital. Every piece of clothing, for example, is tagged with a radiofrequency identification (RFID) microchip before it leaves a centralized warehouse, which provides real-time tracking of inventory right up until it is purchased by a consumer at a retail location. 4 Therefore, the data about each store’s inventory levels, and the popularity of and speed with which each SKU sells is constantly being provided to the Company’s central data processing center. 5 The center, which operates 24 hours a day, collects data from Zara’s 2,100-plus retail locations across 80-plus countries, 6 allowing for bi-monthly product deliveries that are tailored to individual stores based on SKU-specific inventory data. 7 Zara can then constantly refine and optimize its inventory management, distribution and design to minimize waste in the production cycle and eliminate fashion risk.
Pathways to Just Digital Future
Through these practices, Zara has managed to streamline its supply chain to the point where approximately 50% of its SKUs are designed and produced during the relevant season. In the coming year, the percentage may rise even higher. 3 By creating a nimble supply chain driven by digitalization and data analytics, Zara will continually improve its ability to order small batches of any given SKU from its distributors, track the success of the designs, and immediately order more inventory of the specific SKU and size for the locations that demand it, making Zara “hyper-local” in its inventory planning.
In the longer term, Zara is becoming increasingly focused on digitalization every aspect of a consumer’s shopping experience. This can be seen in its implementation of online “click and collect” in its key flagship locations, 6 which allows customers to order items online and pick them up in-store, providing a win-win for the customer and Zara. From the customer’s perspective, it is incredibly convenient, and for Zara it provides even more immediate knowledge about inventory management and consumer preferences for individual SKUs. In order to remain competitive, I believe that Zara should focus on and expand this initiative. If this method of shopping continues to be popular with consumers, and Zara is able to quickly analyze and process the data, this channel could operate as a just-in-time supply chain. The Company could manufacture and distribute only the guaranteed number of items to be sold at specific locations, reducing its inventory to effectively zero.
I think that Zara could go even further by developing its e-commerce presence. While the Company does not distinguish between online and in-store sales, I would expect that e-commerce contributes less to its revenue. 2 However, having a large portion of its customer experience digitalization could help Zara collect even more sales data than it already does, and allow it to compete with retailers such as Amazon that have helped shift customer preferences to e-commerce.
The question I would like to propose is: Going forward, do you think Zara’s supply chain strategy is not that difficult to replicate, and that it is only a matter of time before more traditional apparel retailers, such as Gap or Michael Kors, are able to successfully catch up and put pressure on Zara? Or does Zara, as one of the first movers in the space, have enough experience and expertise in developing and refining its supply chain that the learning curve is too steep for larger, more established and less nimble companies to truly catch up?
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(1) McKinsey & Company. “The State of Fashion.” https://www.mckinsey.com/industries/retail/our-insights/the-state-of-fashion
(2) Inditex Annual Report, 2016.
(3) Hiiemaa, Kris. “In the Success Stories of H&M, Zara, Ikea and Walmart, Luck Is Not a Key Factor.”
(4) Digitalist. “Zara’s Agile Supply Chain Is the Source of Its Success.” http://www.digitalistmag.com/digital-supply-networks/2016/03/30/zaras-agile-supply-chain-is-source-of-competitive-advantage-04083335
(5) Refinery 25. “15 Zara Secrets the Press-Shy Brand Hasn’t Made Public” http://www.refinery29.com/2016/02/102423/zara-facts?utm_campaign=160322-zara-secrets&utm_content=everywhere&utm_medium=editorial&utm_source=email#slide-11
(6) Inditex 1H, 2017. Report and Transcript. https://www.inditex.com/documents/10279/342864/Transcript+-+1H2017+Results.pdf/2ce7e3e8-e194-45e9-9655-b5398abc9b69
(7) Bloomberg. “Zara’s Recipe for Success: More Data, Fewer Bosses.” https://www.bloomberg.com/news/articles/2016-11-23/zara-s-recipe-for-success-more-data-fewer-bosses
Student comments on Digitalization of Zara and Fast Fashion
Very interesting read. I think you open up a question that many brands are struggling with. To answer whether other brands can/should replicate this strategy, we have to go back to why this strategy works for Zara. It works because Zara has accepted a trend following approach (vs. trend setting) and given the pace of trends today, the business model relies on (very) short product life cycles where demand changes quickly. The entire supply chain—from design to manufacturing—has been optimized to be a fast follower.
A brand like Michael Kors has to decide whether it wants to execute its own unique brand identity or follow others. If it’s the former, then longer product lifecycles are inevitable given the time devoted to conception and design. I believe the supply chain strategy adjustment is difficult to execute in isolation of the fundamental strategic direction.
That said, I still believe it’s extremely difficult to replicate Zara’s supply chain strategy, especially for more established businesses within the industry. The process of rewiring the entire organization’s DNA to execute on what Zara has spent years upon years to refine and perfect will be challenging (to say the least). As you alluded to, I do believe the learning curve is too steep to replicate this system with the same unit economics as Zara. It’ll be a while until traditional brands can restock their stores with new designs twice a week.
Megan, thank you for the article, it was a very interesting read. I would like to pick on the questions you brought up at the end and offer a different perspective. As Imran suggested, I also still believe it is extremely difficult to replicate Zara’s wining supply chain strategy. However, we should not underestimate the power of smaller pure online players in the market that are already disrupting traditional fast fashion retailers: they are not replicating Inditex’s model, they are actually making it faster.
Quartz recently published a report through Goldman Sachs which states that “British fashion retailers ASOS and Boohoo are able to conceive, design, produce, and have clothing ready for shoppers on the sales floor quicker than Zara and H&M, and the two millennial-focused, social-media savvy brands are enjoying the rewards.” And we can easily spot these rewards in the evolution of their stock prices in the last year: while H&M and Inditex’s share price has declined by 29% and 9% respectively, Asos and Boohoo’s share price has increased by 15% and 51% respectively. The same report by Goldman Sachs charts the correlation between supply-chain lead times and like-for-like (LFL) sales growth, and the results show just how much speed matters ( https://qzprod.files.wordpress.com/2017/04/colorcorrected-46.jpeg?quality=80&strip=all&w=640 ) . How will traditional fast fashion retailers, that once disrupted the fashion industry, respond to the disruption they are now facing from a totally different set of pure online players?
Sources: Google finance, Quartz Media
To synthesize the comments from Imran and Paula above, I believe the incumbent players will have a difficult time adjusting to compete with Zara and H&M because of the cultural shift required. However, new start up can mimic and improve Zara’s approach.
On the incumbent side, we are seeing companies like Gap fire their design directors and rely on a data driven / fast fashion approach. However, they still have 8-10 week lead times relative to the 2-3 weeks that Zara has been able to achieve. This has required significant investment over a multi-year period and the journey is still ongoing.
However, other new starts up can mimic and improve Zara’s approach relatively easily. We are starting to see a proliferation of “clothes in a box” companies, similar to Trunk Club, that skip the retail store experience all together. By understanding customer preferences, and shipping directly, these online only start ups are able to shorten the lead time from runway to store and think about their design process from runway to customer.
Your hypothesis that Zara is eventually moving towards just-in-time delivery is very insightful! I agree that it seems ideal for any company attempting to optimize its supply chain and reduce (holding inventory) costs. I urge you to consider in what ways just-in-time delivery may or may not create risks for Zara. For example, what does just-in-time delivery look like for a consumer-facing operation (I.e. storefronts)? If the delivery is a few days late, will inventory remain on the shelves or will they have sold out at that point? I believe it would be difficult for Zara to figure out the timing of just-in-time delivery of new inventory and the removal of old inventory. In a way, Zara storefronts are sort of a job shop – customers bundle/customize their product themselves – and how helpful is JITD for job shop operations as compared to continuous flow operations?
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Zara needs no introduction as it dominates the fashion world and is one of the most prominent international fashion brands. With more than 2000 stores in the upscale market, Zara caters to approximately 93 markets in the world’s urban communities. With these many stores, Zara manages to hit 18 billion Euros of surplus annually.
The renowned fashion brand has successfully maintained its central goal of delivering quick, elegant, and reasonable designs in the fashion industry. Zara’s approach of configuration dealing is firmly associated with the clients. This case study is all about Zara and how it became the phoenix of the fast-fashion world.
“Fashion is nothing but an emulation of any given example and meets the demand of social adaptation. The more the article becomes subject to rapid fashion changes, the more will be the demand for cheaper products of the same kind.”
- Georg Simmel, on ‘Fashion’ in 1904.
Zara’s History: Excerpts of a Long Tale
The first Zara store was launched by Amancio Ortega in 1975 in Central Street, Galicia, Spain. The first store stocked low-price look-alike designs of popular and rich-quality dress styles.
The store soon became a hit, and Ortega opened more Zara stores all around Spain. It was the 80s (1980) when Ortega had a change of plan. He began assembling and distributing cycles to decline the lead times and react to new patterns in a snappy and concise manner, what they popularly called ‘Moment Fashions.’
The same year, Ortega and his company took their first step toward international expansion. Their international entries were made through Porto, Portugal, in the 1990s and Mexico in 1992. This international expansion was the turning point for both Ortega and Zara. Ortega continued to grow with new brands like Bershka, Pull & Bear, and Oysho and acquired groups such as Stradivarius and Massimo Dutti. These brands have been the key contributors to the success of the parent group - Inditex. Zara still boasts of being the primary growth driver.
Zara - The Undisputed Fashion Brand: Customer-Driven Value Chain
For Product Line-Up:
Unlike the other chains of Inditex, Zara focuses on manufacturing and delivering fashion-sensitive products. Following the changing customer preferences, its latest designs stay in production continuously.
When several competitors were focused on creating only a few thousand store-keeping units (SKUs), Zara ensured producing hundreds of thousands of stock-keeping units in only a year. However, these SKUs varied largely depending on the fabric, size, and color.
Zara and its products are not dependent on the design experts. Rather, its designers cautiously observe the latest trends and try blending and implementing them for the market. The designer groups keep on creating variations in a specific season, leading to expansion to successful designs.
For Fast Supply Chain:
Zara ensures a flexible supply chain, which enables it to deliver new ranges to store outlets two times a week from its central distribution center, which is a 400,000 sq m facility situated in Arteixo, Spain. This is a type of business system called ‘ vertical integration ’ that Zara adapted to eliminate the need for local warehouses. Here, Zara’s marketing strategy was reducing the ‘ bullwhip effect .’
Zara: Retailing Strategy
Instead of just enhancing manufacturing efficiency, Zara paid close attention to its retail strategy. It adopted the retailing strategy that would help it follow the fashion trends as quickly as possible, even if it involves some unmet demands.
Also, this helped Zara to create a FOMO for its products. However, the two significant components of Zara’s retailing strategy rely on its upstream operations: Stores and Merchandising.
Zara’s Anti-Marketing Approach
Zara successfully retained a profit of 13%, whereas its significant competitors like H&M have only 6% of profitability. Apart from the efficient supply chain management, it was possible due to the no-advertising or limited marketing policy that Zara follows.
This is what makes Zara one of a kind in the fashion industry. The brand spends only 0.3% of its budget on promotion and advertising. The typical trend in the fashion industry is to spend about 3.5% on marketing and promotion. The brand doesn’t believe in marketing as it saves them a lot of money and helps them with exclusivity.
Through this article, you’ll get valuable insights into the journey of Zara - one of the biggest international apparel brands. You’ll learn all about its history, retailing strategy, value chain, and more. Zara is the ideal case study for those who want to start their own apparel brand. Success is a ladder, and you have to take every step patiently and efficiently. However, if you’re planning to build something as colossal as Zara, you must source your clothing appropriately from the right manufacturer. For instance, top fashion brands trust the Fashinza platform to connect with clothing fabric manufacturers for their needs. Connect with Fashinza today!
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Zara: a success story.
Zara is one of the most popular fashion retail brands in the world, if not the most popular. Zara strives to foster a responsible enthusiasm for fashion among a broad range of consumers, distributed across many cultures and age groups, with its spectacular introduction of the notion of “quick fashion” shopping since its founding in 1975 in Spain. There are numerous variables that have led to Zara’s success, but one of its most important traits, which has helped it become the worldwide fashion giant it is today, is its ability to put consumers first. Customers are infatuated with Zara, and they have defined the firm and the brand’s ethos since the beginning.
The Evolution Story of Zara
Zara began as a family company in 1975 in downtown Galicia, in northern Spain, by Amancio Ortega and Rosala Mera. Its original store sold low-cost knockoffs of well-known, higher-end clothes and fashion. Zara was given to Amancio Ortega since his favorite name, Zorba, was already taken. Zara’s approach to fashion and business model gained popularity with the Spanish customer during the next eight years. As a result, nine additional outlets have opened in Spain’s major cities.
Inditex was founded in 1985 as a holding corporation, laying the groundwork for a distribution system capable of reacting fast to changing market trends. Ortega used the term “instant fashion” to describe a revolutionary design, production, and distribution approach that could shorten lead times and respond to new trends more quickly. Heavy expenditures in information technology, as well as the use of groups rather than individual designers for the essential “design” aspect, fueled this trend.
Zara continued actively expanding into worldwide markets in the next decade, including Portugal, New York, Paris, Mexico, Greece, Belgium, Sweden, Malta, Cyprus, Norway, and Israel. Zara stores may now be found in almost every developed country. Zara today has 2,264 shops in 96 countries, strategically situated in major cities. It is unsurprising that Zara, which began as a modest store in Spain, has grown to become the world’s largest fast-fashion retailer and Inditex’s main brand. According to Forbes magazine, Amancio Ortega, the company’s founder, is the world’s, sixth-richest man.
Currently, Inditex is recognized as the world’s largest fashion group as it has more than 174,000 employees operating in more than 7,400 stores in 202 markets globally including 49 online markets. The revenue of Inditex was USD 23.4 billion in 2019. Additionally, the other fashion brands in the portfolio of Inditex are:
- Zara Home: Zara Home was formed in 2003 and sells home products and design items. There are 183 marketplaces in which we operate, with 70 of them having storefronts.
- Pull & Bear: Pull & Bear is a casual, laid-back apparel and accessory brand for young people that was launched in 1991. It has 185 marketplaces, 75 of which have shops.
- Massimo Dutti: Massimo Dutti was founded in 1995 and sells high-end apparel and accessories to cosmopolitan men and women. It has 186 marketplaces, 74 of which have retailers.
- Bershka: It was formed in 1998 and blends urban trends with trendy fashion for young ladies and men. There are 185 marketplaces in which it operates, with 74 of them having shops.
- Stradivarius: In 1999, Stradivarius purchased a line of casual and feminine clothing for young ladies. There are 180 marketplaces in all, with 67 of them having shops.
- Oysho: Oysho was formed in 2001 and specializes in lingerie, casual outerwear, loungewear, and unique accessories. There are 176 marketplaces out of which 58 of them have storefronts.
- Uterqüe: It was created in 2008 and offers high-quality fashion accessories at reasonable pricing. There are 158 marketplaces in which we operate, with 17 of them having storefronts.
Apart from fashion businesses, Amancio Ortega has established Pontegadea Inversiones, a worldwide real estate investment company that maintains corporate offices in nine countries, including the United States (Seattle), the United Kingdom (London), France (Paris), Canada, Italy, and South Korea. Large corporations such as Facebook, Amazon, and Apple, as well as prominent luxury and retail brands, are housed in these corporate complexes.
The Remarkable Brand Strategy
Zara was ranked 29th among the finest global brands by global brand consultant Interbrand in 2019. Its main ideas may be summed up in four words: beauty, clarity, functionality, and long-term sustainability.
Zara’s success has been primarily attributed to its ability to keep up with fast-shifting fashion trends and incorporate them into its collections with minimal delay. Zara identified a large market vacuum that few apparel manufacturers had properly addressed from the start.
This was done in order to stay up with the newest fashion trends while also providing apparel collections that are both high quality and inexpensive. The brand keeps a close watch on how fashion is changing and on the latest trends that evolve across the world. Based on these ever-evolving trends and styles, Zara creates new designs and puts them into stores within a week or so. In comparison with other brands, most fashion brands would take nearly 6-7 months to get their new designs and collections into the stores.
This strategic ability to introduce new collections based on the latest trends in a rapid manner has helped the company to beat other competitors. It was because of these reasons that the brand became people’s favorite. It is especially beloved by the people who love to keep up with the latest fashion trends and styles.
Zara is known for producing clothes that survive the fashion trends for a month or two and here are three areas that the brand likes to concentrate on:
- Shorter lead times: Shorter lead times allow Zara to ensure that its stores have those clothes that customers want at the time (for example, specific spring/summer or autumn/winter collections, a hot new trend, the sudden popularity of an item worn by a celebrity/socialite/actor/actress, the latest collection of a top designer, etc.). While many businesses try to predict what customers will buy months in advance, Zara follows its customers and delivers them exactly what they desire at any given time.
- Lower quantities : Zara not only restricts its exposure to any one product but also generates fake scarcity by decreasing the number made for a certain style. The theory that applies to all fashion goods (and especially luxury) is that the less available an item is, the more desirable it becomes. Another advantage of making smaller numbers is that if a style fails to gain momentum and sells poorly, there isn’t a large amount to dispose of. Zara only has two time-limited sales a year, rather than regular markdowns, and it lowers a relatively tiny percentage of its items, around half of what its competitors do, which is a remarkable achievement.
- More styles: Zara creates more styles, around 12,000 every year, rather than higher numbers per style. Even if a design sells out quickly, more styles are on the way to fill the void. This implies more options for consumers and a better chance of getting it properly. Zara’s designs are only allowed to stay on the store floor for three to four weeks. This strategy encourages customers to return to the store because if they were only a week late, all of the clothes in a specific style or trend would be gone and replaced by a new trend. Customers are enticed to visit its stores more frequently as the lines and styles presented by its stores are constantly refreshed.
The Zara brand was created with a close eye on its consumer – its ability to comprehend, forecast, and deliver on its customers’ desires for contemporary items at reasonable rates. The brand’s capacity to have customers co-create designs, in addition to its efficient supply chain, is unique and gives it a competitive advantage. Most fashion trends begin suddenly, emerge from unexpected areas, and appear out of nowhere. One of the keys to Zara’s global success is its culture and respect for the concept that no one is a greater, more authentic trendsetter than the consumer—and this attitude must be represented in all of the company’s business tactics at all times.
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Case Study of the Growth of Zara
Zara is a fast-fashion retailer founded in 1975 by Amancio Ortega in Galicia, Spain. With a vertically integrated business model and quick response to customer demands, Zara has expanded globally and become one of the leading fashion retailers in the world. The company has embraced e-commerce and sustainability and continues to innovate, staying ahead of its competitors.
Business Model of Zara
Zara follows a fast-fashion business model that emphasises responding quickly to changing trends and customer demands. The company has a vertically integrated business model, allowing it to control all aspects of production, from design to manufacturing to distribution. Zara operates a mix of company-owned stores and franchises and has invested in e-commerce to reach customers in new markets. The company prioritises sustainability and continuously innovates to stay ahead of its competitors.
Designs − Zara has a team of designers who closely monitor global fashion trends and customer preferences. This allows the company to quickly respond to changing customer demands and design new products that meet those demands.
Sourcing and Manufacturing − Zara's vertically integrated business model allows the company to control all aspects of production, from sourcing raw materials to manufacturing final products. This enables the company to have a quick response time to new trends and customer demands.
Distribution − Zara uses a combination of company-owned stores and franchises to distribute its products globally. The company also has an online store that is available in many countries, allowing it to reach customers in new markets.
Retail − Zara operates a mix of company-owned stores and franchises, and its stores are designed to provide customers with an immersive shopping experience. The company invests in technology, such as artificial intelligence and data analytics, to improve its operations and customer experience.
Zara's Growth Case
Start and Expansion − Zara was founded in 1975 by Amancio Ortega in Galicia, Spain. It started as a small clothing store and expanded rapidly in Spain and later in other countries in Europe.
Fast Fashion − Zara is known for its fast fashion business model, where it quickly responds to changing trends and customer demands. This has allowed Zara to stay ahead of its competitors and maintain its position as one of the leading fashion retailers in the world.
Global Expansion − Zara expanded globally and entered new markets through a combination of company-owned stores and franchising. Zara opened its first international store in Portugal in 1988 and later expanded to countries such as France, Italy, the UK, and the US.
Vertical Integration − Zara's parent company, Inditex, has a vertically integrated business model that allows for quick responses to customer demands and quick turnarounds of new products. The company controls all aspects of production, from design to manufacturing to distribution.
E-Commerce − Zara has invested in e-commerce and online sales to reach customers in new markets and expand its reach. Its online store offers a wide range of products and is available in many countries.
Sustainability − Zara has made a commitment to sustainability and has implemented practises such as reducing waste, using more sustainable materials, and increasing energy efficiency in its stores. This has helped the company improve its reputation and appeal to customers who are concerned about the environment.
Innovation − Zara continues to innovate and stay ahead of its competitors. The company has embraced technology, such as artificial intelligence and data analytics, to improve its operations and customer experience.
Internationalization of Zara
Zara's internationalisation can be characterised by its rapid expansion into new markets and its ability to adapt to local cultural differences. The company's strategy for internationalisation includes the following steps
Market Research − Zara conducts market research to identify potential new markets and to understand local customer preferences and cultural differences.
Local Adaptation − Zara adapts its products and store designs to local cultural differences and customer preferences, ensuring that its products and shopping experience appeal to customers in each market.
Partnerships and franchising − Zara use a combination of company-owned stores and franchising to enter new markets. This allows the company to benefit from local expertise and control costs while expanding globally.
Sustainable Practices − Zara prioritises sustainability and implements sustainable practises in its stores and production processes. This has helped the company improve its reputation and appeal to customers who are concerned about the environment.
Zara's internationalization strategy has helped the company to expand rapidly into new markets and to maintain its position as one of the leading fashion retailers in the world.
Market selection is an important step in Zara's internationalisation strategy. The company conducts market research to identify potential new markets and to understand local customer preferences and cultural differences. This allows Zara to make informed decisions about which markets to enter and how to tailor its products and store designs to meet local customer demands.
Zara also considers various factors when selecting new markets, such as the size of the market, the level of economic development, the level of competition, and the potential for growth. The company looks for markets that are large enough to support its business and where it can achieve a competitive advantage through its fast fashion business model and vertical integration. Additionally, Zara considers the cultural differences of each market and adapts its products and store designs accordingly. For example, in some markets, customers may prefer more modest clothing styles, while in others, they may prefer bold and daring styles. By understanding local cultural differences, Zara can ensure that its products and shopping experience are appealing to customers in each market.
Overall, market selection is a crucial aspect of Zara's internationalization strategy, allowing the company to expand into new markets while maintaining its focus on customer demands and cultural differences.
Zara's marketing strategy focuses on creating an immersive shopping experience for customers and using technology to improve its operations and customer experience. The key components of Zara's marketing strategy are
In-Store Experience − Zara invests in store design and technology to create an immersive shopping experience for customers. The company's stores are designed to be attractive and welcoming, and the company uses technology, such as augmented reality and data analytics, to improve the customer experience.
Product Range − Zara offers a wide range of products, from clothing to accessories, that are designed to appeal to a broad range of customers. The company uses its fast-fashion business model to quickly respond to changing customer demands and design new products that meet those demands.
E-Commerce − Zara has invested in e-commerce to reach customers in new markets and provide them with a convenient and easy shopping experience. The company's online store offers a wide range of products and is available in many countries.
Advertising and Promotion − Zara uses a mix of advertising and promotion to reach customers and raise awareness of its brand. The company's advertising campaigns are designed to be bold and memorable, and the company also uses social media and influencer marketing to reach customers and build its brand.
Sustainability − Zara is committed to sustainability and implements sustainable practises in its stores and production processes. This has helped the company improve its reputation and appeal to customers who are concerned about the environment.
Overall, Zara's marketing strategy is focused on creating a memorable and enjoyable shopping experience for customers, using technology to improve its operations and customer experience, and committing to sustainability. These key components of Zara's marketing strategy have helped the company achieve success and become one of the leading fashion retailers in the world.
In conclusion, Zara's success as a global fashion retailer can be attributed to its innovative business model, quick response to changing trends and customer demands, and commitment to sustainability. The company's vertically integrated business model and fast fashion approach allow it to quickly respond to new trends and customer demands, while its investment in e-commerce and partnerships with local partners have helped it expand into new markets. In the future, Zara is likely to continue its expansion into new markets and to continue to innovate, staying ahead of its competitors and meeting the changing demands of customers. The company's commitment to sustainability and its focus on customer preferences and cultural differences will likely remain key to its success in the future.
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Home » Management Case Studies » Case Study: The International Growth of Zara
Case Study: The International Growth of Zara
The emergence of global fashion has transformed the way fashion is perceived in the contemporary world. In the recent years, there has been a surge of global fashion brands; triggered by the intensive involvement of internationalization processes in the fashion industry. Large retailers in search of sustained growth increasingly decide to expand overseas, responding and contributing to the globalization process .
Operating internationally is an increasingly common option for organisational growth . The process becomes a necessity when the domestic market shows increasing levels of competition and commercial saturation. Incidentally, there are increasing numbers of born-global companies deciding to internationalize their businesses from the beginning of their activities, regardless of the domestic market situations. The desire to benefit from the exposure of exclusive brands to foreign markets was one of the key motive for internationalization . Notwithstanding, internationalization strategies differ across retailers and also their results.
During the initiation of an internationalization strategy, fashion retailers should reflect upon the congruence of their product ranges and brand images within the context of the prevalent cultural and trading conditions of the foreign markets. The Spanish fashion retail chain ZARA is one of the most prominent international Spanish brands and one of the most successful amongst fashion retailers, thus is a prime representation of global expansion.
Zara – Introduction
Founded in 1975, ZARA, a Spanish clothing and accessories retailer was originally the brainchild of the Inditex Group owned by Amancio Ortega . Headquartered in A CoruÃ±a, Galicia, Spain, Inditex is the world’s largest fashion retailer with ZARA as its international flagship chain store. Beginning with the single store in Spain to the recent launch into Australia, ZARA currently has over 1,700 stores in 78 countries providing exclusive fashion worldwide. ZARA, alone accounted for 64.6% of the Inditex group turnover in 2010. Over time, it has become one of the notable leaders amongst the fashion brands. ZARA was described by Louis Vuitton fashion director, Daniel Piette as “possibly the most innovative and devastating retailer in the world” and CNN described the brand as a “Spanish’s success story”.
The secret of ZARA’s success is in its speed (four weeks for a new fashion idea to hit the retail stores and two weeks for modification of current models) and the feedbacks obtained by store managers are presented to head office, thus enabling it to fine-tune its ideas. There is also firm control from Spain; the sole logistics hub. While 34% of Inditex’s manufacturing is outsourced to Asia, and 14% to parts of Europe including Turkey, those tend to be the more basic items. The high-fashion items which accounts for 49% of what it retails, is cut and finished in Spain though some sewing is done elsewhere.
Business Model of Zara
The core concept of ZARA’s business model is to provide medium quality fashion clothing to the masses at affordable prices. The key to this is vertical integration and quick response.
ZARA’s business model is characterized by a high degree of vertical integration . Time was the main critical factor for consideration, beyond production costs. The vertically integrated structure allowed ZARA to achieve great flexibility and shorten turnaround times; reducing stock to minimum and diminishing fashion risk. Furthermore, vertical integration helped reduce the “ bullwhip effect “, the tendency for fluctuations in final demand to get amplified as they were transmitted back up the supply chain.
The business system covers all phases of the fashion process; designing, sourcing and manufacturing, distribution, and retailing. It has a flexible structure and a strong customer focus in all aspects of its business areas.
- Design – ZARA manufactured its most fashion-sensitive products internally. Designers continuously track customer preferences and place orders with internal and external suppliers. Every year, about 11,000 distinct items are produced compared with 2,000 to 4,000 for key competitors. Production took place in small batches, with vertical integration into the manufacture of the most time-sensitive items. Predictable styles are outsourced to Asia for manufacturing. ZARA is able to design and have finished goods in stores within four to five weeks, and two weeks for modifications or restocking of existing items.
- Sourcing & Manufacturing – Comditel, a Inditex subsidiary does the purchasing of fabric for ZARA. Around half of the fabric purchased was “gray”, undyed to facilitate in-season updating with flexibility in manufacturing a variety of colours and patterns. This process cycle took one week for fabric to be completed. ZARA manufacture its most fashion-sensitive products internally and produce in small batches for the most time-sensitive ones.
- Distribution – ZARA has a centralized distribution system that minimises the lead-time of their goods. Products are received at either the central facility in Arteixo, Spain, or through satellite sites located in Argentina, Brazil and Mexico; where they are distributed simultaneously to all the stores worldwide on a highly frequent and constant basis; Shipped directly from the central distribution centre to retail stores twice a week, eliminating the need for warehouses and keeping inventories low.
- Retail – the store is not the end of the process but rather its restart, as the stores act as market information gathering terminals, providing feedback to the design teams and reporting the trends demanded by customers. Additionally, ZARA provides very limited volumes of new items in the most fashionable of ZARA’s stores and then uses the results of those sales to decide whether the items should also be sold in other locations. The limited volume and short available time successfully created a sense of ‘scarcity’ in consumer’s perception.
Internationalization of Zara
After opening its first store in La CoruÃ±a in 1975, ZARA expanded within the domestic market during the 1980s. International expansion started with the opening of a store in Oporto, Portugal in 1988. Currently, ZARA is already operating over the five continents with over 1,700 stores. International sales accounted close to 70% of its total turnover, with Europe being its largest market by far.
ZARA has been identified as a trans-national retailer. On the surface, this may appear as a peculiar classification since they appear committed to a highly standardized operating formula which provides little opportunity for market responsiveness. Analysis of ZARA’s internationalization strategy would indicate otherwise. While the brand image is highly standardized, its product development and merchandising strategy are very flexible and allows for the integration of pan-national fashion trends as soon as it emerges. This is evident by its approach to trading in the British market. ZARA recognizes the appeal that their Spanish origin provided for its brand and clearly understood the distinctive positioning they had within the United Kingdom as a fashion forward retailer. The company therefore focused upon the more fashionable lines within their British stores. Pricing policy within the United Kingdom has been more upscale than their home market in order to exploit their advantages within the British market.
The ‘oil stain’ strategy as described by its management is the pattern of ZARA’s international expansion. It begins with the opening of a flagship store in a major city. After developing and gaining experience to operate locally in the country, they then proceed to have stores in adjoining areas. An example is the flagship store in Paris anchoring a patterning of regional and then national expansion to encompass 67 stores in France by 2002.
One of the key decisions in the internationalization of a firm is the selection of a right country market. Then again, the attitudes of the management can decide where it chooses to expand. The concept of psychic distance, after much revision has been defined as the subjectively perceived distance to a given foreign country. Many factors affect this concept which includes ‘language, business practices, political and legal systems, education, economic development, marketing infrastructure, industry structure, and culture’. These factors form the basis of uncertainty of the management have with foreign markets.
The degree of uncertainty about foreign markets or psychic distance has been proved to be a critical aspect in deciding the direction of its international expansion. Consequently, psychic distance can be a significant deterrent, particularly to the early stages of overseas expansion. As firms become more internationally active, the influence of psychic distance on its market selection decisions diminish; overcoming the psychological barrier. This can be seen in the case of ZARA’s international expansion.
To come to a decision for the selection of markets, ZARA sends a team from headquarters to conduct both macro and micro analysis of the new market to analyse new market opportunities. Macro analysis focusing on the local macroeconomics variables and the likely future evolution, in terms of how it would affect the prospects for their stores; such as property prices, salaries, legal costs, taxes and tariffs. Where else micro analysis focusing on industry specific information concerning local demand, competitors, channels, and store locations availability. The competitive information gathered included data on levels of concentration, the formats that would compete most directly with ZARA, and their potential political or legal ability to resist its entry, as well as local pricing levels.
As mentioned earlier, psychic distance discourages the foreign expansion of firms. This spreading pattern, based on the concept of psychic distance, mirrors the stages approach to internationalization. There is a three stage model of expansion in geographical presence over time. Retailers passed through stages of reluctance, caution and ambition, as they became more pro-active in their response to international market opportunities and experience curve effects influenced managerial perceptions of risk. This is seen in ZARA’s international expansion, as it clearly divides into the three stages.
- Reluctance – 1975 to 1988 it focused expansion in its domestic market. The maturity of the market in Spain led ZARA to look for opportunities through foreign market for corporate growth.
- Cautious – Between 1988 and 1997 they had a more cautious approach, entering about one country per year. In this early stage new to the international environment, ZARA enters geographically and culturally close markets that resembled the Spanish market. For instance in 1990, ZARA started operation in France, Paris a geographically contiguous country and a fashion capital. Further in 1992, Mexico was added; though geographically distant, but is culturally close to Spain.
- Ambition – Experiential learning encouraged the retailer to become more ambitious in their international aspirations. As ZARA gain more international experience, overcoming the psychological barrier; they took an aggressive and rapid global expansion from 1998. This was regardless of cultural or geographical proximity. For example, stores were opened in 16 countries from 1998 to 1999. These countries include Canada, Great Britain, Middle East, Japan, and many more, which differs greatly in practices and culture.
Foreign entry-mode choice is one of a firm’s most important strategic choices. It influences the firm’s degree of control, resource commitment, investment risks, and share of profits. Choosing greenfield and acquisition entry mode would entail for a full control and ownership, whereas a joint venture provides a shared control and ownership. These full-equity entry modes are more susceptible to environmental uncertainties and involve greater exposure to economic and political risk. Furthermore, it requires a greater resource commitment with full-control entry modes with exception to management service contracts. It demands the deployment of assets that cannot be easily redeployed without incurring sunk costs.
On the other hand, the use of shared-control entry modes would gain access to knowledge which local partners have of competitors, markets, and governmental policies. Joint venture characterized by a relatively lower investment and hence provides risk, return, and control commensurate with the extent of the investment firm’s equity participation. It not only entails ownership and control sharing but minimizes country risk. This however may raise issues of managing a partner whose interests may diverge over time. Lastly, in non-equity modes, such as franchising, the foreign firm serves the host market thorough arm’s-length contractual agreements.
ZARA’s business model requires a great control and flexibility, and hence has always tried to keep the maximum control over its operations; wholly owned subsidiaries. The rest of the strategies are carried out when the legal policies or political situation of the country or another intrinsic attributes of the market does not allow them this option. Mainly three different strategies are used for its international expansion, entering into new markets. They adopted different entry modes for different countries, depending on the situation of the target country.
- Greenfields – this is the mostly used and preferred choice of entry by ZARA. Chief advantage of this mode is the total control over the business; the flexibility is high and its adaptation power increases, and flexibility is one ZARA’s key factor of success. It however requires a high level of resources and high degree of commitment, causing a higher level of risk in the case of exiting the market. They adopted this mode in key, high-profile countries with high growth prospects and low business risk.
- Franchising – This mode of entry is typically used in countries where FDI is not viable. They are usually markets that are small, risky, or culturally distant or subject to administrative barriers which encouraged this mode of market participation. Examples are Andorra, Iceland, Poland and Middle Eastern countries where restrictions on foreign ownership ruled out direct entry. Franchisees were generally well established and financially strong players. They are given exclusive, countrywide franchises that encompass other Inditex chains; then again ZARA always retained the right to open company-owned stores as well.
- Joint Ventures – joint ventures agreements are adopted in larger, more competitive markets where there were barriers to direct entry; mostly related to difficulty of obtaining prime retail space in city centers. For instance, ZARA formed joint ventures in Germany and Japan, with firm Otto Versand and Bigi respectively. Otto Versand is the largest German catalog-based retailer and importantly a major mall owner. Bigi a Japanese textile distributor with its knowledge of the local property market encouraged ZARA to sign the agreement to enter Japan in 1998. Bigi’s knowledge was a particularly critical factor in Japan where wide spaces are limited and expensive assets. Nevertheless due to ZARA’s business model, which was difficult to be imposed in such an entry strategy, especially in situations where they have to unify its criteria with their partner in terms of strategy and control; ZARA bought back remaining shares sometime after to dissolve the joint ventures.
In the early years of international expansion, ZARA took a very ethnocentric approach with their subsidiaries as replicas of the stores operating in Spain. Reasoning given was that if ZARA’s international segment and product mix were the same, and store management system in Spain had established good results, it would be logical to transplant the same systems.
Conversely, ethnocentric approach stumbles upon unexpected problems, due to the diverse cultural idiosyncrasies of the different countries. This led ZARA to move in the direction of a geocentric orientation, allowing the company to adopt in some cases local solutions rather than merely a replication of their home market. Be that as it may, ZARA still sells mostly homogeneous product for a global market with some adjustments in its marketing mix . For instance, the difference in customer’s size in Asian countries; laws issued in Buenos Aires, Argentina that require the availability of garments for youths in all sizes; cultural differences in countries such as Arab where some garments cannot be sold; and the seasonal differences in the southern hemisphere. Stores worldwide gather information to guide the design department on garment decisions that finally will be produced that can be sold in all markets where ZARA operates. Furthermore, each store manager would decide on specific garments that will be displayed in store to meet the customer’s taste in that area.
The ethnocentric approach encountered some managerial issues as well, with similar reason due to cultural differences in different parts of the world. For example, when the company established the first store in France, Spanish executives quickly discovered that apparently small differences in French and Spanish managerial style became significant aspects for the management of the operation. Thus, the personal relations between the store manager and the employees had to be reviewed and adapted to French idiosyncrasies. Whereas in Spanish stores, the communication flow and personal interactions between managers and employees were based on informal relationships, this did not work well with French employees who expected a formal and hierarchical relationship. The geocentric approach would allow the subsidiary to reach local sensibility without impeding the exploitation and utilization of its core competence .
Pricing was market-based. However, customers effectively bore the costs of supplying the product from Spain. For instance, prices on average as compared to Spain are 40% higher in Northern European countries 10% higher in other European countries, 70% higher in the Americas, and 100% higher in Japan. The higher prices imply a different positioning for ZARA in the international market, in particular to emerging markets. For example in Mexico where they have a lower average income, the targeted customers are from the middle to upper class. The difference in positioning affected stores in a way that ZARA’s overall image had to be presented as high-end rather than a mid-market image.
Product offerings and promotion policies varied minimally internationally. Promotional and advertising efforts were generally avoided worldwide except the biannual sales periods, in line with Western European norms. 85% to 90% of basic designs sold in stores tend to be common throughout the world. While the rest differed due to catering to physical, climate, or cultural differences, for example the smaller sizes in Japan, different seasonality in Southern hemisphere, and special women’s clothes in Arab countries. As tastes converge across national boundaries, the implementation of a rather standardized strategy had become easier over time. Residual differences permitted products that did not sell well in one market to be sold in others.
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BRAND EQUITY: A CASE STUDY OF ZARA
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The fashion retail industry is one of the most impulsive market characterized by constant change of customer’s tastes and preferences. The retailers must, therefore, provide quality products and services that match quality shopping experience expected by the consumers. In the past, retailing was straight forward, but further development of retailing has created a new wave for retailers to rethink their marketing strategy (Varley and Rafiq, 2014). A successful brand is conscious and is ready to make them aware of the brand and its related products. The fashion retailing industry a field common with strong branding. This case will focus on a well-known fashion retailer Zara. Zara is a fashion retailing company based in Spain with chain stores in various parts of the world. The fashion retailer has to adopt an appropriate marketing strategy to guarantee that the customers identify with their brand. Although Zara’s products are not significantly different from those of its competitors, the retailer has adopted various marketing strategies to overcome the rapid change in the fashion industry. Brand equity is defined as all of assets and liabilities linked to a particular brand and its name and may either affect it positively or negatively (Aaker, 1991). This paper seeks to analyse the brand equity method adopted by Zara in Spain in three-level hierarchical model.
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Brand awareness is a crucial concept in retail marketing. It is used to determine whether the consumers can recognize a brand and the last time they purchase it. The concept is divided into brand recognition and recall. First, brand recall refers to the consumer being able to remember a particular brand anytime he/she is presented with the product category (Warnaby and Medway, 2004). Secondly, brand recognition is the ability of the consumer to ascertain previous exposure to a brand when offered the brand category. Creating brand awareness boosts the chances of the customers’ consideration for purchase next they come across it (Kapferer, 2008). Therefore, the retailer must understand the difference between recognition and recall. People are more likely to buy familiar brands because they are comfortable with them. Therefore, a recognized brand will often be selected over unfamiliar brands. A research by Lea-Greenwood (1998) identified visual marketing as a tool of communication of brand identity fashion industry plays a significant role in the success in the market. Zara has managed to acquire storefronts near high-profile luxury brands such as Gucci and Prada, which has made it be associated with quality products. As Hernández and Bennison (2001) stated, the location of a retail store may determine if it will fail or prosper.
Brand quality is the perception of the relative quality of a particular brand. It serves as a precede construct of brand awareness. According to Davies (1992), the retailer must guarantee their customers that they will receive unique quality. In most cases, customers tend to assess a particular brand with other similar brands on the aspect of various qualitative and quantitative parameters. The demographic and lifestyle of the customers have been noted to be determinants of brand quality (Sinha and Uniyal, 2005). Zara has a strategy to be associated with high quality and affordable fashion brand compared to its competitors. By being seen as high quality, this can positively impact Zara’s brand. Zara makes its customers feel connected to the high-end world fashion, providing affordable items that replicate the latest runway looks. The retailer needs to fulfill the brand mission to gain significant brand equity (Keller, 1993). However, quality alone not sufficient to cause overall brand equity.
Brand quality is a basis of brand equity that is created on a foundation of many different factors, such as experience. The perceived quality also influences the pricing decision of the retailer. As Underhill (2000) stated, a small change in the marketing strategy can result in having a significant impact on the brand. In case the company offers quality products, it provides the luxury of premium pricing. A brand will be associated with overall quality, not necessarily based on a specific known detail (McGoldrick and Collins, 2007). A reasonable valuation of the perceived quality leads to an increase in brand association (Keller, 1993). Moreover, perceived brand quality can also support a premium price, which, in turn, creates a gross margin that would be reinvented in brand equity. Brand loyalty cannot exist without prior purchase of the product (Quinn, 1998). The perceived quality directly influences the purchase decision of the customers, especially when the consumer is not able to carry out a detailed analysis.
Brand association is anything that connects the customer to the brand, including things like imagery which make the brand unique. People are likely to associate with a particular brand on quality acquired. Aaker (1991) argued that a brand manager is interested in those associations that affect buying behaviour either directly or indirectly. Moreover, brand association is an existing base for purchase decision as well as brand loyalty (Beatty and Ferrell, 1998). For example, Zara is known by customers for efficient retail stores and a fast supply of trendy fashion. The association reflect social and position and professional role. Having a brand association is an essential aspect of marketing because it leads to repetitive sales providing the business word of mouth marketing (Supphellan, 2000). Such associations are vital to the brand and make it challenging for a new entrance to the market. Although there are many possible associations that the retailer may build in a brand, not all require but only those that directly or indirectly affect the consumers (Dawson, 2000). Since they offer quality product, consumers are likely to have a higher association with the brand.
The strength of brand association is determined by how the consumers receive the information. A brand manage knowing which elements to consider in marketing would help to create an improved customer satisfaction (Finnand Louviere, 1996). Zara has gained a deep understanding of the full value preposition it exchanges with the customers. The customers have been able to associate the retailer as being able to deliver fast-fashion products in the right quantity, format, and time as requested. In Spain, Zara is famous for how fast they design and provide clothing required by their customers. The underlying value of a brand name is often based upon a particular association attached to it. A study by Burt (2010), indicated that there is a need for the retailer to focus on value and attitude information to be more competitive.
Brand equity has several dimensions, each giving value to the retail company in various ways. The study has analysed the concept of brand equity of Zara with three dimensions and causal relations between them. According to the analysis, Zara has been successful in offering quality products. Zara ensures that the design of their products are flexible and change regularly to match with the changing tastes and preferences. Concerning awareness, Zara has strategically located its retail stores throughout the country in strategic locations such as shopping malls. Once a brand identifies the benefit of brand equity, they can follow the strategy to create and manage the potential benefit. Finally, brand equity is a significant factor in marketing strategy in the sense that the brand is an asset that may drive the performance of a retail performance over time. The concept of brand equity is not only a strategically aid in creating short-term sales, but it is also a strategic move to create a long-term value of a firm. To maintain its reputation as a reliable and successful retailer, Zara must continue to connect with the customers’ emotions to retain them.
This paper would recommend Zara concentrate on promotion to maximize and sustain its performance in the fashion industry. Moreover, investing more in the promotion of its brand would help the company introduce its brand to new customers. Promotion will further enable prospective customers to identify more with the unique nature of products retailed by Zara. The future and sustainable success of the brand lies within how the retailer communicate and connect with their continually increasing consumer audience. The retail company must be willing to pay a substantial expense for promotion purposes of its brand name. The promotion might have a little impact in the short run but will offer excellent results in the long term. The development may be aimed at making the customers associate the brand of sustainability.
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ZARA – Case Solution
Since Zara imitates fashion trends, the company is often rushing to get these products in stores at peak times, and this can result in shipping becoming delayed and the quality of products lowering due to inventory being changed every week. Zara will need to increase the amount of money they spend on advertising to continue to establish its brand in new markets.
David J. Arnold Harvard Business Review ( 503050-PDF-ENG ) March 11, 2003
Case questions answered:
Case study questions answered in the first solution:
- What is Zara’s strategy?
- What makes Zara special and unique?
Case study questions answered in the second solution:
- What are the issues in this ZARA case study?
- What are the problems faced by ZARA?
- What is your analysis of the case?
- Give your recommendations.
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ZARA Case Answers
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Strategic issues faced by Zara
Zara has a unique business model and is highly dedicated to its craft of personal and fast fashion. However, the London College of Fashion’s Center for Sustainable Fashion states that they do not believe that the company can continue with the same business model that they have been using for an extended period of time.
The main problem is that the company is looking to expand beyond fast fashion and grow sustainably. Therefore, the issue that will be analyzed is how Zara should alter their manufacturing structure, how sustainable its current strategy is, and how to expand without risking the quality or pricing of its clothing.
Zara is assessed using a SWOT Analysis, as shown below.
Zara’s strengths are its cost leadership strategy, fast turnaround times, and real estate. Through their cost leadership strategy, they are able to efficiently set prices low and churn out their clothes within two to three weeks for a lower price than higher-end brands.
Moreover, their fast production time sets them apart from many other fashion brands and creates a mindset for customers that if they do not buy it now, they’ll lose a great opportunity. Zara invests in very expensive locations and buildings with historical appeal and is located in a prime location. By doing so, it attracts more foot traffic, and consumers might associate Zara with other high-end brands located nearby, like Gucci, Chanel, and Prada.
One of Zara’s biggest weaknesses that were mentioned was the lack of marketing and sales. The case mentioned that Zara had close to a non-existent marketing team. Zara heavily relies on word of mouth from customers. However, eventually, the lack of marketing isolates Zara from the possibility of being able to double its profits and turnovers. Advertising can pull in a lot more customers than just word of mouth.
Another weakness that can also be seen as an asset is that Zara only has one distribution center. This one distribution center increases efficiency by a great amount, but if a disaster happens to hit that distribution center, Zara cannot function at all.
An opportunity for Zara is online e-commerce. Zara can increase their global footprint through e-commerce and expand globally from its own home base. E-commerce can also serve as a marketing campaign by getting more traffic on their website. It is much easier to send a friend a link than to recommend a store to a friend and hope that they will visit.
Another opportunity is expanding their retail channel. Zara can consider expanding into Asia and North America, as per their current plans for the future. By expanding its retail channels, Zara can also have a wider global reach through markets that have much potential and are expanding fast, i.e., Asia.
A threat that Zara is currently encountering is reached. Zara is currently very centralized in the European markets, but there is a much larger market beyond just European consumers. If Zara does not expand into available markets, then another company would just step up and occupy space that could have been Zara’s.
An additional threat is that, eventually, there will not be enough resources to sustain fast fashion. The production costs will get more expensive, and companies based on a fast-fashion model will no longer be able to keep up and absorb the additional costs.
The Fast Fashion Industry is assessed using Michael Porter’s 5 Forces Model.
Rivalry – MEDIUM
There is a medium level of competition in the fast fashion industry. The main competition in the industry so far for Zara includes H&M, Gap, and Mango.
As the case mentioned, fashion and fashion trends are similar to each other, and fashion companies also copy each other. Thus, the product differentiation is low.
Consumers – HIGH
Customers who shop at fast fashion stores have low switching costs, and they also have options beyond fast fashion companies. Consumers also have less consumer loyalty to fast fashion companies than to high-end fashion companies due to how much they pay for the clothes.
Trends are fast-paced and are constantly changing. Therefore, these consumers are conscious of spending too much money that could not be trending anymore in a couple of months.
Suppliers – LOW
Fast fashion industries have the option of outsourcing their production to countries that have much longer production costs compared to local Western companies.
Moreover, the fashion industry creates a substantial amount of waste, and that means production costs will increase. Thus, the fast-fashion companies might look towards regions with cheaper production costs, so the power of the supplier is low.
The threat of New Entrants – LOW
There is also a…
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