Zara’s Historical Background and Marketing Strategy

By Ji Young Lee

Business-world magazine describes it as follows: “Zara is fashion imitator which focuses its attention on understanding the fashion items that its customers

wanted and then delivering them, rather than on promoting predicted season’s trends via fashion shows and similar channels of influence, which the fashion

industry traditionally used”.

Introduction to Zara retail store…

• Zara is one of the largest international fashion companies which belongs to Inditex, one of the world’s largest distribution groups. Zara store’s profit growth has changed from the net income of $340 million on revenues of $ 3250 million in its fiscal year 2001.

• *Introduction to Inditex: Global specialty retailer which he designs, manufactures, and sells the apparel, footwear, and accessories for women, men, and children through its chains around the world.

• *Competitors of Inditex:

• 1) Gap, H&M and Benetton are Inditex’s closest comparable international competitors. • 2) Zara is more fashionable than other three and price is less than Benetton and Gap, but higher than

H&M. • 3) Zara and H&M are more fashionable and price is lower.

• Customer is at the heart of an unique business model which includes design, production, distribution, and sales through an extensive retail network.

• Mission of Zara’s retail store is based on getting smaller where they would like the world to dress in style, class, and experience an unique design weekly.

Zara retail store’s values…

http://youtu.be/LDIl8KFOq9c

The link above shows the brief Zara retail store’s compatible market strategy.

• 1. To adapt quickly to fashion which the public demands.• • 2. To improve quality.

• 3. To sell a modern design which the public needs with quality at an affordable price.

• 4. To have a perfect distribution system, just in time.

Zara retail store’s values and success (cont’d)…

*Business values of Zara is based on: • 1) Professional ethics• 2) Commitment• 3) Confidence • 4) Loyalty • 5) Creativity

*Key success factors of Zara:

1) Short lead time: More fashionable clothes

2) Lower quantities: Scarce Supply

3) More styles: More choice, and more chances of hitting it.

Historical background of Zara retail store…

• Amancio Ortega opened the first Zara store in 1975 in the central street in downtown A Coruna, Galicia, Spain (Founder: Amancio Ortega and Rosalia Mera). The store featured low-priced lookalike products of popular, higher-end clothing fashions. The store was a success where Ortega began to open more stores throughout Spain.

• During 1980s, Ortega started to change the design, manufacturing, and distribution process to reduce lead times and react to new trends in quicker way what he called an “instant fashions” which is the responsive supply chain which enables the delivery of new fashions as trend emerges.

• In addition, company started an international expansion through Porto, Portugal. The international expansion was increased in 1990s, with Mexico in 1992.

• Ortega has continued to grow in creating brands such as Pull & Bear, Bershka, and Oysho. He acquired the groups such as Massimo Dutti and Stradivarius. Inditex is indeed the biggest fashion group in the world.

• Zara was described by Louis Vuitton Fashion Designer Daniel Piette as possibly the most innovative and devastating retailer in the world.

Creation of Zara… Zara…

1963-1974 Amancio Ortega Gaona founded Inditex

1975 The first zara store was opened in Spain

1976-1984 Spreading of zara store in Spain

1985 Zara started to enter overseas market (in Portugal)

1989 Ending New York City, in USA.

1990 Entering Paris, in France

1991-2004 Spreading to the whole world including Japan (1998)

2007 Entering R.O. Korea in 30. April at COEX Mall and Lotte Young Plaza.

Inventory of Zara and product descriptions…

*Zara has launched approximately 11000 new items per year in compared to 200-4000 for H&M and GAP.

*Zara’s focus is on reducing time which holds 6 days worth of inventory while H&M holds 52 days, and Spanish Retailer holds 94 days of inventory.

*Zara’s store is structured by having men’s clothing and women’s clothing, each is subdivided in lower garment, upper garment, shoes, cosmetics and complements, as well as children’s clothing (Zara Kids) and Zara Footwear’s.

http://youtu.be/8p4adY3fF3g The link illustrates women’s clothing trend for 2014.

1) Women’s: Zara produced a range with better fabrics and more “womanly” cuts. Zara Basic essential fashion-fix pieces and fashion for younger women (Lightness, looser silhouettes and silky tops).

2) Men’s: Zara has produced the range of lightweight cotton tops and print shirts paired with cotton twill shorts (Hints of ethnic Asian touches like robes and beads which provides hippie-bohemian detailing).

3) Zara Kids: It produces unique and sophisticated range. It feels secure in finding unique, great quality clothes with reasonable price point.

4) Zara footwear’s: Zara footwear is leading manufactures which offers wide array of ladies foot wears which are beautifully crafted ( ladies sports sandal, formal sandal, fashionable sandals, bellies, designer sandals, shoes, high heel sandals, flat sandals and flat bellies).

Zara women’s wear…

Zara men’s wear…

Growth Rate of Inditex (1997-2007)…

Zara’s Brands Success and SWOT analysis…

*Inditex annual reports: Sales Distribution

-Zara’s sales distribution was 65%, Bershka 10%, Pull & Bear 7%, Stradivarius 6%, Massimo Dutti 7%, and Oysho 2%.

Zara’s brand success and SWOT analysis…

5 Keys to Success

1. Utilizing shops actively.

2. Short period of collection preparation.

3. The principal of small quantity production.

4. Creating the value from product differentiation.

5. Utilizing the advantage of geographic condition.

Zara’s brands success and SWOT analysis cont’d…*Active use of stores:

1) Change the store layout in every 2weeks.

2) Located in the very center of the city.

3) Using the store to advertising.

4) Collecting the data of customers.

*Short period of collection preparation:

Spending only 2 weeks from the market research to the sales (it takes 6 months).

*Small Quantity Production:

Continuous production of New product without relying on HIT product.

*Creating the value from product differentiation:

Based on the fast turnover ratio, customers are hard to find the same cloth in street.

Customers enjoy the scarcity such as high price product with relatively emotional price.

New arrivals by regional groups.

*Utilizing the advantage of geographical condition

Hiring the Spanish and Portuguese instead of people in the third world countries to utilize the advantage of geographical condition. By positioning the design and production facility closely the fast action to the market situation can be possible.

Zara’s SWOT analysis…

• SWOT analysis:

• 1. Strengths:

• -cost leadership strategy -efficient distribution

• -Information technology

• -Fast delivery of new products and trends in the market.

• 2. Weakness: -Centralized distribution system

• -Doesn’t spend much money on advertising

• -Zara has one manufacturing and distribution center in world.

• 3. Opportunity: -Global market penetration

• -Online market -Distribution center in U.S.

• 4. Threats: -Local competitors -Global competitors

• -Zara based in Spain, and has no stores in Europe would dent in revenues.

Production & Distribution of Zara and Design…*Production and distribution of Zara:

1. Maintain quality and Cost leadership: -

2. It can offer more products than other

3. Fast distribution system.

Zara cooperates with any channel of production all over the world so new improvements in operation technology can be applied into Zara instead of keep using old ones.

It puts an effort to make more distribution centers which would enable Zara to be faster, effective, and efficient in distributing their products to retailers.

Store atmosphere: Zara has typical store layout, wide open spaces. It creates an enjoyment of shopping in the store (positive emotions / comfortable feeling / impulse buying / spending more than planned).

Zara line has its own section in the store which is consistent with the current store space distribution.

*Design:

1. Ability to produce new products

2. Coordinate with R & D stores to get new trends.

3. Feedbacks

4. Customer response

The core design value is based on cooperating with vary range of designers so Zara can maintain its competitive advantage to be the “fast fashion” but remain more and more creative.

Production & Distribution process of Zara cont’d…

Production & Distribution process of Zara cont’d…

Zara’s Target, Price and Vision…

1. Zara’s consumers are young, highly sensitive to latest fashion trends.

2. Zara sells apparel, footwear, and accessories for women, men, and children.

3. Zara offers fashion at affordable price by following the up to date fashion trends.

Vision of Zara: -Zara is committed to satisfy the desires of customers. They pledge to innovate business to improve experience. Also, they promise to provide new designs made from quality materials which are affordable.

Mission Statement: Through Zara’s business model, one aims to contribute to sustainable development of society and that of the environment with which the interacts.

Zara’s Brand Positioning…

Zara among others has 3000 stores worldwide H & M, based in Sweden and has 2500; and Mango is based on Spain which accounts for nearly 70% of inditex’s income, and therefore makes it the pillar of Amancio Ortega’s-3rd riches man.

Zara controls and coordinates all the process and allows to reduce the times to minimum. Zara provides the considerable number of products which are more than rival corporations in the fashion industry.

Zara spends four to five weeks on the process of designing new product and getting the finished products in the stores.

Zara’s Brand Positioning cont’d…

Zara’s Strategic Marketing Objectives…

*Overall marketing objectives : Increase customer equity 1. Increase consumer satisfaction, decrease dissatisfaction of the plus size

consumer.

2. Increase purchase frequency among plus-size customers.

3. Continue to grow by extending the Zara fashion brand.

4. Increase brand awareness and favorable attitudes among consumes.

*Demographic target: Aged 18-40; work in big cities / pursuing higher-level education / Mid-range income

*Psychographic target: Interested in fashion trends / conscious about the looks / Enjoy shopping and socializing / Hectic lifestyle

Zara’s Strategic Advantage & Marketing Focus…

*Zara by working through the whole value chain is vertically integrated and highly capital intensive.

1) Vertical integration has allowed Zara to develop strong merchandising strategy which has led Zara to create climate of scarcity and opportunity.

2) Zara manufactures 60% of own products where by owning its in-house production, Zara is able to be flexible in the variety, amount, and the new styles they produce.

3) Zara’s in-house production creates rapid product turnover since its “runs are limited and inventories are controlled. The rapid product turnover creates the climate of scarcity and opportunity in Zara’s retail stores.

4) The climate increases frequency and rapidity with which consumer visit the stores and buy the products. Zara’s scarcity allows company to sell more items at full price. The strategy minimizes Zara’s total cost since it reduces 15-20% of markdown merchandise compared to the traditional retailer.

Zara’s Strategic Advantage cont’d…

Zara’s unique quick response system which is composed of human resources as well as information technology allow Zara to respond to the demand for its consumer better than competition.

Zara’s focus is on the ultimate consumer which places an emphasis on using backward vertical integration to be quick fashion follower than to achieve manufacturing efficiencies.

Amancio Ortega has effectively transmitted the values of company which are freedom, perfectionism, responsibility, rapidness, flexibility and respect to others. This has created autonomous and flexible corporate culture for Zara.

Zara was able to work horizontally with an open communication environment rather than hierarchal. Zara’s centralized distribution facility provides the competitive advantage by minimizing the lead-time of goods. Zara’s internally or externally produced merchandise goes to distribution center.

Zara’s Strategic Advantage cont’d…

Zara’s cuts in advertising investments reduce total expenses which makes an international expansion more economical. This is significant since Zara relies on its stores to project an image.

Since Zara’s target is young, educated one would like the fashion and is sensitive to fashion. 80-85% of products Zara offers are relatively standardized fashionable products. The product which sells well in fashion capital such as New York would also sell well in Milan or Madrid since fashion has become globally accessible.

Product line and Quality of Zara…

*Zara’s core belief has three components which are concept, value drivers, and capabilities. 50% of he products Zara sells are manufactured in Spain, 26% in the rest of Europe, and 24% in Asian and African countries and the rest of the world.

*On September 6, 2010, Financial Times reported Inditex launched the first online boutique for its best-selling brand Zara.

*On November 4, 2010, Zara Online extended the service to five more countries such as Austria, Ireland, the Netherlands, Belgium, and Luxemburg.

*In 2011, Zara entered the Australian market.

*In November 2011, Zara entered the South African market where there were total of 1763 Zara stores and 171 Kiddy’s class stores. Zara stores operate as Lefties store instead of Zara, a brand for low-cost fashion.

*Zara continues to open stores around the world until there were stores in seventy countries.

Important Factors of Zara… 1) Political Factor:

Zara as one of the best retail brands worldwide has interactions with governmental policy for an intervention in an economy and legal aspects in decision making processes.

Zara is required to understand the system of trade for importing the products and goods in different countries.

2) Economical Factor:

Global growth increased to 3.6 % in first quarter of 2012, and Global trade is parallel with industrial production in first quarter 2012 which in turn benefited trade-oriented economies, notably Germany and those in Asia.

*Zara is aware of GST, Duties, and Tariffs.

3) Social Factor:

In regards to the social media trend development Zara should establish social media relationship to satisfy customer’s demands due to change in generation choices.

Zara should provide direct social contact to customers as Newsletter, Facebook, Twitter, Pin-interest, YouTube, Flickr, Web mobile or customer account.

Zara’s Marketing Mix…

1. Product: Zara manufactures and sells products such as clothes, shoes, cosmetics, and accessories for men, children, and women.

2. Price: Zara provides for people with lower income so its prices are very reasonable that everyone can afford it.

3. Place: Zara is present in 30 countries at private locations. There are 600 commercial stores, and Zara is selling its service through out the world.

4. Promotion: Zara focuses less on advertisement-based marketing, but more on internet online marketing opportunities as Ecommerce strategy, social media and online shops.

Zara’s Brand Identity…

Physique Basis of the brand  | High reactiveness and flexibility, market-oriented

Relationship Handshake between customer and company | Trusted quality, fair exchange of value

Reflection Customer’s perception of what brand means | Style, individualism,

assurance.

Self-Image What consumer thinks of herself | Confident, trendy, unique 

Culture Country-of-origin, values it stands for | European, international, good relationship with customers

Personality What is Zara when it becomes a person | Aggressive yet calm, mature, confident, beautiful, well-kempt, modest, unpretentious, low profile

Conclusion… Zara is successful international retailer

less than 30 years.

Zara has transformed from Spanish local brand into a truly global brand.

Zara has the potential for the sustainable growth for its capability and competitive advantage to experience the challenges of fashion industry.

The concept of Zara is keeping production, design, and production process which would enable Zara to react to shifts in demands of consumers

Zara store should keep on innovating and re-inventing themselves to remain creative within the fashion industry.