zara - letting the stores and consumers do the marketing

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Zara – letting the stores and consumers do the marketing

Ivan Castano

Warc Exclusive

August 2008



Zara - letting the stores and consumers do the marketing

Ivan Castano

Powered by the growth of its flagship chain Zara, Inditex, the Spanish retailer, recently overtook Gap as the world’s largest

clothing retailer. Inditex - based in north-west Spain - pioneered the fast-fashion business model. Two decades after opening

its first store outside the country, Zara has become a global byword for supplying fickle consumers with affordable yet stylish

garments invariably on shorter turn-around times than its rivals.

It has risen without employing retailer marketing techniques, especially the brand advertising campaigns on which, according

to industry consultants, some of its rivals typically spend 3%-5% of their annual revenues. And most analysts believe that

however much the likes of H&M or Gap imitate Zara products, they will struggle to copy its business model.

So how does Inditex do it? According to fashion branding consultants, the strategy is based on two key activities:

understocking and frequent window-changing. The company hooks customers by stocking a minimum amount of on-trend

garments and displaying them in shop windows for a very short time, creating an aura of exclusivity around the product.

Zara uses understocking and frequent window-changing to create an aura of exclusivity, as above (respectively) in

Title: Zara – letting the stores and consumers do the marketing

Author(s): Ivan Castano

Source: Warc Exclusive

Issue: August 2008

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Fukukoa (Japan), Casablanca, 5th Avenue in New York, and Beirut

“They are tremendously clever marketers,” enthuses Bill D’Ariano, owner and founder of US fashion consultancy WDA Brand

Marketing. “Unlike competitors, they generate demand by reducing supply. By having a very limited stock of key items they

train consumers to know and expect that what comes in on Monday won ’t be there on Friday. That creates a perception inshoppers’ minds that they are getting something unique and that they are special.”

The understocking bet can also create a “viral marketing” phenomenon that fuels consumer word of mouth about a collection’s

hot items, keeping people glued to the stores, say consultants who follow Inditex. When Inditex managers receive customers’

requests for a sought-after garment, managers can order them for a one to two-week delivery - a speed unmatched in the

industry where factory-to-store times can range from one to six months.

Katrin Magnussen, a fashion analyst with Mintel consultancy in London, agrees that Zara’s shops are its main marketing tool.

She said: “The stores are its advertising. They are situated on prime and highly visible locations so people can see what they

have in their windows.”

Zara often uses prime locations, such as this store situated in Paris

Zara’s windows are also very different from those dressed up by H&M and Gap, observers say. “With just a few fashionable

styles on display, it is set up to give a cat-walk designer feel to the shop,” says a fashion consultant speaking on condition ofanonymity. “This reinforces Zara’s plan to be known as a designer-led brand away from Gap, which is seen as a commodity

seller, or H&M, which presents itself as a supplier of throw-away fashion.”

A tightly-controlled manufacturing chain enables the quick turnaround at Inditex, which has become the pride and soul of

corporate Spain and a case study at leading business schools. Unlike rivals, the company does very little outsourcing, making

most of its clothing in its Spanish factories or with nearby third-party suppliers. All designers are based in in-house.

In visits to Inditex, D’Arianzo has seen the beast at work. He notes: “All design and merchandising is integrated in an open-

work environment. There are no senior designers in one floor or different gradations of merchandisers in other floors. This


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allows input to happen very quickly.”

Learn from the customer

Inditex’s communications director Jesus Echevarria acknowledges that Zara’s stores (and those operated by its sister chains),

are its main marketing, branding and communication vehicle.

The strategy is based on “having the accurate product in the correct place at the right time and price,” he says. Instead of

predicting shoppers’ demands, Inditex plays close attention to customers’ purchasing patterns and feedback while in the store.

According to Echevarria, the company works to ensure that its 4,000 stores receive new garments twice per week. Adds

Echevarria: “Inditex’s aim is to learn form the customer so we try to turn away from spectacular shows or catwalks. ”

Asked if Inditex does any below-the-line marketing, Echevarria says its merchandise may sometimes appear in fashion media

or films but that is a rare occurrence. “We try to accommodate these requests whenever possible but we don’t seek them out,”

he says, adding that Inditex’s apparel was recently showcased on Woody Allen’s new film Vicky Cristina , without identification.

Inditex also places newspaper ads to publicise new store openings or sale campaigns, and hosts shop-opening events, but in

a “very humble way”. Echevarria oversees marketing activities and institutional relations at Inditex because the company does

not employ a marketing director or have a marketing department like other multinationals. Inditex says it doesn’t employ any

external marketing agencies.

Apart from Zara, Inditex owns premium chain Massimo Dutti (a European answer to Gap’s Banana Republic) and more down-

market youngster chains Paul & Bear and Bershka, among others. The multi-format concept (which Inditex continues to

expand) is the ideal way to market to different consumer segments, says Echevarria. The chains follow Inditex ’s core

marketing plan and non-advertising policy.

However, they operate as independent entities competing with each other. Each label targets different age groups but has a

clearly differentiated identity and product offering. Inditex will invest €1bn in its business this year, most of which will go to

open and refurbish stores to enhance their marketing appeal, according to Echevarria.

In the first quarter of its financial year, Inditex beat struggling Gap’s sales, reporting a 9% jump to €2.22bn compared to Gap’s

€2.17bn. It has outstripped H&M’s turnover for some time and is likely to do this through 2011, according to analysts at

Sanford Bernstein in London. Inditex’s turnover will climb to €14.6bn in the next three years, up from €9.5bn for the year ended

January 2008, the broker predicts, adding that H&M will chalk up €13.5bn, up from €8.4bn in 2008.

Gap sales are forecast to shrink to €10.1bn by 2011, down from €10.6bn for the year to February 2008. Analysts say Zara’s

ambitious expansion - strongly focused on Brazil, Russia, India and China (BRIC countries) - coupled with its savvy marketing

model, will help it grow faster than its rivals.

The chain is unlikely to change its marketing philosophy any time soon, says D’Arianzo: “It has worked very well so they are

not going to modify the concept,” he says. “However, as Inditex grows it’s going to be tougher to maintain a vertical supply

chain located within a day’s drive from merchandising and design. They are trying to build this model in other countries but this

will be challenging.”

Inditex versus H&M/GAP


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Given its brimming success, will H&M and Gap move to copy Inditex’s marketing? That’s unlikely, as they would have to

change their business structure drastically, analysts say. Though it spends significantly more on marketing than Inditex,

Sweden’s H&M promotes itself very successfully, observers say.

“H&M is not going to change its marketing,” says D’Arianzo. “It would require them to change its back-end business model [to

tighten the supply chain] and this would be very hard. H&M moves merchandise quickly enough and its advertising is very

successful in its own right.”

H&M has slower delivery times and is less geographically diverse than Zara so it needs to advertise to promote a new

collection or build its brand in new markets: “Because of its slower turnround schedules, H&M can’t change its windows as

quickly as Inditex so they need to advertise a new collection through traditional methods,” says Magnussen.

An ad for H&M, featuring Madonna; the chain has also worked with celebrities such as Kylie Minogue

Gap, which continues to lose market share against Inditex and H&M, is sticking to its classical advertising strategy to publicise

collections, which take three to six months to reach shops, according to observers. It recently scrapped US national ads to cut

spending and boost profits. This month, however, the chain launched a new celebrity-inspired ad campaign.


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An image from Gap's new celebrity-endorsed campaign, featuring actress Liv Tyler

“Gap has lot its way,” says D’Arianzo. “They don’t know who their customer is, and they can’t create excitement. They are

very driven by meeting Wall Street’s earnings targets. They just hired a new CEO from a drugstore company and I wonder,

“What does he know about creating the romance and excitement of Zara?” Despite this, Gap’s large real-estate network and

US market lead should help it for some time, analysts say.

As the fast-fashion industry continues to grow, will emerging retailers emulate Inditex? “They should look at their big rivals’

best practices and identify fits with their organisational structure to create a unique brand,” D’Arianzo says. Of course, copying

the Spaniards won’t necessarily produce the same results: “There are no guarantees,” says Magnussen. “Zara has its own

style. It was the first to launch this strategy so if everyone does it the novelty will wear off.”

About the author:

Ivan Castano, a former contributor to Ad Age, is a freelance journalist who covers advertising and marketing. He has

previously written for WARC Online on the efforts of US banks to win Hispanic consumers.

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