BUSINESS SEMINAR PROJECT: Foreign Retailers Revealed
– INDITEX Group
Introduction
Zara is the flagship brand of Index SA, an eight-brand group of the world’s leading fashion retailers headquartered in La Coruna, Spain. It is one of the most recognized global fast-fashion companies, first established in 1975 by founder Amancio Ortega Gaona – a Spanish entrepreneur. Since then Zara has been expanding at tremendous pace that by 1990 it had opened several stores in Oporto, New York, and Paris. Taking advantage of Zara’s strong brand name, Zara Home was launched in 2003 to deal in housewares. Zara’s maiden online store was introduced in 2007 to sell Zara Home products. After 39 years of operation, Zara currently has 1,830 stores based in 82 countries across Europe, America, Asia, and Africa. While Zara’s stores only constitute of about one-third of all stores owned by Index group, they account for more than 64% of the group’s sales. Some of Zara stores operate under the low-cost fashion brand Lefties. At the moment Zara has stores in eastern Europe, the UK, the US, Canada, Japan, Israel, Belgium, Norway, and Greece.
Overview
As the largest and of Index group, Zara runs three independent product lines women, children, and men. All the product lines run parallel with each other, but have different operational modes. Most of the accent is placed on women’s garment. Each of the lines has its procurement, design, marketing, and sales arrangements (Torun, 2007). In addition, each of Zara’s product lines has a separate managerial team consisting of Diression de Tiendas (DTs). The DTs work in conjunction with country managers, commercials, HR managers and headquarters to facilitate the operations of the product line.
Zara has a unique business model which consists of design, production, distribution and sales of products through their extensive retail network. The customer is at the heart in Zara’s business model. As an apparel chain, Zara operates differently from other conventional retailers. This is because the company employs a vertically integrated model where it manages all its design, warehousing, distribution and logistical needs by itself instead of depending on external partners (Pahl & Mohring, 2008). The packaged products are thereafter disturbed in small batches. The just-in time model for production, marketing, and sales enables Zara to meet its customer needs within a short timeframe besides responding to market trends much faster. Zara has a large purchasing customer base because of its renowned stylish garments and affordable prices.
Zara’s headquarters in Spain is made of three spacious halls for each product line. Their designers work with market specialists as well as procurement and production planners. Prototypes are thoroughly examined on site which enables fast and reliable decision-making. Further, Zara is differentiates itself from other worthy competitors in this more capital intensive industry through its use of market specialists who serve as intermediaries between store managers and designers, an provide quick feedback to their counterparts in the design and procurement departments.
Like all brands of Index Group, Zara has its own autonomy which enables it to quickly respond to market requirements in a rather flexible manner by effecting necessary changes without necessary seeking permission of third parties (Lincoln & Thomassen, 2009). This implies that Zara has autonomy on such operations as dying, labeling, packaging and other manufacturing processes.
Product offerings
Zara deals in high-fashion offering apparel, footwear, and accessories for women, men, and children aged 0-15. Zara stores are divided into two main product lines: women’s clothing (accounting for about 58 percent of sales) and men’s clothing (22 percent of sales). Each of the clothing line is further divided into 5 sub-categories: lower garment, upper garment, cosmetics, complements, and shoes (Pahl & Mohring, 2008). Furthermore, Zara catalogue consists of children’s clothing line which is responsible for 20% of sales.
Zara has a wide trading area. European stores receive deliveries within 24 hours while America and Asia get their deliveries in 40 hours (Torun, 2007). The deliveries are usually done using trucks or planes, and Zara has a relatively faster product delivery system to the customer.
Zara has a very unique marketing strategy compared to its competitors. The fashion retailer is able to quickly respond to customer demands mainly because it does not outsource their manufacturing activities. The company’s selling proposition is such that it offers the latest trend products in a relatively short time (few weeks) at affordable prices (Pahl & Mohring, 2008). In addition, Zara makes sure not to stock its products on shelf for more than a month. It can be argued that customers are more or less made to buy the product out of the fear that it would be out of stock in the following week. The company discontinues products which are not sold in the stipulated period. The advantage is that Zara has one of the lowest percent of unsold merchandise in the fashion industry – approximately eighteen percent.
Compared with competitors, Zara spends less money on promotional activities. The company perceives store windows together with the content are the most necessary advertising to undertake (Torun, 2007). Also, Zara owns majority of its stores its stores in addition to joint ventures in high risk and culturally distant markets.
Target Market
Zara’s target market is mostly young people. These are people who are often in a hurry, needing to quickly purchase what they fancy without being bothered. On these grounds, Zara’s sales associates are ready to help the customers where necessary (Lincoln & Thomassen, 2009). The company also targets women men (upto 45 years) and young children. The company therefore lays emphasis on managing products as opposed to customers. Effort is also made to make sure that the wait time is as short as possible. Customer complaints are respected and responded to in time accordingly.
Advertising
Zara does few advertisements. Customers are expected to visit their stores so as to get the newest fashion in stock. The company uses only approximately 0.3% of its revenue on promotion, compare to other fashion retailers who dedicate an average 3.5% of their revenue on advertising their products (Torun, 2007). The focus is mainly on product, place and pricing. The company rarely advertises any of its store sales or sales promotions except for sale items. Zara also does not place its logo or brand on their products and there is less focus on personal selling. Their innovative products coupled with affordable pricing serves the purpose of drawing return business, translating that their products advertise themselves.
Zara has a website (http://www.zara.com/) onto which they produce new products every week. The company has learned the buying behavior of its main target group, the young adults, who often do not shop in person. Instead, the young adults usually visit the website prior to being exposed to the real item. It is on this understanding that Zara always updates its website with the latest and available clothes designs. Moreover, the fashion retailer uses word-of-mouth strategy as a most powerful and authentic information from family members and friends. However, considering the increasingly changing business climate in the market and increasing competition, Zara would have to undertake active advertisement in the media and Internet to boast its brand recognition and attract more customers (Pahl & Mohring, 2008).
Reasons for success
Zara’s success in the fashion industry has been as a result of its core competencies providing the company with competitive advantage over other conventional retailers. Zara is indeed an apparel store that operates in significantly different ways from other players in the industry. Other notable fashion retailers such Express outsource all their manufacturing activities so as to take lower costs by capitalizing on cheap labor in developing countries while it remains to focus on distribution and retail of the products (Lincoln & Thomassen, 2009). On the contrary, Zara has developed a successful diverse method of operating by working through the entire value chain in a highly capital intensive manner. The vertical integration business model has enabled Zara to successfully create a strong merchandising strategy with a climate of scarcity as well as opportunity and fast-fashion system. Owning its in-house production enables the chain to be flexible in the amount, variety, and frequency of the trendy styles they produce.
Also, Zara’s tactic to produce the bulk of its production through the season makes it constantly provide very updated products to its customers. Traditional retailers do not have such flexibility because they are limited to placing manufacturing orders to overseas manufacturers at least six months before the season (Lincoln & Thomassen, 2009). In addition, Zara’s in-house production results in a rapid product turnover creating a climate of scarcity and opportunity, increasing the frequency and rapidity in which shoppers visit the stores and purchase the products. The company is able to sell more items at full price and also minimizes the total cost by reducing 15-20% of Zara’s product offerings as compared to traditional retailers.
Zara is also successful because of its quick-response system consisting of human resources and information technology. These enable Zara to react effectively to customer demand than the backward vertical integration. The company understands the significance of speeding information flow of consumer desire to their designers. It is for this reason that Zara has installed human resource teams in its retail and manufacturing environment working exclusively towards its goal (Lincoln & Thomassen, 2009).
The Human Resource Department of Zara is well developed. The company lays a lot of emphasis in training its employees, where sales associates are first taken through a comprehensive training program before taking up their duties. The product development teams attend high fashion exhibitions and fairs to gain insight of the latest trends of the season and produce designs to capture the market.
Zara has a pyramid model of hierarchy, but store managers having their work autonomy so as to motivate and afford opportunity to feel like valued stakeholders of their own store. The Zara Company’s CEO is keen on making sure that there is disconnection between the headquarters and the store. The company owners also believe in employee satisfaction and motivation as factors of improving their productivity and efficiency. In general, it would be almost impossible for a competitor to exactly duplicate Zara’s unique business strategies which are responsible for its growth and competitive advantage (Lincoln & Thomassen, 2009). Zara’s future looks promising, it should consider expanding into other countries mainly Africa and Asia where there is an increasing population of fashion sensitive consumers.
Conclusion
This project has provided much insight into the fashion industry. It has been interesting to learn that the fashion industry is more of a highly-labor intensive” than a capital-intensive industry. This is because fashion retailers and apparel manufactures usually seek to lower their costs by outsourcing production activities to those developing countries with plenty lowest labor rates. The Case Study has also helped gain understanding that not all global firms undertake aggressive advertising and promotional activities to stay relevant in the marketplace.
References:
Torun, F. (2007). ZARA – A European fashion brand. München: GRIN Verlag GmbH.
Pahl, N., & Mohring, W. (2008). Successful business models in the fashion retail industry: Strategic audit of H&M compared to ZARA. Norderstedt, Germany: GRIN Verlag.
Lincoln, K., & Thomassen, L. (2009). How to Succeed at Retail: Winning Case Studies and Strategies for Retailers and Brands. London: Kogan Page.
