Zara: fashion, business and success

  • “Inditex’s main rivals are way behind. Arcadia Group, which owns Topshop, among others, has about 3,000 stores worldwide; H&M, based in Swede[ii]n, has 2,500 (when you include its smaller lines of stores); and Mango, based in Spain, 2,400.”
  • Zara accounts for nearly 70% of Inditex’s income, and, therefore, makes it the pillar of Amancio Ortega’s –the 3rd richest man- emporium.

http://www.economist.com/node/21551063

Firstly, I’d like to clarify that I am not a huge fan of Zara, nor a huge fan of fashion, and a mall-hater. When talking about shopping, I am actually the kind of need-based customer. However, in terms of business and marketing, I consider that fashion brands, because of their desirability, are just fascinating. The case of Zara is particularly interesting. The silencious goings and comings of its omnipresent paper bags hide a business model that has revolutionized the fashion retail industry and that represents a headache not only for its direct “fast fashion” competitors, but also for the most prestigious luxury fashion brands. Zara is indeed the embodiment of a kind of “affordable luxury”. An oxymoron that describes accurately a fascinating brand that is changing the way we think about fashion and retail. How Zara is succeeding to be the fastest growing fashion retail brand?

The luxury look

Zara is known for inspiring itself from established luxury brands. Some people even accuse the brand of imitating openly some products from prestigious retailers. The result is that Zara’s own products are often stylish, fancy, and have become a synonym of design. It is actually not uncommon to see celebrities wearing its products during public appearances.

Kate Middleton in Zara

I admit being a little embarassed posting this…

http://www.instylemag.com.au/Gallery/Celebrities-Wearing-Zara

However, luxury influence doesn’t apply exclusively to product marketing, but also when talking about the brand’s placement strategy. Zara’s stores location in prestigious streets rubbing shoulders with Canali or Louis Vuitton, and sometimes in renewed historical buildings, allow the brand to gain in terms of visibility and accessibility but also to contribute to build a signature associated to a chic and authentic experience.

The New York City Zara store on Fifth Avenue.

Zara store in New York

Zara store in Melbourne

I’d like to insist in the concept of experience because, in an increasingly digitalized world, this remains the big opportunity that retailers can exploit in order to offer an added value to its customers, and also because Zara masters it so well. Although it is common to see an important amount of Zara customers throwing clothes everywhere with any sort of direction inside its stores, it succeeded to settle the boutique concept with fade lights and spacious stores. The employees working there wear oxford shoes and suits and the visual merchandising – the impressive shop windows and strategic product display – is innovative, classy and sophisticated. Here everything is rigorously calculated, from the products to be displayed to the scent, and it represents the success of the “glocal” business model: international design standards meet local trends in order to adapt the global brand codes to the local markets.

Zara flagship store Via del Corso Rome Zara flagship store by Duccio Grassi Architects, Via del Corso   Rome

Spectacular store in Rome, Italy

A successful business model

“Zara, the Spanish fast-fashion retailer, experienced a sharp increase in brand value this year (18%). Zara’s long-admired business model has kept customers happy and the company in top form, despite harsh global economic conditions. Zara continues to leverage its enviable logistics system, which enables store managers to communicate directly with designers — providing them with valuable information on what is and isn’t selling. In turn, Zara’s customers are able to find (and purchase) clothes that keep them looking fashion forward.”[iv]

Above, we talked about retail as a possibility to create a shopping experience as the heart of a whole. However, in some way, it is also the brain of an hiper efficient supply chain able to detect what works and what doesn´t quickly. Instead of producing its products in China, Zara plants are located in Morocco, not too far from its HQ in northern Spain. All the supply chain and logistics are directly managed by Inditex, and this ensures that Zara controls and coordinates perfectly all the process and allows reducing the times to minimums. Already in 2007, Zara provided a considerable number of products, which were more than rival corporations in the fashion industry. It produced approximately 11,000 different products per year, while its major rivals only produce 2,000 to 4,000. Zara spent four to five weeks on the process of designing a new product and getting finished products in its stores (Inditex, 2007). So, Zara already was the leading brand in `fast fashion’. Zara could redesign existing products in no more than two weeks.[v]

Making shorter the product cycle life makes easier to meet consumer preferences and to provide him what he wants/ he is willing to buy. This capacity of reaction allows also to minimize unsold stocks.[vi]

http://cmuscm.blogspot.com/2012/09/fashion-forward-zaras-supply-chain.html

This system also partially explains the inexistence of an advertising budget. This is quite exceptional for global brands that usually spend millions in ATL as this is one of the most powerful ways to brand a fashion brand, transfer brand values and therefore to positionate products. Zara’s “collection” is evolving permanently in opposition to the seasonal proposal of other fashion brands, and its placement and product strategy has proven to be way more lucrative.

Bringing added value to customers

Thanks to its placement and product marketing that creates a luxurious experience Zara has succeeded to become a synonym of fashion and style. As we said Zara learnt from the luxury world that design, an exclusive brand image, and the shopping experience are decisive factors to create desirability for a fashion product. In addition, the rhythm of product renewal is perceived as positive: creating the “now or never effect”, costumers feel they are buying, in some way, unique products. But, of course, what makes Zara Zara is its price ceiling.

When you put all this together –unique design products at low prices- the result is irresistible, and customers perceive they are paying less for more, and that they are getting real value. It is evident that everything is scooped and that the price, the supply and the margins are not a gift from the brand to its customers…

[vii]

Zara is indeed an unique brand that, instead of creating an exclusive brand -even though its image can transmit an idea of exclusivity- and of creating a new product -clearly this is not Zara’s speciality…-, has created an excellent shopping experience and a new process. We can learn a lot from its business model understanding the secret of its success: putting the customer in the center of the business. It is an endless cycle where the business process starts with the client in the store buying and that ends exactly the same way. Finally, the customer participates permanently in the product marketing process giving the necessary information to the company, that is then prepared  to beat its customers’ expectations.
Now that major fast fashion competitors are adopting Zara’s model, we can wonder ourselves about the next big innovation that Inditex will be -necessarily- bringing to the fashion retail industry.

[vi] Read “Zara case study: The Company Where Everything Communicates”. An excellent analysis of Zara’s communication processes by Paloma Diaz Soloaga, a communication professor at the Universidad Complutense de Madrid. http://www.academia.edu/1427696/Zara_The_company_where_everything_communicates [vii] The graph above nicely illustrates the Zara strategy – start with a more reasonable price and a limited quantity, replenish if necessary, and don’t mark down all that much.  The net effect is that your total profit (light blue) can be higher. And there is one key lesson from Zara that is missing in the discussion of Saks.  If Zara runs out of one item, they generally have another item available that is a close substitute. If you like a particular black bomber jacket at Zara, then you should buy it because (a) it will not be marked down and (b) if you wait then you will have to buy a different black jacket.  Either way, Zara gets the sale. In the NY Times article, they are suggesting that it can be better to simply stock out.  If you don’t have an adequate substitute, then that is really a costly strategy.  Being smart doesn’t mean you are willing to incur costs. Being smart is avoiding costs while maximizing revenue. http://mswd.wordpress.com/2009/11/19/buy-now-limited-supplies/
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