Zara report lucy bailey

By Lucy Bailey

Introduction Founded in 1975 by Amancio Ortego and Rosalia Mera, Zara is one of the leading fast fashion brands dominating the high street. It is the flagship of Inditex which is the worlds second largest clothing retailer with 2692 stores across 62 countries worldwide by the end of January 2006 (Fan & Ying, 2009). The seamless connection between the stores, designers and factories creates an efficient process of delivering the latest trends to the consumers at affordable prices (Ruddick, 2014).

Zara has a well-established global presence which is constantly expanding and will continue to dominate Inditex’s turnover.

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Product The rapid pace of production of new products distinguishes Zara from the other leading brands which works hugely in their favour. They have a very broad target audience due to their different ranges available from womenswear to childrenswear. However, they also choose not to use segmentation of ages and lifestyle to define who their target audience is in order to keep it a broad market (Harbott, 2011).

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Figure 7 The main factors that Zara consumers purchase garments for are design, quality and value. They are looking for affordable fashion that is still stylish and on trend which will be still be durable at the same time. The large amount of variation in styles of garments enables the consumers demands to be met since around 11,000 new products are launched every year, 60% of them being permanent and 40% vary. It also ensures that the consumer retains interest in the brand; this is proven to be successful due to the company estimating that their consumers visit stores on average 17 times a year compared to other brands at 3 visits per year (Fan & Ying, 2009).

This is an example of one of the products brought from design to retail in just 25 days. Its this quick turnover time that contributes to the main success of the brand. The coat retailed at $189 since they enticed consumers by stating that only a certain amount were manufactured (Budds, 2016). On the right hand side is a diagram that illustrates this process.

Designers, store managers and commercialisation teams all collaborate to develop concept

Pattern makers prototype garment

Generation of design (took 5 days)

Manufacturers made 8,000 coats (took 13 days)

Coats sent to logistics centre in Zaragoza, Spain then trucked to Barcelona airport

Arrived at JFK within 24 hours then sent to store on 5th avenue

(Budds, 2016)

Place

Research undertaken by Castellano (as cited in Fan & Ying, 2009) shows that another strategy used for opening stores is franchising, used for high-risk countries such as Saudi Arabia with low sales forecasts. They choose to open stores in strategic areas in order to gain data on their market to then implement into following phases for further expansion.

The main two places of sale for Zara are bricks and mortar and online, however they only created an online presence in mid 2010 and faced the main challenge of replicating the store atmosphere but online (Lea-Greenwood, 2013). This means that they were highly dependent on the physical store for a long period of time before this was created. Initially the stores were only located in Spain due to this being the brands origin, however internationalisation led to it becoming a global brand. There were various economic motives for internationalisation including potential economies of scale and globalisation of the economy. If Zara remained exclusively in Spain then it would have limited market growth opportunities (Fan & Ying, 2009). They followed three main steps in order to achieve successful internationalisation which are shown in the table below.

1 Reluctance and trial 1975-1988

2 Cautious expansion 1989-96

3 Aggressive expansion 1997-2005

Initially they focused expansion in domestic markets such as Portugal.

From this they acquired experience and decided that the business model needed modifying to suit new potential markets.

The next step was to expand into new markets geographically and psychologically proximate that had a minimum level of socio-economic development. Throughout this period, one or two countries were added per year, including a store in New York in 1989. This was a strategic decision in order to build brand awareness and gain international prestige.

The last stage was focused on rapid global expansion. However between 2000-2003 they consolidated their position in the European market which is still very secure to this day. At the beginning of 2006 Zara was operating in 59 countries with 852 stores which reflects how fast they expanded.

(Fan & Ying, 2009)

Figure 8 The creation of the website in 2010 was a defensive move in response to fears of an economic slowdown from decline in high street spending. There was a clear demand for the website therefore there was a prediction of 10% rise in revenue (Caesar, 2010).

Price

Due to Zara being a fast fashion brand, the prices are affordable since the consumers expect reasonable quality products for a good price. In order to generate a price for the products, a budget for the cost of material, production and supplies is produced. A profit margin is then generated so that the final price can be set (Fan & Ying, 2009). However Zara takes every opportunity to reduce costs involved prior to the garment being sold in store. The manufacturing costs are kept low by 40 % of their fabric being produced by themselves. They also operate their own worldwide distribution network which results in hardly any costs for inventories because garments aren’t on the shelf for long due to their rapid turnover times (Vitzthum, 2001).

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Eventhough their prices are already increasingly low, they still use various pricing strategies to entice the consumer even more. Firstly they use psychological strategies which can be seen in Figure 10, the use of ÂŁ29.99 for example. By decreasing the price by 1p, the consumer feels like they are getting the product for cheaper than it actually is. Another strategy used is penetration which is when products go under sale. Zara usually only has sales in June and December which is shown in Figure 11, however a large amount of products are included within the sale (Smith, 2015).

Promotion

Unlike other brands, Zara heavily relies on word of mouth as its main promotional strategy since they believe that their consumers differentiate it from others by their experience and affordability (Bhasin, 2016).

For this reason they only spend around 0.3% of their annual turnover of advertising. This advertising usually takes place at the beginning of the new clothing season to promote their new garments as well as when they have new store openings in order to increase footfall (Budds, 2016). However, Zara has a very strong social media presence which is an effective form of promotion for the brand due to their young target audience. They have accounts on platforms such as Facebook, Instagram, Pinterest and Youtube to give the consumer 24/7 access to content. On their Facebook page they upload content such as images daily with links to their websites so that consumers have direct access to the garments. One of the interesting features is a page full of events that members of the public can attend such as store openings which are usually only reserved for high profile celebrities. They also have a Youtube channel which is full of advertisements and promotional videos that have previously appeared on TV but can now be accessed by anyone online. This falls into the first part of The AIDA model which is to attract attention; they do this by using breath-taking locations to capture the consumers attention.

Go to video

One of the more direct techniques to appeal to consumers is by sending weekly newsletters straight to their inboxes. In order to receive these the consumers have to sign up themselves, however it means that they’ll gain all of the latest information regarding the new and upcoming trends which is what Zara is focused upon.

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People

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In order to achieve the rapid process that Zara uses to provide consumers with new and trendy garments, a large amount of people are involved to keep the process seamless. Store managers are at the centre point of the strategy since they provide the data of what the consumers are liking. They gain this data by simply making observations in store since Zara feels like these observations are more accurate than by using a marketing VP. The importance of the store manager is shown by the fact that Zara sometimes even fly in these managers from long distances to help consult on some concepts that they may be unsure of (Budds, 2016). For this reason Zara store managers are paid a higher wage than the average within the industry (Ruddick, 2014). As well as ensuring that there is a good relationship between employees and the company, a good relationship between society also has to be maintained. They are committed in making social progress within the world which is why they decided to try to achieve the 17 sustainable development goals set up by the United Nations in 2015. These helped to combat poverty, climate change as well as inequality which they all hope to have improved considerably by 2030 (Inditex, 2015).

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Process

Before the product reaches store a long and complex process is involved. Sales data and anecdotal evidence from shoppers enables store managers to send an order to HQ twice a week. The commercial team then complies the order and it then reaches store within 2 days. Within the HQ is a mock high street of Zara stores which allows new ranges to be examined (Ruddick, 2014). Its this rapid process that makes Zara different to other fashion retailers. Anne Critchlow (2016) stated that “Simply put, the reason for Inditex’s success is short lead times: the ability to offer designs to the customer that other retailers do not yet have”. Once the garments have been put in store, the process of how the consumer purchases the products is important. The main way that people make purchases is through the traditional bricks and mortar, however their online presence also generates many sales. In 2014 online sales generated €16.7bn which was an increase from the previous year which generated €15.9bn which shows that their sales figures are constantly increasing (Burgen, 2014). Part of this could be down to the functionality of their website since it was reported that they have one of the

fastest websites around, loading at a time of around 3 seconds (Rigby, 2016). Another platform used is the Zara app which enables the consumers to view products wherever they are. It also allows consumers to move across different channels when they have things in a basket due to a centralised account being featured. It also has many other features that can be used in store such as a scanner so that consumers can find out prices of products for themselves (Rigby, 2016).

Figure 15 Figure 16

Physical environment

The physical environment of the store is an important factor in shaping the overall experience of the consumer.

Zara stores are usually based upon principles of clarity, functionality, sustainability and beauty in order to give off a premium feel to the design (WGSN, 2014). It is evident that many consumers that shop in Zara like to mix and match high street stores with designer brands to give the more affordable garments an extra edge. In Westfields shopping centre in London, stores like Topshop and Zara lead into ‘the village’, the luxury area of the centre which supports this concept (Lea-Greenwood, 2012).

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In 2015 Inditex identified that they had excellent customer service so therefore wanted to focus more on enhancing customer experience. The two main technological advances were self- checkout machines and interactive changing rooms. The self-checkout areas were implemented at stores in Marineda Shopping centre (Spain) and have been implemented in many other stores in 2016 which reflects that they were a success.

The interactive changing rooms involved the use of tablets being available for customers to use if they want to request a new size or colour of a garment, instead of having to go find it themselves (Inditex, 2015).

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References

Bhasin, H. (2016). Marketing mix of Zara. Retrieved from http://www.marketing91.com/marketing-mix-zara/ Budds, D. (2016). The secret behind Zara’s warp- speed fashion: it’s store managers. Retrieved from: https://www.fastcodesign.com/3066272/asides/the-secret-behind-zaras-warp-speed-fashion-its-store-managers Burgen, S. (2014). Zara owner’s online sales jump 42% to €553m. Retrieved from https://www.theguardian.com/business/2014/nov/19/zara-owneronline-sales-553m-inditex Caesar, J. (2010). Zara launches online retail store. Retrieved from http://www.bbc.co.uk/news/business-11155437 Fan, Y. & Lopez, C. (2007). Internationalisation of the Spanish brand Zara. Retrieved from http://search.proquest.com.voyager.chester.ac.uk/ docview/235471828/73C36B2A294F4B90PQ/1?accountid=14620 Harbott, A. (2011). Analysing Zara’s business model. Retrieved from http://www.harbott.com/2011/03/03/analysing-zaras-business-model/ \ Inditex. (2015). Annual report. https://www.inditex.com/documents/10279/208409/Inditex_+Annual_Report_2015_web.pdf/d3501c55-8e8f-4936b8d8-0fc47a543c93 Lea-Greenwood. (2012). Fashion marketing communications. West Sussex, United Kingdom: John Wiley & Sons Ltd Rigby, C. (2016). Zara state of the art app. Retrieved from http://internetretailing.net/issue/ireu-top500-mobile-cross-channel-report-2016/zara-state-art-app/ Ruddick, G. (2014). How Zara became the world’s biggest fashion retailer. Retrieved from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11172562/How-Inditex-became-the-worlds-biggest-fashion-retailer.html Smith, K. (2015). The 5 things making Zara and H&M successful. Retrieved from https://edited.com/blog/2015/03/5-things-making-zara-and-hm-successful/ Vitzthum, C. (2001). Just-in-Time Fashion --- Spanish Retailer Zara Makes Low-Cost Lines in Weeks By Running Its Own Show. Retrieved from http:// search.proquest.com.voyager.chester.ac.uk/abiglobal/docview/398763419/10E33E4FEFB24EACPQ/2?accountid=14620 WGSN. (2010). Zara online launch. Retrieved from https://www.wgsn.com/content/board_viewer/#/122017/page/1 WGSN. (2014). Zara opens largest store worldwide. Retrieved from https://www.wgsn.com/content/board_viewer/#/142854/page/1

Image references

Figure 1: https://www.wgsn.com/search/search.php#%7B%22start%22%3A%200%2C%20%22limit%22%3A%2050%2C%20%22f_limit%22%3A%205%2C%20%22q%22%3A%20%22zara%22%2C%20 %22facets%5B%5D%22%3A%20%5B%22classif_name%7C85001%22%5D%7D Figure 2: https://www.wgsn.com/search/search.php#%7B%22start%22%3A%200%2C%20%22limit%22%3A%2050%2C%20%22f_limit%22%3A%205%2C%20%22q%22%3A%20%22zara%22%2C%20 %22facets%5B%5D%22%3A%20%5B%22classif_name%7C85001%22%5D%7D Figure 3: https://www.wgsn.com/search/search.php#%7B%22start%22%3A%200%2C%20%22limit%22%3A%2050%2C%20%22f_limit%22%3A%205%2C%20%22q%22%3A%20%22zara%22%2C%20 %22facets%5B%5D%22%3A%20%5B%22classif_name%7C85001%22%5D%7D Figure 4: https://www.wgsn.com/search/search.php#%7B%22start%22%3A%200%2C%20%22limit%22%3A%2050%2C%20%22f_limit%22%3A%205%2C%20%22q%22%3A%20%22zara%22%2C%20 %22facets%5B%5D%22%3A%20%5B%22classif_name%7C85001%22%5D%7D Figure 5: Created by author- data from http://www.harbott.com/2011/03/03/analysing-zaras-business-model/ Figure 6: https://www.wgsn.com/search/search.php#%7B%22start%22%3A%200%2C%20%22limit%22%3A%2050%2C%20%22f_limit%22%3A%205%2C%20%22q%22%3A%20%22zara%22%2C%20 %22facets%5B%5D%22%3A%20%5B%22classif_name%7C85001%22%5D%7D Figure 7: https://www.fastcodesign.com/3066272/asides/the-secret-behind-zaras-warp-speed-fashionits-store-managers

Figure 8: https://www.wgsn.com/search/search.php#%7B%22start%22%3A%200%2C%20%22limit%22%3A%2050%2C%20%22f_limit%22%3A%205%2C%20%22q%22%3A%20%22zara%22%2C%20 %22facets%5B%5D%22%3A%20%5B%22classif_name%7C85001%22%5D%7D Figure 9: http://megasales.asia/sales/zara-spring-summer-sale-offline-online/ Figure 10: https://edited.com/blog/2015/03/5-things-making-zara-and-hm-successful/ Figure 11: https://www.youtube.com/watch?v=0Rmz9_jagKo Figure 12: https://www.wgsn.com/search/search.php#%7B%22start%22%3A%200%2C%20%22limit%22%3A%2050%2C%20%22f_limit%22%3A%205%2C%20%22q%22%3A%20%22zara%22%2C%20 %22facets%5B%5D%22%3A%20%5B%22classif_name%7C85001%22%5D%7D Figure 13: https://www.inditex.com/sustainability/employees Figure 14: http://www.mtv.com.au/style/news/everything-you-should-know-about-zaras-alleged-racialprofiling-before-you-shop-there Figure 15: Produced by author- data from http://www.slideshare.net/nehac819/zara-case-study-40331620 Figure 16: http://redsgned.com/zara-desktop-iphone-app-redesign/ Figure 18: http://www.thestar.com.my/tech/tech-news/2014/07/22/zara-to-use-rfid-tags-to-let-youknow-if-your-size-is-in-stock/ Figure: 19: http://azurdigital.com/blog/zara-rfid-fitting-room/