Zara: Fast Fashion Case Analysis

Brand Coherency

The first Zara store was opened on an up-market shopping street in La Coruca. From the beginning, Zara positions itself as a store selling medium-quality fashion clothing at affordable prices. Within a couple of years, 6 stores of Zara were opened in Galician cities. Inditex’s strategy for the Zara brand is coherent. Zara brand is the largest and most internationalized chain of Inditex. The business system of Zara is distinctive as most of the products are manufactured internally. Unlike other chains, Zara is not dependent on suppliers in Europe. The tracking of customer preferences allows offering the most demanded fashionable products to end consumers. During the year, about 11,000 distinct items are manufactured (compared with 4,000 items for key competitors). Shipment of products twice a week directly from the central distribution center to well-located stores eliminated the need for warehousing. Emphasis on quick-response capability allows keeping inventories low while providing customers with new products regularly. Moreover, Zara is well-positioned to serve the needs of all groups of customers, namely women, women, and children. Each of these three product lines has a creative team that is continuously working on products for the current season. The decentralized structure of creative teams allows careful interpretation of trends suitable for the mass market and fosters creativity. Thus, highly demanded products are offered to consumers timely.

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Competitive advantages

The main competitive advantage of Zars brand is an organization of selling process. Unlike its competitors, Zara maintains net margins of 10% (compared to 2% of sales of World Co.). Zara’s stores are much larger in size, which is more comfortable for customers. Internal manufacturing is another advantage of the Zara brand: the most fashionable items (the riskiest ones) are produced in small lots internally by local suppliers who are located close to reorder if necessary. Basic products that are more price-sensitive than time-sensitive are produced in Asia, where production costs are lower. Thus, Zara has an opportunity to meet the preferences of customers while keeping prices low. Partially outsourced manufacturing is another competitive advantage. The final advantage is low price and wide assortment. Rapidly changing content and high fashion content are effective in appealing to customers. Product lines vary in terms of price, content, and even age targets. Finally, prices are lower than competitors for comparable products.

International Expansion

The international expansion strategy for the Zara brand is rather effective. In particular, Zara first opened a store in a major city to develop some experience operating locally and then added stores in nearby ears. This strategy allowed market analysis prior to investing heavily in a new market. Zara has looked for new markets that would be relatively easy to enter. Zara managers studied entry opportunities and conducted both macro and microanalysis. If the market evaluation was positive, Zara would enter the market in one of the three different modes: company-owned stored, joint ventures, and franchises. A flexible entry strategy is advantageous as it allows adjusting to the specifics of new markets. While the same business system was used in all countries, Zara managers introduced some variation in retailing operations. Relative standardization is also beneficial as it allowed keeping the prices lower compared with local competitors. Nevertheless, tastes converged across national boundaries, and customers were willing to buy standardized products.

Competitive Advantage Globally

Zara’s competitive advantage of low cost did travel globally. Unlike its competitors, Zara focused more on market prices than on its own costs in forecasting its prices in a particular market. Further, forecasts were overlaid on cost estimated incorporating considerations of distance, taxes, and other expenses to see whether the potential market could reach profitability quickly enough. Extensive foreign market research had two benefits for Zara: 1) it allowed setting the lowest possible prices and 2) fostered integration of Zara stores into new markets. Internal manufacturing, as a competitive advantage, could be easily applied to the foreign market. Nevertheless, the centralized distribution system (with one distribution center) did not contribute to Zara’s competitiveness as shipment costs were rather high. In addition, lack of differentiation in promotion policies and product offerings, avoidance of advertising, and promotional efforts were not an advantage as well.

Multi-Brand Strategy

I think that a multi-brand strategy is one of the most effective strategies to expand globally. Inditex operates six retailing chains that are organized as separate business units within one system. The structure of each brand includes six business support areas: raw materials, manufacturing plants, logistics, real estate, expansion, and international and nice corporate departments (areas of responsibility). I believe that multiple brands significantly increase the chances of the company to go global successfully. For example, if one brand is integrated into the foreign market successfully, the company may consider bringing in other brands as well. Taking into account that each brand is served by an independent group with minimum communication with other groups, Inditex has a unique opportunity to improve continuously. For example, if one group identifies a way to improve the manufacturing process or marketing strategy, innovations can be easily transferred to other groups within the company. Nevertheless, the risks of a multi-brand strategy are significant. In particular, multi-branding requires significant investment into each brand. In addition, multi-branding reduces the focus, and it may lead to lower quality of the product and insufficient local responsiveness. The fashion industry is demand-driven, and failure to respond to the needs of local customers may result in the failure of the company on the market.

Low vs. Fast Growth

Inditex should not grow fast. Fast growth is associated with inadequate market research, while lacking knowledge about local customers, competitors, preferences, and business environment creates additional risks. Historically, Inditex did not adopt a fast-growth strategy, and it proved to be very effective. The same slow-growth strategy should be adopted by Zara managers. A slow growth strategy has numerous advantages as it allows focusing on foreign customers more attentively. Finally, Inditex has already established its presence in diverse markets globally, and it should not rush into new markets. The fashion industry is time-sensitive, while standardization strategy does not support fast growth.

Comparative Strategies

Over 80% of Inditex employees are engaged in retail sales in stores; the remaining employees are working in manufacturing, design, logistics, and distribution. In addition, Inditex devotes 80% of its capital expenditures to the openings of new stores. This operating strategy is both customers- and growth-oriented. Retail personnel provides superior customer services while sufficient resources are devoted to the new stores globally. GAP, for example, does not enjoy the same success because of its emphasis on T-shirts and jeans. Moreover, GAP’s international production strategy is not very effective, and managers find it difficult to adapt to different customer sizes and preferences. H&M failed to maintain its leading position because of insufficient focus on fashion and customers’ preferences. While all production was outsourced, the lead times were rather long. Benetton’s strategy was not successful as well because of the narrow product lines and consolidated production activities. Inditex has two significant advantages over its competitors: it offers fashionable cloth timely and at low cost. Inditex is the most profitable of these four companies even though it does not invest in advertising. In my personal opinion, the best advertising strategy is fashionable clothes at affordable prices.

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