Inditex, fast fashion pioneer and parent company of leading retail chain Zara, has pushed boldly into China in the past two years, opening over 400 stores with plans for many more. But according to Columbia University professor and Zara expert Nelson Fraiman, the firm may not have what it takes to truly capitalize on the tomorrow’s largest market.
“Zara to me is a European store for European style; it’s very fashion forward,” says Fraiman. Right now, the growing Chinese middle class is drawn to European styles. As an added advantage, Fraiman says, they fit in European cuts. “You know who fits in those clothes? Chinese women fit in those clothes. They can use the same style, same sizing.”
Zara makes about half their goods in Spain, in factories they own themselves. The rest of Zara’s goods are made in cheap, long-lead factories in China and other Asian countries. Those goods are ordered in large quantities, months and months in advance. Zara could expand those lines endlessly.
In order to hit its fast fashion target of three weeks from concept to retail, Zara keeps at least 40% of the capacity in its European factories unbooked. That means they can respond quickly to trends, especially since the factories are often located just down the road from their design center, in Galicia, Spain. That factory capacity is limited, because of limitations in the number of factories that can be opened in Galicia.
Unfortunately, all that growth in China is rapidly soaking up factory capacity in Spain. So rapidly, in fact, that the company is pushing up against its internal booking limits, according to Fraiman. In a few years, the company may face a difficult choice between maintaining its tight lead times and producing enough to satisfy demand in emerging markets.
On top of that, growing in China means sacrificing one of Zara’s major cost advantages – cheap truck transportation from the Spanish factories to the majority of its stores in the European Union. Quick replenishment and rapid product changes in China means using air freight, which is exponentially more costly than trucks.
These problems will only grow as Zara opens more stores, but the firm can hardly afford to abandon the Chinese market. The ongoing economic crisis in Europe has meant that much of Zara’s considerable profits growth in recent years has come from overseas expansion.
The logical solution, according to Fraiman, would be for the company to replicate its model in China. That would mean establishing a Chinese design center and a cluster of high value low lead-time factories near a Chinese fashion hub.
With that base, Zara could potentially expand into the entire South Asian market, including India. It could take advantage of high-speed Chinese freight trains, and could cater a different set of designs to a new market – European influenced, but with Chinese flavor.
The company is unlikely to do this, however, Fraiman says. Amancio Ortega, founder of Zara and the world’s third richest person according to Forbes, is committed to Spain, and wants to focus expansion in the Eurozone, where the company has traditionally had its strongest growth.
A big Chinese push would involve a great deal of risk. The company could lose its DNA, much as Espirit did when it shifted its base to China. Zara’s growth is stable and there’s nothing to necessitate a big leap forward right now. But, as the saying goes, stability is the backward step between growth and decline.
FAQs
Zara's owner, the Inditex Gropu, has been accused multiple times of greenwashing, exploitation, and environmental distraction. Yet, still, many consumers have absolutely no clue how terrible this highly unsustainable business model actually is to people and the environment.
What is Zara's entry strategy in China? ›
They first came to China in 2006 with a flagship store in Shanghai and now they have over 500 stores. Zara's market strategy into China was focused on differentiation and their short supply cycle. They also focus on putting Zara Home outlets across their major cities.
Is Zara closing in China? ›
Spanish clothing and accessories retailer Zara has shut the doors of its flagship store in China. The store, inaugurated in 2011 at Lesen Shopping Center in Chengdu, was dubbed as fashion brand's third largest store in Asia.
Which entry strategy does Zara use? ›
Zara uses franchising as an entry strategy in markets that are hard to penetrate due to cultural, economic, or political conditions. This strategy allows Zara to benefit from the local knowledge of the franchisee.
What is the biggest threat to Zara? ›
4. Threats For Zara
- Competition: Shein, the world's largest apparel shop with an entirely online presence, is China's fast-fashion behemoth. ...
- War of Prices: Zara's core niche is fast-fashion, which offers the latest runway trends to clients swiftly and at a low cost.
According to a recent New York Times article, that is no design flaw. Larger sizes cost more to make. Across the globe there are nearly 1,700 Zara stores, but in the U.S, there are only a few dozen, and experts say Zara isn't expanding more in the U.S. because the country has a problem with expanding waistlines.
Who is Zara's competitor in China? ›
Shein is a Chinese fashion e-commerce company that's outperforming many of its competitors. Its reported valuation in April 2022 was $100 billion – more than H&M and Zara combined.
What is Zara pricing strategy in China? ›
Since Zara entered the Chinese market, people have seen that China's garment industry has great development potential. Therefore, Zara has adopted strategies such as "low price, fast and fashion" to meet the growing needs of consumers.
Does Zara source from China? ›
Zara's supplier list, therefore, includes twelve clusters that concentrate 92-97% of the production: Spain, Turkey, Morocco, Portugal, India, Bangladesh, China, Pakistan, Brazil, Vietnam, Cambodia, and Argentina.
What country is Zara owned by? ›
ZARA (Spanish: [ˈθaɾa]) is a Spanish multi-national retail clothing chain. It specialises in fast fashion, and sells clothing, accessories, shoes, beauty products and perfumes. The head office is in Arteixo, in A Coruña in Galicia.
In 2022, the top five online stores in the Chinese Fashion market are jd.com, vip.com, ctfmall.com, uniqlo.cn, and suning.com. jd.com leads this market with revenues of US$21,241.7 million in 2022. Followed by vip.com with sales of US$7,537.0 million and then ctfmall.com with sales of US$898.5 million.
Is Zara more expensive in China? ›
The market with the highest prices was South Korea (96% more expensive than in Spain) followed by the USA (92%) and China (78%).
What is Zara's strategy and success? ›
ZARA's rise to dominance in the fashion industry can be attributed to its unique approach to fast fashion, efficient supply chain, focus on design and variety, customer-centricity, and strategic store locations.
What is the threat of new entry for Zara? ›
Threat of New Entrants:
Its customer eccentricity strategy, brand establishment, product differentiation and economies of scale act as major barriers to new entrants. It has supply side economies of scale that reduces the overall cost of product, thereby making it difficult for entrants to compete.
Does Zara use a push or pull strategy? ›
Quick response to Demand – Zara follows a pull model in their inventory and supply chain management. They create up to 1000 designs every month based on store sales and current trends.
What is the controversy over Zara? ›
Plagiarism Accusations:
Zara has been repeatedly accused of copying designs from independent artists and smaller fashion labels. In 2016, the brand was sued by a number of designers who claimed that Zara had copied their unique designs and mass-produced them for a fraction of the original cost.
What are the accusations against Zara? ›
Labour practices In August 2011, a Brazilian television show accused the company of using sweatshops for their outsourced production. The Regional Superintendency of Labour and Employment of São Paulo, Brazil, closed a factory that produced Zara's clothing for its poor labour conditions.
What is the controversy with Zara logo? ›
After a redesign, Zara recently unveiled its new logo, much to the dismay of many of their customers. Shoppers took to social media to share their contempt for the new style categorizing it as being too squished and crowded, and even going as far as comparing it to the way clothing is organized during sales.
What is the disadvantage of Zara website? ›
Zara's website is a classic example of poor usability.
- Its hamburger menu hides the primary and secondary navigation.
- Same text labels as primary navigation for arrow buttons in its above the section's carousel confuses users.
- Browsing products is not a straightforward experience on the Zara website.
