ZARA REPORT (2024)

About the brand

Zara is a fashion retailer that offers a wide range of clothing for men, women, young adults’ and children. They offer a wide range of clothing that fit the needs of the market and follow the “instant fashion” trend which puts them right in the middle of the highly competitive fashion market. Zara’s approach to fashion is very unique, responding only to the current trends as oppose to the future trends in the industry thus, continuing to be competitive. Zara first location was opened in 1975 in Coruna, Spain and has now become one of the key players in the fashion industry. The expansion into different parts of the world in countries including Mexico, Japan and recently, in Canada shows their potential and great success of the business. The report includes Zara’s strategic approach to the retail industry including their pricing, promotion, distribution and location strategies as well as an analysis on their major strengths and weakness, in addition to their opportunities and threats. With Zara competing in a highly competitive market, the information that was found summarizes the ongoing success of the company and how it continually stays effective with its goal, “To offer the latest trends in the fashion industry at lower costs.”

Introducing Zara – Their Vision and Mission

Zara offers the latest trends in international fashion in an environment of though-out design. Its stores are located in the main commercial areas of cities across Europe, America, and Asia, offering fashion inspired in the tastes, wishes and lifestyles of today’s men, women of all ages, and children. Zara has 650 stores in 72 countries. All of them have been designed to create a special atmosphere that will allow the client to feel the pleasure of buying fashion. In Zara, design is conceived as a process closely related to the client –from the stores to the creative teams, the concerns and demands of consumers are at the core of business related decisions. Thus, this avant-garde organization works in the fashion industry with a very clear vision of what it wants to offer today and in the future. Its mission is to offer continually to its customer a product that corresponds to their needs, at the right time, with the latest fashion trend. One of its most important challenges is to always meet the satisfaction of its customers while offering them the right balance of fashion, quality, and price, so that the style and image stay unique. In order to reach their goals, Zara encourages initiative and constant innovation. Zara strives to be in sync with today’s ever-changing trends and taste. Hence its success among people, cultures and generations that, in spite of their differences, share a special relationship with fashion and therefore, with Zara. Zara belongs to Inditex, one of the largest fashion retail distributors worldwide. Inditex has over 1,900 outlets in 60 countries in Europe, the Americas, Asia and Africa. In addition to Zara, the largest of its commercial chains, it also has seven other chains as well as a hundred companies associated with the different activities related to textile design, production and distribution. Inditex’s unique management methods, based on innovation and flexibility, and its vision of fashion creativity and quality design together with a rapid response to market demands have allowed for fast international expansion and success.

Store History – A Look at the Zara Business Model

Located on a central street in A Coruña, Spain, the first Zara store opened its doors in 1975 by founder Amanico Ortega, the head of Inditex. It featured low-priced look-a-like products of popular, higher-end clothing and fashions. The store proved to be a success, and by the early 1980’s, more Zara stores were beginning to open up throughout North-Eastern Spain. At the same time, Ortega had begun formulating a new type of design and distribution model. The clothing industry followed design and production processes that required long lead times, often up to six months, between the initial design of garment and its delivery to retailers. This model effectively limited manufacturers and distributors to just two or three collections per year. Predicting consumer tastes ahead of time presented difficulties, and producers and distributors faced the constant risk of becoming burdened with unsold inventory. Ortega sought a means of breaking the model by creating what he called “instant fashions” that allowed him to respond quickly to shifts in consumer tastes and to newly emerging trends. Together with computer expert José Marie Castellano, they developed a distribution model that revolutionized the global clothing industry. Under Castellano’s computerized system, the company reduced its design-to-distribution process to just 10 to 15 days. Rather than depending on a single designer, the company developed its own in-house team of designers, consisting of over 200 professionals, who began creating clothes based on popular fashions, while at the same time producing the company’s own designs. In this way, the team was able to respond almost immediately to emerging consumer trends as well as to the demands of the company’s own customers; for instance, by adding new colours or patters to existing designs. Therefore, their business model is characterized by a high degree of vertical integration compared to other models developed by international competitors. A flexible structure with a strong customer focus shapes each phase of the process: design, production, logistics and distribution to their own stores. In addition, state-of-the-art production and warehousing procedures, as well as the installation of computerized inventory systems linking stores to the company’s growing number of factories, enabled Zara to avoid taking on the risk and capital expense of developing and maintaining a large inventory. The company’s instant fashion model, which completely rotated its retail stock every two weeks, motivated customers to return often to its stores. The knowledge that clothing would not be available for very long also encouraged shoppers to make their purchases more quickly. The key to this model is to be capable of adapting the merchandise to the customers’ wishes as quickly as possible. Vertical integration allows them to shorten turnaround times and achieve greater flexibility, by reducing stock to a minimum and diminishing fashion risk to the greatest possible extent. The success of the Zara model in Spain led Inditex to the international market, having stores opening up in new markets such as Eastern Europe, the United Kingdom, the United States, and Canada among other foreign market entries in countries like Mexico, Japan, Israel, Greece, Belgium, and Norway. In fact, the Zara expansion into Canada is very recent. Zara Canada Inc. started their activities in fall 1999 with the first Canadian store located in the heart of downtown Montreal. Zara has continued to expand with a total of 14 stores across the country: 1 in Calgary, Edmonton, and Quebec, 2 in Vancouver, 5 in Montreal, 4 currently in Toronto along with one more store in Fairview Mall which opened in 2009.

Strategic Analysis

Product Offerings

Zara is high-fashion concept store offering apparel, footwear and accessories for women, men and children, from new-borns to adults aged 45. Zara has two basic product lines: men’s clothing (approximately 22% of sales) and women’s clothing (about 58%). Each of these clothing lines consists of 5 sub-categories. Such categories include: Lower Garment, Upper Garment, Shoes, Cosmetics and Complements. In addition, Zara catalogue also include children’s clothing line, accounting for an additional 20% of sales.

Pricing Strategy

Zara offers unique, high quality clothing and products at affordable prices compared to designer store, thereby, implementing the low price strategy. It can do this because they use a lower cost structure than their competitors trough the manufacture of their own merchandise in-house and dramatically cutting inventory cost. Therefore, it strives for a cost leadership strategy, as low costs enable them to give lower price.

Zara has a different pricing strategy compared to many others in its business, which set prices equal to cost plus a target margin. Instead of using this typical cost oriented method, Zara’s prices are based on comparable within the target market. They use a demand oriented method for setting prices based on region, taking advantage of what customers are willing to pay.

Size Ratio

Distribution Strategy

Zara has a centralised distribution system which operates out of two primary warehouses located in Spain. This location receives shipments of finished clothes from suppliers and ships replenishment inventory directly to every Zara store in the world twice a week.

Promotion Strategy

Zara sends 0.3% of total revenues on advertising and marketing. This is significantly less than their competitors who an average spend 3-4% of their total revenues on promotional activities. Zara mostly relies on word-of-mouth advertising to attract customers and uses location, store layout, and product life cycles to act as their marketing tool for customers.

Zara’s Sustainable Competitive Advantage

Zara takes a counter-intuitive approach made possible by their speed. Instead of guessing the fashion they ask and monitor that the customer wants and is able to distribute the product within two weeks to the customers. It follows trends that are successful with other retails and delivers similar styles. Zara also using Point Of Sales (POS) system, this system allows the cash register to monitor what is selling and what is no, allowing the most popular items to appear in the store during the season in which the sales are high.

What is truly astonishing is how Zara completely maximizes the use of their P.O.S. system. On a daily basis, reports are printed from the cash register every hour and a runner is sent to the stock room to replenish what has just been sold. With this method, Zara ensures to keep a high majority of their inventory on the floor always ready to be purchased. Within one regional store, Zara has the typical delegations for each employee: Store Manager, Assistant Manager, Merchandiser, and so on. A sustainable competitive advantage that Zara has is that they break down the duties even further. They hire employees, and along with their daily tasks, these employees are appointed to “manage” or be “responsible” for a specific category within the store. (For example; shoes, accessories, t-shirts, jackets, etc.) These employees are given the title “Responsibles”. Twice a week (2-3 days before receiving the current week’s inventory shipment) the ‘’Responsibles’’ would go around the store with a PDA and place orders for their categories. They would first download a report directly from Spain, and within this report, it would give detail of what items are best sellers, slow movers, sales of their store vs. the other local branches, as well their own sales vs. themselves from the previous year. They would also receive a menu of the latest designs and creations, and the ‘’Responsibles’’ would order the merchandise they feel would best sell within their location. Zara receives shipment twice a week, which they call “truck days” and the workers would come to their branches 3 hours before store opening to receive inventory and have the shipment immediately displayed on the floor to be sold. Another advantage that Zara exhibits is the vertical integration within the company. Instead of having suppliers around the world, they do almost everything in Spain, allowing for delivery to go out to stores twice a week. They design, manufacture, produce and ship right from Spain, saving time. In fact, Gap, the leading clothing retailer in the world, is twelve times slower when it comes to making a new item of clothing compared to Zara. Zara uses its own fabric and its own dyes allowing them to respond to color demands as well. They even save money on advertising since they spend less than a third of percent of their revenue on advertising and focus on placing their stores in high traffic and premier locations. Clothes are tagged at the production site, which allows the employees in stores to be more efficient in other areas of the store. Zara knows far too well that high inventory means death in the world of retail, so they have very low inventory for each item which means it lasts for a very limited amount of time at the store. It is said that one never sees the same product twice at Zara. This means more revenue because mark downs are virtually non-existent. Another advantage of low inventory is that Zara does not risk substantial losses if one product line fails since they have hundreds more in the pipeline ready to be shipped out on command. Evidently, Zara’s business model that relies on speed and continuous product innovation is at the core of their sustainable competitive advantage and unmatched success in the fashion industry.

Type, Variety, and Assortment of the Merchandise

• Zara Woman ($49.90 + Up). Age 25+. Avant garde/ houte couture appeal, business, workplace related pieces, formal suits.
• Zara Basic ($29.9–$49.90, not including outwear). Age 17+. Casual, everyday t-shirts, party gowns to business attire.
• Zara TRF ($4.90-$29.90, not including outwear). Age 13-25. Urban appeal. Trendy denim, graphic t-shirts, extremely casual.

Level of Customer Service and Customer Convenience:

• Alterations: by request, for a charge.
• Dry Cleaning
• Exchanges and Returns: up to month after purchasing it.
• Reservations: reserves articles in the shop for a period of time.
• Methods of Payments: cash, debit, credit card.
• Affinity Cards: available in Spain Greece and Mexico.
• Gift Cards
• Gift Receipt

Location Strategy:

Based on principal of cumulative attraction in which a cluster of similar and complementary retailing activities will generally have greater drawing power than isolated stores that engage in the same retailing activities. To be put simply, more shoppers come to a mall for convenience rather than visiting several standalone stores, and thus, it is more likely that more of the target market will be drawn to this mall because of the type of stores that satisfy their similar fashion-based needs. However, this can also be a hindrance as the number of stores increases competition between retailers within the mall itself. That is why it is very crucial that Zara has differentiated itself from other retailers with the speed and frequency in which they offer trend-setting fashions.

Store Layout and Design Strategy:

Zara use the typical Free-Form (Boutique) Layout, making the customer feel more at home. There are free standing fixtures and mannequins. Zara has its own radio where plays the top hits, also their lightening, the mood of the store and the own way of displaying the garments.

Zara uses a combination of atmospherics to give customers a real shopping experience. They play music that is tuned in to a specific Zara satellite radio channel, so all of the stores are in sync for that particular season all over the world. The songs being played are a variety of the current up-beat hit singles in Europe as well as a few songs recognized here in North America. Bright lighting is used in Zara stores to highlight all the vivid colours, fabrics, and designs used on the merchandise. Zara strategically places pot lights aiming at the walls because the wall is one of the most valuable areas at Zara. The right side wall is usually considered the highest sales area as customers have a tendency to turn to the right when entering the store. Knowing this, Zara places its bestselling merchandise, which is Zara Women, within that area. Another tactic Zara combines to maximize the use of the wall is that they illuminate the entire section to draw customers to that particular area. The merchandise usually displayed in this featured area are; the season’s hottest trends, or an entire shelf to highlight shoes.

Zara’s interior layout strategy presents the Zara Women section to the right of the entrance, followed by the Zara Basic section to the left continuing on to the middle of the store, and then the Zara TRF section located in the back as well as the fitting rooms. This presentation with the Zara Women section in view gives off a very poised image for the company as you walk by the store. Throughout the store, various fixtures fill and entice customers such as; tables, accessory columns, mixed displays and donkeys.

The company’s merchandising strategy heavily relies on colour presentation. It helps both the customers and the workers locate articles very efficiently. When the customers are trying to put together a specific outfit or have a particular image in mind, the attractive colour presentation gives them a better perspective to reassure their desires. If the customers are simply browsing, the colour schemes draw them to pick up more than item, because they pieces complement each other nicely. On the other hand, the workers are constantly replenishing the floor (as explained in their sustainable competitive advantage), whether it be runners refilling the stock every hour, or simply returning the items discarded in the dressing rooms. With so many different SKU’s and the layouts drastically changing every two weeks, their colour blocking strategy is great assistance to find particular merchandise locations. Another unique strategy Zara uses to appeal to its customers is the use of the idea-oriented presentation method. Customers are able to get entire outfit ideas from the fully dressed mannequins and more inspiration from the way that the merchandise is displayed. They specifically use frontal presentation on one side of the display to present an entire outfit along with shoes, and then maximize the space beside it by using a straight rack to keep all the available sizes of each article. Zara sets the mood, and keeps a certain image by using only wooden hangers for all of their clothing as well as placing mirrors everywhere possible that reach from ceiling to floor. They also display mixed fixtures and rounder right by the check-out counters to “guide” the lines and attract interest from customers during the final purchase.

Point-of-Sale areas are located near the purchase counter at the back of the store. These areas are where small accessories such as earrings, necklaces, bracelets, sunglasses, etc., can be found. They are placed there intentionally to stimulate impulse buying while customers wait in line for transactions to be completed.

Conclusion

With yearly sales grossing an approximate 10 million dollars and new Zara stores opening up every year, it is evident Zara is having tremendous success, which can be greatly attributed to their excellent retailing strategy of speed and innovation. Offering the latest fashion trends in booming industry that changes almost on a daily basis, Zara consistently encourages initiative and innovation to stay ahead of the competition. Within the clothing industry, most manufacturers and retailers follow a trend based on forecasts of future consumer preferences on fashion, thus limiting many retailers to hold only a few collective designs for the year. This, in fact, is where Zara shines and differentiates itself in the market. Zara’s model of “instant fashion” basically allows clothes to be created just as trends are emerging, which leads to increased sales and high turnover of stock, making Zara one of the premier companies in the market today. One major competitive advantage they have, which is difficult to replicate by competition, is having only one production site in the world. The cost is at the minimal because of the fact that the company does not have to go through so many chains of manufacturing and distribution channels, keeping the company at an advantage. The only downfall to this would be if the manufacturing and distribution centre were to go down in any way, the company would suffer with no alternative. In conclusion, Zara has a growing market share in the world expanding in North America including 14 stores in Canada, making them a very competitive company in such a difficult industry. The success and failure of a company rely on what their competitive advantage is, and Zara has shown with their innovative business model and unique retailing strategy that they can be a key player in this highly competitive industry.

SWOT Analysis

Internal Environmental Scan of Zara’s Strengths:

Zara is the only clothing retailer with one production site, and the only one that follows consumer trends instead of creating them. The major role in their success is speed. The fast delivery of new products, designs and trends is only possible through their efficient distribution system aided by the use of advanced information technology. Their efficient distribution system and low inventory and lower prices give Zara a great advantage over competitors.

External Environmental Scan of Zara’s Weakness:

Zara has just one manufacturing and distribution centre – Spain. If it is a power shortage, strike or even natural disaster will be sure to affect Zara dramatically, since one business relies on one geographic region, revenues could tank almost overnight, this is a huge risk.

External Environmental Scan of Zara’s Opportunities:

Zara currently in process infiltrating the North American market. That could add more success. This can be done by opening stores in Canada or United States in order to be efficient than shipping all merchandise from Spain, and allowing for purchases to be made online through their website in order to attract more customers.

External Environmental Scan of Zara’s Threats:

The biggest threat that Zara has is the intense competition in the fashion industry as it is saturated by countless numbers of clothing retailers, their biggest competition being from retail giants The Gap and H&M.

Bibliography:

http://www.slideshare.net/navinshan/retailing-report-on-zara-clothing-store. Accessed on 24 March, 2015

http://www.zara.com.Accessed on 24 March, 2015

http://en.wikipedia.org/wiki/Zara_%28retailer%29.Accessed on 24 March, 2015