Zara - a Leader in Fast Fashion Retailing - Case Study Example

Zara: A leader in fast fashion retailing BY YOU YOUR ACADEMIC ORGANISATION HERE HERE HERE Zara: A leader in fast fashion retailing Zara and the competitive environment The clothing company, Zara, operates in a very competitive business environment, facing the likes of such competitors as Marks & Spencer, Burberry, Ralph Lauren, The Gap, and many other mid-priced retailers in the United Kingdom. Net profit, though somewhat flat for Zara, was announced at 1.25 billion, which was a .2 percent rise from the previous year (Business Europe, 2009). Zara maintains a business model which is very unique from competition in that the company has a well-developed, self-managed supply chain which can promise replenishment of product within a very short time period. While some retailers in the competitive environment have lead times in the weeks or even months, Zara has managed to be able to procure their products and have them manufactured and delivered within 15 days when demand requires it. This is unprecedented on this competitive environment, giving Zara much competitive advantage in areas of supply chain, manufacturing, and stock replenishment. In terms of the supply chain, Zara is consistently benchmarked for their efficient supply chain process as no other retailer across the globe has been able to achieve a more workable supply chain which can promise merchandise to be delivered twice daily with new fashions and new stock. The macro environment, in relation to supply chain, supports the ability for Zara to produce fast fashion merchandise and still maintain control over how the business is able to develop new merchandise fashions. There is a well-developed business infrastructure in terms of distribution and the availability of manufacturers of various textiles and fabrics to give Zara a considerable amount of diversity in product line and fashion variety. Zara also maintains ownership of many of these elements of the supply chain, giving them the ability to coordinate activities related to replenishment and distribution at the internal level. While other competitors have to rely on the expertise and timely delivery of supplier services, Zara can ensure these activities are efficient and is not affected as much by breakdowns within the supply chain caused by external inefficiencies. The macro environment is also putting pressure on retailers to adopt new payment systems, since many clothing retailers, including Zara, offer their products online. More convenient and efficient online payment systems are required in order to get consumers interested in making purchases. Therefore, Zara has developed a partnership with PayPal, the international company which provides a multitude of payment and credit services, to assist in checkout when buying Zara products online (Moules, 2009). These types of business improvements are driven by changes in consumer attitude and their preference toward making purchases easier, faster, and more affordable at the interest rate level. It can be said that the macro environment alters the payment models of retailers in order to build customer sales and Zara must be responsive to these needs by altering how payments are received online. There are concerns with many companies, operating in different sectors, that downturns in consumer disposable income is going to cause them to have to “cheapen their brands” with big discounts and costly promotions in order to survive the economic environment today (Helm, Boyle & Matlack, 2009, p.44). In fact, some of the least performing companies in the macro environment have had to resort to trying to win back once-loyal customers by running goodwill advertisements to express their solvency and their responsibility related to finance and investment (Helm et al). Fortunately, Zara has managed to avoid negative publicity and continues to have strong growth with its target audiences. However, in order to paint of a picture of internal business activities, the macro environment is driving changes to brand-building where competitors are promoting their products and internal competencies in more aggressive fashion. This makes companies, such as Zara and other retailers, have to work harder to maintain a presence when their brand maintains the potential to be overshadowed by concentrated, competitor marketing. This is always a concern for Zara at the external level. Fortunately for this business, the chief executive “has never given an interview and is rarely photographed” (Owen, 2009, p.12). Zara does not have to rely on goodwill advertising in order to build a positive reputation because the company already carries a good name in the consumer, investor and retail market environments. In the housewares part of Zara’s business, known as Zara Home goods, none of the company’s competitors offer their products online, these include Pull and Bear, Massimo Dutti, Bershka, Stradivarius and Uterque (Mulligan, 2009). Again, this gives Zara competitive advantage as they have a structured presence on the web for online sales, diversifying their portfolio by extending out of just fashion and into home goods merchandise. Having online sales availability, while competitors have not yet launched their own online environment, gives Zara flexibility other housewares brands cannot offer. In May of 2009, Christian Lacroix declared bankruptcy, painting a bleak future picture for the fashion designer’s presence in the UK (The Economist, 2009). Though this is a high-end retailer, much of the success of Lacroix depended on the success of the television programme Absolutely Fabulous in which two morally-questionable characters brought considerable positive public relations to the designer. Why was the upscale designer mentioned? The macro environment is causing considerable competitive difficulties with small-priced and high-priced fashion retailers, making discounting and other price promotions competitive tools in order to thrive in the difficult environment. Zara maintains a positive cash flow (Zara, 2009) and is able to avoid heavy price reductions to keep its strong growth in this retail sector. However, it does indicate that when certain social trends come and go, the lingering impact of particular fashion brands can be immense. At the macro level, Zara does well to avoid being connected with come and go social fads like Christian Lacroix and others who are not faring well in today’s economy. In terms of expansion opportunities, the macro environment provides new retail channels for distribution and new market potential. In the West, Cuba’s mainland is becoming more progressive, opening barriers for trade for whole new market demographics (Norwood, 2009). Infrastructure developments in mid-East countries and other European countries give Zara new exposure, new market potential, and sales opportunities at the international level. Logistically and in terms of foreign market development, the lifting of trade barriers and the growth of consumerism in developing countries represent strong opportunities for growth and expansion at Zara should the business wish to explore these options. The competitive environment also causes retailers to have to select innovative promotions and alliances with other business partners in order to capture the attention of their youth market, the desired target audience for Zara fashion styles. Zara is currently working with MTV to launch new Streetmuse fashions which are sold in 68 countries across Asia, the UK, Canada and North Africa (Black, 2009). The latest deal with MTV has Zara boasting the largest deal of this type to be signed in Europe, a major accomplishment for brand exposure and promotion through strategic alliance. Zara seems to understand its target market and uses the appropriate partnerships and alliances to give the business edge and connection with consumers at multiple levels. The macro environment drives the need for these types of partnerships in order to maintain strong brand visibility among heavy, concentrated competition. At the technological level, the macro environment supports rapid and important changes to logistics and other supply chain elements. Zara has managed to use electronic systems to streamline distribution in the marketing mix to achieve top performance in time response and in overall business function (Romano, 2009). Technological improvements and new software development within the retail marketplace have given Zara and competitors new opportunities for cost reduction, replenishment time increases and a better system of inventory management. As these electronic systems become more sophisticated at the macro level and can handle high volume business functions, companies can examine restructuring of labour or other cost reduction efforts to apply these cost savings to other areas needing improvement. All in all, the technological environment supports positive business growth and efficiency simply by having software and support systems necessary to give Zara (and competition) better systems for operations. “Cash-strapped consumers are changing their spending habits” (Rohwedder, 2009). Changes are caused by economic concerns and also real-life concerns about spending as costs rise in other areas of lifestyle. This adds an element of unpredictability to the macro environment, making it difficult to ensure that customers are going to be willing to shop the retail environment. Changes in consumer attitude and behaviour represent risk to Zara at the macro level and can cause severe drops in store sales volumes. Changing consumer spending patterns are a competitive concern throughout the entire retail sector. Zara’s current marketing programme There are many activities occurring at the marketing level within Zara. As mentioned, Zara is currently working with MTV in order to launch new and innovative clothing fashions aimed at the 16 to 24 year old markets (Marketing, 2009). This partnership in promotion involves many elements of the promotional mix, including focus on the product and also building stronger lifestyle connections with Zara customers through relationship marketing principles. The clothing line is promoted on-air through television and the MTV programming line-up along with in-store promotional materials which reflect the partnership and the value of MTV to the Zara business focus. Using MTV as a promotional tool extends the reach of Zara’s brand visibility and also gives considerable positive publicity when this agreement is promoted in multiple media channels. The company is also using public relations marketing in order to keep the brand looking fresh and new on the consumer marketplaces. Zara has recently promoted that it will be launching 10,000 new fashion designs in the coming seasons, a considerable achievement over that of competition (Smith, 2008). This is not only a flexibility in the supply chain which allows these fast fashions to be produced and promoted, but is a promotional effort to remind consumers that Zara maintains the ability to deliver on brand promises regarding fast fashions which are renewed and relevant to consumer lifestyle. Using promotional tools to market these improvements and fashion upgrades is one aspect of the marketing mix which is serving Zara well in its competitive marketplace. As mentioned, high-priced fashion designers are feeling the pinch of the economic environment. It is not only these potential competitors which are falling behind, but more relevant competitors as well. For instance, Zara is making gains on The Gap, one of their largest competing brands, due to The Gap’s inability to create positive consumer connection and compete with Zara’s replenishment model. Says one supply management professor at the Bath School of Management, “They (Zara) will weather the storms better than most of their rivals” (Capell, 2008, p.66). Failures at competing companies are promotional tools for Zara to illustrate how the company is able to survive while competitors sales begin to lag. One marketing expert describes The Gap as “looking dated and rudderless…and has failed to attract younger shoppers” (Lee, 2008, p.19). At the promotional level, the company’s strong emphasis on fast fashion allows them to outperform most promotional efforts of larger competitors. At the internal marketing level, Zara is also constantly looking for new methods to improve the supply chain and value chain networks. Zara makes use of product lifecycle management software (PLM) which speeds up areas of replenishment and ensuring that certain fabrics ordered will remain relevant while the fashion trend is expected to remain within consumer groups. The business understands that fashion trends can be short-lived and fleeting, therefore these aspects must be taken into consideration when determining what raw products are required and how fast they need to be turned into fashionable product for replenishment of the store environment. Marketing, for Zara, is strongly connected with supply chain improvements and Zara is always benchmarked for these activities and their strength in fast fashion supply. Other competitors are being forced to raise prices in order to sustain profit expectations in the retail sales environment. “You have either got to grab market share more aggressively to get the same cash margin or you’ve got to put prices up” (Braithwaite, 2008, p.17). Zara is not only a fast fashion retailer, but they price their products at a competitive price which is within range of the expected disposable incomes of their youth target markets. Zara maintains the ability to reduce costs in other areas of the business in order to avoid price increases and utilises the promotion to back up this business efficiency. Zara promotes its internal efficiency in supply and manufacture which satisfies not only the consumer audience, but the investor audience as well. Part of marketing is ensuring that investors (as stakeholders) are provided with relationship marketing and Zara accomplishes this through press releases and other online public relations materials. The ability to keep a low-cost pricing model and still have fast fashion is a promotable business activity for brand reputation. Zara is also currently exploring further international expansion as part of their profit expectations, which requires a dedicated team of professionals well-skilled in international marketing principles. The business must also respond in international markets, as the company operates in the United Kingdom, Spain, Canada, and many parts of Asia. The company must conduct considerable marketing research about their markets in different countries to understand issues of culture, consumer behaviour, and consumer preference in multiple retail areas. Accessories, fashion clothing, fragrances, housewares, and other goods which carry the Zara name must be marketed and promoted differently in these environments. For example, one fashion buyer in the United States, age of 15, describes the U.K. fashion environment as “cutting edge” whilst comparing U.S. fashions as “never (having) anything individualistic or edgy” (Gentry, 2007, p.100). Zara must be responsive in areas of fashion and replenishment to foreign buyers by bringing merchandise which fits their cultural sentiment regarding what is relevant and inspirational. However, it is a good sign for Zara that foreign clients, such as the U.S. patron, believes that UK fashions are appropriate and stylish, therefore if entering this market for the first time, fashions from Europe will be a trend hit for the edgy-focused buyer groups. The fast fashion model of rapid replenishment and new fashions is a large part of the internal marketing conducted within Zara and brings them significant ability to outperform competition in this way. Zara’s clothing generally disappears from the shelves within a week, therefore ending a certain fashion brand’s presence. Consumers are drawn to this aspect of exclusivity and enjoy “snapping up new clothes before they go” (Tiplady, 2006, p.1). Zara uses a whole integrated promotional campaign to reinforce their fast-fashion mentality including in-store advertisement, such as the shop windows (cnn.com, 2001). In European markets, the use of in-store window displays are very common and can be used to build consumer interest. Fortunately for Zara, the ability to have new fashions delivered twice weekly gives them considerable flexibility and opportunities for innovation with their in-store promotions by dressing mannequins in lifestyle scenarios, sporting the Zara brand fashions. In-store window displays are effective and currently in use for its European stores. At the international level, such displays would likely not be effective to consumers who are used to concentrated advertising such as Canada or the United States. However, this low-cost, low advertising focus has built Zara the growth in sales and competitive strengths it requires to be a successful marketer. Unlike many competitors, Zara does not rely on expensive catalogue promotion in order to build their business. In the retail marketplace, for this particular type of fashion, catalogues can provide additional sources of sales revenue and are used as competitive tools to promote the brand and give it more consumer loyalty as a long-term strategic marketing goal. However, Zara does not need this type of promotional tool and is able to cut these expenses from the corporate budget, which allows them to focus these cost savings in other areas of marketing such as improving supply chain or distribution networks. The fast fashion model would not allow for a catalogue in this environment unless it were produced weekly, which would be a significant cost for development and ensuring the catalogue is delivered to the correct target audiences. Zara’s ability to control most elements of the supply chain is their greatest marketing strength and has developed a system of internal expertise at the employee level in order to respond to rapid fashion business philosophy. Areas of replenishment and the ability to move a concept from the design board to the retail shelves in such a short period of time are regular focus for Zara and the company currently has over 100 staffed designers which assist with these design projects. In terms of marketing at the internal level, Zara is well-positioned for competitive success and is able to provide fast fashions, at an affordable pricing structure, for customers both domestic and international. Recommendations for Zara marketing Zara has a philosophy that too much advertising can be distracting to consumers and from achieving the brand loyalty the business requires in this fast fashion environment (cnn.com). However, changes in consumer behaviour and willingness to defect to different brand labels based on pricing or perceptions of quality make advertising more necessary to achieve high brand visibility among a competitive environment where concentrated promotion is occurring from multiple retail levels. The first recommendation for Zara is to consider exploring new advertising concepts, which could add more to the marketing budget, but would give the extra visibility required in marketplaces where consumer incomes are down and brand defection is a genuine risk to the business. For example, window displays may not be enough to draw the consumer crowd, therefore reinforcing the latest fashions in eye-catching in-store display advertising would be a recommended strategy. Seeing the fashions on other youth models/consumers can give more of a lifestyle appeal to the clothing. Competition, even larger ones such as The Gap, are rapidly losing market share and are being given bad publicity about their inability to capture the youth market effectively. Even though Zara reports its operations and financial position regularly through media releases, the company is not doing enough to emphasise their ability to outperform competition in a way that is meaningful to youth markets. There is a growing trend in the use of online promotion to build higher brand loyalty in the competitive marketplace, with companies like Burberry and The Gap using social networks and promotional websites to highlight fashion products. This is managing to revolutionise how these products market and spells a long-term competitive risk for Zara if the business does not get on board with these technological developments in areas of social online advertising. It is recommended that Zara explore the online medium for creating new consumer interest by creating websites with content generated by Zara marketing professionals that portrays different Zara fashion brands in humorous social scenarios. The desired target audience is the youth group and this group is the most prone to social networking such as Facebook or YouTube and Zara is not taking advantage of their competitive strengths by promoting them in this medium. The online social environment can provide Zara with an opportunity to spotlight the company in a variety of ways, using interactive content which engages the user and makes them more apt to explore the website further. Posting videos of Zara staff engaged in humorous social scenarios within the in-store environment or other socially-interesting scenarios where Zara is spotlighted could be the marketing option of choice. Using a dedicated team of videographers, Zara can launch a short campaign to capture real-life salespersons and customers in interesting situations and post these videos on the website to spotlight Zara brands and the internal culture dedicated to responding to customer needs. Adding an element of interaction in this content would be designed to build higher consumer loyalty toward the Zara brand and give customers a unique view of Zara’s culture from the inside out. This would require outsourcing the video producers and applying additional information technology support for the effort. Having clever Buy it now links attached to different spotlighted merchandise would link the browsing or interactive online customer directly to the shopping website. Using in-store advertising, the new online Zara spotlight website can be promoted and then rely on word of mouth to spread the online buzz about Zara’s interesting web content. Though MTV represents a hip and trendy organisation to be associated with, Zara is not taking advantage of the many opportunities that the business has available in terms of dual promotion and strategic alliance in marketing. Not all youth consumers are drawn toward the social aspects of MTV and similar network programming, therefore it is recommended that Zara explore further marketing and promotional partnerships with other lifestyle-associated companies other than MTV. Zara’s flexibility in designing product fashions gives them a unique position in being able to draw up new clothing concepts and have them ready for sale within just a few weeks. This is accomplished through their strong supply chain and the dedicated team of designers on staff. Zara can explore possibilities with technology companies, such as mobile providers, where purchases at Zara lead to discounted mobile subscription rates. The use of mobile technologies is growing at a large pace both domestically and internationally, therefore such partnerships would be added incentive for exploring Zara’s merchandise selections in-store and also being connected with mobile companies which can enhance lifestyle at a reasonable price. At a time where brand defection is a real risk, Zara should be exploring these short-term marketing alliances to occur more frequently. The basic philosophy of reducing advertising does not exploit Zara’s ability to position itself among competitors or differentiate itself at the psychological level in consumers’ minds. Lack of concentrated advertising and other promotion has given Zara less brand presence at the consumer level. It is recommended that the company begin exploiting its reputation to build a more solid brand image rather than focusing on just the product in the marketing mix. The majority of communications and publicity which Zara receives is due to their promotion of the product and its fast fashion benefits. However, Zara, as a whole brand name, is not as recognisable as a stand-alone entity which provides the fashion products. It is recommended that Zara begin an entire brand building campaign to position the business strictly in terms of the consumer. The business has no clear positioning strategy and is therefore only differentiated by the product and its selection and ability to be provided in a fast fashion environment. The new recommended strategy is to focus on the consumer, who is both unpredictable and willing to defect in favour of discounted merchandise or other incentives provided by competitors. The recommended strategy will involve the use of a catch slogan: We’re in You. What this will represent is that Zara, as a whole brand name, understands the needs of consumers and works to represent their lifestyle. By conducting extra research, through immediate focus groups and surveys with youths, specific lifestyle aspects can be uncovered such as relationship focus, friendship and acquaintance quality perceptions, ambitions, and personal goals. The data achieved through these qualitative and quantitative studies can be applied to a whole promotional campaign to position the company as a buyer-focused entity which responds to consumer needs. For instance, if the focus group sessions uncover that youths are extremely interested in travel, various Zara merchandise can be illustrated in leisure or recreational activities, strongly exposing the Zara name on all advertisements. A short-term strategic partnership with local travel companies could also boost youth incentive to explore travel as a recreational hobby by offering in-house travel discounts through a promotional partnership at local Zara stores. After the travel theme has changed, new lifestyle elements and new partnerships for promotion can be developed. In order to gain more consumer attention and interest, it is also recommended that Zara run a contest promotion to make Zara appear more interactive and give the youth buying market something to buzz about in the online environment. The company currently has 100 designers on-hand to promote new fashion concepts and merchandise. Zara should create a consumer contest in which consumers who make a purchase at Zara are automatically entered into the Day with the Designer contest, allowing the winning consumer to design a specific article of fashion for the business which will be promoted online and in-store. This contest, if promoted properly and run long enough, will inspire youths to enter Zara, make a purchase, and be registered for the design contest. This contest will include a day with several designers on the staff, exposure to different fabrics and materials used in Zara clothing, and the team of designers will take ideas directly from the winning consumer where their fashion design will be produced and spotlighted in various online, print, and in-store materials. The winner of this big and exciting contest will also receive considerable promotion, making the concept of sweepstakes promotion one which adds flavour to the Zara brand-building recommendation. A contest of this magnitude, if promoted with a mass market philosophy, could be a tool for considerable brand exposure for Zara. The experience of the contest winner can also be documented on the online website, featuring a short 20 second video of their testimonial. All of the recommended strategies are justified due to changing consumer spending habits, a certain unpredictability which exists in the retail market today, and the heavy concentration of promotional materials being unleashed by competitive retailers throughout the UK. Markdowns on competitive merchandise and consumer willingness to defect to other retail brands are simply too high of a risk to avoid advertising and, in this difficult economic environment, Zara should be poised to launch new brand-building exercises to give the business more presence in the consumer mindset. Contest promotions, a stronger online presence which engages the consumer youth group, and the exploration of new strategic partnerships with lifestyle-oriented businesses or organisations are the key, recommended strategies for improving Zara’s competitive position. These efforts, coupled with the company’s usual success rates in other areas of marketing such as distribution and emphasising product in the marketing mix, will give Zara a new presence for the youth consumer groups. Even though Zara is always being benchmarked by other retailers for their dedication to providing relevant fast fashions, the company can benefit from adjusting their promotional focus and including advertising as part of their marketing focus. Building a better psychological connection with their desired target groups through these recommended exercises will support Zara in its efforts to remain differentiated among competitors in this environment filled with high-priced and low-priced retail competitors. References Black, A. 2009. MTV debuts urban line at Zara. License! Global, 12(4), p.48. Braithwaite, T. 2008. Low-cost clothes era could be nearing end. Financial Times. London, 12 Jul, p.17. Business Europe. 2009. Fast fashion slows down. New York, 49(5), p.7. Capell, Kerry. 2008. Zara thrives by breaking all the rules. Business Week, Iss. 4104, p.66. Cnn.com. 2001. Zara: A success story. Accessed 4 Nov 2009 from http://edition.cnn.com/BUSINESS/programs/yourbusiness/stories2001/zara/ Freeman, I.C. 2008. Product lifecycle management software: Make-or-break IT investment for apparel firms? Management briefing: PLM sales to quadruple. Just-Style, Bromsgrove. August, pp.9-12. Gentry, C.R. 2007. European fashion stores edge past U.S. counterparts. Chain Store Age, 83(12), p.100. Helm,B., Boyle, M. & Matlack, C. 2009. 100 best global brands: turmoil in the rankings. Business Week. New York. Iss. 4148, p.44. Lee, Jeremy. 2008. Gap. Marketing. London: 27 Aug, p.19. Marketing. 2009. MTV partners Zara for men’s clothing range. London: 4 Mar, p.6. Moules, J. 2009. Why start-ups plan to change plans, Financial Times. London: 1 Oct, p.14. Mulligan, Mark. 2009. Inditex to sell Zara brand online. Financial Times. London: 17 Sep, p.20. Norwood, G. 2009. The final frontier? A new development on Cuba’s coast could be the first in the country open to foreign buyers. Financial Times. London: 13 Jun, p.4. Owen, Geoffrey. 2009. It takes all kinds to make it to the top. Financial Times. London: 20 Aug, p.12. The Economist. Business: end of season; the bankruptcy of Christian Lacroix. London. 392(8639), p.66. Rohwedder, C. 2009. Earnings: H&M is forging ahead, despite retail’s misery. Wall Street Journal, NY. 30 Jan, p.B7. Romano, P. 2009. How can fluid dynamics help supply chain management?. International Journal of Production Economics. Amsterdam. 118(2), p.463. Smith, J.N. 2008. Fast fashion. World Trade, Troy. 21(12), p.54. Tiplady, R. 2006. Zara: Taking the Lead in Fast-Fashion: When it comes to quick response to clothing trends, this Spanish retailer is beating the pants off H&M and everyone else”. Accessed 3 Nov 2009 from http://www.businessweek.com/globalbiz/content/apr2006/gb20060404_167078.htm?chan=innovation_branding_brand+profiles Read More