H&M and Zara - Essay Example

H&M and Zara are two lower-cost retail clothing merchandisers that have a rapid inventory turnaround methodology in areas of supply chain and distribution, especially true with Zara. Both retailers provide new and modern fashions to a variety of consumer target markets, with the primary target audience the young adult buyers in the middle-class consumer marketplace. What separates both H&M and Zara from similar competition in retail is their approach to pricing in the marketing mix and the ability to procure new fashions at a faster pace than other competition. This report compares the retail activities of both retailers compared to other well-known fashion brands and retailers.

The business concept at H&M is straightforward: “give the customer unbeatable value by offering fashion and quality at the best price” (hm.com 2010, p.1). This is accomplished by outsourcing all of their supply needs and reducing middlemen in the process of product procurement. The company also makes its purchases in higher volumes than other retailers, therefore receiving volume discounts that are passed onto the consumers in their pricing model. This is not common with other retailers in the UK, especially those that have built their brand based on diversa ity of offerings rather than volume inventories.

Zara is a leader in areas of procurement and acts as a benchmark for many other fashion retailers. The company also offers low cost fashions, however their inventory replenishment strategy is significantly different from H&M as well as other well-known retailers such as Marks & Spencer. Zara works on a six week lead time under its fast fashion replenishment model, therefore it is able to sell virtually all of its merchandise at regular price without pricing reductions (Hardman, Harper & Notaney 2009). Other fashion retailers are only able to sell 50 percent of their merchandise at regular price due to diversity of inventory offerings and the speed of replenishment chosen to maintain exclusivity in fashion offerings. Zara is considered by its youth consumer markets to be a place where there is always a new and “fashionably exclusive” product offering as it maintains a lean inventory policy for this reason (Ferdows, Lewis & Machuca 2003, p.63). Larger retailers that have a more diverse collection of fashions or other home-related merchandise do not have this luxury of lean inventory and must regularly consider clearance merchandise to make room for newly arrived inventories.

Zara also devotes a considerable amount of time into training the sales force and is a large advocate of internalised promotions (Ferdows et al). The company motivates its sales force through remuneration strategies and bonuses, where management takes the responsible lead in profit and loss. This improves commitment and provides customers of all target segments with a more positive interactive experience with the sales force because of Zara’s ongoing commitment to customer relationship management through better trained staff.

Zara is also successful over other retailers in its competitive market because of its ability to expand quickly to guarantee higher sales revenues. It is an advocate of creating franchises and joint ventures for this purpose (Lopez & Fan 2009). Further, Zara relies much less on advertising while others in this market spend considerable resources on this, as Zara has a strong consumer following, a quality brand reputation and is able to use the store itself as a promotional tool (Lopez & Fan). Other retailers that rely on concentrated advertising and catalogues do not have the same skilled and motivated representatives found at Zara because of its commitment to improving customer satisfaction through well-developed human capital.

One retail competitor for both H&M and Zara is Marks & Spencer, a diverse retailer offering not only fashion merchandise but home goods and electronics. “There is an urban myth that M&S is all posh” offered a management representative of M&S (Bokaie 2008, p.4). Consumer markets seem to believe that Marks & Spencer does not provide the same type of value as the other low-cost competitors which is why both H&M and Zara has witnessed revenue increases year-by-year and sustained competitive advantage. It is due to brand focus and the ability to provide products that are relevant to youth lifestyles and modern demands for hip and trendy clothing at an affordable price.

Because of the negative view about perceived priciness at Marks & Spencer, the company has been forced to reduce prices on its clothing merchandise (Bokaie). This is unusual considering that Zara and H&M are able to maintain their current pricing policy with virtually zero need for price reductions on merchandise. H&M and Zara are both positioned with low-cost pricing models that continue to thrive even in the face of changing consumer spending habits and a weaker British pound. “You have either got to grab market share more aggressively to get the same cash margin or you’ve got to put prices up” offered Phil Wrigley of New Look fashion chain (Braithwaite 2008, p.17). H&M and Zara have been able to accomplish better market share through rapid expansion strategies, low-cost pricing models, and the ability to satisfy clients over competition.

H&M and Zara understand the dimensions in the marketing mix that satisfy their target markets, who are primarily youth buyers with modest disposable income. They offer a quality product, an acceptable price, and Zara (in larger degree) offers inventories that are unique and trendy and in-line with consumer demand for modernism. They outperform other companies with much higher overhead such as Marks & Spencer and New Look, taking advantage of the synergies created through expansion joint ventures and a better-perceived brand identity. The reduced costs of advertising at Zara gives them more budget capabilities to improve other areas of the business or to gain more committed staff through better incentive and bonus programmes. Both H&M and Zara are market leaders with a solid operational and market model that brings them higher revenues and better competitive edge.