Why is Zara a pioneer in affordable design clothing - Research Paper Example

Zara: Marketing Running head: BUSINESS STRATEGIES Zara: Marketing Fashion from a ‘Fresh is What Sells’ Point of View of Client of University Name of Class Zara: Marketing 2 Abstract Zara is one of the leading manufacturers and retailer of men’s, women’s and children’s clothing throughout Europe and moving throughout the world. As an innovator in retail business design, it has become the model upon which other retail chains now fashion their business plans. By changing the nature of fashion in how it gets from the design room to the store floor, the company has revolutionized the industry. Despite the poor economic state of the world and the trend toward cutting back, the chain has continued to show remarkable profits and be a leader in the world of retail fashion. As an innovative company, Zara has performed well and is now a model for retail stores with similar consumer products. Zara: Marketing 3 Zara: Marketing Fashion from a ‘Fresh is What Sells’ Point of View Introduction Because of the way that Zara, a leader in women’s fashions and a success story, has designed its marketing and business strategies, one will almost never walk into the same store twice. In looking at how to design a clothing store with its eye on the bottom line profit, Zara has found the key to their own success in the example of the produce isle. What is fresh is what will sell. As well, they have found that having many items to choose from with limited availability is far greater than having a great number of a select few items. In an economy where fashion is no longer a priority, survival becomes a game of playing the numbers in the way that will create the largest overall profit. In this game, Zara has found a formula for success that is working. Zara is a clothing company based in Spain and is a subsidiary of Inditex. Inditex has over 2500 stores across the world with Zara being around 800 or more of those outlets. According to Hines and Bruce (2007), the most successful launch of a store took place in Dublin Ireland in an outlet that was over 20,000 square feet (247). The business design is based on the concept that what is done quickly will have the best result. Getting new designs from the design room to the floor takes five weeks whereas a redesign of a piece of clothing will take only two weeks to reach the stores (Dickens, 2007, p. 267). Zara markets clothing for men, women, and children. According to Devangshu Dutta (2002), in a case study examining the retail store Zara for its ability to perform well, the key to their success can be found through an understanding that fashion is much like food. It has an expiration date. Zara has an appeal that can cross boundaries of age and style, but its most profound business concept is in making sure that the styles are Zara: Marketing 4 numerous and changed frequently. The idea behind the concept is that if there are a limited number of a great number of styles, the odds are that one of those styles will be the right choice for the customer. As well, if the price is low, the profit margin may be slimmer, but the volume of sales will make up the difference. The fact is, if the merchandise stays on the shelf for too long, it will become stale and not sell. Therefore, according to Dutta (2002), they change there stock with shipments two times a week, replenishing and changing out the styles with fresh fashion. Being quick is the key to successfully navigating fashion and Zara has taken this concept and designed a program which allows for the fashions that you see in the store today to be so fresh they weren’t even a thought two months ago. The average collection is planned approximately a year in advance of its release into a retail market store. However, the fashion landscape is monitored daily for Zara and the quick response to the changes in trends allows for the items in the store to be fresh and exciting at all times (Dicken, 2007, p. 267). Speed Fashion According to Rachel Tiplady form Business Week ( 4 April 2006), part of its quick production is because more than half of the manufacturing plants are in Europe where the wage may be higher than in the more typical locations of Asia or Africa, but the proximity allows for the fastest turn around providing the best possible speed in which the stores will receive their shipments. According to Capell (9 October 2008), the average salary in Spain for a factory employee averages around 2000 euro per month, while in Asia this figure would be closer to 300. However, the theory is that they save in shipping and in time, so therefore the labor costs are Zara: Marketing 5 justified. This provides a plethora of solutions for the question of profitable fashion. Tiplady (4 April 2006) uses the example of a warm autumn in 2003 where sweaters and warmer clothing was not necessary. With Zara’s production standards this was quickly remedied with minimal losses. The market concept is based on the idea that the items have such limited quantities that excitement is built up because of the very real possibility that a style will sell out. This encourages the consumer to buy quickly and in quantity. In addition, the prices are reasonable and low compared to comparable quality garments. This resulted in profits soaring in 2005 up 26% from the previous year at Inditex at 973 million (this figure in American dollars) (Tiplady, 4 April 2006). Before the economy began its downward spiril, the company was booming with profit and success. Navigating the Economy As the economy shifted downward, most retail companies found themselves in trouble with the purchase of fashion being put on the back burner so that basic survival could be retained. However, Zara has not had the difficulties that other chains have seen. According to Capell (9 October 2008) the sales have quadrupled since the beginning of 2008 and do not show any signs of slowing down. Because of the value pricing combined with the energy and excitement that is driven by the quick fashion changes and the constant influx of newer styles, the retail outlet has survived the economic onslaught of current history and is set to see continued success. According to Capell (9 October 2008), Zara’s way of doing business has become a model Zara: Marketing 6 for other companies with similar stock types. Retail stores such as Britain’s Topshop, Spain’s Mango, and the United States’ Forever 21 have all looked to the retailer in order to find ways in which to copy and improve their own bottom line. Control on inventory is the strongest factor in the success of bringing profits to the forefront. Without control of every aspect of the manufacture and delivery of goods to their stores, the whole system would result in chaos rather than in order. Part of that control is in paying more than 70% of their salaries in commissions, providing an incentive for performance. Without this modicum of control on the desire for their employees to perform, the control that is necessary to provide the product would all go to waste. The other aspect of providing a solid foundation on which profit can be successfully managed is in providing clothing that has up to the minute styling that is controlled by monitoring all methods of determining trends. The advantage of the company in its ability to quickly provide a new style must be supported by the ability to recognize what is practical, fashionable, or trendy for the moment. According to Capell (9 October 2008), this includes looking for items that customers are unable to find, but are seeking. This gives the company an opportunity to provide for a need that isn’t adequately being filled in the current market. In the Store Technological advances have made the tracking that Zara does more efficient. Not only are sales tracked in daily and weekly reports, but according to McEachern (2009), the employees on the sales floors carry devises that send up to the minute information back to the designers who can in turn create items that fulfill the needs of the customers (246). This additional method of control can allow changes in manufacturing, increases in the same or similar designs that are Zara: Marketing 7 selling, and provide ideas for new stock that can arrive in the stores in as little as two weeks. The information not only includes sales information, but it includes information on requests and demands that sales associates relay to those who will make the decisions for the inventory. Marketing the clothing includes creating an atmosphere in the store that puts the customer in a certain mood. The stores are placed in prime locations, which means that outside advertising can be kept at a minimum. The stores speak for themselves. The use of color evokes emotions and provides a sense of tone for the outlet. In receiving color, the recipient is a passive receiver and the information is subtle, but evocative (Terwogt& Hoeksma, 2005, p. 5). The way in which the store is arranged, the color schemes shifting regularly as the styles are moved in and out of the stock, provides a sense of energy and excitement that encourages the sense that if the customer doesn’t get it now, it will be gone tomorrow. Conclusion The bottom line on the designs of Zara are that while the merchandise is constantly fresh, the designs themselves are interpretations of current trends from top couture. If the designs themselves were to be innovative, the thought and care that was taken in their creation would take away from the quick paced production that supports the chain. According to Dutta (2007), one observer said they “have a premier look because they’re often copies from the top designers”. What they save in design time and cost, they pass on to a customer base that can enjoy top looks at a fraction of the cost. The business model of Zara is dependant not on their innovation of design per inventory item, but on their innovation in production and sales design. According to LVMII’s fashion director, Daniel Piette, Zara is “possibly the most Zara: Marketing 8 innovative and devastating retailer in the world” (Surowiecki, 2004, p. 193). The retail chain has designed a system that has cut costs by lowering its greed and lowering the profit margin per item. In addition, they have increased sales by limiting the number of items per style with more than 20,000 different styles per year coming to the shelves. The most impressive figure is that while the industry sees a markdown percentage rate of 37% of its floor stock, Zara manages to keep that figure at about 18%, which means that most of its goods are moving out of the store and into the hands of the customers while it is still new to the store (Dutta 2002). During the economic downturn of recent years, Zara has still managed to show a large profit with further plans to expand as we enter into the next decade. Zara shows no signs of slowing down and will most likely continue to be a model for the industry. Zara: Marketing 9 References Capell, K. (9 October 2008). Zara thrives by breaking all the rules Bloomberg Business Week. Retrieved from http://www.businessweek.com/magazine/content/08_42/b41 4066866245.htm Dicken, P. (2007). Global shift: Mapping the changing contours of the world economy. New York: Guilford Press. Dutta, Devangshu. (2002). Retail @ the speed of fashion. PDF. Hines, T., & Bruce, M. (2007). Fashion Marketing : Contemporary issues. Burlington: Elsevier. Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2009). Strategic management: Competitiveness and globalization : concepts. Mason, OH: South-Western Cengage Learning. McEachern, W. A. (2009). Economics: A contemporary introduction. Mason, OH: South- Western Cengage Learning. Surowiecki, J. (2004). The wisdom of crowds: Why the many are smarter than the few and how collective wisdom shapes business, economies, societies, and nations. New York: Doubleday. Tiplady, R. (4 April 2006). Zara: Taking the lead in fast fashion. Bloomberg Business Week. Retrieved from http://www.businessweek.com/globalbiz/content/apr2006/gb200604 04_167078.htm Terwogt, M. M. & Hoeksma, J. B. (2005). Colors and emotions: Preferences and combinations. Journal of General Psychology. Vol. 122. (1) pp. 5. Read More