Business Analysis of ZARA's Company

Zara is a clothing and accessories retailer based in Spain. The company designs, manufactures, distributes and markets clothing and accessories for both men and women. Its product portfolio includes coat, jeans, knitwear, shirts, t-shirts, shoes, handbags, lower garments, upper garments, coats, jackets, dresses, skirts, trousers, cosmetics and complements. The company markets its products through its brand, Zara.

The purpose of this report is to undertake a business analysis of Zara, based on the current position within the company. Zara’s story begins with the opening of first store in the Spanish coastal city of A Coruña in 1975, an early milestone in the company’s long history. Over the years, Zara has become one of the largest and best known retail brands, on a global scale. It belongs to Inditex, one of the world’s largest distribution groups, and Zara is the largest Inditex division - accounting for more than 75% of total Inditex sales.

Zara now has 2,251 stores strategically located in leading cities across 96 countries. It is no surprise that Zara, which started off as a small store in Spain, is now the world’s largest fast fashion retailer and its founder, Amancio Ortega, is the sixth richest man in the world according to Forbes magazine.

Today, Inditex is the world’s largest fashion group with more than 170,000 employees operating more than 7,400 stores in 96 markets worldwide and 49 online markets.

Background to Retailer

Zara was founded by Amancio Ortega and Rosalía Mera. Its first store featured low-priced lookalike products of popular, higher-end clothing and fashion. Amancio Ortega named Zara as such because his preferred name Zorba was already taken. In the next 8 years, Zara’s approach towards fashion and its business model gradually generated traction with the Spanish consumer. This led to the opening of 9 new stores in the biggest cities of Spain.

In 1985, Inditex was incorporated as a holding company, which laid the foundations for a distribution system capable of reacting to shifting market trends extremely quickly. Ortega created a new design, manufacturing, and distribution process that could reduce lead times and react to new trends in a quicker way, which he called ‘instant fashion’. This was driven by heavy investments in information technology and utilising groups instead of individual designers for the critical 'design' element.

In the next decade, Zara began aggressively expanding into global markets, which included Portugal, New York (USA), Paris (France), Mexico, Greece, Belgium, Sweden, Malta, Cyprus, Norway and Israel. Today, there is hardly a developed country without a Zara store.

In 2003 Zara took a big leap within their marketing strategy and launched ‘Zara Home’. In 2006 they developed their ‘Environmental strategic plan’ which formalised the aim to ensure their business operations are environmentally responsible and sustainable. 2010 was a massive year for Zara as a company as they launched their brand online. Zara is constantly looking for new innovative ways to adapt their business and market strategy.

Market Positioning Analysis

Zara currently has a revenue of $191.4 Million, only having 10.00 employees Zara has multiple competitors within the market sector. The main one being H&M. H&M was founded in Stockholm, 1947 and generates $18.8 Billion more revenue than Zara with the total revenue of $29.7 Billion and has 171,000 employees. Urban Outfitters was founded in 1970, Pennsylvania. With 23,000 employees (13,000 more than Zara) Urban has a revenue of $3.9 Billion. GAP was founded in 1969, Warwickshire. Whilst having such little brand recognition from consumers and only 138 employees, GAP generates 0.02% of the revenue Zara does, leaving them with a total revenue of $2.3 Million.

The 4Ps of Marketing: Product, Price, Place and Promotion

Zara is trying to fit into multiple positions by having exclusive items at prestige prices as well providing for a mass market and selling items at budget price-points. Zara choose not to sell clothing basics (such as socks and underwear) in order to maintain their identity as a fashion provider rather than just ‘clothing’, meaning that even their budget items are perceived as being more exclusive and fashionable than the equivalent item from a mass market competitor. Urban Outfitters is a fraction more exclusive than Zara in terms of product design. Thei designs are a lot more ‘unique’ and ‘edgy’, yet fairly basic items can also be found within store and online. They have an all-round prestige price with even the simplest garment being no cheaper than £20. H&M and GAP are roughly on the same spectrum as both are a lot more affordable then Zara and Urban Outfitters and both cater for the mass market by stocking a large variety of basic core products, suitable for anyone.

One of Zara’s biggest strengths is being able to quickly and effectively conform to the customers changing needs. Zara’s unique selling preposition is to create the latest trends and new styles. Zara’s garments are well suited for the targeted market and follows the brands ethos and aesthetics. New designs are constantly getting fed into Zara’s rapid production process, having a fast turnaround from the initial design process to point of sale.

Following the Bowman’s Strategic Clock model, Zara is a hybrid company in regard to having low price products but a lot of differentiation. Zara has a great example of price architecture with lowest, mid, premium and top-price products. Their top-price products are stocked in lower volumes and often aren’t available throughout all stores or maybe exclusively through just their website, helping their business maintain exclusivity.

Zara has a unique marketing strategy of ‘zero investment in marketing’ where they put all the money they would spend on marketing into opening new stores. They rely heavily on customers promoting their company for them. They also rely massively on social media such as Instagram to promote and showcase some of their new lines and up and coming products.

Zara has stores situated all over the world, primarily located in city centres; every store being spacious and modern. With Zara being a Bricks and Mortar store their products are instantly available to more of their consumers. However, having to keep multiple stores stocked with the latest lines will come at considerable logistics costs.

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Zara focuses on pulling their customers to their stores and products rather than pushing the product to their customers. They have a very good relationship with their designers and manufacturers enabling them to produce such a large quantity of clothing at a reasonably high quality in a small-time frame. Staff at all levels need to share the goals of the directors and be able to cope with the fast turnaround required by the business model.

Zara offers fast fashion with a wide variety of garments, constantly updating and replenishing stock. Zara makes the process of buying and viewing their products very accessible to many customers all over the world, through omni-channel retailing and their bricks and mortar stores. Customers can order online or in-store and have their items delivered to a chosen address or a local store for convenience. Returns can also be handled in store or by post.

Zara has a very minimal approach when it comes to their identity. Emulating a luxurious feel through minimal exclusivity. They do not provide brochures, magazines or look books for their customers to pick up like their competitors do, this is purely down to their ‘zero investment in marketing’ strategy. Unlike other brands Zara shopping bags are very minimal and understated. The whole brand itself is very understated and simplistic especially when it comes to the ambiance, facilities, retail fixtures, store windows and signage.

Value Proposition

The well-established, high-street omni- channel retailer offers fast fashion, on-trend garments at a reasonable price. Using modern and spacious stores they are able to arrange their merchandise to be relevant to a fashion-conscious customer. Despite their value proposition being tried and tested, fast fashion is not a sustainable style of production. Currently, Zara does not exceed quality standards due to the fact that they often use J-I-T production, meaning that further improving quality would only increase production costs. This would mean higher quality goods and the ability to charge a higher price. Despite the possibility of higher prices decreasing sales, the ethical appeal of a more environmentally-conscious retailers is likely to out balance that.

Key Partners

Zara’s many partners include: suppliers, textiles producers, shopping centres, corporate social responsibility organisation, brands from their fashion group e.g. Massimo Dutti, Pull & Bear, Berksha etc. All of these partners are imperative for what Zara want to achieve, relating to competition, product quality, price, location, cost, reputation etc. However, a key partner that arguably has the most power over Zara is the holding company that owns them, Inditex. They claim that they are ‘bringing attractive and responsible fashion’. This is something that Zara should be seen to publicly commit to throughout the supply chain and product life cycle, not just by having ethical workplaces but taking accountability for their impact on the environment and reducing it.

Key Activities and Resources

A major factor of Zara’s successful infrastructure is their use of vertical integration. Not only do they create increased control over their supply chain but, costs are lower and competitiveness increases. Such control over their supply chain is necessary to help Zara invest in the latest trends as well as have over 2,100 branches in 88 countries and to also take control of their company culture (which seems to be on-trend and low costs). The increased control aids Zara in reducing reliability risks. They have such a quick turnaround and short lead times with a design being able to get to the shop floor within 5 weeks. Their tactical shop location and professional store layout enables them to also create a limited supply effect, this will also decrease the risk of markdowns.

To succeed as a leader of the high-street, they rely on multiple elements. Logistics, shipping, manufacturing, trend forecasting, design, sales and much more. Design within Zara is created by some of Inditex’s’ 700 designers which are split into men’s, women’s, children and home. The designing coming from Inditex provides a reliable source. In contrast to this, Zara could find it beneficial to invest in having in-house designers, due to their production frequently fluctuating. This could further enhance Zara’s pre-existing flexible production facilities.

Customer Relationships and Channels

Interaction with customers is key. With a global customer feedback portal, quick alters and improvements can be made to existing lines, preventing the likelihood of line failures and markdowns. Artificial scarcity is also created which lowers chances of having stock that they cannot sell. Returns and shipping are free with items over a certain amount. Zara also induce impulse buying through paying extra for specific locations where there is a lot of footfall. To achieve such services, it is important for Zara to efficiently reach their customers and communicate. Being an omni channel retailer they achieve this through: e-commerce, website, apps, newsletters, social media, YouTube etc. through social media it is easy, cheap advertisement and an accessible way to monitor their target market. Having said this, Zara must be careful to not irritate customers as well as try too hard to fit into a specific target market. They are relatively unique in comparison with their competitors and have a range of merchandise for a variety of age ranges. They should invest in ways of advertising such as billboards and newsletters. Another thing that Zara is not currently taking advantage of is a loyalty card. This would allow them to clearly identify preferences and shopping habits of their customers, allowing their products and customer service to be tailored accordingly, ensuring customers feel valued and listened too.

Customer Segments

Zara has a fashion conscious, young target market. A market that are on a budget yet sensitive to the latest trends. Their product line is currently segmented at 60% women, 25% men and 15% children. Although this is a similar TM to the majority of their competitors, with such a wide range of basic, professional and designer inspired garments, there should be a greater focus on a wider age group. Zara, although low cost, do have more expensive merchandise that would be better received by older women, e.g. their real leather jackets are over £100 vs fake leather jacket retailing at £39.99. Their website and in-store environment are both very professional and mature, a customer segment that they are currently not taking advantage of.

Cost Structure and Revenue Streams

Costs come from all aspects of the business: physical branches, head office, employees, overheads, advertisement, materials, manufacture, design, logistics, IT, HR etc. Zara are known for putting in a lot of investment into opening new stores. The high-street is currently taking a hit from the internet and they may want to look into re-investing profits to their e-commerce e.g. their website receives negative feedback due to its impractical nature and difficult navigation. Having said this, J-I-T production results in little inventory within the supply chain and therefore lower capital requirements. Zara’s only revenue streams are their website and in their stores. An issue with the in-store experience is the lack of tills. There are often ques which turns customers away. They should look into re-directing current profits away from making more branches and perfecting their current stores as well as creating a much more practical and transactional website or allowing purchases through their app.

Routes to Market and SWOT Analysis

Zara is well known Omni-channel retailer. It gets omni-channel experience properly to start off with smallest details such as their mobile app and website, that it is easy to use to various shipping methods. Store has various ways for client to buy their desired product. It reaches all main touch points and they work together very well, for example; client can order clothes online and can easily choose which way he wants to receive their order. Store offers various ways such as free pick up in store, home delivery, drop point and etc. For busy customers in some cities retailer offers precise day and time delivery, so client do not have to worry about delivery time. But this is not only strength that this store have. Zara can be proud of their unique designs, all clothes look expensive and come in lot varieties including menswear, womenswear, and even kid’s clothes. It easily adapts with all trends. Designs from conception to stores can be delivered in two weeks. That kind of speed bypasses all competitors and attracts big amount of customers to the stores and earns name of trend prediction store. And last but probably the biggest strength is low prices, that helps attract wider customer circle. However, this retailer has weaknesses. Probably the most important one is lack of advertisement. Having creative and memorable ads can help to reach wider audience and double up the sales ratings. The second Zara weakness is a low stock, that usually is a problem, because of fast moving trends stores do not keep a lot of stock in stores and sometimes if particular design is a hit, it won’t reach its potential. There are so much place to grow for this retailer and some opportunities need to take into considering for example building brighter brand image by creating flagship products that would help to create strong brand identity and get known for that. Other opportunity for this retailer is market expansion to other continents and new countries. Right now, this retailer based only in Europe but growing into broader market would make difference in sales as well as in customer satisfaction. However, Zara has threads that can do impact in sales. One of the most common threat is competitors. There are many similar stores that focuses on the same target customer and all retailers have their own way to overtake the competitors. Another big threat to the store is economic instability. Coming Brexit can effect product pricing due to changing political relationships with Europe and it can decrease this retailer sales and profit.

Customer Experience

For customer experience the first impressions are most important thing. Because of the low advertisement Zara have to have inviting exterior to represent the brand and welcoming interior to keep customers satisfied. Zara store style is elegant and minimalistic and make this retailer look sophisticated and expensive. Exterior of the store is eye-catching and inviting, all stores have security guards, so customer can feel safe around the store. Zara interior design is minimalistic, usually black and white colors to not distract the customer. The store is always kept clean and clothes presented very well. Mannequins are styled with trendy looks and inspire the customer for bolder looks and different styling options. There are multiple paying options around the stores, some stores have self-served options. Usually in store there are no lines near payment counters, so the customer do not need to spend long time at the checkout. In most of the stores now Zara bringing new technologies to help out for busy clients for example streamlining checkout with self-service, that means that customer can skip checkout lines and purchase clothes thru self-service kiosks. Also store offers click and collect option to for customers to order and pay with mobile app in-store. Some of the fitting rooms include radio frequency identification technology, which scans clothes in the fitting room and offers customer clothes that goes well with chosen ones. Thanks to the technology Zara moves forward with customer experience fast, leaving behind all competitors. Zara online site can be confusing for the first time users that makes the customer to download the mobile Zara app for easer online shopping experience. The app is extremely easy to use and the download time is very fast. Using online shopping during check out customer is presented with various payment options. Also there are multiple delivery options. This retailer does not invest money into advertising, but rather into location of the stores. Only looking at the numbers (6,500 stores in 88 countries) it is clear to see that stores are expanding and usually located in the most popular shopping places in every city. Zara brand is well known for their unique designs and ability to create new trends and at the same time keeping low prices. In addition to this, store improves fast in terms of customer experience and tries to understand and respect customer opinion and critique.

Conclusion

Zara is in a particularly strong position within the fashion market, having established itself as a brand name that produces cutting-edge fashion ahead of its rivals, and at a low-cost. Despite this, it is important that the retailer recognizes the forces that are impacting on the external market and uses its own internal strengths to ensure that it retains a competitive advantage, thus enabling it to maintain its position within the market, as one of the brand leaders. Particular emphasis should be placed on the strengths within the supply chain, as this enables Zara to bring products to the market, at a particularly rapid rate. Furthermore, cost pressures are also being placed on the company, which requires the design team to become more efficient when creating designs that can be turned into garments, at the lowest possible cost, without sacrificing ethical standings.

Simply put, it is argued that Zara needs to continue to do what it is doing, currently; however, it needs to do it better, with greater emphasis being placed on ethical behaviour, meeting customer demands for new and innovative fashion, while at the same time retaining low-costs, across every aspect of its operation. The focus of ZARA is on the modern generation and the latest trends. It reflects in its store designs as well as fashion trends. However, despite its strong image and large size, there are challenges ahead. ZARA must ready itself to face these challenges. Moreover, investing in modern technologies and increasing its investment in marketing will also help the brand grow faster and achieve better results. The good thing about ZARA is that rather than trying to create a business brand, it invested in building a customers’ brand- something that each of its customers could connect with and feel proud of. Customer satisfaction became a core focus of its business model and that’s how it was able to achieve astounding success and global recognition.

Reference List

1. INDITEX (2019) Zara [Online] Inditex. Available from: https://www.inditex.com/en/about-us/our-brands/zara [Accessed 07/03/19]
2. Fedorows, K. (2003) Zara. Supply chain forum, 4 (2), pp. 62-67. Available from: DMU Library
3. Anonymous, (2014) Zara - company capsule. GlobalData plc. Basingstoke (2014) Available from: DMU Library
4. Roll, M. (2018) The Secret of Zara’s Success: A Culture of Customer Co-creation [Online], Available from: https://martinroll.com/resources/articles/strategy/the-secret-of-zaras-success-a-culture-of-customer-co-creation/