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ZARA'S CASE STUDY: The Strategy of the Fast Fashion Pioneer. Page | II ... Question 1 – Make an analysis of the company considering the SWOT model.
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I would like to thank my supervisor Mónica Ferreira, first of all for knowing exactly how to teach Marketing and to know how to raise the attention of the students and to make them love Marketing the same way she does. Then, for all the help and support through all the phases of this thesis, and for always encouraged me to improve my work. My family for their love and caring, and for believe in me and support me in everything. Also for teach me to never give up on my dreams, no matter how difficult can be the path until there. To all my friends and colleagues, that was always with me in the best and worst moments, for all the support, motivation, and especially for their friendship. All of them, in some way, contribute to the success of this case study.
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A indústria da Moda tem vindo a mudar ao longo dos anos e as empresas de moda têm vindo a alterar a maneira como fazem negócio. Cada vez mais se focam no consumidor e naquilo que ele está a procura no momento. O conceito de Fast Fashion tem vido a ganhar terreno na indústria, porque agora é mais importante seguir as últimas tendências e produzir de acordo com isso do que apenas lançar duas coleções anuais por um preço mais elevado. Agora, os consumidores estão constantemente a procurar produtos diferentes, e as empresas de moda que são capazes de lhes dar isso irão alcançar o sucesso mais facilmente. Os consumidores não procuram apenas produtos diferentes, mas cada vez mais usam diferentes canais para realizar as suas compras. As compras online estão a ganhar utilizadores de dia para dia, pois cada vez mais eles procuram conveniência e conforto. Mas este comportamento pode ser diferente de acordo com as diferentes gerações, e é importante saber exatamente o tipo de target que interessa para assim satisfazer as suas necessidades. Desta forma, as empresas de moda precisam de adaptar o seu negócio e torná-lo mais tecnológico, de forma a tornar a experiência de compra o mais agradável possível. Este Caso Pedagógico tem como objetivo estudar a estratégia da Zara, desde a cadeia de abastecimento até as estratégias de marketing e comunicação, e também comparar a estratégia nas lojas físicas com as da loja online. Depois o estudo irá focar-se no consumidor: o seu comportamento tendo em conta as diferentes gerações e a sua perceção de marca. Um estudo de mercado, através de um inquérito online , será realizado para ajudar o desenvolvimento deste estudo. Palavras-chave: Fast Fashion, Marketing, Estratégia, Gerações de Consumidores JEL: L1 – Estrutura do Mercado, Estratégia da Firma e Desempenho do Mercado L81 – Comércio a Retalho e Grossista; Armazenagem; e-Commerce M31 – Marketing
Acknowledgments ...................................................................................................................... II Abstract ...................................................................................................................................... III
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1.1. Introduction Zara has always been an interesting case study for many retailers and many other fashion brands around the world. Fashion Apparel industry is constantly changing, and for a fashion retailer to succeed it is crucial to have the ability to follow new trends as fast as possible. Zara since the beginning it is a success because, when the subject it is following trends fast, it was always one step ahead than the competitors. Since the first day, Zara used an innovative strategy that for many people would not be successful. Well, they were wrong. Their strategy not only was successful but also made Zara the leader of the fast fashion concept. I chose to develop my thesis about Zara because the way they define their strategies and their ability to grow and improve year after year fascinates me. As a student of Marketing and Management, I want to study how they achieve today’s success analysing from the supply chain, employees and store management, till marketing and communication. Besides following trends, it is important to study and understand each one of the markets, to know exactly which kind of products will sell better than others. So, they need to adapt to each country and each culture to achieve the success around the world. Then this case study will focus on the consumer. The objectives will be the study of the different generations of consumers, their habits and beliefs. Moreover, then try to understand if their shopping behaviour is different across the different generations. The last step of this research will concentrate in the brand perception. How consumers perceive the brand? They like the way Zara do business? Is it better than competitors or worse? Hopefully, in the end, those who read this case can understand the magic behind this fantastic company.
Page | 2 1.2. Inditex: The beginning of everything Inditex, founded by Amancio Ortega and his ex-wife Rosalia Mera, in 1963 went into business as a dressmaker. Just in 1985 was incorporated as the Group’s holding company. The Group established a distribution system capable of reacting to the changes in the market trends quickly, and the focus was always in listening to their customers closely and to offers them the fashions they desire. As the focus was always the customer, the group created an organisational structure that covers all stages of the fashion value chain (design, manufacturing, distribution and sale). (Inditex, 2015). Nowadays is one of the largest fashion retailers in the world, and has nine brands with different concepts: Zara (1975), Pull and Bear and Massimo Dutti (1991), Bershka (1998), Stradivarius (1999), Oysho (2001), Zara Home (2003), Uterqüe (2008) and more recently Lefties. Based on the market research made in the context of this thesis, it was possible to verify that 62% of the 595 respondents know Inditex group, while 38% still do not know about the group. Inditex expanded extremely quickly, so in 2001 their stock market shares began trading. In the beginning, the price of each share was 3, 60 €, nowadays after a huge increase, the value reached 32€ per share. It was a tough time for the owner of the group because he never wanted to lose his focus: the stores and the customer needs. In 2015 the Group had over 7000 stores in 91 markets, has already reached 29 online markets and at the end of the same year, the company was evaluated in more than $ billion, what makes it the most valuable company in Spain. (Fashionista, 2015). Figure 1 – Number of stores at the end of 2015 Source: Inditex Annual Report 2015 2162 936 740 1044 950 (^607 ) 72 127
Page | 4 Uterqüe, founded in 2008, is the most luxurious brand of the group and offers high- quality products. From clothing to shoewear and luxury accessories, everything is exclusively designed by Uterqüe creative team. Zara Home, founded in 2003, is a brand specialised in the latest designs for the home. Lefties is the newest brand of the group and was created to offer the latest fashion trends for affordable prices. It was designed to all the different ages. One of the objectives of the market research was to determine and study the brand perception of the other Inditex brands and if people know that they belong to the same group of Zara. As we can see in the graphic, the brands of the group are those with highest percentage: Bershka (78%), Pull&Bear (67,7%), Oysho (53,3%), Massimo Dutti (55,7%), Stradivarius (61,7%), Uterque (25,7%) and Lefties (38,3%). Although, we can conclude that the major part of the respondents does not know which of the brands belong to Inditex. (Attachment 1) 1.3. Zara: Fast Fashion Pioneer Zara, established in 1975, is the largest brand of Inditex and the sales represent almost two-thirds of the group’s total sales (Attachment 2 ). After Zara’s success, it served as an example for the other brands of the group. Zara was not always called Zara. In the begging, the owner of Inditex named the store Zorba , after the classic film Zorba the Greek. However, after realising that there’s a bar near the store with the same name, he changed it for Zara – the first brand offering fashionable clothing for lower prices. The main brand of Inditex had a fast expansion opening stores in Oporto (Portugal, 1988), New York (1989), Paris (France, 1990), Mexico (1992), Greece (1993), Belgium and Sweden (1994), Malta (1995), Cyprus (1996), Norway and Israel (1997), Germany, Holland and Brazil (1999) and in 2004 the Group inaugurates the store number 2000 in Hong Kong, bringing its footprint to 56 countries across Europe, America, Asia and Africa.
Page | 5 Zara is known as the Fast Fashion pioneer. That means that they search for new and innovative trends in the streets around the world. After that, they take the new ideas to the designers so that they can produce them in just a few weeks. Like Amancio Ortega use to say: “Our inspiration comes not only on the catwalks. My advice to those who want to make the difference is to take a look at the streets. It is on the street that we can find the biggest catwalk. The fashion is on the streets.” The process of identifying trends, produce them and put that new products available for sale, Zara can do this in just two-three weeks. While the other brands and retailer take at least two months. It is estimated that Zara launches 12000 products per year. Amancio Ortega revolutionised the fashion world as we know it. Nowadays people use to say that fashion history has two separate times: before and after Ortega. “Zara broke with the classic of having two seasons a year that was established for almost 100 years. Now, pretty much of half of the high-end fashion companies (Louis Vuitton, Prada) make four to six collections instead of two each year. That is absolutely because of Zara.” Masoud Golsorkhi, director of the British magazine Tank. When was ask to the 659 respondents if they know the brand Zara, 100% answered yes. Those, 90, 3 % are Zara’s costumer and only 9, 7 % are not. Only the ones who are, are going to be studied. The 595 respondents, on average, evaluated Zara as being good in the following characteristics: products quality, a variety of products, products according to new trends, clothes for all occasions, clothes for different styles, price/quality relation, store design, store environment, employees’ assistance and store location. (Attachment 3) However, why do people shop in Zara, and which are the main reasons to do it? Based on the respondents’ answers, we verify that the main reasons are: the location of the stores, products having a good price/quality relation, products always according to new trends and the stores always have a huge variety of clothes. The less important reason is the brand loyalty. (Attachment 4)
Page | 7 Figure 2 - Zara's Supply Chain When a new trend is identified, it only takes two/three weeks to design, produce and distribute the new products to the stores. Most retailers usually replenish their stores on a weekly basis, but not Zara. Zara has regular and small deliveries, twice a week to all the stores around the world. The store managers’ order clothes at precise times, and on schedule, new garments arrive. (Bloomberg, 2013). 1.3.2.1. Design Department Inditex designers go to fashion shows in fashion capitals, they take photos of the runway models and then send that photos to the headquarters. They also examine fashion magazines, visit clubs, colleges and walk around streets to see what people are wearing and identify potential new trends. (Crofton and Dopico, 2007). Sometimes, when a fashion brand present their collection for the next season in the runway, as Zara is capable of produce new products in a short time, even before that brand launched their products in their stores, similar products are already in Zara’s stores. The cadre of designers sits in the middle of the production, and they work right next to the market specialists and procurement and production planners. The meetings happen in large circular tables, where they analyse the latest fashion magazines and discuss ideas. (Ferdows et al., 2005). According to Ferdows et al. (2005), getting these three groups together makes the design process faster and more efficient: the designers create and analyze the initial sketches, the market specialists as are always in contact with the store managers receiving information about what is selling and what is not and discussing market prices, the procurement and production planners analyze and estimates the cost of manufacturing. Store Managers have the responsibility to decide which products will be on sale in their stores and to order the products they think would sell better. (Mcafee et al., 2007).
Page | 8 They must gather information from a wide range of sources, identify patterns and anticipate which models might sell or not, and start developing new fashion for the coming weeks. (Business Strategy Review, 2008). Approximately 1000 people responsible for the design and development tasks are based in the company headquarters in La Coruña and Barcelona. (Orcao and Pérez, 2014). 1.3.2.2. Commercial Department After the fashion specialists decide the new designs, they send them to the commercial department to the final decision before the production. The commercial managers analyse the commercial viability of the items proposed, and if they agree with them, the items are going to be produced. Collections are created, then are extended and modified over time by the commercial teams, each one specially dedicated to a section of the stores (Women, Men, Children) and to a specific collection. (Mcafee et al., 2007). According to Mcafee et al. (2007), the store product managers’ travel a lot to be able to see what people worldwide are wearing, and they try to understand what kind of clothes would be sold if Zara made them. They are always communicating with the design department, to help them react to the fast changes in demand. Zara’s designers usually create 40 000 designs per year, from which 10 000 are selected for production. (Ferdows et al., 2005). 1.3.2.3. Supplier When the commercial managers accept the designs, the next step is to negotiate with the suppliers, decide the purchase prices, analyse costs and fix a price for the garment. They also establish the size of the production and launch dates that vary between countries. Inditex established a strategy of creating clusters of suppliers to provide the widest possible selection of fashion fabrics and avoiding the dependence on any source or supplier. The cluster of suppliers is defined as a geographical concentration that allows a
Page | 10 allows them to be flexible in the amount, frequency and the variety of new products that are about to get launched. Since Zara is constantly receiving updated data, if occurs a change in retail order, they can adjust in 40 percent to 50 percent. While usually in the industry, retailers are only able to adjust in 20 percent. This way, Zara avoids having high costs with overproduction. (Ferdows et al., 2005). 1.3.3. Strategy 1.3.3.1. Sustainable Management At Inditex, they feel committed to selling products that are environmental-friendly, safe and ethical. Sustainability is their philosophy and the base of all decisions they make. Their purpose is to guarantee the quality and the sustainability of all their products and activities. They call it “Right to Wear”, and it is their major ambition. (Inditex, 2015). Zara created a label called “Join Life” in order to answer to the sustainable fashion. 1.3.3.1.1. Join Life by Zara “Fashion is quick and vibrant. Trends change at full speed, and we all want to keep up. In the fashion world, it is said that things come back into style. So we thought: why not bring fabric back too? That is how Join Life was born: an ambitious program by Inditex that aims to give clothes a second chance, all while supporting social organisations that are deeply rooted in their communities.” (Inditex, 2017). Zara launched the first line of products, produced and designed considering the environmental concerns, in 2016. This collection was produced with the aim of using sustainable raw materials: organic cotton, tencel (fiber from the wood cellulose sourced from certified socially and environmentally responsible forests) and recycled tissue. They want to make people aware not only of the importance to use sustainable raw materials but also for the use of animal materials that are carefully treated and materials
Page | 11 from the forests that they say they are committed to protect. About a half of their stores are already eco-efficient, saving water and energy and recycling materials. Although they want to turn all the stores eco-efficient until 2020. It is also important to constantly train their teams to practice sustainable actions. (Zara, 2015). “Our stores: A place where the life cycle of our collections come to an end. Until we decided to challenge ourselves in a new way: From now on, our stores will not be just the end, they will also be the beginning. A second chance for used clothes. The thing is that sometimes one small gesture is enough to make a big change.” (Inditex, 2017). In their stores, we can find boxes where we can leave clothes that we are not using anymore, to give that clothes “a new life”. (Attachment 6 ) 1.3.3.1.2. Product Inditex products follow the most demanding standards of health, safety and environmental sustainability, from the design till the packaging. They believe that if their products follow these patterns, their customers will feel better wearing them. (Inditex, 2015). “The main objective of Zara is to democratise fashion. Instead of seeing it as a privilege, we offer affordable fashion, that can get to the streets, inspired by the styles, desires and lifestyle of modern men and women.” Amancio Ortega. Zara is known as the Fast Fashion Pioneer and the leader. They can identify new trends not just at catwalks, but in the streets, and produce new clothes in few weeks. Zara’s stores receive new products twice a week, and they are always producing new ones. Their focus is to find what customer wants, and then make it. (Business Strategy Review, 2008). The fact that their stores have new products every week is a motivation for their consumers to visit Zara’s stores more frequently. Based on the market research, it is possible to verify that the major part of the respondents visit the stores less than one time per month (37,1%), while 21,8% visit one time per month, 16,1% visit two times per month, 10,4% visit three times per month and 14,5% visit four or more times per month.
