Retail Analysis Paper: ZARA

Overview and Current Climate 

            ZARA is an apparel company well known as a fast-fashion retailer that constantly releases new fashions and produces its own clothing. The products at ZARA include clothing, accessories, shoes, swimwear, beauty, homeware, and perfumes. However, Inditex, the parent company of ZARA, announced that the brand is currently facing competition from online retailers that can refresh their websites with new products daily, while ZARA has also been adapting to new trends and re-stocking products quickly (Network). ZARA is experiencing that more people have turned to online shopping, and the brand is now seeking to develop new technologies to respond to the changing consumer trends (Network). Not only has ZARA been facing challenges, but also the whole retail industry has been challenged fighting against e-commerce and the economic crisis since COVID-19 started. According to the data from McKinsey, consumers are likely to keep the behaviors they’ve adopted during the COVID-19 pandemic even though the outdoor places are re-opening to normal, meaning more online shopping and fewer mall visits (Charm et al.). Due to the changing trends in the retail industry, retailers can no longer sit back and wait for everything to get back to normal (Yohn). 

Retail Organization and Audit and Corporate Strategy 

            Inditex, ZARA’s parent company, states its business model with three key pillars: flexibility, digital integration, and sustainability on its website. Especially, the critical success factors of ZARA that set it apart from other fast-fashion companies are agility and flexibility (Schlossberg). ZARA uses a push business model and those two main factors have enabled the brand to pick up on new fashion trends, keep customers coming back for new products, and have good responsiveness to external factors like the weather (Schlossberg). ZARA uses a very tight supply chain from initial design to final production, keeping lead times shorter (Schlossberg). This means that ZARA can still manufacture during the season, unlike other retailers, which makes the brand respond to the changing fashion trends by introducing new lines and enabling it to reduce or increase production as its demand. Moreover, Zara is renowned for its ability to develop a new product and stock up the products in stores within two weeks, while other retailers usually take six months (“Zara,” Forbes). The latest retailer concept of ZARA is a model for its online and in-store integration by using Automated Collection Point (ACP), such as using QR codes or PINs that are provided when they place an order online to pick up online orders at a store (Wightman-Stone). ZARA has three main corporate strategies: regarding its customers as the center of everything it does (“Who we are,” Inditex), concentrating on technology for managing and tracking inventory and controlling cost (Ferdows et al.), and ensuring to control and balance the time of its production as a center for the location facilities (Capell). For ZARA’s goal, Inditex states, “bringing attractive and responsible fashion, as well as improve the customer’s experience, are Zara’s priorities” (About us | ZARA). ZARA’s retail concept and corporate strategies have enabled the brand to achieve the goal by being flexible and responsive to the market's changing needs and consumer trends. 

            Inditex is committed to the environment and seeks to increase revenue by taking wide-ranging measures for the company’s sustainability. The company has set goals to achieve by 2023 and 2025 separately and has posted the progress on their official website. According to IMPAKTER Index, Zara uses technologies that reduce water consumption in their production, recycled polyester, wool, and cotton. The brand has changed the bags in-store to 100% recycled paper and has recycled 61.8 million hangers. With that being said, Inditex group sales grew 50% as the sustainable model pay off, and Zara’s revenue was up 102% year on year in 2021 (Mintel). Also, the brand is using the U.S. Green Building Council as a benchmark to reach its highest levels of eco-efficiency. IMPAKTER Index reported that 100% of the energy consumed by the servers and the office for ZARA’s online store came from renewable sources. Inditex is consistently working on adopting technologies and researching improving sustainable activities within the company to keep its sustainability commitments. 

Competition 

            For Zara’s competitors, H&M is known as a direct competitor that is competing for the same products in the same market, and Uniqlo is known as an indirect competitor that provides slightly different products or alternatives. H&M and Uniqlo target similar markets, but they have different strategies in their business model to manage their product distribution. H&M is the oldest and has the most stores open worldwide (4,372 as of April 2021) among the three (Parietti). One of H&M’s captivate strategies that boosted sales is collaborating with well-known designers such as Versace and Alexander Wang (Parietti). Uniqlo has opened around 2,000 stores in over 25 markets worldwide and 47 stores in the U.S. as of March 2021, a relatively smaller market than Zara. Uniqlo has its unique strategy to attract customers to design for a minimalistic style, which is popular in Japan. Even though Zara is the youngest among the three, it’s been successful for supply chain ownership, allowing the brand to have a more rapid product turnover. Zara delivers new products twice each week, and it only takes 10 to 15 days to go from the design stage to the sales floor (Petro). This strategy has enabled the brand to be positioned as an up-to-date fashion retailer for consistently changing trends and returning customers to stores for new products. Also, Zara has been able to produce over 10,000 pieces of clothing per year while most clothing retailers produce between 2,000 and 4,000 (Petro). 

Retail Market Strategy 

● Target Audience 

            Zara’s target market is people aged 18 - 40 years old, with mid-range incomes. Its target market is very fashion-forward, trend-conscious and residing in an urban area (May). One of the demographic segments, mid-range incomes, is different from its competitors which typically offer products at lower prices than Zara. 

● Image and Position 

            Zara is well-known for its high quality and unique designs of products among customers. These two are distinctive from other competitors, such as H&M, which is more price-competitive than product quality. It has positioned Zara itself as a high-end fashion brand among its customers with its higher quality of unique products. 

● Technology 

            Zara uses digitalization, data analytics, efficient supply chain management that cuts the production cycle down to less than three weeks, which leads the brand to increase sales turnover (Megan). Every product at Zara is tagged with RFID before it leaves a centralized warehouse. It allows the company’s central data processing center to track an inventory in real-time until it’s handed to a customer at a store (Megan). With this technology used at Zara, the brand can stock inventory based on SKU-specific data collected. 

● Global Presence 

            According to the Inditex report in 2021, Zara has 2,047 stores in 96 countries. Zara has been successful in expanding its stores into these countries. However, Zara couldn’t avoid the common obstacles when entering different countries with climate and cultural differences. One of the examples is in Saudi Arabia, where religion has a significant impact on the fashion industry. Zara had to change their supply of clothes, such as long skirts, and opted to change the fabric since the market demanded longer sleeves and skirts while the weather is very humid. 

● Location Strategy 

            Most Zara stores are located in the street where many luxury brands are. Zara invests in the location and appeal of its stores instead of advertising and marketing (Giovanni). Zara’s strategy with choosing stores location is to identify high-end retail areas in major metropolises (Payton). Zara’s location strategy has affected the brand image as a higher quality store and gives its customers a sense of luxury. 

● Human Resources 

            According to the annual report from Inditex in 2015, the group provides a variety of opportunities for its employees to achieve their professional goals and find talents. The group offers internal promotions and training for internal teams and reaches out to store employees to better understand by centralizing the information on their curricula. 

● Merchandising Strategy 

            Zara’s merchandising strategy consists of its product variety, assortment, and availability. Zara produces various products, including clothing, beauty, homewares, perfumes, etc. They have a great product assortment and well-organized categories by gender, season, and color themes. Zara has a full-time team of architects and visual merchandising experts who solely design and curate every aspect of the store. They use a boutique layout, providing an intimate and relaxing environment to their customers. They actively use feature areas with freestanding displays, mannequins, promotional areas, walls, dressing rooms, and cash warps. The brand is well known for its window display and unique eye-catching entrances. Product availability at Zara stores is very impressive how frequently they stock new items every two weeks (Hanbury). 

● Pricing Strategy 

            Since Zara has stores in different countries, the brand took into account the exchange rate in each country, such as Zara products are priced between 22% and 24% higher in France, Italy, and Germany. Surprisingly, the market with the highest prices was South Korea, which had 96% higher prices than Spain. Zara’s pricing strategy is tailored to the characteristics of each market, and Inditex’s attentive to what consumers are willing to pay based on their income (Ceballos). 

● Advertising and Sales Promotions 

            Zara does not invest in advertising and marketing but its real estate for its stores and decor instead. Zara relies on word-of-mouth promotion and social media rather than pricey marketing tools. It is Zara’s strategy to establish an aura of quality, luxury, prestige, and class among its customers (Giovanni). Zara has big sales promotion offering low discounts around the year and a 50% discount or more twice a year that its customers eagerly wait for. 

● Challenges 

            Since the COVID-19 started, all retailers have faced challenges with decreasing their revenues, and Zara couldn’t avoid it as well. For Zara’s success, its supply chain management and location / merchandising / advertising strategies have played key roles. Those aspects have been working better than its competitors as we have perceived the Zara brand nowadays. 

Mini SWOT of ZARA 

Strengths 

• Have more than 2000 stores all over the world (2,047 stores worldwide)
• In Oct 2021, Inditex reported that the group is selling in 216 markets through its online store and 96 markets through its over 6,657 stores 
• Have a wide range of work relationships with its suppliers and factories 
• Work with 1,805 suppliers and 8,543 factories worldwide) 
• One of the largest international fashion retailers in the world o One of the world’s largest distribution groups o An efficient supply chain management at a very low-cost 
• Vertically integrated operations and manufacturing 
• Offers extremely trendy, well designed and fast delivery of new products 

Weaknesses 

• Limited marketing and advertising as compared to its competitors 
• Is perceived to be an expensive brand compared to other brands in the fast-fashion industry 
• As Zara expands, the centralized distribution model might not be suitable in the future 

Opportunities 

• High potential of growth from global markets 
• Online marketing and e-commerce are becoming important, which can be tapped by ZARA 
• Gaining a positive awareness among its customers by continuing its sustainable actions 
• Improving its customers’ experience with the brand by adopting a new retail concept - online and in-store integration 

● Threats/Challenges 

• High-end fashion retailers can become other competitors 
• The economic downturn can be a threat to its target segment 
• Unexpected/Changing consumer trends and behaviors after the COVID-19 pandemic 
• As the brand grows, there’s a possibility that fake imitations are in the market, which will hurt business by resulting in declining the sales of ZARA 
• Since Zara outsources its manufacturing, rising labor wages in foreign factories could cause a downward profit margin. 

Looking to the Future 

            As Zara grows and expands globally, competing with high-end fashion retailers should be considered and prepared. Also, the brand should quickly respond to and forecast the future changing customers' behavior accurately after the pandemic as there will be no longer mask required policy sooner or later. If I were hired as the CEO for the Zara brand, I would pursue merchandising strategies in the future for Zara’s success. Zara hasn’t explored tons of opportunities in the global market, and Zara’s current merchandising strategies will play a significant role in positioning the brand as highly successful in other countries. Its product availability will continue to enable the company to be an up-to-date fashion retailer as it has been. In addition, its visual merchandising should be highlighted in the future because that has contributed to building the brand image today. 

            I would also pursue its sustainable activities and integrate e-commerce and physical stores. Zara’s sustainable activities will greatly benefit the brand in the long term as more people value a company’s sustainable contribution. Integrating e-commerce and stores will allow the brand to smoothly fit into the changing trends post-pandemic. Many people will be returning to the physical store, but many will still decide to remain shopping online. By merging online and in-store, I am sure that Zara will find more opportunities through the developed technology that will enhance its customer experience in the future.

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