In Western Europe, there are three thousand seven hundred and ninety seven counts of non-European retailers with operations and European retailers in non-domestic markets, whereas, European retail operations are hosted by one hundred and fourteen countries. During the era of 1990s, one thousand three hundred and thirty five non-domestic retail operations entered into European markets. Means of establishing a foothold in Europe and as the first port of call are the factors why Non-European retailers chose to move into the region of the United Kingdom.
Within Europe, there is a general trend of incremental expansion, whereby retailers move into a neighbour of the host market after they have learned from their experiences of moving into a relatively proximate market. Operations have been started to become internationalised by less developed retail markets that have been characterised as host markets currently. The much discussed and notable fashion chains, like, Mango and Zara originated from Spain, which are now truly successfully exporting retail format and has seen an influx of foreign retailers.
In this research report, we will discuss Zara, which is a non-domestic retailer in the United Kingdom. Each element of the retail mix of Zara is outlined along with its viable basis for sustainable advantage. In the end, we will discuss the challenges faced by Zara in continuing its international growth.
Zara – The Non-Domestic Retailer in the United Kingdom
A wide range of clothing for children, young adults, women and men is offered by Zara, which is a fashion retailer. Zara has its position in the middle of the highly competitive fashion market, due to its continuous following to the changing fashion trend and its offers of a wide range of clothing in accordance to the needs of the market. Zara continuous to be competitive, as its approach to fashion is unique and it continuously respond to the current changing trends (Ghemawat & Et.al, 2003, pp. 1). Zara, which has currently become one of the key players in the fashion industry, had its first location in Spain, which opened in the year of 1975. The great success and potential of Zara is exhibited by its expansion of business into a different part of the world in countries, like, Canada, Japan and Mexico.
In order to draw masses of fashion conscious repeat customers, in prime locations, in sophisticated stores for relatively low prices, fresh assortments of cosmetics and toiletries and designer-style accessories and garments are offered by Zara (Torun, 2007, pp. 6). For the upstream operations, by building up significant forward order books, in compare to achieve manufacturing efficiencies, to be a very quick fashion follower, the use of backward vertical integration is emphasized by Zara, despite its tapered integration into manufacturing. The upstream policies were helped to reinforce by the store operations and merchandising of Zara.
Reasonable but not excessive physical quality, relatively high fashion content, rapidly changing and broad product lines are emphasized by the product merchandising policies of Zara. In terms of the age targets, fashion content and prices, three sets of offerings were considered by the further segmentation of the line of women and the product lines were segmented into children’s, men’s and women’s. For comparable products in significant markets of Zara, in compare to competitors, prices were supposed to be lower and centrally determined. Because of significant reductions in markdown and advertising requirements and the vertically integrated and shortened supply chain associated with direct efficiencies, the percentage margins were expected to hold up.
For most speciality retailers, compared with three to four per cent, only 0.3% was spent by Zara on media advertising. At the end of the season, to the start of the sales period, its advertising was generally limited. Concerns about limits on spending, lock-in and overexposure were reflected by these choices. The new items were first displayed in the stores than at the ready-to-wear fashion shows. In its major markets, considerable drawing power was developed by the Zara.
The positive word of mouth resulted by the attractive ambience around them, the creation of a sense of scarcity and the freshness of its offering that were reflected by the drawing power of Zara. With new design arriving in each twice-weekly shipment, in rapid product turnover the freshness was rooted (Bruce & Daly, 2006, pp. 329). The days on which the delivery trucks come into stores were quite known to the devout Zara shoppers who then shopped accordingly. Every three to four weeks, about three quarters of the merchandise on display was changed. A degree of deliberate undersupply, limits of one month on the time the individual items to be sold in the stores, display shelves that were sparsely stocked, and small shipments reinforced the sense of scarcity additionally.
Some design mistakes were made by Zara although instead of betting on them it tried to follow fashions. For any risky item, since there was typically no more than two to three weeks of forward cover, these were relatively cheap to reverse. With incentives to do so, the store managers wedded out the items that were slow to sell. Near the distribution centre, through separate and small chain of close-out stores, the returns to the distribution centre were disposed of or either sold at other stores. During the sales period that ended each season, in Zara stores, to minimize the inventories that had to be sold at marked-down prices was the target. The retailers’ revenue bases of apparel were significantly impacted by such markdowns.
Ensuring each order reaches its right destination; tracks move merchandize to chutes from manufacturing plants of Zara. For human sorting, none of the time is wasted by the merchandize. More than sixty thousand items of clothing per hours are distributed and sorted by optical reading devices. Operations to two primary warehouses situated in Spain, a centralized distribution system have been maintained by Zara. Each week, through the distribution centre, about two million garments can move. Shipments of finished clothes are received by this location periodically from supplies and twice a week, in every store of Zara in the world, the replenishment inventory is shipped.
To Europe, these shipments are made by truck and to other stores outside Europe; these shipments are made by airfreight, so that within one or two days outside of Europe and within twenty four to thirty six hours of shipment in Europe, the goods are received by the stores.
The horizontal communication model was used by Zara as it is easy to implement it and due to the workforce of the company that every year grows exponentially. The elasticity of the company is affected by diluting responsibilities. Similar to a small to medium sized business of about hundred employees, a business unit is the responsibility of every store manager (Doherty & Alexander, 2004, pp. 1215). To avoid falling into obsolescence, the constant re-inventing by the group is required by the focus on the product and the client. Because of this, communication is necessary to be facilitated and for the window and zone designers maintaining a direct line of communication between other points of contact, like, a sales person, the design team and the store manager.
For example, whenever an international journalist calls, the communication director of Zara is always available and for this purpose, to create a communication matrix is the final goal ultimately. To eliminate communication barriers is one of the main targets of the communication team which is composed of fifteen people.
The success of Zara is also led by its unique approach to marketing and advertising. On marketing and advertising, approximately 0.3% of the revenues are spent by Zara. In compare to its competitors, it is significantly less, as of their total revenues, they spend an average of three to four per cent on promotional activities. Thus, in marketing activities, a cost advantage is maintained by Zara to its competitors. To act as their marketing tool to consumers, product life cycles, store layout and location are used, and customers are attracted by the word-of-mouth advertising.
For visibility marketing, all the stores of Zara are located in prime retail districts. Since new items are often not restocked and presented weekly, the customers are trained to visit the stores of Zara. The frequent purchasing and visiting of the customer are encouraged by this feeling of scarcity.
To attract a loyal customer base, efforts are put up by Zara in brand/image marketing, rather than making heavy investments in direct marketing. The essential elements of promotional strategy of Zara are its customer loyalty, maintenance of brand recognition and its cost advantage.
In order to create an elegant atmosphere emphasizing a brand image, the stores of Zara are designed with style and ceiling related decorations, like, display/store design photographs, white walls and clear lighting. Through both existing and new customers by means of personal store visits, Zara has improved its sales and developed a strong customer mass in accordance to its marketing communicating objectives (Ferdows & Et.al, 2005, pp. 98). Heavy investments are done by Zara for their store layouts, in order to keep the stores looking trendy and fresh. The different types of store layouts are tested by the testing facility of Zara, which is located nearby its headquarters in Spain. In order to keep up with current trends, the stores of Zara are remodelled every five years.
A key role is played by the internal arrangement of the product and the window displays inside the stores of Zara. As a client magnet, the displays are considered by the communication department. In accordance to the established guidelines from headquarters, someone who coordinates the shops in the area manages the window displays.
In advanced, the windows are well planned. Three window images for the year are created by the team of designers one a Christmas special and one for each season (Pahl & Mohring, 2009, p. 14). Supervised always by the corresponding visual merchandiser manager, in all stores of Zara around the world these displays are implemented.
To analyse the windows the team in charge for displays meets before the start of each season. In the design, some of the international teams participate, and the idea is envisioned at the headquarters. In images for implementation, all of the stores are sent the result. Newly received products are reflected by the window displays as every week they are partially renovated. Through the mannequins, the furniture and the decoration the essence is maintained whereas some garments are changed. New sceneries are created by every season window displays.
To ensure that the customer needs are fulfilled and to provide assistance to customer, knowledgeable and well-trained sales employees and staff, is offered by Zara. In the Zara, listening to the client is an important customer service attitude which carries many implications (Merlo & Et.al, 2006, pp. 1214). The customer can get upset regarding something and which is difficult to handle occasionally; therefore, the business must be confronted with vast humility. The situation must be rectified first in such cases. Since the consumer communicates in many ways, listening to the customer is the best action to avoid such kind of situations.
Through means of their buying behaviour is the most eloquent way. Paying attention to the merchandise is the simplest way to listen to the customers. The consumer behaviour must be observed within their purchasing of products over various seasons. The appropriate customer relations are guaranteed this way since through their own franchises and stores all the business is conducted, and the entire company is allowed to be tune with the client.
Through a sophisticated merchandise display inside the stores, the best locations in the main cities are chosen by Zara as it imitates the luxury companies. Involving a series of knowledge and factors from experience, to open a Zara store is a complex process for this reason determine a location. These factors pertain to interior design, window displays, image and location. Depending on the country, the decision is made to open another store when a city is considered under control with three or four stores.
The location of shops held closely together is explained by thinking of Zara in terms of commercial space. Different concepts, like, a store that specializes in a particular type of clothing, like, casual clothes or dresses for a more daring or younger audience or a boutique type store are created to avoid cannibalization between shops of the same brand. Through the different collections, it is achieved, to offer a segmented product to its clients by the brand designs. One can find the university student, the mother, the high school girl, the young professional all side by side in the fitting rooms of Zara.
The portfolio of stores was actively managed by Zara. In response to the traffic patterns and the evolution of shopping districts, the stores were occasionally relocated. In new and more suitable sites, smaller and older stores were expanded, updated and relocated. Since the strength and breadth of the customer pull was improved by Zara, the average size of the stores had gradually increases (Rohwedder & Johnson, 2008, pp. 121). Every three to four years the older stores used to receive makeovers and the store base was refurbished by Zara through heavy investments in compare to its competitors.
Across the world, Zara is present in seventy two countries and in prime locations of the principal cities; the stores of Zara are located. Women clothing and men clothing are two basic product lines of Zara and five sub-categories are comprised by each of these clothing line. Retail complements and cosmetics, assortments, shoes, upper garment and lower garment are included into the categories of merchandise.
The clothing line of children is also included in the catalogues of Zara. Because of the high labour and operational cost in pricing place, the price mix acquired by Zara tends to be double in compare to its domestic regions located in Spain and which has been deployed in the Canadian and the United States market (Dobson & Waterson, 2005, pp. 93). Zara has been able to maintain a competitive price in the market and has effectively controlled the costs incurred, by adopting an appropriate human resource management strategy as the clothing industry is highly labour intensive.
To offer lower prices, Zara strives for a cost leadership strategy. Equal to cost plus a target margin, the prices are set by Zara through a different pricing strategy, in compare to its competitors. Comparable within the target market, is the basis of prices of Zara, such as, a cost could be prices at one hundred and eighteen Euros in France, whereas, the same coat could be priced at ninety Euros in Spain. Therefore, by taking advantage of the customer willingness to pay, for setting prices based on the region, a demand oriented method is used by Zara. Using a device that prints the appropriate local price and read the bar code, in the stores, Zara has recently switched to a system of local price marking.
During seasons in order to quickly respond to preferences of customers by the designers of Zara in Spain, the sales associates and store manager convey the direction of locations, analysis and sales volume and the cycles of products to the designers in the retail environment. While traditional function of holding and buying stock are conducted by the rest of fashion retailer, the most outstanding idea of retailing strategy of Zara was the no stock holding. With current fashion trend, a speedy interaction was required by Zara in accordance to this strategy.
In only two weeks, all new items are presented in store shelves and are introduced twice a week. The retailing efficiency and earnings of Zara got improved by controlling stock and reducing the cost. To turn it into various kinds of garments and to get the most flexible in-season updating, grey fabric was sourced by Zara, in terms of manufacturing. For its basic black collection, the grey fabric suited which is one of the benefits (Lopez & Fan, 2009, pp. 279). Within three, weeks, to develop a new product line, Zara is competent. Both in retailing and manufacturing, excellent international strategies are conducted and organised by Zara that makes it one of most successful case in the fashion industry. The basis of the business model of Zara is formed by the paramount suppleness and the customer orientation.
Approximately nine hundred billion euro the retail spending on apparel or clothing reached in the year of 2000. Thirty four per cent of the total market was accounted by Western Europe in accordance to one set of estimates. Significant differences in per capita spending on the population as well as in apparel were reflected by differences in market size. With increases in per capita income, the per capita spending on apparel tended to grow less that resulted in an increase of income and decrease in its share of expenditures. Price levels also affected the per capita spending (Tokatli, 2008, pp. 21). The variations in the intensity of competition, in costs and in per capita income, influence the price levels.
Even within a country or a region, there were also local variations in preferences and attributes of customers. The Germans were more price-sensitive, quality/variety was focused by the French and stores were sought out by British on the basis of social affinity, in accordance to a study on Western Europe.
Benetton, H&M and the Gap were the three closest comparable competitors that were considered by the analysts and in compare to Zara, all three had narrower vertical scope. The two largest specialist apparel retailers in the world were H&M and the Gap that outsources its produced and owned most of its stores, whereas, stores were run by licensees in case of Benetton and it also invested a huge amount in production.
With the excellence retailing strategy of innovation and speed, the success of Zara is prominent by its new stores opening up on an annual basis and its approximate annual sales grossing to ten million dollars. To stay ahead of the competition, innovation and initiative are consistently encouraged by Zara, by offering the latest fashion trends that change almost on a daily basis in the booming industry. A trend based on forecasts of future consumer preferences on fashion is followed by most retailers and manufacturers within the clothing industry, and limited collective designs for the year are held by those retailers.
In comparison to such retailers, Zara differentiates and shines itself in the market. With the emerging trends, clothes are created by Zara in accordance to its model of instant fashion. In today’s market, Zara has become one of the premier companies, through its high turnover of stock and increased sales that are led by its model of instant fashion. Zara acquires only production site in the world, which is one of its principal competitive advantage and which is difficult for competition to replicate (Birtwistle & Et.al, 2003, pp. 118). With the company’s process of fewer chains of distribution and manufacturing channels, the cost of Zara is at the minimal, and it provides a magnificent advantage to the company.
In such a difficult industry, Zara has become a particularly competitive company through its fourteen stores in Canada, expansion in North America and its growing market share in the world. In this highly competitive industry, Zara can become a key player with their unique retailing strategy and innovative business.
The great success and potential of Zara is exhibited by its expansion of business into a different part of the world in countries, like, Canada, Japan and Mexico. To ensure that the customer needs are fulfilled and to provide assistance to customer, knowledgeable and well-trained sales employees and staff, is offered by Zara. Women clothing and men clothing are two basic product lines of Zara and five sub-categories are comprised by each of these clothing line. Zara has been able to maintain a competitive price in the market and has effectively controlled the costs incurred, by adopting an appropriate human resource management strategy as the clothing industry is highly labour intensive.
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