Zara brand is one of the top brands in the fashion industry. This is evident through the company’s performance over the years. It has established itself in many regions, including Europe, the United States, and Africa. During the pandemic, the brand still maintained high sales through e-commerce. Many other upcoming retailers in the fashion industry look at it as a blueprint for how to establish themselves. In this paper, the focus will be on Zara as a global retailer, the challenges it has faced, and the strategies it has implemented to overcome challenges.
Analysis of the Case Study
Zara’s Value Chain
Creating a supply chain, which enabled Zara stores to provide cutting-edge fashion at appealing prices, fundamentally strengthened the company, particularly at design and production stages. Every store globally placed orders and got shipments more than once every week. An order has to be placed at a pre-designed time. The company seeks to reduce risks associated with oversupply by keeping production capacity low at the season’s start and reacting faster to orders, as well as new trends in the middle of the season.
The brand designs all the products they retail by itself. In 2013, it had three hundred and fifty individuals in the commercial team at the main headquarters, around one hundred being designers (Aftab et al., 2018, p. 212). The designers were still young, and the company encouraged a collegial space among them. The inspirations for the designs came from different sources, like trade fairs, magazines, clubs and catwalks, as well as a close follow-up on trending items in the market. Most of the items are produced in Spain, Morocco, and Portugal. The share of in-house production had been considerable and more than most of its rivals.
Until the early 2000s, the brand had only a single distribution center next to its headquartering offices in Arteixo. Zara occupied a 5-story building with five hundred thousand square meters of storage space and utilized new technology. Almost all products of the Zara brand pass through this distribution center. Nevertheless, constant expansion over the years forced the need for more distribution capacity. In the middle of 2001, when the Arteixo distribution center was working at half capacity, the brand declared that it would construct another one in Spain. Then, it also established one more in 2007, making it a total of three, which can handle more than one million pieces of clothing in one day.
Fundamental Operating Principles
Operating principles refer to how a company or a business puts its values into practice and achieves its objectives. Some experts in the field of business management refer to the principles as an operating system of a business (Saraswat, 2018, p. 69). Various companies depend on them to achieve their operational goals faster. The operating principles also impact the culture and values of a company.
Some of the fundamental principles that help successful businesses achieve best practices include prioritizing customers’ input and feedback. It is important that the customers feel like their input is of significance (Saraswat, 2018, p. 70). Involving them in new developments and setting up new stores makes them feel as if they are invested in the process. Feedback from the customers ensures that the company does not experience losses when establishing new projects that will not be received well by the market.
Apart from prioritizing the customers’ input and feedback, it is also essential to prioritize the employees’ input. For a company such as Zara, employees are empowered to make decisions on their own that impact the performance of the company (Saraswat, 2018, p.70). Young employees especially handle a lot of duties that the company gives them (Saraswat, 2018, p. 69). This encourages them to apply different insights they have on various levels of the organization. It is the ideas and new insights from employees that help such a company reach great heights of success.
Another principle that enables companies to maintain best practices is ensuring that all suppliers of raw materials are paid on time. In order to be able to produce and distribute products without delays, a company has to ensure that they receive materials on time. If a company fails to pay early, then it presents a risk of delay of supply, which means that other operations are affected (Mahardika and WayanSantika, 2021, p.278). Successful companies such as Zara have established themselves on the foundation of early payment.
Global Retailer’s Key Challenges
For global retailers such as Zara, challenges such as e-commerce, competition, and sustainability are a growing concern. For example, a siloed marketing infrastructure makes it expensive to relay information (Kent and Bernarto, 2021, p. 33). Marketing in the current times makes it a requirement for a business to engage its customers through various channels. For instance, engagement via short message service, social media, email, and multi-channel communication is important to develop an excellent customer experience.
Another challenge is that consumers are selecting multichannel buying experiences. With more retailers venturing into selling their products online, many people have turned to online shopping. Despite all that, individuals spend most of their total shopping budget on conventional locations, meaning that even though many shops online, people still buy more in-store (Kent and Bernarto, 2021, p.34). Customers are shopping both online and offline and therefore, they are open to the idea of retailers who can use both digital and tangible channels to sell products.
Another challenge is attracting customers’ loyalty, especially those from other regions and countries. In order to gain a fanbase of committed customers, a retailer needs an experience that is unique (Kent and Bernarto, 2021, p. 34). The experience a customer gets is a meaningful contributor to loyalty to a brand. The majority of the customers also serve in different parts of their lives, which means that when they are the ones on the receiving end, they wish to experience the best. Whereas offers, as well as promotions, can contribute towards assisting customers in having a better overall experience, personalization is the key to establishing unique customer relations. Getting to identify customers’ interests and past purchases can help a retailer drive loyalty (Kent and Bernarto, 2021, p. 34). Such information can be gathered using various means, including seeking feedback through a conversation or online surveys.
How Zara Overcomes the Challenges in Retail
In the case of Zara, it is less about how much the retailer spends on advertising and more about the consumer. The company focuses on providing the customer with an experience that is unique. In the past, the product was the focal point of all businesses, but that is no longer the case (Saraswat, 2018, p. 71). Currently, the customer experience is more important than the product itself, something which the management of Zara comprehends (Saraswat, 2018, p. 71). As a result, many fashion brands and retailers find themselves facing a risk of becoming virtually “invisible” if they do not provide consumers with a customized and memorable experience. It focuses on capitalizing on the store experience by often giving reasons for the purchasers to come back. Statistics show that customers of the retailer visit the stores more than five times every year (Saraswat, 2018, p. 73). Its fast-fashion formula offers a frictionless shopping experience in an environment that provides a limited constant supply as well as new styles. A shopper feels like if they purchase an item from Zara; other individuals will not have a similar outfit.
Another challenge in the retail industry is price sensitivity. The pandemic has demonstrated how vulnerable consumers actually are to price shifts. The companies currently operating in or just entering the industry face a risk of not finding a proper niche between mass-market and luxury. The solution is to ensure the products entail more than just a price tag and attract attention as a result of having a strong and powerful message. Buyers prefer the value of an item to be higher than the price. Zara understands this and delivers inexpensive high-fashion products, which translate to a noble brand with great value for customers (Saifi and Nabi, 2018). Through this strategy, it earns loyal mass buyers who are less price-sensitive as well as returns a greater profit margin.
While it is not among the cheapest businesses in the fashion industry, Zara delivers trend-right items at affordable prices on a regular basis. Regarding loyal customers, the business’ excellent experiences, as well as values, tap the perspective of regular purchasers to promote the brand (Mahardika and WayanSantika, 2021, p. 279). Instead of spending much on pushing marketing, it pulls customers in as well as turns them into brand ambassadors through their use of word-of-mouth techniques. This is a winning strategy because the fashion retail sector is overly saturated with influencers. There is a risk of low return on investment when it comes to influencer marketing in fashion. Users with millions of followers start to lose the grasp they have on their audience, making micro-influencers with a tight-knit loyal following all the more effective at promoting a brand. Zara has more than thirty-nine million and twenty million followers on their social media accounts on Instagram and Facebook, respectively. Most of the content is carefully crafted, yet the brand often reposts its customers wearing Zara pieces and engages with the most active followers on a regular basis. Social media channels are utilized to enhance services, operations, and products to retain customer satisfaction.
Challenges Associated with Zara Online
Established in the twentieth century, the popular fast-fashion retailer has proven the dependability of its greatly acclaimed model, developed on technology innovation as well as customer experience. While utilizing limited resources on the advertisement, the retailer accomplished a two hundred and fifty-four million dollar second-quarter profit last year. However, it has recently faced some challenges, including the transition into e-commerce, growing competition, as well as sustainability. Even before the pandemic, the business ventured into digital expansion to sustain its internationalization. In 2020, the brand reported a seventy-four percent rise in online sales (Mahardika and WayanSantika, 2021, p. 280). Pablo Isla, Zara’s executive chairman, showed the significance of the brand’s integrated store as well as the online approach, which is now at the brand’s core. In spite of all this, sustainability is still an issue among customers as the eco-movement is continuously gaining momentum, while Zara seems to be the face of fast fashion.
At the peak of the COVID-19 pandemic, the company had to close thousand and two hundred stores worldwide. However, it succeeded in reopening ninety-eight percent of its stores from May to July this year (Kato, 2018). The founder of the company considers last year’s third quarter to be a slow return to normalcy. The company modified its collections to fit the quarantine trends consisting of styles like jumpers, wide trousers, and house slippers. Without digital reactivity, the company would not have massive success in e-commerce, which shows the importance of digitalization.
The brand’s e-commerce faces stiff competition from other brands such as Fashion Nova and Boohoo. Pure digital retailers deliver designs faster than the brand because of the marketing tools. Furthermore, because they entirely launch celebrity-led collections, they obtain more influence in the market. For instance, Fashion Nova has invested in influencer collaborations (Cordaro, 2019). The brand’s May 2019 collection that featured Cardi B brought in one million dollars immediately after its launch (Cordaro, 2019). While variety has become more with the new entrants, time-to-market has shrunk. In combination with quick response guidelines as well as just-in-time manufacturing, the disruption of time-to-market has led to Zara applying more pressure on its end-to-end supply chain.
Zara’s Strategy in Fashion Retail
The company’s strategy is accomplishing growth via diversification with vertical integration. It modifies designs, distributes, manufactures, as well as retails clothes within fourteen days of the initial design’s first appearance on catwalks (Ha, 2021). This is different from the normal half a year it spends on producing items for the fashion sector. The brand owns its supply chain plus strives at its own pace to promote, which reflects the fast-fashion idea. The retail company delivers trendy and fashionable numbers catered to various tastes via a monitored and incorporated procedure called just-in-time. Its success depends on maintaining a great quantity of in-house production as well as ensuring its plants spare eighty-five percent of capacity for in-season modifications (Ha, 2021). The in-house production allows the brand flexibility regarding frequency, quantity, and range of new items.
Zara usually depends majorly on finding refined fabric, sewing, and cutting services adjacent to design headquarters offices. The salaries European personnel demand are more than what their counterparts in developing countries ask for (Amarkhil, 2018). Despite this, the turnaround time is estimated to be extraordinary (Amarkhil, 2018). The brand commits half a year early, about 20% of a season’s line and locks in only about 50% of its line by the season’s start. This means that nearly half of the products are planned and manufactured during the season. If a particular style becomes so popular, the brand’s designers develop new styles and are hurried to the stores when the trend is yet to finish.
The brand has established itself among the top brands in the fashion industry worldwide by adopting strategies of consistently meeting the needs of customers on time. As a result, Zara has gained many loyal fans outside of Spain. Despite other brands like Fashion Nova having a better online presence, Zara ensures that it does not fail to transition to e-commerce, especially during the pandemic. Despite closing most of its stores, the company has still managed to earn good profits while selling its items online.
Aftab, M.A. et al. (2018) ‘Super responsive supply chain: the case of Spanish fast-fashion retailer Inditex-Zara’, International Journal of Business and Management, 13(5), pp. 212-227.
Amarkhil, H. (2018) Brand management that creates value to the customer: the case of Zara brand. Master’s Thesis. Vytauto Didžiojo Universitetas.
Cordaro, M.C. (2019) Business model innovation in the fast fashion industry. Bachelor’s Thesis. University of Southampton.
Ha, J. (2021) Zara strategic analysis. Undergraduate Honor’s Thesis. The University of Nebraska-Lincoln.
Kato, V. (2018) Analysis of Zara’s (INDITEX) business model. Bachelor’s Thesis. Hult International Business School.
Kent, Y.D. and Bernarto, I. (2021) ‘The effect of perceived product quality, brand image and promotion on customer purchase intention’, Indonesian Marketing Journal, 1(1), pp. 28-38.
Mahardika, I.P.D. and WayanSantika, I. (2021) ‘Strategies for creating competitive advantage through product development, design and quality: case study on the ZARA brand in Badung Regency’, American Journal of Humanities and Social Sciences Research (AJHSSR), 5(1), pp. 279-282.
Saifi, M.A. and Nabi, M.K. (2018) ‘Globalization of organized retail markets: emerging challenges and future prospects’, International Journal of Research and Analytical Reviews, 5(3), pp. 893-900.
Saraswat, S. (2018) ‘Strategies vs consumer perception of brand Zara-India’, IITM Journal of Management and IT, 9(2), pp. 68-80.