Introduction

Zara is one of the world’s most successful fashion retail brands – if not the most successful one.
With its dramatic introduction of the concept of “fast fashion” retail since it was founded in 1975 in
Spain, Zara aspires to create responsible passion for fashion amongst a broad spectrum of
consumers, spread across different cultures and age groups. There are many factors that have
contributed to the success of Zara but one of its key strengths, which has played a strong role in it
becoming a global fashion powerhouse as it is today, is its ability to put customers first. Zara is
obsessed with its customers, and they have defined the company and the brand’s culture right from
the very beginning.
The Zara brand offers men and women’s clothing, children’s clothing (Zara Kids), shoes and
accessories. The sub-brand Zara TRF offers trendier and sometimes edgier items to younger women
and teenagers.

The Zara brand strategy

In 2017, Zara was ranked 24th on global brand consultancy Interbrand’s list of best global brands.
Its core values are found in four simple terms: beauty, clarity, functionality and sustainability.
The secret to Zara’s success has largely being driven by its ability to keep up with rapidly changing
fashion trends and showcase it in its collections with very little delay. From the very beginning,
Zara found a significant gap in the market that few clothing brands had effectively addressed. This
was to keep pace with latest fashion trends, but offer clothing collections that are a combination of
high quality and yet, are affordable. The brand keeps a close watch on how fashion is changing and
evolving every day across the world. Based on latest styles and trends, it creates new designs and
puts them into stores in a week or two. In stark comparison, most other fashion brands would take
close to six months to get new designs and collections into the market.
It is through this strategic ability of introducing new collections based on latest trends in a rapid
manner that enabled Zara to beat other competitors. It quickly became the people’s favourite brand,
especially with those who want to keep up with fashion trends. Founder Amancio Ortega is
famously known for his views on clothes as a perishable commodity. According to him, people
should love to use and wear clothes for a short while and then they should throw them away, just
like yogurt, bread or fish, rather than store them in cupboards.
The media often quotes that the brand produces “freshly baked clothes”, which survive fashion
trends for less than a month or two. Zara concentrates on three areas to effectively “bake” its fresh
fashions.
Shorter lead times (and more fashionable clothes)
Shorter lead times allow Zara to ensure that its stores stock clothes that customers want at that time
(e.g. specific spring/ summer or autumn/ winter collections, recent trend that is catching up, sudden
popularity of an item worn by a celebrity/ socialite/ actor/ actress, latest collection of a top designer
etc.). While many retailers try to forecast what customers might buy months in the future, Zara
moves in step with its customers and offers them what they want to buy at a given point in time.

Lower quantities (through scarce supply)

By reducing the quantity manufactured for a particular style, Zara not only reduces its exposure to
any single product but also creates artificial scarcity. Similar to the principle that applies to all
fashion items (and more specifically luxury), the lesser the availability, the more desirable an object
becomes. Another benefit of producing lower quantities is that if a style does not generate traction
and suffers from poor sales, there is not a high volume to be disposed of. Zara only has two time
bound sales a year rather than constant markdowns, and it discounts a very small proportion of its
products, approximately half compared to its competitors, which is a very impressive feat.

More styles
Rather than producing more quantities per style, Zara produces more styles, roughly 12,000 a year.
Even if a style sells out very quickly, there are new styles waiting to take up the space. This means
more choices and higher chance of getting it right with the consumer.
Zara only allows its designs to remain on the shop floor for three to four weeks. This practice
pushes consumers to keep visiting the brand’s stores because if they were just a week late, all the
clothes of a particular style or trend would be gone and replaced with a new trend. At the same time,
this constant refreshing of the lines and styles carried by its stores also entices customers to visit its
shops more frequently.


Zara Store
MARKETING MIX OF ZARA

PRODUCT

Zara stores have men's clothing and women's clothing, as well as children's clothing (Zara Kids).
Zara's products are supplied based on consumer trends. Its highly responsive supply chain ships
new products to stores twice a week. After products are designed, they take ten to fifteen days to
reach the stores. All of the clothing is processed through the distribution center in Spain. New items
are inspected, sorted, tagged, and loaded into trucks. In most cases, the clothing is delivered within
48 hours. Zara produces over 450 million items per year.

Reportedly, Zara needs just one week to develop a new product and get it to stores, compared to the
six-month industry average, and launches around 12,000 new designs each year. Zara has a policy
of zero advertising; the company preferred to invest a percentage of revenues in opening new stores
instead. Most of the products Zara sells are manufactured in proximity countries like Spain,
Portugal, Turkey and Morocco. While some competitors outsource all production to Asia, Zara
manufactures its most fashionable items—half of all its merchandise—at a dozen company-owned
factories in Spain and Portugal and Turkey, particularly in Galicia and northern Portugal and
Turkey. Clothes with a longer shelf life, such as basic T-shirts, are outsourced to low-cost suppliers,
mainly in Asia. The company can design a new product and have finished goods in its stores in four
to five weeks; it can modify existing items in as little as two weeks. Shortening the product life
cycle means greater success in meeting consumer preferences. If a design does not sell well within a
week, it is withdrawn from shops, further orders are canceled and a new design is pursued.

ZARA KIDS AND ZARA WOMEN TRF COLLECTION 2018

Zara monitors customers' fashion changes. Zara has a range of basic designs that are carried over
from year to year, but some fashion forward designs can stay on the shelves less than four weeks,
which encourages Zara fans to make repeat visits. An average high-street store in Spain expects
customers to visit three times a year. That goes up to 17 times for Zara. Zara’s success relies on
keeping a significant amount of its production in-house and making sure that its own factories
reserve 85 percent of their capacity for in-season adjustments. In-house production allows the
organisation to be flexible in the amount, frequency, and variety of new products to be launched.If a
certain style or design becomes the new must-have on the street, Zara gets to work. Designers churn
out the new styles and they're fast-tracked to stores while the trend is still going strong. Store
managers communicate customer feedback on what shoppers like, what they dislike, and what
they’re looking for. That demand forecasting data is instantly funneled back to Zara’s designers,
who begin sketching on the spot.

ZARA WOMEN AND MEN COLLECTION 2018

PLACE

Zara produces around 450 million items a year. It is efficient with the sheer volume that passes
through its supply chain, regular small-batch deliveries happen with clockwork precision twice a
week to all of their stores around the world.
Ensuring all this runs smoothly is what Zara does best - controlling more of its manufacturing and
supply chain than most of its competitive counterparts.

Synergy between Zara’s business strategy and operational processes

Zara’s overarching strategy is achieving growth through diversification with vertical integrations. It
adapts couture designs, manufactures, distributes, and retails clothes within two weeks of the
original design first appearing on catwalks. This is in stark contrast to the average six months it
takes to produces items in the fashion industry. The company owns its supply chain and competes
on its speed to market, literally embodying the idea of 'fast fashion’.

Just in Time production

The retail giant delivers fashionable and trendy numbers catered for different tastes through a
controlled and integrated process – Just in Time production.
Zara’s success relies on keeping a significant amount of its production in-house and making sure
that its own factories reserve 85 percent of their capacity for in-season adjustments. In-house
production allows the organization to be flexible in the amount, frequency, and variety of new
products to be launched. The company often relies heavily on sophisticated fabric sourcing,
cutting, and sewing facilities nearer to its design headquarters in Spain.

Zara also commits six months in advance to only 15 to 25 percent of a season’s line. And it only
locks in 50 to 60 percent of its line by the start of the season, meaning that up to 50 percent of its
clothes are designed and manufactured smack in the middle of the season. Zara also has extra
capacity on hand to respond to demand as it develops and changes. For example, it operates
typically 4.5 days per week around the clock on full capacity, leaving some flexibility for extra
shifts and temporary labor to be added when needed. This then translates to frequent shipments and
higher numbers of customer visits to the stores, creating an environment of shortage and
opportunity.
“Zara understands that if they don’t have to discount as much, they can spend money on other
things. They can see the benefit of this certainty and rhythm in the supply chain.”
This is also the reason why Zara can afford the extra labor and shipping costs needed to
accommodate and satisfy changes in customer demand.

Lean inventory management

Any excess inventory is deadstock in a Zara warehouse. Throughout the supply chain, lean is the
word, all the way from raw materials to the finished garments on the shelves.
Inventory optimization models are put in place to help the company to determine the quantity that
should be delivered to every single one of its retail stores via shipments that go out twice every
week. The stock delivered is strictly limited, ensuring that each store only receives just want they
need. This goes towards the brand image of being exclusive while avoiding the build up of
unpopular stock.
This quick in-season turnaround, from production facilities located close to Zara’s distribution
headquarters in Spain, allows Zara to ship more often and in smaller batches. If the design Zara
hastily creates in an attempt to chase the latest trend does not sell well, little harm is done.
The batch is small, so there’s not a ton of unsold inventory to get rid of. And because the failed
experiment is over quickly, there’s still time to try a different style, and then a different one after
that.

Centralized order fulfillment

The secret to Zara’s success has been centralization is that they can make decisions in a very
coordinated manner.
Zara sticks to a deep, predictable and fast rhythm, based around rapid deliveries to stores.
Each Zara outlet sends in two orders per week on specific days. Trucks leave at specific times and
shipments arrive in stores at specific times. Garments are already labeled and priced upon arriving
at their destination, meaning they’re immediately ready to be sold.
As a result of this clearly defined rhythm, every staff member involved in the supply chain – from
design to procurement, production, distribution, and retail – knows the timeline and how their
activities impact other functions. That certainly also extends to Zara customers, who know when to
visit stores for fresh new garments.
Fast fashion success
Zara’s success story shows the strength of its operations. Its cross-functional operations strategy,
coupled with its vertically integrated supply chain, enables mass production under push control,
leading to well-managed inventories, lower markdowns, higher profitability, and value creation for
shareholders in the short and long term.
Zara is all about staying on top of the hottest trends, and exuding an exclusive feel, but its supply
chain is the real star of the show. These rockstar-level logistics take it from being just another
fashion retailer to an industry example of fast fashion done right.

Long Term Sustainable Supply-Chain

Zara is always working to make the production chain more sustainable over time, with a positive
impact on all parties involved: employees, business owners, NGOs, trade unions, governments and
communities.To do so, they create local working spaces (clusters) in which all parties cooperate and
dialogue. There are currently 12 supplier clusters operating in Spain, Portugal, Turkey, Morocco,
India, Pakistan, Vietnam, Cambodia, Bangladesh, China, Brazil and Argentina, accounting for 95%
of their production.
 SUSTAINABLE MANAGEMENT OF THE SUPPLY CHAIN



PRICE

Merchandise Pricing

Zara’s nominal prices, i.e., the possible prices at which garments might be sold, are compiled in the
Commercial Pricing List, and are chosen based on their commercial appeal or the positive
psychological impact that the numbering choice of the prices displayed on the store has on the
customers. This practice is commonly followed across the retail industry and is the reason why you
don’t find prices like ₹2120 or ₹6350 on stores, but rather ones like ₹1990 or ₹5990.
In Zara, there are two different Commercial Price List sets, one for the Regular Season and one for
the Clearance Season. For example, in Indian currency, items priced at values at thousands are
usually ended in “70” tens values (e.g. ₹2270, ₹1970 etc.) for the Regular Season or in “90” values
for the Clearance Season (e.g., ₹1790, ₹1290, etc.). The number of different prices on the
Commercial Price List is decided based on achieving a balance between pricing flexibility and store
logistics costs and customer appeal to having a limited number of prices displayed on the stores.
The Commercial Price List is based on Spain’s Euro pricing and the price lists for other currencies
and countries is partially determined through a Price Equivalence Table that for every Spanish price,
lists an equivalent price in each of the other currencies. This currency equivalent is influenced by
currency exchanged rates, but mainly responds to including prices that appeal to the customer
markets in each country, e.g., having Clearance Season pricings such as $39.99 or $19.99 USD in
the United States and ₹1790, ₹1290, etc.)

Zara’s business strategy allows the company to sell more items at full price because of the sense of
scarcity and exclusiveness the company exudes. Zara’s total cost is minimized because merchandise
that is marked down is reduced dramatically as compared to competitors.
Zara makes 85 percent of the full price on its clothes, while the industry average is 60 to 70 percent.
Unsold items account for less than 10 percent of its stock, compared with an industry average of 17
to 20 percent.

The concept of Zara is to provide its products at a reasonable price to its customers, it follows that
customers find its prices quite affordable. However, we have to know that we are referring to the
cream customers who would compare Zara with Hugo Boss or others. Some Zara stores might be
very premium whereas others will be very much affordable, depending upon the region and location
of the store. But mostly Zara has a premium pricing strategy. The pricing is made possible by
optimising development and training costs.
 Zara Store - Mall Of India, Noida

Zara Hard Rules

Series of pricing business practices that Zara’s Pricing Team and Country Managers follow.
• All items that were priced at a same price during the Regular Season must remain grouped under
a same price all throughout the Clearance Season; this allows for grouping of different garments
and so that clerks don’t have to identify individual “References” but rather larger groups during
the price tag relabelling process.
• The price order or “References” is preserved, mainly in response to brand and store protection
purposes, e.g., higher quality design garments should logically be priced higher than less
elaborate ones. Also, needless to say, once a price is lowered, it cannot be raised again, as this
would generate distrust in Zara’s customers.
• During the Clearance Season, as increasing discounts are issued.

Zara Soft Rules

There are other pricing business practices that have “softer” boundaries and are more like levers
that the Pricing Team and Country Managers can adjust to determine the pace and management of
the Clearance Season.
• The minimum price discount that should be applied over a Reference’s Regular Season price is
usually determined to be a discount of at least fifteen percent.
• Minimum price discounts determine the ambience and price sensation within stores, e.g., a
customer might be disappointed to walk into a store’s Clearance Season only to find that items are
barely discounted from their original prices and decide to visit a different brand store where
discounts are more attractive.
• A Clearance Group’s Exit Price denotes the highest price offered within the Group and has an
important psychological impact over the customers, e.g., a higher Exit Price gives customers the
impression that prices at the store in general are higher. For this reason, unless there is a critical
mass in inventory that will be priced at the Exit Price, it might be preferable to liquidate that
inventory at a lower price and avoid misperceptions on the brand’s image.
PROMOTION

Zara has a unique marketing policy of “Zero investment in marketing”. Instead, the company uses
the money it would have used to advertise in opening new stores. The striking thing about Zara is
that it has found differences that matter to the consumers and used that to differentiate itself from
the rest of the competition. In other words, its key marketing strategy is based on exclusivity,
experience, differentiation and affordability.
In essence, the company relies heavily on the word of mouth advertising more than anything else
does. The products target population in age group 18-40 that live in the cities. This is because; this
group is the most fashion conscious, more than any other group. Specifically, the market segment
comprises of women (65%), men (25%) and children (15%) all of them being fashion conscious,
educated and fall in the middle class category.
Their commitment is clearly visible in the attention they pay to each and every detail of their
showrooms. The elegance with which the windows are laid out and the way the shop attendants are
groomed, everything is worked out according to a plan that is very precise. Every store manager has
free access to talk to their counterparts at Spain regarding the marketing and improvement
strategies.
Small and regular product shipments are designed to keep the inventory scarce and fresh;
compelling customers to buy urgently and frequently visit the store to check what is new. Bar
coding, online shopping and computer, aided purchases are all measures designed to increase sales
and make it a global brand.

Zara brand communication strategy

It spends a meagre 0.3 per cent of sales on advertising compared to an average of 3.5 per cent by
competitors. The brand’s founder Amancio has never spoken to the media nor has in any way
advertised Zara. This is indeed the mark of a truly successful brand where customers appreciate and
desire the brand, which is over and above product level benefits but strongly driven by the brand
experience.
Instead of advertising, Zara uses its store location and store displays as key elements of its
marketing strategy. By choosing to be in the most prominent locations in a city, Zara ensures very
high customer traffic for its stores. Its window displays, which showcase the most outstanding
pieces in the collection, are also a powerful communication tool designed by a specialized team.
A lot of time and effort is spent designing the window displays to be artistic and attention grabbing.
According to Zara’s philosophy of fast fashion, the window displays are constantly changed. This
strategy goes down to how the employees dress as well – all Zara employees are required to wear
Zara clothes while working in the stores, but these “uniforms” vary across different Zara stores to
reflect socio-economic differences in the regions they were located. This effectively communicates
Zara’s focus on the mass market, yet another detail that reflects its close attention on the customer.
To tap into the emerging e-commerce trend, Zara launched its online boutique in September 2010.
The website was initially available in Spain, the UK, Portugal, Italy, Germany and France, and was
extended to Austria, Ireland, the Netherlands, Belgium and Luxembourg. Over the next 3 years, the
online store became available in the United States, Russia, Canada, Mexico, Romania, and South
Korea. In 2017, Zara’s online store launched in Singapore, Malaysia, Thailand, Vietnam and India.
More recently in March 2018, the brand launched online in Australia and New Zealand. As at 2017,
online sales made up 10% of Zara’s total global sales.
As a fast fashion retailer, Zara is definitely aware of the power of e-commerce and has built up a
successful online presence and high quality customer experience.
Zara does rely on discounts as a good means of promotion, in order to attract its loyal and potential
audience.
CONCLUSION & Learning outcomes
Zara’s future brand and business challenges
Mobile commerce: Zara woke up late to the potential of mobile commerce and needs to catch up
fast with competitors. Different forms of market analysis strongly point towards a scenario wherein
spends on mobile commerce will overtake desktop based ecommerce in the next 3 years. On an
average, most brands get about 15-20% of their website traffic via mobile devices and this is
growing rapidly. With the deluge of investments planned in the mobile commerce space and Zara’s
competitors already having an advantage on the mobile front, Zara needs to quickly make mobile
shopping not only an effortless experience but also a delightful one.
Price is not an advantage anymore: Offering the latest fashion lines at affordable prices continues
to be a strategic advantage for Zara, but cannot continue to be the only one. Across the world, and
closer to home in Europe, competitors are cutting prices and refining their business models to cut
the competitive advantage that Zara has. Swedish fast fashion retailer H&M launched an online
store in Spain in 2014 to take own Zara in its home turf. Again in its home market, it now faces
increasing competition from brands like Mango, which cut prices and started focusing on fashion
segments in which Zara enjoyed popularity. In addition to H&M and Mango, other competitors like
Gap and Topshop are all fighting for a share of the fast fashion retail market pie. Also with the rise
of e- and m-commerce, the number of indirect competitors has mushroomed. We now have online
fashion aggregators that bring in multiple brands under one single online platform and cut through
borders and price segments. Some examples of such aggregators who are doing well include Lyst,
Farfetch, Spring and Yoox Net-a-Porter.

For Zara to effectively compete and maintain its strategic advantage, the focus needs to shift away
from price but towards quality. Even today the Zara brand enjoys high levels of appeal, which is
evident by the serpentine queues outside its stores when it launches in new markets. There is a need
for Zara to start investing in building a strong brand positioning and aggressively communicate it.
Additionally, Zara needs to adopt, imbibe and leverage social media and digital platforms in its
advertising and communication strategies deeper going forward.
Need for marketing strategy to evolve: As discussed above, Zara does not engage in advertising
and instead uses its store locations as a marketing strategy. However, brand communication is
crucial in attracting new customers to the brand to support its growth. Without advertisements, Zara
relies heavily on word of mouth or social media. This causes the perception of potential customers
towards Zara to be heavily shaped by family and friends, which may not be accurate. In addition,
Zara’s social media platforms such as Facebook and YouTube exists merely as a feed for updates
rather than a platform that consumers can interact with. Its videos on YouTube are also seeing very
low viewership in comparison with its follower count, which is not ideal as videos are a powerful
medium for brands in the fashion industry. This is a gap that Zara needs to plug immediately as the
reach and impact of social media marketing gets stronger. As Zara’s target customer segments start
using more social and digital platforms for communication and for sharing their lives, it is
important for Zara to have a strong presence on such platforms.
Transition to next generation ownership: With various technological and business disruptions in
the past decade, leadership in the 21st century will be influenced by constant change, geopolitical
volatility, and economic and political uncertainty. Zara is currently controlled by 82-year-old
Amancio Ortega, and is set to be succeeded by his 34-year-old daughter, Marta Ortega. To
effectively manage the above disruptions, Zara’s next generation leadership needs to step up to the
challenge by being resilient in staying true to the brand promise to consistently produce “freshly
baked clothes” for its fashion-forward consumers, and by balancing both short-term (profitability)
and long-term goals (growing the business and reaching more consumers). More importantly,
despite Zara’s global reach and consequent product standardization, it needs to constantly find new
ways to serve local fashion needs and preferences of its consumers across the globe. This will be a
challenge for the brand’s leadership in the next decade.
Conclusion: Take Zara’s cue and listen to your customers
The Zara brand was born with a keen eye on its customer – its ability to understand, predict and
deliver on its customers’ preferences for trendy fashion at affordable prices. In addition to its
effective supply chain, the brand’s ability to have its customers co-create designs is unique and
provides it with a competitive advantage. Most fashion trends often start unexpectedly, originate
from uncommon places and grow out of nowhere.
In a world swamped with Big Data, and yet more collected at an even more rapid pace than before,
brands still need to be careful and observant. Big Data does not provide answers to all business
challenges, and it may be too hyped to be considered as the Holy Grail.
One of the secrets behind Zara’s global success is the culture and the respect for the fact that no one
is a better, authentic trendsetter than the customer himself or herself – and this philosophy needs to
be continually reflected in all its business strategies going forward.