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Zara International Expansion Strategy: Introduction
Located in the Spanish city of Arteixo, Zara (the main division of Inditex Group) is one of the most influential world clothing retailers. Founded by Amancio Ortega, who was its first CEO and still largely participates in the companys life, and his wife Rosalia Mera, the company has grown immensely since 1975. Therefore, it is crucial to analyze Zara internationalization strategy and mode of entry to the international market and to evaluate the competitive advantage that helped the company to conquer the global market.
The company is famous for its control over its supply chain. In other words, it manages most of the stages of clothing production, from the original design to the distribution stage. In terms of business model, the company has a substantial advantage in manufacturing speed. Together with the system of receiving fast feedback from its customers, it allows Zara to adapt quickly and change their designs depending on the customers demand. Another area of the companys functioning is online retail. The Inditex Group succeeded in this sphere due to the flexibility of the business model that adapts to the slightest alternations in the apparel market and changes in the customers needs. However, it is essential to analyze in detail the companys competitive strategies compared to other clothing retailers.
With over 2,000 Zara stores, Inditex Group runs other brands, such as Stradivarius, Bershka, and Pull and Bear (Keeley & Clark, 2008). Nevertheless, there are certain advantages and disadvantages of the multi-brand organization of the business. One of the risks that Inditex Group faces is the cannibalization of its brands. In other words, there is a possibility that instead of complimenting each other, the multiple brands would compete for the share of the market between themselves. There are also advantages and disadvantages of the recent development in the companys operation, i.e., its partnership and creating a joint venture with Tata Group, aimed at succeeding in the Indian market.
This papers objectives are to analyze the theories of Zaras internalization, to evaluate the companys competitive strategies, to define potential advantages and disadvantages of the multi-brand strategy, to assess the risks of the cannibalization between the multiple brands, and to establish pros and cons of the companys joint venture with Tata.
Zara Internationalization Strategy: Theories
The growth and internationalization of Zara are determined by several reasons related to the situation in the worlds textile and clothing market in general and the state of affairs inside the company.
In the latest decades, the distinctive feature of the European textile industry and clothing production is a significant number of small and medium-sized companies. They vary in the degrees of how niche their appeals are and how successful their products are outside the country of origin. Another significant characteristic of the textile market is the merging of different companies to consolidate production and survive in the competitive market (Lopez & Fan, 2009).
Also, due to the democratization of the market, which means that a larger number of customers can react to the appeal of the clothing companies, the firms in the industry have to be able to adapt as quickly as possible to the changes in the customers tastes. The objective is to be more flexible and to be able to change the designs, means of production, and market strategies as fast as they can. Thus, the first external reason Zara could become an international brand is the tendency to consolidate the production process in the clothing industry when small and medium-sized companies merge to join the global market or sustain the industrys competition. The second reason is the democratization of the clothing market, which resulted in the growing demand for fashionable clothes. Finally, the third one is the requirement for apparel companies to show flexibility regarding their prices, designs, and marketing strategies.
The principles on which Zara was founded allowed it to correspond perfectly to the modern demands of the industry. First, in the medium, where many small and medium companies merge to gain more control over the production process, Zara already started with the vertical production structure. Inditex Group controls the significant parts of its designing of new products, their manufacturing, and all means of product distribution. As a result, Zara can produce new models of clothes rather quickly. It is often claimed that the company can produce an entirely new item of clothing from scratch so that it would be in stores in less than two weeks (Burgen, 2012). Therefore, the first theory of Zaras internationalization is based on the assumption that the key to the companys success is the level of control over its products multiplied by the faster speed of developing new products from the design stage to the distribution and retail in stores.
Another theory concerning the international success of Zara is that the key is in its democratic approach to the fashion industry. The characteristic feature of Zara is the combination of medium quality and affordable prices for the latest fashion trends (Lopez & Fan, 2009). In the modern fashion industry context, trends are changing very rapidly. That is why it is more reasonable to emphasize the designs rather than the highest quality standards. Also, in order to appeal to a large number of potential customers, it is essential to offer affordable prices.
Thus, in both theories, the main appeal of Zaras products in the international market lies in its flexible and rapidly produced designs. That characteristic is the result of both the companys vertical structure and its policy of a democratic approach to the correlations between fashion and time of production, as well as price and quality. In this regard, another important feature of the company is its geographical spreading strategy. It was founded in Spain, and all the central units of production, including 50% of Zara factories, the main distribution center, and headquarters, are still up until now situated in Arteixo. Originally, the company was founded by one family, and in many ways, it preserved its integrated structure. The vertical production model is more effective due to such a centralized approach.
Zaras Competitive Strategies
The primary competition that Zara (and Inditex Group in general) faces on the international market includes the major Italian distributor Bennetton, Swedish H&M, and American companies The Gap and The Limited (Christopher, 2000). Keeley and Clark (2008) emphasize once more that the key to Inditexs brand diversification lies in the groups vertical integration (para. 6). In terms of product quality, none of those clothing giants is at the lower end of the spectrum. The attempt to combine the affordable price with medium quality is a characteristic feature of many successful brands.
However, some of Zaras are mainly oriented at rather plain designs with presumably guaranteed success. They do not change the design of their models drastically throughout the fashion seasons. Companies like The Gap often use the traditional basic models already at their disposal. It certainly allows them to produce a larger number of the same models since the simplistic designs appeal to more potential customers. Moreover, it is a reasonable solution when they cannot react fast enough to the slightest changes in customer preferences. Thus, they produce simpler designs in larger quantities (Mo, 2015).
Meanwhile, Zaras almost unique for such a major company vertical structure enables the company to react quickly to the customers feedback. Therefore, they have the exclusive opportunity to make their designs more distinctive. The capacity of the Inditex Group allows Zara to launch nearly 12,000 new designs per year (Burgen, 2012). Given that fashion trends change quite rapidly, in the context of the modern fashion industry, the Inditex Group produces a lesser quantity of certain clothing items. However, their variety of products is greater, and it comes closer to the high fashion and trending items.
Another essential strategic characteristic of Zara is that it developed almost entirely without advertising (Kapferer, 2012). Such a success gave the company an advantage of investing more in the design and retail process, improving both of their aesthetic aspects.
Advantages and Disadvantages of Zaras Multi-Brand Strategy
The share of Zara in the Inditex Group is nearly 75%. Nevertheless, Inditex built a brand portfolio of several other brands over the years. Most of the other groups brands were launched in the 1990s after Zaras international success, except for the lingerie brand Oysho which was created in 2001. The most evident advantage of Massimo Dutti, Stradivarius, Bershka, Pull and Bear, Kiddys Class, Oysho, Uterqúe, and not an apparel producer Zara Home is the ability to reach more segments of the market.
The diversity of the market appeals to the consumers. Using even slightly different styling and presentation of the products enables Inditex to address the broader range of the market more effectively. The intention of creating Zara Home comes from the opposite direction. It is a relatively successful attempt to enter a new Inditex industry of goods for domestic use under the already well-known brand.
Another advantage is that the variety of brands gives more opportunities to cope with the unexpected changes in the demand on the market and to distribute the risks of production equally between the different brands (Ghauri & Cateora, 2014).
However, with the implementation of the multi-brand strategy, the inevitable risk is the danger of cannibalization. In the case of Inditex Group, the cannibalization between its own brands would be especially hazardous since other brands took the company more effort in developing marketing strategies and advertising than Zara. Therefore, their potential revenue is smaller, and it would be irrational to exchange the sales volume and profits from Zara for those from other brands. However, to tangle the potential dangers, Inditex Group developed a set of solutions.
Zara Global Strategy: Managing the Risks of Cannibalization
The desired solution for managing the risks of cannibalization between multiple brands belonging to the same manufacturer is introducing differentiation between those brands. The decision about the new model should include concerns about different aspects of the final brand positioning on the market but without any drastic changes to the process of design, manufacture, distribution, and the organizational side of retail (Ghauri & Cateora, 2014). In the case of Inditex Group, the company tried to introduce diversity between the multiple brands at its disposal in the aspects of the target market, product style and mode of presentation, and the overall image of the retail.
Regarding product styling, Zara occupies the market of fast fashion clothes. It introduces nearly 12,000 designs every year, and the models of clothes do not stay in stores longer than a season. Some models under the category of highly fashionable trends are limited in their quantity and can only be available in stores and online for a couple of weeks. The target market appeals to wider age categories of women, men, and children up to 45 years old (Lopez & Fan, 2009).
Meanwhile, clothes from Pull & Bear are mostly casual, predetermining a larger amount of the basic clothes models and longer periods for a different design to be available in stock. Similarly, Bershka and Stradivarius focus on youth fashion, with the brand presentations of more avant-garde and trendy clothing. In contrast, Massimo Dutti positions itself as a brand of elegant and classically styled apparel with longer available and more simplistic models (Lopez & Fan, 2009). Thus, the differentiation between several brands in their products and target audience allows for avoiding cannibalization.
Zara Globalization Strategy: Joint Venture with Tata
The agreements between Inditex and Indian company Tata Group concerning developing Zara stores in India were signed in 2009-2010 (Mo, 2015). At the time, the internalization strategy had already helped Zara establish its place in European, North and South American, Australian, and South-Eastern Asian markets. Thus, the entry into the Indian market was the logical continuation of Zaras expansion. The joint venture, in which Inditex Group owns 51%, has many advantages related to a larger number of potential target audiences and a bigger market for distribution. With a population of over a billion people, India is an important strategic asset for any retailer.
Moreover, through Tata Group, Inditex would have potential advantages in creating joint ventures in other Asian markets, including Kazakhstan and Russia (Mo, 2015). According to Mann and Byun (2011), the potential risks concern the fact that Zara as a large corporate retailer could be in a disadvantaged position compared to the high fragmentation of small-scale suppliers (p. 9). It is a culturally distant market, and Zara needs to consider that some of the potential target audience would still prefer the traditional way of buying clothing from smaller suppliers.
Zara International Expansion Strategy: Conclusion
Zaras international market strategies are based on the vertical model of production, centralized control over the production process, and flexibility to the environments of different markets in different countries, as well as the diverse and rapidly changing preferences of the customers. The branding strategy of fast fashion clothing was the most successful in Inditex Groups portfolio. However, the company avoids cannibalization risks due to the diversified approaches to final product presentation and targeting different audiences for its multiple brands. When entering new international markets, the primary consideration for Inditex should be the populations traditional preferences and attitudes toward corporate retailers.
References
Burgen, S. (2012), Fashion chain Zara helps Inditex lift first quarter profits by 30% , The Guardian. Web.
Christopher, M. (2000), The agile supply chain: competing in volatile markets , Industrial marketing management, Vol. 29, No. 1, pp.37-44.
Ghauri, P., and Cateora, P. (2014), International Marketing, 4th edn., McGraw Hill, London, UK.
Kapferer, J.N. (2012), The new strategic brand management: Advanced insights and strategic thinking, Kogan page publishers, London, UK.
Keeley, G., and Clark, A. (2008), Retail: Zara bridges Gap to become worlds biggest fashion retailer , The Guardian. Web.
Lopez, C. and Fan, Y. (2009), Internationalisation of the Spanish fashion brand Zara , Journal of Fashion Marketing and Management: An International Journal, Vol. 13, No. 2, pp. 279-296.
Mann, M.K., and Byun, S.E. (2011), Assessment of five competitive forces of the Indian apparel retail industry: entry and expansion strategies for foreign retailers , Journal of Textile and Apparel, Technology and Management, Vol. 7, No. 2.
Mo, Z. (2015), Internationalisation Process of Fast Fashion Retailers: Evidence of H&M and Zara , International Journal of Business and Management, Vol. 10, No. 3, pp. 217-220.
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