ZARA: A Successful Business Model and Retail Strategy
Ask why Zara is so successful? Most business analysts would answer because of its business model and by breaking the norms. While there are other names too in the world of fast fashion, none of them has proved to be as successful as Zara. The brand loyalty and sales it has achieved is based on a smart strategy – a strategy that is smarter than all of its competitors. It is not just about fast fashion but smart fashion that fits its customer needs and choices. Every successful business model has something specifically unique about it. The reason behind the success of Zara is its tailored retail strategy.
A faster fashion brand with faster fashion cycles
The brand is not just quick to analyse trends and adapt to them it has also broken the norms of seasonal fashion. Rather than following the industry norm of two collections, it brings out several collections every season. Collections change faster at Zara and something you see now may not be there two weeks later. The brand has opened more than 2100 stores worldwide and expanded aggressively over the past several years. It is also featured on the Forbes list of world’s most valuable brands at the 53rd position. Its sales are growing very fast and from around 13 billion dollars in 2014, the sales figures have jumped to around $16 billion in 2016. Most unique thing about Zara is that it takes just two weeks for it to develop new styles and to get them to the shelves for sales.
While the other fashion brands are struggling to bring customers to their stores, fast fashion brand Zara has seen an explosion in the number of footfalls its stores. It is because it has been successful at encouraging its customers to visit its stores more frequently. Most stores update their fashion collections once a season; Zara’s designs get updated twice a week. The basic strategy is to stock less and update the designs more often to sell more. The freshness of design and delightful styles and looks keep the customers coming back and asking for more. Every time they visit the Zara stores, there is always something new. Zara has innovated by updating the fashion cycle and customers do not have to wait very long for new fashion trends and designs. While its pricing strategy is also a source of competitive advantage, the main benefit comes from the ability to bring new designs to the stores faster. The middle class customers have a great option for luxury fashion in Zara because its styles and designs are just as good as the luxury brands.
There are risks with this model but Zara does nothing without research. It researches cultures, people’s tastes and other factors that influence people’s choices before investing in any new market. In this way, it has been able to mitigate the risks by catering to people’s needs and tastes. Unless you can adapt to local tastes and needs the risks grow. Tailored retail strategies like that of Zara can be a major success factor for they respond to customer needs efficiently. In the recent years Zara has expanded aggressively in US.
Apart from that, in the other various parts of the world also it has advanced rapidly including Hong-Kong, Near East, Macau, Taiwan, etc. The brand makes fashion after careful analysis and it is also why the brand has been just as popular in the near East. Its ability to tailor its products to the local culture and needs of the people has provided it with an edge over the competitors like H&M. Tune in to customers’ tastes and give them what they want before they even ask for it. This is how things work at Zara. Apart from making things move faster, it does not compromise on design and quality.
Supply Chain with Higher Efficiency
However, the kind of success that Zara has achieved is not possible without having a smart supply chain. A smarter supply chain enables Zara to update its stocks quicker. Fashion trends can come and go faster and in such a condition having your supply chain somewhere in the other corner of the world can make things difficult for any fashion brand. By the time a ship sales from the other corner, designs and styles may have changed a lot and then the stocks will not be worth a dime. Zara sources most of its material (more than half of it), from its home country and neighboring countries. It may mean higher costs upfront for the brand but the brand rather than selling discounted products can sell at full prices.
Saving on markdowns
The other brands that try to utilize the cheap labor in China or Asia and Europe, have to sell belated fashion on a markdown, while Zara saves on markdowns. Discount sales are limited at Zara. It sells no more than 15% of its products at discounts. While the apparel used by the brand can be cheaper, its look or feel are not. It can still last long and look as fashionable as a luxury brand’s products. Moreover, since the fashion changes more often at Zara, the brand stocks less and saves on inventory costs worldwide. However, in the recent years Zara has also started utilizing the Chinese and Asian suppliers. Since labor costs are increasing there, the brand has also been forced to increase the prices on its products.
Zara has understood its consumers’ tastes well. It is also why the consumers would rather pay full prices to Zara than wait for discounts and sale. The fashion conscious shoppers would purchase an item at the marked price than wait for a sale and the prices to drop since the products they like so much might be gone by the time they come again. Customers are looking for value at affordable prices. This is something only Zara and a limited number of other brands can afford. They want something that looks fresh and valuable but does not cost much. The low prices at Zara also enable the customers to come back to shop more often as they can come back to shop every two to three months.
While the prices are reasonable, the clothes are also good enough to be worn for two to three months at least after which they may grow worn out and the customer comes back looking for new. At Zara, the customers do not have to worry for prices. They can get what they love. Overall, In Zara they have a brilliant option for the high end luxury brands. This strategy has worked and Zara did not have to spend heavily on advertising like the big brands. Word of mouth and social media have helped it achieve what other brands are struggling to achieve. A smart supply chain strategy, a retail strategy that is smarter than others and an ability to innovate have turned Zara into a challenger for even the big brands. However, Zara is not smart just at strategy, it is even smarter at execution. However, this level of focus has at last proved very good for Zara which has not only attracted sales through lower prices but has been able to win customer loyalty without spending on marketing. This at last proves that if you can get the product quality and prices right and understand your customers’ needs and choices, your brand gets marketed automatically. Zara is a winner because it has got most of the elements right from design and quality to supply chain.