Multifaceted Journey of The Fashion Retail Giant

Zara’s Story

Zara, the world’s biggest fashion retail store was founded by Amancio Ortega in La Coruna in Spain the year of 1975 (Inditex, n.d). It is the most profitable brand of its parent company, Inditex Group, and has several departments such as Zara Women, Zara Man and Zara Kids. Zara is one of the 500 top multi channel retailers in Europe according to “The Internet Retailing Europe Top500 (IREU 500) research of 2017”(Jindal I., 2017). Moreover, Zara brand has more than 2200 stores all over the world in 96 markets in 2018 (Forbes, 2018), while it plans to expand its online presence to an additional 106 countries worldwide (Dowsett S., 2018).

Mission, Vision, Objectives

Zara has an elegant perception about quality and authenticity. According to Inditex, the Zara brand remained loyal through the years to its beliefs and values that expressed by the four key words of beauty, clarity, functionality and sustainability (Inditex, n.d). Zara has a strong vision while respects the environment and the development of the society through its business model. Moreover, it aims to build an excellent relationship with its customers based on trust and loyalty and to improve the customer service through unique and responsible clothing. The designers of Zara brand has the customer satisfaction on the top of their priorities and respond in an instinctively way to the changing needs of the audience. Furthermore, Zara is reacting smart to the latest trends and it continuously improves the quality of its collections through innovative design ideas and affordable products (Inditex, n.d).

Specific Target Market

For this report I chose to analyze the Zara brand in Spain market based on Segmentation – Targeting – Positioning (STP) theory by Philip Kotler.

Segmentation

The segmentation method has the purpose to identify groups of customers with similar needs and characteristics. There are four segmentation variables which can identify the different segments of Zara in Spain market. Firstly, according to the demographic variable, Zara’s segmentation based on people between the age of 18 and 40 with mid-range income. According to Statista, 65.88 percent of the Spain population in 2017 concerning the age group between 15 to 64 (Statista, 2018). Moreover, Zara demographic segmentation includes people that are interested in fashion trends, work in big cities and pursuing higher level education. Spanish people are interested in sustainable fashion and in clothing retailers, according to a consumer research by Mintel.They are conservative and prefer known products to new products (Trade Portal, 2018). In addition, Zara has no specification in gender while it has three different departments of Zara women, Zara Man and Zara Kids. Secondly, it uses geographic segmentation based on region. According to the Appendix 1, Zara has 306 stores in Spain across different cities the year of 2018. Thirdly, Zara uses psychographic segmentation and targets people that are conscious about their looks, tend to have more trendy clothing choices and they are quality seekers. Spanish customers have a very modern outlook and the quality is the most important factor for them.

Targeting

According to the Appendix 2, Zara has the first position in the survey of BrandZ Top 10 Most Valuable Spanish Brands in 2017 with a brand value 25,135 millions of dollars (WPP, 2017). Moreover, Spanish customers visit Zara stores 17 times per year on average compared to 3 times per year for competitors. Because their clothing designs change often, it is harder for people to see them clearly on the Internet and thus they are encouraged to come into the stores instead and try on the unique fashions that Zara offers.

Positioning

The competitors of Zara in Spain are Mango, Stradivarius, Bimba y Lola, Desigual, Pull&Bear, Adolfo Dominguez and Oysho. Zara has a deep understanding of the entire value proposition it exchanges with the customers. Its fast-fashion deliverable is available in the quantity, format and time in which the customer needs the product. That translates into great value(Danziger P., 2018).

Manufacturing Strategy Analysis

Manufacturing Approach of Zara

Zara has its global headquarters in Arteixo, a small town that located in the north of Spain. Its 860,000-square-foot campus is home to 10 different factories, which manufacture Zara’s most fashion-forward items of clothing, as it seems from the Appendix 1. These factories are connected to the distribution center through a network of secret underground tunnels that transport clothing on electric hanging rails. However, all the manufactured items will return to one of its distribution centers to be sent out to stores, as we can see from the Appendix 1. Zara is leading the retail market, because of the innovative technological strategy that use for the manufacturing of its products. The multi-channel retailer adapts new tools such as big data that help to a successful manufacturing strategy (Aller M.G, 2017). In depth data analysis helps Zara to recognize the average number of people’s weight in different stores. Zara uses this information to determine what sizes have to manufacture for each gender, city or neighborhood. For instance, every product has a tag with an RFID microchip before it leaves from the factory, which create the opportunity for the company to track the product until a customer buy it. According to Ravneet Uberoi, “The data about the sale of each SKU (stock keeping units), inventory levels in each store, and the speed at which a particular SKU moves from the shelf to the point of sale is sent on a real time basis to Inditex’s central data processing center” (Ravneet Uberoi, 2017).

The successful manufacturing strategy of Zara achieves through innovative technology to remain up-to date concerning the user experience and needs. In that way, the multi-channel retailer remains aware in a real time and controls both its brick-and-mortar locations and its online stores.

Strengths of Zara’s Manufacturing Strategy

The Manufacturing approach of Zara has various of strengths that help the company to have a competitive advantage.

Vertical integration

Firstly, Zara use a vertical integration and that is a key strategy for its quick product introduction cycles. The company manufactures the majority of its products “in-home” in comparison with other traditional fast-fashion companies that manufacture their apparel outsource. In addition, the most of Zara’s factories are located around of its primary manufacturing facilities in Spain that also help to its quick product cycles (Gorrepati K., 2016).

Manufacturing in small lots

Secondly, Zara manufactures its products in small lots in order to support the just-in-time capabilities. As a result, it reduces the waste of large design lots. Furthermore, Zara focuses on the high product variability and wins. The multi-channel retailer manufactures 11,000 distinct items per year compared to competitors that carry 2,000 to 4,000 in stores so this is a strength for Zara.  So the manufacturing strategy of Zara has the advantage of low opportunity cost because its customers don’t lose their interest and do not seek new designs from the competitors. According to a case study from SCM Globe, the Spanish customers visit Zara stores 17 times per year on average compared to 3 times per year for competitors (SCM Globe, 2015). In that way, Zara wins the “brick” game.

Excess capacity for agility

Moreover, another one strength of Zara is its excess capacity for agility. The factories of the company in Spain has the flexibility to respond quickly to unexpected demand. They have also extra capacity in order to be able to cope the changing demand. For instance, 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 (Gorrepati K., 2016).

Use of Big Data and advance technology:

Moreover, the use of big data and advance technologies help Zara to have savings in inventory, to personalize the customer experience and to achieve more efficient manufacturing . For instance, Zara’s store on Paseo de la Castellana has a large stock of suits and shirts because is business located, while its store Gran Via store offers more knitwear for women between the ages of 20 and 40. Zara understands the peculiar demand of each neighborhood and knows how to satisfy it.

The company is in close contact with the customer’s needs and offers a practically personalized user experience.

Weaknesses of Zara’s Manufacturing Strategy:

However, the manufacturing strategy of Zara has one important weakness. The main part of the manufacturing system of Zara is located in Spain, nearby to its heart quarters. This centralized system can make the company more prone to unpredicted problems. For example, if any technological problem will appears in the distribution network it will affect the whole manufacturing system because Zara has the control to the production, manufacturing and distribution from one angle.

Challenges

As the technological environment is changing in a rapidly speed, Zara has to face challenges concerning its manufacturing strategy in order to stay innovative along the competition.

Internet of things

The first technological challenge for the manufacturing approach of Zara is the adoption of the “Internet of Things”. According to a research from I-Scoop, “The “IoT” is an umbrella term for a broad range of underlying technologies and services, which depend on the use cases and in turn are part of a broader technology ecosystem which includes related technologies such as AR, cloud computing, big data, digital twin simulation etc.” This technology is vital for the manufacturing approach since through smart objects the IoT can give crucial data for inventory and can help the companies to save costs, improving efficiency and manage machines (Intel, n.d.). Zara already use a part of “IoT” technology such as RFID microchip tags and big data as it analyzes above. However, it’s not enough because the fast-phase technology environment and the digitalization of the world made the things more complicated. Zara needs to find new ways to use the “IoT” such as a deeper way in order to make its manufacturing approach faster. According to McKinsey Global Institute the total global worth of IoT technology in 2025 could be as much as USD 6.2 trillion and most of that value is from manufacturing (USD 2.3 trillion) (Bughin J., 2015). So we can claim that the competition is enormous for Zara, concerning the use of IoT in the manufacturing approach. The multi-channel retailer has to adopt those big data technology in order to remain innovative and to maintain its fast-fashion supply chain in a world that it is faster than the light.

Automation Change and Robotics

One of the latest innovations in the multichannel retailing that Zara has to face is the automation change and robotics. Undeniably, technology is advancing and the demand for it is increasing. Manufacturers are under more pressure than ever to fulfill large orders and deliver the goods. Efficiency has never been more important, so many are turning to modern robotics and automation in order to improve production rates.

Cybersecurity

One of the major manufacturing challenges that Zara has to face is the Data security, specifically the cybersecurity. The digital age and the technological advances expand the risk of the cyber crime. A report by EEF and AIG that was held by The Royal United Services Institute (RUSI), demonstrates that 48% of the manufacturers that took place in a survey, they have at some time been subject to a cyber-security incident, half of whom suffered some financial loss or disruption to business as a result, as we can see from in the Apendix 4 (EEF, 2018). The challenging thing for Zara’s manufacturing strategy is to protect its supply chain and manufacturing data through cybersecurity systems.

Changing Customer behavior

However, the world is transforming everyday through the advanced evolution of the technology. As a result, the customer behavior change with fast paced, hand in hand with the online world. According to Telefonica, “Digitalization has had an impact on consumer habits, transforming them completely, especially when offline and online user experiences are compared”. The biggest challenge for Zara is to control both the “bricks-and-clicks” choices of a Spanish customer and meets his needs through a smart manufacturing strategy.

Conclusion:

All in all, Zara’s manufacturing strategy in Spain has a strong profile and many strengths that makes it competitive. But Zara’s heart quarters in Spain have to implement new ways of manufacturing its products in order to maintain its competitive advantage.

References:

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