Zara Excels in Marketing and Supply Chain Management

Zara is one of the hottest fast-fashion chains. Founded in 1975, Zaras parent, Inditex, has become a leading global apparel retailer. Since its initial public offering (IPO) in 2001, Inditex quadrupled its profits and its sales, reaching $22 billion (18 billion) in 2018. It doubled the number of its stores of eight brands, of which Zara contributes two-thirds of total sales. In this intensely competitive industry, Zara excels in both marketing and supply chain management. Zara succeeds by first breaking and then rewriting industry rulesalso known as industry norms.

Rule number one: The origin of a fashion house usually carries some cachet. However, Zara does not hail from Italy or Franceit is from Spain. Even within Spain, Zara is not based in a cosmopolitan city like Barcelona or Madrid. It is headquartered in Arteixo, a town of only 25,000 people in a remote corner of northwestern Spain that a majority of Global Businesss readers would have never heard of. Yet, Zara is active not only throughout Europe, but also in Asia and North America. Currently, the total number of stores is more than 2,200 in 88 countries. Zara stores occupy some of the priciest top locations: Champs-Elyses in Paris, Fifth Avenue in New York, Galleria in Dallas, Ginza in Tokyo, Queens Road Central in Hong Kong, and Huaihai Road in Shanghai.

Rule number two: Avoid stock-outs (a store running out of items in demand). Zaras answer? Occasional shortages contribute to an urge to buy now. With new items arriving at stores twice a week, experienced Zara shoppers know that If you see something and dont buy it, you can forget about coming back for it because it will be gone. The small batch of merchandise during a short window of opportunity for purchasing motivates shoppers to visit Zara stores more frequently. Before COVID-19, shoppers in London would visit the average store four times a year, but would frequent Zara 17 times. There is a good reason to do so: Zara makes about 20,000 items per year, about triple what Gap does. At Gap, everything is the same, according to a Zara fan, and buying from Zara, youll never end up looking like someone else.

Rule number three: Bombarding shoppers with ads is a must. Gap and H&M spend on average 34% of their sales on ads. Zara begs to differ: It devotes just 0.3% of its sales to ads. The high traffic in the stores alleviates some need for advertising in the media, most of which only serves as a reminder to visit the stores.

Rule number four: Outsource. Gap and H&M do not own any production facilities. However, outsourcing production (mostly to Asia) requires a long lead time, usually several months. Again, Zara has decisively deviated from the norm. By concentrating (more than half of) its production in-house at home (in Spain) and near abroad (in Portugal and Morocco), Zara has developed a super-responsive supply chain. As soon as designers notice certain trends, they create sketches and go ahead to order fabrics without finalizing designs. This speeds up the process because fabric suppliers require a long lead time. Designs are finalized when reliable data from stores come. Production commences as soon as designs are complete. Zara-owned factories only run one shift, easily allowing for overtime production if demand calls for it. Zaras distribution centers are also highly efficient, allowing it to handle demand fluctuation without creating bottlenecks. In the world of fast fashion, Zara is able to design, produce, and deliver a new garment to its 2,200 stores worldwide in a mere 15 daysa pace that is unheard of in the industry. The best speed the rivals can achieve is two months. Outsourcing may not necessarily be low cost because errors in prediction can easily lead to unsold inventory, forcing retailers to offer steep discounts. The industry average is to offer 40% discounts across all merchandise. In contrast, Zara sells more at full price and, when it discounts, averages only 15%.

Rule number five: Strive for efficiency through large batches. In contrast, Zara intentionally deals with small batches. Because of its flexibility, Zara does not worry about missing the boat for a season. When new trends emerge, Zara can react quickly. It runs its supply chain like clockwork with a fast but predictable rhythm: Every store places orders on Tuesday/Wednesday and Friday/Saturday. Trucks and cargo flights run on established scheduleslike a bus service. From Spain, shipments reach most European stores in 24 hours, US stores in 48 hours, and Asian stores in 72 hours. Not only do store staff know exactly when shipments will arrive, but regular customers also know that too, thus motivating them to check out the new merchandise more frequently on those days, which are known as Z days in some cities.

Unfortunately, lockdowns due to the COVID-19 pandemic forced Zara to temporally close a majority of its stores. As a result, approximately 1,200 locations closed permanently. At the same time, Zara has been pivoting toward e-commerce. Closing some stores helps it preserve resources. Its post-COVID recovery plans include $1.13 billion (1 billion) for digital expansion and $1.93 billion (1.7 billion) for store expansion, with the goal of a higher-quality network of better-located stores that works hand-in-hand with e-commerce. In the new world of online competition, Zara can ship some online orders from Spain to the United States in 48 hours, a record that most US domestic online orders cannot beat. Again, a super-responsive supply chain helps.

Zara has no shortage of competitors. Why has no one successfully copied its business model of fast fashion? I would love to organize our business like Inditex [Zaras parent], noted an executive from Gap, but I would have to knock my company down and rebuild it from scratch. This does not mean Gap and other rivals are not trying to copy Zara. The question is how long it takes for rivals to out-Zara Zara.

Question:

Using the four Ps of marketing, explain what is behind Zaras marketing.