Global Entry Strategies of Zara International: Introduction
International retail companies are commonly regarded as one of the main driving elements in the industries’ globalization. The retailers provoke globalization by the cross-border sourcing, expansion of the brand portfolio, and business internationalization. Representation in the international fashion market requires organizations to implement smart marketing and logistics strategies to reduce multiple potential risks and increase competitiveness and profitability.
The given paper attempts to examine and evaluate the marketing strategies of one of the most successful global fashion retailers – Zara, the main representative of the Inditex group’s brand portfolio. Nowadays, the Inditex group’s stores are located in over 50 countries worldwide, and the company thus is actively involved in the internationalization process (Lopez & Fan 2009). International sales constitute the largest part of the firm’s annual revenues. Therefore, it is possible to say that Zara’s international marketing decisions and strategies can be considered efficient and effective.
The paper has the purpose of evaluation of the retailer’s internationalization process and entry modes as well as the motives for the strategic decisions and actions. The analysis of the various factors influencing marketing orientation helps to assess the competitive advantages and disadvantages of Zara’s strategies.
International Fashion Industry: Evaluation of the External Environment
Nowadays, the fashion apparel industry can be regarded as a highly dynamic environment. Over a few decades, the level of competition in the global fashion has increased due to retailers’ expansion and internationalization (Mo 2015). In 2012, the sales of over 181.000 companies represented in the European market were equal to €170 billion (Macchion et al. 2015). A high level of competition requires retailers to change their approach towards business conduction to survive the industry. As a result of the changes, new marketing trends in fashion emerge. And first of all, the changes are related to such aspects of the fashion industry as supply chain management, product cycle arrangement, the flexibility of design, reduction of costs, logistics, distribution, etc. (Mo 2015).
To be able to hold the competitive advantages in the current dynamic and ever-changing environment, the companies need to adopt the strategies that will allow quick response and adjustment to changes and will support the effectiveness of marketing decisions in the internationalization process.
Zara: A Brief History and Main Principles of Business Conduction
Zara was established in 1975 in Spain, and it remains the main brand represented in the Inditex group. In a few decades period, Inditex has evolved at the global scale greatly – by 2007 it had over 2.500 stores located in more than 60 countries (Lopez and Fan 2009). The brands that are also included in the group’s profile are Pull and Bear, Massimo Dutti, Bershka, Oysho, Stradivarius, etc.
According to Lopez and Fan (2009), one of the major Zara’s business objectives is manufacturing of the up-to-date fashion merchandise at affordable prices. Zara’s strategic approach towards the product range, product turnaround, and information management may be regarded as the distinct features of the company’s business model. ‘Zara’s vertical integration of design, just-in-time manufacturing, delivery and sales, flexible structure, low inventory rule, quick response policy, and advanced information technology enables a quick response to customer’s changing demands’ (Lopez and Fan 2009, p. 281).
The store personnel collects information and customers’ feedback on items represented in the collections, and the investigation of the current street fashion trends is conducted by managers. Efficient knowledge and information management allow an understanding of customers’ interests, and it helps to produce the items that are demanded. Therefore, the customer-oriented approach is the basis of Zara’s business model.
Zara’s Internationalization
Fifteen years after the first store opening, Zara launched many new stores within the domestic market. The internationalization process has begun with a Portuguese store opening in 1988 (Lopez and Fan 2009). Nowadays, Zara shops are represented in more than 50 countries of Europe, Asia, the Middle East, America, and Africa.
According to Treadgold and Davies (1988), the companies’ motivation for the involvement in retail internationalization is usually provoked by ‘push and pull factors’. The push factors inspire the leaders to look for opportunities across the borders while pull factors imply favorable and beneficial conditions in the host country market. According to the words of Inditex group leaders, Zara’s initiative to expand business in the international market was mainly provoked by ‘the limited market growth opportunities at home’ (Lopez and Fan 2009, p. 281). Moreover, as it is observed in the previous research findings, another reason for Zara’s internationalization was the shift in the preferences of the Spanish consumers that caused the change in their behavior and, as a result, affected the profitability rates negatively (Mo 2015).
Zara has started its international expansion by entering the markets in the countries that are close to Spain in terms of geography and culture. Therefore, the organizational internationalization is associated with the “Uppsala-model” (Hutzschenreuter, D’Aveni, & Voll 2010). According to Johanson and Vahlne (1977), by following the given model of internationalization, the retailers first enter the markets in the proximate countries and then increase international expansion steadily and in this way they learn and obtain the necessary experience that will help to reduce all potential risks while entering the distant markets.
Zara’s internationalization proceeded in a few phases: reluctance and trial stage, cautious expansion, and aggressive expansion (Lopez and Fan 2009). The first phase lasted from 1975 to 1988 when the company spread its presence on the national scale. However, due to the lack of opportunities for further growth, Zara took a decision to enter a foreign market in the country with a low psychic distance, Portugal. With opening a first Portuguese store in 1988, a trial period of internationalization commenced.
The next step undertaken by Zara in the internationalization process was the cautious expansion. It began in 1989 when the company has gradually started entering the neighboring countries’ markets until 1996 (Bonnin 2002). The countries that were added to the organizational portfolio during this period include France, Belgium, Sweden, Greece, Mexico, and the USA. Among all the mentioned countries, the U.S. market can be considered the most distant in terms of culture and the most competitive one. The store in New York was opened in 1989. According to Lopez and Fan (2009, p. 281), one of Zara’s motives for taking this strategic decision was the rise of the ‘brand awareness and international prestige’. New York is one of the global fashion centers, and by entering the American market, Zara attained an opportunity to keep up with the industry development and trends.
The aggressive expansion period started in 1997, and it continues up to now (Lopez and Fan 2009). By 1997, Zara already had enough experience gained from the operation in the foreign markets. In 1997, the first store was opened in Israel – a country that is characterized by a high level of cultural or geographical distance from Spain. Since then, Zara has significantly increased its presence in the countries of the Middle East and Asia: the UAE, Lebanon, Turkey, Japan, etc. The organization has also launched the stores in such distant countries as Canada, Uruguay, Monaco, Venezuela, and Argentina. At the beginning of the 21st century, Zara’s position in the European countries became even more consolidated and strong as the number of opened stores has grown (Mo 2015).
Advantages and Disadvantages of Zara’s Competitive Strategy in Comparison to the Global Competitors
The strategic decisions undertaken by Zara in the international fashion environment have proved to be successful since the increase in its profitability is mentioned in some of the research studies (Mo 2015). However, many of the organizational policies adopted by Zara can be regarded as unconventional. For example, contrary to many of the fast fashion manufacturers, the company prefers to produce fashion items in Spain rather than outsourcing production to low-cost countries (Bonnin 2002).
Moreover, Zara spends less than one percent of its total revenues on advertising and product promotion. The non-advertising strategy may seem to be risky especially in contrast with the advertising models applied by such prominent retailers as H&M and Gap, Inc. Nevertheless, Zara attempts to reduce the risk factors provoked by the lack of promotion by opening new stores worldwide.
Zara’s Competitive Advantages
The main competitive priorities observed by researchers in marketing include flexibility, costs, quality, and delivery (Kathuria 2000). The advantages provoked by the well-designed marketing strategies may help retailers to achieve great outcomes in productivity, customer attraction and loyalty, and finance. Thus, the application of effective business models and consideration of multiple factors in sourcing and product distribution are of significant importance.
Comparing to Gap and H&M, Inditex group has launched a significantly larger number of stores in different regions – 5.500 shops in 85 countries. According to Lopez and Fan (2009, p. 287), ‘Zara relies on the store as its main promotional tool’. In both domestic and international environments, the organizational advertisement campaigns take place only when a new store opens. As a result, Zara reduces advertisement costs.
Another Zara’s advantage is the vertical integration model that supports extensive control over the whole process of the fashion apparel production for each brand represented in its portfolio. According to McColl and Moore (2011), ownership of brands and production factories facilitates investment and assets management. Most of Inditex’s production facilities are located in Spain, and a few are situated in such countries as Vietnam, Turkey, and Morocco (Tokatli 2008). While the majority of the fashion retailers, including H&M and Gap, do not possess the competencies of the privately-owned manufacturing facilities, Inditex can control the brands’ production more efficiently. The positive outcomes of the vertical integration business model can be also observed in the shorter product life cycle, a wider range of garments, and the ability to adjust to rapid changes in fashion trends.
Zara’s model assists better logistics, supply and distribution chain solutions. According to Macchione et al. (2015, p. 165), ‘the decision to use international suppliers located in countries far from a firm’s home country has had a significant impact on the effectiveness of operations, often having negative effects on the timing and variability of processes among different suppliers’. By locating most of its manufacturing facilities in Spain and the nearest regions, Zara obtained the advantage of producing collections in a short time spans. The local production helps to reduce the time needed for the defected items replacement, decrease costs for transportation and labor (Macchion 2015).
According to Jin (2004), sourcing and production of goods in the countries with the developing economies may provide a way for cost reduction. However, it is observed that the given sourcing strategy slows the product turnover significantly. Therefore, contrary to its international competitors such as H&M, Zara can meet the market demands more efficiently by making the product life cycles shorter (Bowon 2013). As a result of product turnover shortening, the organization attains the increase of the customers’ attendance frequency that positively affects financial growth.
The customers’ demands in the fashion industry are heterogeneous and diverse in their nature. In their purchase decisions, the clients can be motivated by price and quality factors, categories of items, and personal preferences. Therefore, the diversification of products can be regarded as a major advantage. Inditex’s store brand portfolio is comprised of a great variety of brands. Each of the brands is targeted to diverse audiences and offers a distinct range of fashion items. For example, Massimo Dutti and Uterque brands sell apparel of a more classic and sophisticated style at higher prices while Pull & Bear and Bershka are focused on the sales for youth. There is a wide product diversification within the Zara brand as well: the merchandise consists of casual and formal garments, accessories, and shoes for both males and females (Tokatli 2008). By expanding its brand portfolio, Zara becomes more attractive for customers with different needs and interests.
Zara’s Potential Competitive Disadvantages
According to Zheng (2011), the customers’ social interests play one of the crucial roles in product purchasing. In fashion, social needs are related to the individual’s attempts to be in trend or to be distinguished from the others. One of the distinct features of the industry is enclosed in the fact that along with the physical function the fashion products fulfill the symbolic function (Zheng 2011). From this point of view, fashion retailers need to pay a lot of attention to advertising strategies.
Two of the main Zara’s rivals in the market, Gap, Inc. and H&M, include the promotion and advertising of new collections in their marketing strategies. The organizations spend up to four percent of the total annual turnover on advertising. According to the recent research findings, effective advertising campaigns may help retailers to increase brand value and may serve as the drivers for the increase in customer attraction (Zheng 2011). Based on this, the lack of Zara’s advertising strategies reduces the opportunities for the achievement of more significant positive outcomes.
Future Development in the Fashion Industry
As the analysis of the differences in the competitive strategies demonstrates, Zara has a more advantageous position in the global market, and it is possible to assume that the current business model ensures its sustainability and further growth in the fashion world. The business and production models that are based on the principle of vertical integration assist Zara in compensation for all the potential disadvantages. Among its rivals in the market, Inditex group’s supply chains, distribution, and logistics models can be regarded as the most efficient and effective (Macchion et al. 2015; McColl & Moore 2011).
In the extremely dynamic and competitive environment, the ability to develop products in the compressed periods is one of the crucial advantages. The optimal organization of Zara’s network helps to reduce costs and save time and, at the same time, allows the company to focus on the apparel design and product range diversification.
Multi-brand Store Strategy
Zara’s brand portfolio expansion strategy includes both brands’ acquisition and brand development. According to Damoiseau, Black, and Raggio (2011, p. 271), ‘brand creation involves the introduction of a brand that is new to a firm and the market’. The strategy has several benefits. First of all, while the brand is created by the organizational leaders, it can be endowed with the features that will complement the other brands in the portfolio. In this way, it is possible to avoid cannibalization and achieve a higher level of compliance with the customers’ interests. Secondly, it is easier to control and manage the extent and pace of a new brand expansion in the market. This approach facilitates decision-making and helps to manage risks more efficiently.
Nevertheless, the integration of a new brand in the markets may be challenging. For the achievement of success in brand development, it is important to take into consideration advertising, distribution, and other aspects affecting the brand expansion (Damoiseau, Black & Raggio 2011). Therefore, in some cases, it is possible to say that new brand development requires larger budgeting than brand acquisition.
The brands acquired by the Inditex group are Massimo Dutti and Stradivarius. The brand acquisition can be regarded as ‘the legal transfer of brand elements from one firm to another, resulting in a legal change in ownership’ (Damoiseau, Black & Raggio 2011, p. 273). As it can be observed in the previous literature findings, brand acquisition has more disadvantages than advantages. The opportunity to evaluate and forecast the acquisition costs can be regarded as the main benefit of purchasing a formed brand. However, the disadvantages include the risk of cannibalization provoked by the existing brands, reduction of product prices as the response for the potential synergy, and the increased competition (Damoiseau, Black & Raggio 2011).
In addition to this, the integration of the acquired brand into the portfolio is more complicated because the formed brands are associated with the particular manufacturing strategies and customer orientation. Therefore, the acquisition is more challenging in terms of the brand’s adjustment to the organizational regulations and policies.
Since most of Inditex’s brands are developed by the firm, it can avoid the risks of brand cannibalization more effectively. Zara aimed at diversification of products and attempts to produce distinct designs in each of its brands. Diversification supports the attraction of customers with different needs and preferences. In this way, Zara’s brands have their own sustainable presence in the market.
Three Global Entry Strategies for Zara
The selection of the entry mode is largely dependent on the host market environment. In the case of Zara, it is possible to observe that the potential threats and risks are considered in its entry modes strategy as the organization implements different modes while entering other countries. The entry modes applied by Zara include direct investments in the proximate markets, and franchising or joint ventures in the distant markets.
The majority of the aggressively expanding international retailers prefer the establishment of ‘a wholly-owned subsidiary’ as the model for entering the foreign markets (Park & Sternquist 2008, p. 282). The given entry mode ensures a high level of involvement and control over the business. Another advantage of the direct investments in subsidiaries includes better knowledge management. It is observed that the full ownership model is more suitable for entering countries with a similar cultural background because the emergence of unexpected threats to business is low in this case.
The intermediate modes (franchising and joint venture) are appropriate for entering markets with a distinct cultural and economic background. First of all, this kind of entry is beneficial because it decreases the firm’s investment requirements (Park & Sternquist 2008).
While entering the distant market, retailers face a lot of new challenges, and the reduction of the invested resources helps to avoid losses provoked by the lack of experience in managing the unfamiliar situations in the host market. In this regard, Zara’s decision to implement joint venture mode for entering the Indian market is reasonable and appropriate. The partnership with the Tata group is beneficial because this company has a long history and the necessary experience that the Inditex group didn’t obtain yet. However, the risk of the brand’s synergy takes place in the partnership with partial ownership. Nevertheless, Zara’s risks are justified because the partnership with the Tata group helps the company to meet Indian customers’ needs more efficiently.
Global Entry Strategies of Zara International: Conclusion
Zara’s business model and marketing strategies significantly increase its competitiveness in the fashion industry market. The internationalization process creates multiple risks for the retailers’ performance within the host markets. Due to the effective product distribution, and portfolio extending management, Zara became able to develop its core competencies that are represented in the diversification of merchandise, the ability to meet customers’ needs, and integrate the brands in the distant markets.
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