Located in Spanish city 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 company’s life and his wife Rosalia Mera, the company has grown immensely since 1975. Therefore, it is important to analyze the theories of the company’s means of internalisation and to evaluate how it managed to conquer the global market.
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The company is famous for the control over its supply chain. In other words, it manages most of the stages of clothing production, from the original designing to the stage of distribution. In terms of business model, the company has a substantial advantage in the speed of manufacturing. 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 company’s functioning is online retail. The Inditex Group managed to succeed 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 important to analyze in details the competitive strategies of the company, compared to other clothing retailers.
With more than 2,000 Zara stores, Inditex Group also runs other brands, such as Stradivarius, Bershka, Pull and Bear, etc. (Keeley & Clark, 2008). Nevertheless, there are certain advantages and disadvantages of the multi-brand organisation of business. One of the risks that Inditex Group faces is the cannibalisation between its own 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 company’s operation, i.e. its partnership and creating a joint venture with Tata Group, aimed at succeeding on the Indian market.
This paper’s objectives are to analyze the theories of Zara’s internalisation, to evaluate the company’s competitive strategies, to define potential advantages and disadvantages of the multi-brand strategy, to assess the risks of the cannibalisation between the multiple brands, and to establish pros and contras of the company’s joint venture with Tata.
The theories of Zara’s internalisation
The growth and internationalisation of Zara are determined by a number of reasons related both to the situation on the world’s textile and clothing market in general and to the state of affairs on the inside of the company.
In the latest decades, the distinctive feature of the European textile industry and clothing production is a significant number of the 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 merges between different companies in order to consolidate the production and survive in the competitive market (Lopez & Fan, 2009).
Also, due to the democratisation 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’ taste. 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 due to which it was possible for Zara to become an international brand is the tendency of consolidating the production process in the clothing industry when the small and medium-sized companies merge in order to join the global market or sustain in the industry’s competition. The second reason is the democratisation of the clothing market that resulted in growing demand for the fashion clothes. Finally, the third one is the requirement for the apparel companies to show flexibility in terms of their prices, designs, and marketing strategies.
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The principles on which Zara was founded allowed it to correspond perfectly to the modern demands of the industry. First of all, in the medium where a large number of small and medium companies merge to be able to gain more control over the production process, Zara already started off with the vertical structure of production. Inditex Group is in control of the major parts of its designing of new products, their manufacturing, and all means of product distribution. As a result, Zara is able to 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 Zara’s internationalisation is based on the assumption that the key to the company’s success is the level of control over its products multiplied by the faster speed of developing new products from the stage of design 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 the medium quality and affordable price for the latest fashion trends (Lopez & Fan, 2009). In the modern context of the fashion industry, the trends are changing very rapidly. That is why it is more reasonable to make an emphasis on the designs rather than the highest standards of quality. Also, in order to appeal to a large number of potential customers, it is important to offer affordable prices.
Thus, in both theories, the main appeal of Zara’s products at the international market lies in its flexible and rapidly produced designs. That characteristic is the result of both the company’s vertical structure and its policy of democratic approach to the correlations between fashion and time of production, as well as price and quality. Another important feature of the company, in this regard, is its strategy in terms of geographical spreading. It was founded in Spain, and all the main 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 centralized approach.
Zara’s competitive strategies
The major competition that Zara (and Inditex Group in general) face on the international market include 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 Inditex’s brand diversification lies in the group’s 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 the medium quality is a characteristic feature of many successful brands.
However, some of Zara’s are mostly oriented at rather plain designs with presumably guaranteed success. They do not change the design of their models drastically throughout the fashion seasons. Companies, such as The Gap, often use the traditional basic models that are 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. And it is a reasonable solution in the situation where they cannot react fast enough to the slightest changes in the preferences of the customers. Thus, they produce simpler designs in larger quantities (Mo, 2015).
Meanwhile, Zara’s 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 the fact that fashion trends change quite rapidly, in the context of the modern fashion industry, the Inditex Group produces the lesser quantity of certain clothing items, but their variety of products is greater, and it comes closer to the high fashion and trending items.
Another important 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 process of design and retail, improving the aesthetical aspect in both of them.
Advantages and disadvantages of Zara’s multi-brand strategy
The share of Zara in the Inditex Group is nearly 75%. Nevertheless, Inditex built a brand portfolio of a number of other brands over the years. Most of other group’s brands were launched in the 1990s already after Zara’s international success, except for the lingerie brand Oysho that was created in 2001. The most evident advantage of Massimo Dutti, Stradivarius, Bershka, Pull and Bear, Kiddy’s Class, Oysho, Uterqúe, and not an apparel producer Zara Home is the ability to reach more segments of the market.
The consumers are appealed by the diversity on the market. The usage of even the slightly different styling and presentation of the products enables Inditex to address the wider range of the market more effectively. The intention of creating Zara Home comes from the opposite direction. It is a rather successful attempt to enter a new for Inditex industry of goods for domestic use under the already well know brand.
Another advantage is that the variety of brands gives more opportunities to cope with the unexpected changes in the demand on the market, as well as 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 cannibalisation. In the case of Inditex Group, the cannibalisation between its own brands would be especially hazardous since other brands took the company more efforts in developing marketing strategies and advertising than Zara. Therefore, the potential revenue from them is smaller, and it would be irrational to exchange the sales volume and profits from Zara for those from other brands. However, in order to tangle the potential dangers, Inditex Group came up with the set of solutions.
Managing the risks of cannibalisation
The desired solution for managing the risks of cannibalisation between multiple brands belonging to the same manufacturer is introducing the differentiation between those brands. The decision about 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 organisational 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.
In terms of 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. In terms of the target market, it 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, which predetermines larger amount of the basic clothes models and longer periods for a different design to be available in stock. In the same manner, Bershka and Stradivarius focus on the youth fashion, with the brand presentations of more avant-garde and trendy clothing, whereas Massimo Dutti positions itself as a brand of elegant and classically styled apparel, also with longer available and more simplistic models (Lopez & Fan, 2009). Thus, the differentiation between several brands in their products and targeted audience allows avoiding the cannibalisation.
Advantages and disadvantages of a 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 strategy of internalisation already helped Zara to establish its place in the market of Europe, North and South America, Australia, and South-Eastern Asia. Thus, the entry to the Indian market was the logical continuation of Zara’s expansion. The joint venture, in which Inditex Group own 51% has a number of advantages related to a larger number of the potential target audience and a bigger market for distribution. With the population of more than a billion people, India is an important strategic asset for any retailer.
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Moreover, through Tata Group, Inditex would have some 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 comparing to “the high fragmentation of a small scale suppliers” (p. 9). It is a culturally distant market, and Zara needs to consider the fact that some of the potential target audience would still prefer the traditional way of buying clothing from smaller suppliers.
Zara’s 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 diverse and rapidly changing preferences of the customers. The branding strategy of fast fashion clothing was the most successful in Inditex Group’s portfolio. However, the company manages to avoid the risks of cannibalisation due to the diversified approaches to final product presentation and targeting different audiences for its multiple brands. When entering new international markets, the main consideration for the Inditex should be the traditional preferences and attitudes towards corporate retailers among the population.
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 world’s 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.