ZARA: History and Background

Of Inditexs total employees, over 80% of them are part of the retail sales force and 8.5% are in
manufacturing, design, logistics, and distribution. The remaining 11.5% are part of the corporate
headquarters of Inditex, which is located in the region of Spain called Galicia.
The role of the corporate center at Inditexs headquarters is that of a strategic controller only, and is
involved in setting the corporate strategy, approving the business strategies of the individual chains, and
controlling their overall performance rather than as an operator functionally involved in running the
chains. This gives Zara autonomy to operate independently and be responsible for its own strategy,
product design, sourcing & manufacturing, distribution, image, personnel and financial results.
With this freedom, Zara was able to make major investments in manufacturing, logistics, and IT, including
establishment of a just-in-time manufacturing system and a 130,000 square meter warehouse close to its
corporate headquarters. Zara manufactured its most fashion-sensitive products internally and its
designers continuously tracked customer preferences and placed orders with internal and external
suppliers based on this information. Due to its unique needs, Zara chose to internally develop its
business systems. Zara is now able to originate a design and have finished goods in stores within weeks
for entirely new designs and take even less time for modifications of existing products.
Key International Competitors of Inditex
Gap, H&M and Benetton are considered Inditex's three closest comparable international competitors. As
in the product positioning map, Inditex's flagship brand, Zara, is relatively perceived as more fashionable
than all the other three and prices less than Benetton and Gap but higher than H&M. In these four
competitors, Benetton and Gap place at relatively less fashionable and higher price, while Zara and H&M
is more fashionable and price lower.
Business Model of Zara
For distribution, all merchandise is shipped through either the central facility in Arteixo, Spain, or through
satellite sites located in Argentina, Brazil and Mexico. Merchandise in the main facility has a capacity of
only 45,000 folded garments per hour. This facility admittedly has its limitations unless more capacity can
be created elsewhere. Also, the vertical integration of manufacturing and distribution greatly helped to
reduce the Bullwhip effect.
On the retailing end, the business model allows for Zara to have a much more fashion forward line
because it can commit to its product line much later in the season. In fact, the design process does not
seem to stop and the designers are constantly evaluating consumer preferences. Zara's in-store staff is
also young, and very fashion-conscious who serve as key "trend-spotters". In addition, Zara provides
very limited volumes of new items in the most fashionable of Zara's stores and then uses the results of
those sales to decide whether the items should also be sold in other locations. The limited volume and
short available time successfully created a sense of 'scarcity' in consumer's perception.

Implementation and Risks

Other risks that company faces are to its margins with international expansion. The company is unable to
control the increased costs in exporting to foreign countries and currently passes these costs to the
consumer. However, it may be difficult to continue doing this and margins are likely to get squeezed. The
company needs to be able to grow while maintaining these margins. If it is unable to do so, it risks threats
to its competitive advantages and cost efficiency.
Zara also faces risks to its image and therefore has to be very careful in regards to franchising and jointventures. With these models, Zara may have a limited role in operating the retail locations. However, if
these are poorly managed and operated, there is a possibility of tarnishing the brand and the image that
Zara has created. This can also effect the positioning and market segmentation strategy in a particular
country for example, in South America, the company has to position itself as a made in Europe brand.

Issues/problems with the global strategy

Treats from H&M and UNIQLO
The main competitors of ZARA in China are H&M and UNIQLO. H & M is a Swedish multinational retail
clothing company, known as fast fashion clothing for men, women, teenagers and children. UNIQLO is a
Japanese casual wear designer, manufacturer and retailer. ZARA have a total of 26 outlets in China.
ZARA have 13 outlets in Shanghai, 9 outlets in Beijing, andv4 outlets in Shenzhen. H&M have lesser
outlets that are about 16 outlets in China, 12 in Shanghai, 2 in Beijing and 2 in Shenzhen. The biggest
competitor of ZARA is UNIQLO. UNIQLO have 32 outlets in China. 18 outlets in Shanghai, 6 outlets in
Beijing, 4 outlets in Shenzhen, and they even have 4 outlets in Chengdu that ZARA do not targeted.
H&M had opened the first outlets at Shanghai in 12 April 2007 as the first sales shop in China. After H&M
entering the China market, they first targeted Shanghai, the city that are highly internationalize. After that,
H&M had opened their store one after another quickly in second and third-tier cities such as Nanjing,
Wuxi, and Changzhou. The expansion rate of H&M in China is about 10 percent to 15 percent per year.
According to Rolf Eriksen who is Chief Executive Officer of H&M, "China is a strategic and exciting market
with great fashion awareness and spending power. We therefore see a vast potential for expansion."
UNIQLO was targeted as a fast retailing company worldwide. As early as in 2002, UNIQLO had opened
the first branch in Shanghai. The face of the huge market in China, with the rise of brand strength, starting
in 2008, UNIQLO will gradually accelerate new store is located in China. Due to the different product line,
and positioning, its strategy is slightly different from ZARA and H&M. The goal that UNIQLO targeted is
longer and wider. In a single market, UNIQLO is the bigger and stronger, steady progress, and
consolidate market. Therefore, it is expected that the future direction of the expansion in China is the
Yangtze River Delta, Pearl River Delta, and take deepen regional advantage in the city.

Failed to pass quality test

Since August 2009, ZARA has detected quality problems seven times in China. Throughout these seven
test results, ZARA failed because of two reasons. First, Product identification does not match with the
actual content. Second, Ph value, color fastness and fiber components unqualified. In fact, the first
touches is a small problem, this situation often happen in other Chinese and foreign brands, but ZARA too
outrageous, the price of 999 Yuan feather jacket, marked with 70% of feather, but actually only consist of
51 % of feather, took away 20% degree of warmth but not to see ZARA make a discount for each
purchase.
Color fastness textile quality testing is usually included in routine testing project, mainly to see the dye
would shed or fade. If not compliance with the testing, the dye molecules and heavy metal ions will attach
to the skin and bring harm to the body. The Beijing Consumer Association (BCA) had announced the
result on 10 April 2011. Fabric in ZARA pants did not conform to a statement on the label. The label state
that the fabric is 75% cotton, 20% wool and 5% terylene. However, there are only consists of fabric 68%
cotton, 10% wool and other contents.
In addition, ZARA sandals were poor color fastness and is the only folding performance that did not reach
to the standard published from Shanghai Industrial and Commercial Bureau in August 2009. In June
2010, ZARAbaby jacket / coat color fastness failed. The standard of children's cloth is higher than adult in
terms of material and technical requirement. If pH value is in the 4.0-7.5 range, non-direct contact
with skin, clothing standard 4.0-9.0, it will irritate the skin, causing severe skin infection.
First time reduce price
ZARA pricing policy in China is same as other countries, are aimed at maintaining price stability. ZARA is
using cost leadership strategic. Since its product had already sold in low cost, ZARA usually will not
discount anymore. However, ZARA had reduces its price in China in September 2012.The largest price
cut reaches to 34%.
The prices of a lot of new clothes are averagely 100 Yuan lower than the similar old styles that sold in
2011. for example, Women's coat, which was 699 Yuan last year and now sells for 499 Yuan, men's suit
jacket reduced from 899 Yuan to 699 Yuan, while children's jeans which sold at 299 Yuan in the past and
now sells for 199 Yuan.
One of the reason ZARA reduces its price is because economic downturn. The economic downturn has
affected consumption, and then proceeded to affect sales of the brand. The slowdown in sales led to
increased inventory, inventory control, faster turnaround, ZARA forced to take the promotional price cuts.
This make ZARA brand's image drop.

Entry Mode Of Zara Into The Indian And Chinese Market

Introduction
Zara is an extremely renowned brand, known for its latest designs and is among the top 100 best global
brands in 2010 .It uses the unusual strategy of zero advertising and instead invests the revenue in
opening new stores across the world. Zara is popular amongst old and young generations too because it
is affordable fashion. It is crystal Clear that Zara is successfully living upto the standard of its two winning
retail trends firstly, it is fashionable and secondly it is low in price thus resulting in a very effective mixture
out of it.
The first store of Zara was opened in a central street in Spain in 1977 by Amancio Ortega who also owns,
other brands such as Massimo Dutti, Pull and Bear and many others. Spain is the headquarter of Zara.
Zara have opened 95 stores around the world in quarter 1 of year 2009 alone, bringing the total to 4359
stores in 73 countries worldwide.
This essay discusses about which mode of entry strategy Zara adapted to entered into the Indian and
Chinese market and whether the strategy proved to be beneficial for the company and the benefits /
disadvantage sit is going tackling and lastly it also analyses in which country it is doing better and why.

Entry strategy of Zara in India

While Zara owns a majority of its stores in Spain, the international expansion has adopted three different
entry modes: Own subsidiaries, Joint ventures and Franchising.
To enter the market in India, Inditex (the company behind Zara) used the strategy of pursuing a joint
venture with Trent Limited, a Tata Group company, a highly recognized clothing line distributor. Zara took
up joint ventures as its mode of entry in India because this is a co-operative strategy in which the
manufacturing facilities and know-how of the local company are combined with the expertise of the foreign
firm in the market, especially in large, competitive markets where it is difficult to acquire property to set up
retail outlets or where there are other kinds of obstacles that require co-operation with a local company to
which Zara regards its stores as one of the related elements in its business sculpt. The shop is regarded
as the boundary among the buyer and the motor of the whole business - mode design, development,
logistics and finally retail.
To promote the organization and its clothing lines, Zara utilized video advertisements, print ads and the
idea of e-marketing which fulfilled the varying needs of consumers from India and beyond; particularly
those priority Indian markets or the consumers in the urban India areas. For this promotion campaign, the
perfect information that Zara Company utilizes is "Providing quality and fashionable clothing lines that
fulfills your needs. Zara has been able to set up its reputation as one of Spain's primary clothing line
companies for several years now. It is able to rise up to the challenges in most of its markets directly (year
'99). This is made possible through the efficient promotional and positional strategies established in order
to maintain not only large profits, but also on establishing the foundations of Zara's clothes and fashion
trends. The promotional strategies of Zara in India are easily implemented by the local employees
themselves which enables the organization to vastly improve without the burden of implementing costly
technologies. These initiatives can also lead in improved financial profit for the organization and will
enable the foundation of disshuchi.sharma@iipm.edutribution networks for Zara clothing lines in India.
Target Market
Zara has maintained a reputation for targeting the teenagers, those in their twenties and even the
individuals considered young at heart. This is a customer sector that other clothing companies have
previously ignored in place of the adult consumers. Zara Company also has the unique strategy of
portraying the generations in their campaigns. These campaigns in India will tell that Zara Company is not
a mere simple clothing line for the next generation; its users are also a generation ahead of their
competitors. Zara Company can establish an image for itself in India as the clothing line for the present
generation. It has discovered that the purchasing power of the youth and the marketing power of
celebrities were similar (1998). They have garnered significant profit gains out of this strategy, and there is
no reason why this won't also work in India.
Nevertheless Zara undergoes quite a few hurdles like the existing rules on FDI in India require that foreign
single-brand suppliers are obliged to surpass a 49% stake to a resident associate. This includes the
vendor to share its organizations information and data it would usually not reveal. Moreover, franchising
stores means that the merchant loses certain jurisdiction over how these are operated, which numerous
businesses worry that it might harm their brand name. As a result, single-brand retailers are regularly
cautious of entering the Indian market. For a apparel seller akin to Zara, further considerations contain the

relative need of seasonal modification and the separate, consolidated manner of dress amongst Indian
females that differs significantly to Zara's offered ranges.
Entry strategy of Zara in China
Spain's Zara, a division of Inditex SA, will start its flagship China store at Shanghai's Hua Huai Road.
International strategy at Zara is defined by the combination generic strategy of cost leadership and
differentiation strategy. Teher are considerations, however, such as when selecting the Chinese market,
labor cost and productivity, distribution cost and shipment cost of raw materials are considered other
considerations are characters or behaviors of consumer and income per capita. In terms of marketing
approach, the considerations include the 4Ps inherit to the Chinese consumers and business
environment. Market entry considerations include economics both macro factors which include tax,
political conditions and export tariff and micro eco factors including local competitors, demand, location os
stores. Regulation from government and local producers' protection issues are other considerations
Zara presents a straightforward explanation for its triumph: It offers fresh stock to its stores two times a
week and new supplies at all times contain novel models. Zara creates more than 19,000 distinctive
designs every year. In order to achieve this, Zara's mother company Inditex has to breach the
conventional business model, which goes from sketch toward sourcing to stores, to clients. Zara's model
as an alternative begins with customers and after that goes to stores, creation and sourcing.
"In this trendy world, we find it to be crucial to learn from customers and quickly respond to their
requirements," said Echevarria.
Inditex cooperates along with around 900 separate suppliers and factories, together with twelve directly
possessed factories in Spain. These 12 heart factories fabricate the most essential and fashionable
outfits, that will be presented on stores presentation shelves.
Slightly more than half of Zara's goods are prepared in its production bases in Spain, Monaco and
Portugal. Thirty percent are sourced from Asia and twenty pct are sourced from Eastern Europe and the
Americas. China makes about 13 percent of the merchandise.
Market results in The Republic of China
Success factors include the cost leadership strategy, differentiation of strategy, efficient distribution.
Information and technology, fast delivery of new products, designs and trends. However ones of the
failure factors is Zara's centralized distribution system which may not be inappropriate in entering a
specific market of diverse nature like that of China (market entry strategy: case study Zara
internationalism in China 3 November 2009).
Conclusion
The clothing retail expenditure of Zara inside India is forecast to raise at a higher speed than bordering
China along with a CAGR of 6.7% within the episode 2009-13, in comparison to China's 5.3%, matching
to Verdict's Global Retail Database.

Within India there is a extremely trivial segment of very style, fashion aware people, to impart a honest
support for an organized quick in-fashion retailer. The global income standard of the middle class in India
is 1-5 million consumers that is still a tiny division in India even by purchasing power parity.
Zara victory is as much a consequence of its history and position a sit counter intuitive business
strategies. While it may not be possible for another company to exactly duplicate the conditions under
which Zara grew and flourished, without doubt we can attempt and learn from its knowledge, its
procedures and its company structures. The Asian market is enormous and hungry. It appears that Zara
might be leading those that nourish it.

INTERNATIONALISATION OF THE SPANISH FASHION BRAND ZARA

INTRODUCTION
Zara is one of the worlds most successful fashion retailers operating in 59 countries. However, there is
little research about the firm in English as the majority of publications have been written in Spanish. This
paper seeks to address this gap in the literature by examining the internationalisation process of Zara.
This study adopts an in-depth case approach based on extensive secondary research. Literature
published in both English and Spanish has been reviewed, including company documents such as annual
reports. The paper starts with a brief overview of the global textile and clothing industry, followed by the
case study of Zara. The main part of the case examines the key aspects in the internationalisation of Zara
namely: motives for internationalisation, market selection, entry strategies, and international marketing
strategies. In the final section, comparisons are made between Zara and two of its main competitors,
H&M and Gap.
The global textile and clothing industry
The removal of all import quotas in the textile and clothing industry from January 2005, involving the
unrestricted access of all members of the World Trade Organization (WTO) to the European, American
and Canadian markets is considered a key driving force in the development of the clothing sector
(Keenan, et al., 2004).
This new scenario has created opportunities for large exporters like China and India that are considerably
increasing their market share whilst at the same time creating challenges for European Union member
states in order to remain competitive internationally.
THE CASE OF ZARA

Established in 1975, Zara is the flagship of Inditex (Industria del Diseo Textil, S.A.), a holding company
located in Galicia (north-west Spain). In a relatively short time frame Inditex has become the worlds
second largest clothing retailer with 2,692 stores spread across 62 countries worldwide by the end of
January 2006. In addition to Zara which accounted for 66 percent of the groups turnover in 2005,
Inditex owns seven other clothing chains: Kiddys Class (childrens fashion), Pull and Bear (youth casual
clothes), Massimo Dutti (quality and conventional fashion), Bershka (avant-garde clothing), Stradivarius
(trendy garments for young women), Oysho (undergarment chain) and Zara Home (household textiles).
The Zara Concept
The store acts not only as a point of sale but also influences the design and speed of production. It is the
end and starting point of the business system. Zaras production cycle starts with customers judgments on
the new designs of clothes and the information collected by staff members who travel to fashion cities,
observing people on the streets, browsing publications and visiting the venues that are frequented by their
potential customers (Fabrega, 2004). What distinguishes Zara from its competitors is the feedback that
Zaras managers get from the customers at the point of sale about new garments or new products that
they are interested in. Store managers report the demands of customers and the sales trends to the
headquarters on a daily basis. The design group will use the feedback to create new articles or
modifications to the existing goods and then deliver the items to the stores (Martinez, 1997). Every store
receives small batches of products twice a week, avoiding large inventories and creating a climate of
scarcity and opportunity (Crawford, 2000).
Around 60 percent of its products are permanent and the remaining 40 percent vary continually. The
company estimates that customers visit a Zara store 17 times a year on average, compared to merely
four visits for other fashion firms (Castro, 2003). The outlets are situated in main commercial areas and
the interiors are designed to create a unique atmosphere with attractive window displays. The firm spends
only 0.3 percent of its annual turnover on advertising (Ghemawat and Nueno, 2003), normally at the
beginning of the sales season or the occasion of a new store opening. The store is considered its most
effective communication tool.
The two key factors in Zaras business model is the time factor and the store as a source of information to
demonstrate the companys customer-orientation. Zara continuously adapts to market demands, aiming to
deliver a unique service to the customer. The quality of customer service and other variables like the
music, temperature and layout are evaluated by using a mystery shopper (Monllor, 2001).
Zara follows a market-based pricing strategy which sets the target prices that the buyer is willing to pay.
The budget for the cost of the material, production and suppliers is fixed according to the target price and
the profit margin that the management department wants to achieve with that item (Bonache and Cervio,
1996; Mazaira, et al., 2003).
All these brands were built within the domestic market and then launched for international markets. This
multi-brand portfolio has allowed Inditex to target different segments more effectively. However, the cost of
maintaining several brands and the risk of cannibalisation are the major drawbacks of this strategy. Inditex
has tackled cannibalisation by differentiating the brands mainly through the product, target market,
presentation and retail image (Fabrega, 2004).
The success of the Zara concept is also reflected in the impact that the company has created in the
fashion industry that brought changes in the organisational methods of other clothing retailers, namely
Benetton and Mango (Cinco Dias, 2003), and has even obliged luxury fashion brands like Gucci and

Burberry to increase the rotation of their goods and develop sister brands to expand their customer base
(Fernie, et al., 1997; Foroohar, 2005).
Motives for Internationalisation
Existing literature has classified the motives for retail internationalisation into push and pulls factors. Push
factors are those that encourage the organization to search for international opportunities. Pull factors
involve attractive conditions in the host market (Alexander, 1995b). The limited market growth
opportunities at home was the main influence on Zaras decision to expand internationally as recalled by
Jose Maria Castellano, former CEO of Inditex: Of course before opening the first store in the host market,
we had the feeling and then we knew for certain that the Spanish fashion and design market was on the
verge of saturation (Martinez, 1997). In addition to the maturity of market, there was a change in Spanish
consumer behaviour over this period, with increased spending in their spare time on travelling and
education, and less on clothes.
The key pull factors that explain the internationalisation of Zara include Spains entry into the European
Union in 1986, the globalisation of the economy and thus potential economies of scale, the
homogenisation of consumption patterns across countries Zaras belief is that national frontiers are
no impediment to sharing a single fashion culture and the abolition of barriers to export as well as the
development of information technology.
McGoldrick (1995, 2002) provides a third group of factors related to the organisation: the facilitators or
enabling factors. The expansion of Zara in New York (1989), Paris (1990) and Milan (2001) was justified
by image and status reasons (Castellano, 2002; Ortega and Blanco, 2004). These three cities are
considered fashion capitals that are highly competitive. The USA offered Zara the opportunity to learn first
hand about its American competitor Gap and consumers in a large market with an interest in fashion. The
USA was perceived to be a high risk market, a view justified with hindsight (Martinez, 1997). Amancio
Ortega wrote in his 1998 annual report regarding the learning experience: International expansion is the
objective that cannot be delayed and will allow us to enrich our culture and vision of the markets. Last but
not least, the internationalisation involved the spreading of cost and risk into different markets.

Zaras promotion strategy is the same in domestic and foreign markets. Advertisement campaigns are
carried out only at the start of sales or a new store opening. Zara relies on the store as its main
promotional tool. The prices of Zaras garments differ between countries with the Spanish market being
offered the lowest prices (DAndrea and Arnold, 2003). Prices are set centrally following a market-oriented
strategy. Prices in international markets are generally higher due to longer distribution channels
(Ghemawat and Nueno, 2003).
As in the domestic market, the store location is a critical factor in international markets. All Zaras shops
are situated in prime locations. This decision is based on an analysis of the local market environment that
identifies the niche opportunities for Zaras products in those markets, the price of competitors products
and the recommended price to achieve a maximum level of profitability (Bonache and Cervio, 1996). The
shop window display and interior design are prototyped centrally and then replicated in all international
shops by professional store decorators. Hence, Zara standardises the key strategic elements, namely the
location, window display, interior design, store layout, store display rotation, customer service, information
systems and logistics. The rest of the elements are customised to the market to suit local preferences
(Fabrega, 2004).

Once the location for the store is identified, the next stage is the recruitment and selection of the company
personnel. Initially Zara sent Spanish managers to replicate the management procedure used in Spain
(Fabrega, 2004). Difficulties arose in countries like Mexico and France (Bonache and Cervio, 1996)
which made Zara change to a practice of recruiting employees locally to get a better understanding of the
local market preferences (Martinez, 1997). Zara makes a great effort to transfer know-how in order to
share the same corporate values. The Head Office in Spain controls the subsidiaries to maintain Zaras
concept across its international markets (Bonache and Cervio, 1996).
Branding Considerations
International retailing is regarded as the transfer of a retail brand with its associated image across national
borders (Brown and Burt, 1992) so branding has an important role to play in the internationalisation of
Zara. Zara has transformed itself from a local brand to a global brand in less than 30 years. Zara brand
was ranked 73rd in the list of the worlds 100 top brands 2006 by Interbrand and has overtaken fashion
brands like Hermes, Prada and Armani. The firm declines to use any kind of identification with its origin
(Ghemawat and Nueno, 2003; Monllor, 2001). Hence, the COO effect is played down to convey a broader
image. The fact that the prices of Zaras garments are higher in the international market affects its
positioning in those countries and therefore, its brand image (Ghemawat and Nueno, 2003). Zaras
products are labelled following a dualistic brand-name strategy. The company uses the name of the firm
and a unique brand name for the same product group. Examples of these sub-brands are `Zara Woman,
`Zara Basic and `Zara Trafaluc.
The companys 1999 annual report states that the aim of Zara is to democratise fashion and to target a
broad market, especially a young segment sensitive to fashion. In line with this objective, Zara filled a
niche in the Spanish market that was neglected by the department stores (Martinez, 1997) by offering the
latest fashion at medium quality and attractive prices. Zaras positioning strategy is based upon design,
quality and price. In order to communicate its benefits, in some cases Zara has had to educate
the market and influence consumer shopping habits (Blanco and Salgado, 2004).

ZARAS MAIN COMPETITORS

Zara major international competitors in terms of market share are H&M and Gap Inc. This section will first
present some background information of the two firms before offering some comparison with Zara.
H&M
Established in 1947 in Sweden, H&M business concept is to offer fashion and quality at the best price
for men, women, teenagers and children. H&M outsources its production from 700 suppliers of clothes.
The location of its stores, flexibility of its production and low prices can be identified as the key factors
behind H&M success. H&M hires celebrity designers like Karl Lagerfeld and Stella McCartney to
democratise fashion and catch consumers attention. The firm churns out 500 new designs every year that
can be purchased from its 1,193 retail outlets located across 22 countries and also via mail order or
through its website for the Nordic countries.

The growth of H&M has been marked by the addition of cosmetics and accessories to the apparel line in
1975, the incorporation of new countries to its market portfolio and the development of the catalogue and
e-commerce, available in the Nordic countries. Compared to Inditex and Gap, H&M is much more
internationalised with over 90 percent of its turnover coming from overseas in 2005, Germany being its
largest market with 27 percent of the company total revenue. Its expansion has been at a moderate pace
particularly during the early stages. H&M has been able to consolidate its position in each of the
international markets. Having operated in its domestic market for 17 years, H&M followed the same
expansion pattern as Zara and Gap Inc by selecting international markets based first on physical and
cultural distance to the domestic market and then on economic indicators such as purchasing power,
employment rate and purchasing behaviour. Local information about competitors, demand and
accessibility is also considered.
A combination of market saturation and entrepreneurial ambition led the company to embark on
internationalisation, which had two distinctive phases in the early stages (Laulajainen, 1991): The first
focused on Scandinavia, and the second aimed at the UK, Switzerland, Germany and other Germanic
countries. H&M launched its international expansion first into neighbouring countries, Norway in 1964 and
Denmark in 1967. Both of them together with Sweden are markets belonging to the zone of cultural
similarities labelled as `Nordic Europe by Usunier and Sissman (cited in Usunier and Lee, 2005, page
234). The second phase was initiated in 1976 with the opening of a store in the UK and later on in
Switzerland in 1978 and Germany in 1980. These three markets share cultural affinities and are grouped
in the `Anglo-German cluster by Kasper and Bloemer (1995). The mix of cultures in Switzerland
(German, French and Italian cultures) made this market a reference point for its further expansion in those
adjoining countries. During the end of the 1980s and the early 1990s other Germanic countries such as
The Netherlands, Belgium, Austria and Luxembourg were entered. The experience gained over the early
stages drove H&M to embark on a third phase of international expansion. This period has been marked
by the quick expansion into distant and different markets like the USA, Canada, Southern (France, Spain,
Portugal, Italy) and Eastern Europe (Poland, Czech Republic, Slovenia, Hungary) at the beginning of the
21st century, adding at least two more countries per year.
H&M expansion has been mainly through its own subsidiaries. Its plan of opening stores in Dubai and
Kuwait in the near future has led H&M to sign a franchise agreement, which still keeps the management
control within the Swedish company to ensure the H&M concept across countries. The store location is a
key factor in H&M business model regardless of the market, establishing new outlets only in the best
shopping areas. The interior design is prototyped allowing some customised solutions. In 1997 the former
Managing Director of H&M, Stefan Persson, stated in his Annual Report that when we expand, it is
important to listen carefully to the local market. We need to adapt but not at the expense of losing what
makes us who we area. Hence, H&M strategy resembles that of Zara: replication of the same concept
with some local adaptations.
Gap Inc
Created in San Francisco in 1969, Gap Inc is the worlds largest specialist clothing retailer with 3,053
stores in 5 countries: United States, Canada, the United Kingdom, France and Japan. This holding
company sells clothing, accessories and personal care products for men, women and children. Like
Inditex, Gap Inc operates several clothing brands: `Gap, `Banana Republic, `Old Navy and `Forth &
Towne.
Gap Inc outsources all its production from 1,100 suppliers located in the United States and abroad. Gap
Incs market growth was based on four strategies: International expansion, diversification into accessories
and personal care articles, creation of new brands and development of other channel of sales like
electronic commerce, launched in 1997 to increase its market share and reach a broader consumer base
in the US.

Gap Inc internationalisation process has been steady and focused on a few countries. After operating in
the home market for almost twenty years, Gap Inc opened its first store in the UK and Canada in 1987
and 1989 respectively; they are both close markets given their cultural proximity. During the second phase
of its internationalisation Gap Inc expanded into France, 1993 and Japan, 1995 despite their geographical
and cultural distance. The experience acquired earlier and the attractiveness of these two markets were
the main driving forces. After operating in the German market for ten years, the unsatisfactory results in
sales led Gap Inc to withdraw from that market in August 2004 (Wells and Raabe, 2005).
Gaps future expansion markets have been identified in Asia and the Middle East. International sales
accounted for 15 percent of the firms total turnover in 2005. Own subsidiaries have always been the
mode of entry adopted to operate in the host markets. However, its willingness to establish itself in five
markets in the Middle East (United Arab Emirates, Kuwait, Qatar, Bahrain and Oman) and in Singapore
and Malaysia in the near future, has led Gap Inc to consider franchising as the strategy to expand into
these smaller, culturally distant and high business risk countries.
Comparisons between Zara and its competitors
Table IV presents detailed comparisons between Zara and its two competitors. The main distinctions are
as follows:
-While Zara controls its entire production chain, Gap Inc and H&M outsource all their production. Zara
vertical integration enables the firm to have a faster turnaround than its competitors.
-Product and geographic diversification has been used by the three clothing brands
as their main directions for growth.
-Gap Inc and H&M have also developed new channels of sale. The development of electronic commerce
sets Gap Inc and H&M apart from Zara which does not offer its products online. Gap Inc has focused
mainly on the home market, international sales accounting for merely 15 percent of its turnover in 2005.
H&M expansion strategy is characterised by developing and reinforcing its business system in each
country entered. Zara has a wider international presence in comparison to both Gap and H&M, having
become a global company in a shorter period of time.
The international expansion of Gap and H&M has been largely organic. In contrast, Zara has used
franchising and joint ventures as entry strategies. The expansion pattern of all three brands is marked by
the physical and cultural proximity of the international markets. Advertising is a strong communication tool
for both Gap Inc and H&M, while Zara hardly advertises. All three make some adjustments to their product
offerings to satisfy the needs of local consumers. The location of the store is a key principle of the H&M
and Zara business models.
CONCLUSIONS
Zara is a successful international retailer which, in less than 30 years, has transformed itself from a
Spanish local brand into a truly global brand. This paper seeks to improve our understanding of the firm.
The research has examined the internationalisation process of the firm with a special focus on motives,
entry options and international marketing strategies. The main drawback that arises in a single case study
is that of limited validity and representativeness which constrains the potential for making generalisations
(Creswell, 1998). Another limitation is that the study was based solely on secondary data. However, this
case is deemed adequate to provide good insight, and establish the avenue for future studies.
Although the paper has made some preliminary comparisons between Zara and its two main competitors,
a more thorough comparative study of all the three firms would reveal what is being internationalised:
Management expertise and systems? Innovative technique or strong retail brands (Brown and Burt,
1992)? Two areas are of particular interests in the further study, namely the linkage between entry
strategies and the degree of standardisation; the relationship between retail brand image and positioning
in different markets.

What about its online strategy?

After doing some research, it appears that Zara also has a strong online appearance in the
market. They have over six million facebooks friends that describe the company as possibly
the most innovative and devastating retailer in the world. Zaras online strategy is the same
as the stores. Its possibly even better as shoppers can purchase products 24/7. They expect
on-line retail to grow $144 billion in Western Europe by 2014. Zara is hoping to see a 10%
rise in revenue linked to its online store, theyve even released an iPad & iPhone apps. (Don
03/09/2010). This demonstrates a great understanding of societys use in communication
and technology devices. Zara is truly the innovator of fashion retailers.
What is unique about Zaras business model compared to more traditional fashion
retailers?
In order for a business to stand above the rest of its competition, its important that they
develop a strong business model. Without a strong business model, companies fail to gain
market share and fall behind. A business model that stands out compared to the rest of the
competition will also gain more market share as they are operating differently then the rest
of the companies. Zara, as introduced above in Dianes short article, is one of the largest
international fashion companies. It belongs to Inditex, one of the worlds largest distribution
groups. (Company). Zaras business model is distinctive compared to more traditional
fashion retailers because the company has several strategies that other fashion retailers
dont do. Firstly, Zara stocks clothing in scanty quantities. When a clothing design runs out, it
runs out. They dont order more stock in. Theyve trained consumers not to wait for it to go
on sale, says Don Huber. (Bryan September 06, 2012). Secondly, Zaras factories are based
in Europe, so new designs can get into stores in as little as two weeks. Other retailers are
faced with the disadvantage of having their products shipped from China and facing a lag
time of more than two months. Now, Im going to discuss why these two strategies are an
advantage for Zara compared to other fashion retailers. Considering the fact that Zara will
not order new merchandise after a line is sold out, it forces customers to purchase the
product right away and not wait for discounts. The European fashion is an important aspect
of society. Everyone is always dressed fashionably and what they are wearing is important to
them. They understand that if they dont purchase the product when they see it, they may
never get the opportunity to again. This also works to the advantage for many customers
that want to distinguish themselves from others. With the limited stock, there will not be as
many people wearing the product if they only carry a small amount of inventory. This is
important for actresses/actors as they try to be different than the rest of society. The next
advantage that Zara holds compared to other retailers is having their factories in Europe
compared to China. With the distribution center being close to the retailers, the cost of
distribution is lower and the merchandise can reach the stores in a lot less time. This will

allow Zara to only order what they are going to sell because if they want to put in a new
order, they know they will not have to wait two months for new inventory. Other retailers
have to order enough inventory to be able to get them through two months. If they cant sell
these items, they have to put them on sale, and this is when the majority of customers
purchase the product.
How does Zara create value to customers?
Zara creates value to its customers in a number of ways. A few ways were discussed above
in the previous question. The first way that Zara creates value to their customers is by being
able to provide them with the newest and most up to date fashions. Zaras distribution
center is out of Europe and therefore the wait time is at most two weeks compared to
Chinas of two months. The customers of Zara are able to wear the newest fashions as they
enter the market. People are always trying to find a way to be the first one representing the
newest fashion. With Zara making this possible, they have established a strong customer
loyalty to the ones that always want to be the first one wearing a new coat or shirt. Another
way that Zara creates value to its customers is by pricing clothes differently depending on
the location. The cost of clothing from Zara is cheaper in Europe and more expensive in Asia
and North America because the North American and Asian countries are able to afford the
latest clothing designs compared to Europe. This allows Zara to accommodate all customers
in every country. It doesnt limit the company to one country. The customer base can range
all over the world. The company has also cut costs on advertising and in other areas of the
company in order to maintain their high quality and low cost fashion designs. If a company
can produce a product at low cost and sell to all potential buyers, they will generate a lot
more revenue than a company that produces a product at high cost and is forced to sell the
product at a high cost.
What do you consider Zaras Competitive advantages to be?
I think Zaras competitive advantage is the fact that they are fresh. They have a fast
production and distribution strategy that allows them to offer the latest fashions in less than
two weeks. Also, with them being able to produce and distribute new fashions in a short
amount of time, it allows Zara to change over 75% of the merchandise on display every 3 or
4 weeks. This increases the frequency of customer visits. (Zara).

Inditex and Zara Worldwide Industria de Diseno Textil SA (Inditex SA) is a Spain-based
company primarily engaged in the textile industry. The Company's activities include the
design, confection, manufacturing, distribution and retail of men, women and children
apparel, footwear and fashion accessories; as well as home furnishings and household textile
products (Inditex, n.d.). Today it has over 6.300 stores in 87 markets (Grupo Inditex, n.d.).
Inditex goes into the business as a dressmaker in 1963. It started life in the a small
workshop making womens clothing. This company has always remained focused on
listening closely to its customers to offer them the fashion. This strong customer orientation
would give rise, years later, to the launch of the first Zara store in 1975 in the center of La
Corna. This was followed by the brand's international expansion at the end of the 1980s
and the successive launch of new retail concepts: Pull&Bear, Massimo Dutti (1991), Bershka
(1998), Stradivarius (1999), Oysho (2001), Zara Home (2003) and Unterqe (2005). (Grupo
Inditex, n.d.). Zara is the principal company under the corporation Inditex. When people talk
about the Spanish fashion, name of Zara comes first into their mind. It is one of the most
famous clothing brands in Spain and Zara stores can be found all over the world. By the
early 1980s, the company began spreading beyond the borders of Galicia to the rest of
Spain. In 1986, the brand had opened clothing stores in most of Spain's major cities
(Valladolid, Zaragoza, Barcelona, Seville, Valencia, Madrid, Bilbao and Malaga). Spanish
Fashion's First International Company currently has 335 clothing stores in all Spain. In
December, Zara becomes the first Spanish clothes trader to open its doors in Porto, Portugal

After great success in Portugal, Zara decided to take the next step towards establishing
itself as an international fashion phenomenon and decided to open a store in USA, New York.
Perhaps conscious of the popular opinion that if you can make cross the Atlantic, you can
make it anywhere. The next year, another store was opened in Paris. Once the brand had
firmly established itself in these fashion capitals, Zara had truly become an iconic
representation of Spanish fashion. Zara began to expand rapidly in the 1990s. In 1992 Zara
opened the first store in Mexico. In 1997- 1998 the company launched its shops in Asia
(Israel, Lebanon, UAE, Kuwait, Japan). In Africa Zara began to sale in 2004 (Morocco). In
addition Zara put the first step in Australia only in 2011 (figure 1). Now the company
produces about 450 million items a year for its 1,770 stores in 86 countries (Berfield, S.,
Baigorri, M., 2013). Online sales started in September 2010. In 2014 Zara has 24 online
shops (figure 2) in the whole world (Zara Offcial Website, n.d.).

International Strategy of Zara

Spains Inditex SA - parent company of fast-fashion chain Zara - is the worlds largest
clothing retailer. In 2012 by sales it reported a 12 % surge in net profits ($2.68 billion) and a
10 percent net sales gain ($19.15 billion). (Dishman, L. 2012)
This past year Inditex invested in 49 markets by aggressive expansion, so it means that the
company is in 80 countries with more than 5 500 stories now. That is why nowadays, almost
in every new shopping malls, is easy to find Zara store in it. Seems that the company follows
the classic stage model, what means that Zara firstly occupies geographically or culturally
close markets, before taking opportunities in different markets.
Zara follows a market-based pricing strategy, what means that Inditex defines prices that
the customer is willing to pay for the clothes and accessories. The total budget for the cost
of the material, production and suppliers is determined according to the target price and the
profit marge that the company wants to get with that item. (Lopez C., Fan Y., 2009) The
prices of Zaras goods differ between countries, but the Spanish and Portuguese markets
offer the lowest prices. Prices in international markets (such as Sweden, Norway, Switzerland
and Thailand) are generally higher because of the longer distribution channels. Zara's
promotion strategy is the same all over the world. If company starts of sales or a new store
is being opened, advertisement campaigns are carried out only at it. Zara's stores are its
main promotional tool. (Sulisetiasih A., Wibawa Junardy K., Adam P., 2013) Zara has been
very stingy when it comes to marketing campaigns.
If it is about strategy of a store location - all Zara's shops are situated in prime locations. It is
naturally based on an analysis and a research of the local market environment. The shop
windows displays are designed centrally and professional store decorators arrange it in all
international shops. So all the key strategic elements (such as location, window display,
store layout, customer service, logistics and so on) are standardized by Zara.

The main goal of Zara is to focus on a wide market - especially a young segment - sensitive
to beauty and fashion.
Of course Zara has the same goods (Zara not only sells clothing, accessories and perfumes,
but also furniture bedding) in each country, but Inditex also changed up its retail strategy to
adopt to the different seasons - custom weather - appropriate collections debuted in stores
in Sydney, Melbourne, Johannesburg and Lima. But the smartest move was to break virtual
ground in e-commerce in September 2011. Customers could order Inditex's apparel and
accessories online in U.S., Europe and Japan. What is important, Zara applies the Market
Penetration strategy with its existing products, especially in existing European and American
markets. Its techniques of doing this strategy are by improving its online store and increase
the customer service in all stores.
Zaras positioning strategy is based on design, quality and price. The customers of Zara are
men, women and kids, who love fashion and like to wear the latest trend of clothing and
accessories in their daily life. What is more - Zara wants to be an environmental-friendly
company that is successful in meeting their customers needs.

Pricing investigation
Pricing strategies are very important for every company, because it mainly defines company
policy. ZARA follows a market-based pricing strategy - what means that INDITEX sets the
target prices that the local buyer is willing to pay for the clothes and accessories. ZARA aims
to set price at a level of being available to most common average income living consumers.
It also includes and fixes cost of the material, production and suppliers.
In the world, ZARA has to compete with GAP, but also ZARAs strategy is to get as close to
Prada or Gucci as possible, because INDITEX delivers similar fashion, but at a much lower
price. The retail strategy for luxury brands is to keep as far away from the likes of ZARA.
Companies like INDITEX are a serious threat for luxury brands (Thompson, 2012).
From the beginning we expected that prices will be different in each countries. It is obvious
that the Spanish and Portuguese markets offer lower prices than any other markets, because
of shorter distribution channels.

Inditex is an extremely healthy company with strong financials allowing continued selffunded
expansion. Net sales for Inditex reached $20.75 billion in fiscal 2012, an increase of 16%
from 2011.4 However, as competitors continue to mature and Inditexs rapid expansion
begins to pose new challenges due to varied global consumer demand and increased
distribution needs, we recommend the following strategies that will allow Inditex to continue
to grow, increase sales, and maintain its global market share and position:

Pablo Isla Alvarez de Tejera, Ortegas handpicked successor, was appointed CEO in 2005 and
took over this role quite seamlessly. Isla, formerly a lawyer, is strongly involved with the
companys finances and costs. His first promise as CEO was to reduce the groups business
risk by better aligning sales and operating cost growth. Referred to as Reduce 3, his plan
aimed to reduce the spread between sales and operating cost growth by 300bps by 2008/09,
and was achieved one year ahead of plan (ms). Mr. Isla was heavily involved in the creation
of Zaras global onlinecommerce platform. While Zara Home was the first concept to have a
transactional website launched in 2007, the first online Zara store was launched in 2010,
and by years end was available in 16 countries. The company has not released specific
financial data for this sector of their business but reports that the online stores are thriving.
The Zara brand is now present online in 21 countries including China, where it launched in
September, 2012. Ortega, who stepped down as chairman in 2011 is not completely
removed from his enterprise though, and is still involved in the product side of the business.
Mr. Ortega still owns 59% of Inditex, and the particular success of the company in 2012
caused him to edge out Warren Buffet as the third richest person in the world.
As shown in the chart below, Inditex is continuing to increase its online presence, with both
Zara and Zara Home having presence in about 20 key markets. There is still much room for
continued roll-out, especially in the Americas for Zara, and further development of the other
retail brands. All of Inditexs additional online platforms such as YouTube channels, apps,
social media, and newsletters are intended to both facilitate online retail and allows
customers to explore look books and product ranges.

Market Definition

Inditex operates predominately in the fashion retail industry, and is today the largest global
fashion retailer by sales. The fashion retail industry is highly saturated and highly
competitive, as well as very broad. Within the fashion retail space there are many ways for
companies to define themselves and compete. Small independent boutique stores may
compete solely within a local market, while other retailers are regional, national, or global
chains. Department stores such as Macys or Nordstrom offer separate collections for men,
women, teens, and children, while Chicos for example targets a much narrower
demographic of middle to high income women over 35. Since it is ineffective to compare
Chanel to Old Navy though both fit under the fashion umbrella, it is more useful to stratify
the industry into different segments based on size, location, product offerings, price, and
target audience to better determine competitors.
Inditex owns eight retail concepts, seven of which currently operate in differentiated fashion
markets, each targeting fashion forward and price savvy shoppers, from teens to the more
sophisticated trend seeker. Inditexs eighth retail format, Zara Home, is the one exception
and the companys first foray outside of the fashion world. Zara Home offers stylish home
dcor and linen, though it only accounted for 2.2% of Inditexs overall sales as of 2012 so its
influence is minimal.
Within the fashion retail industry, Inditex operates in the fast fashion segment a space the
company invented. Companies that operate within the fast fashion space combine quick
response production capabilities with enhanced product design capabilities to both design
products that capture the latest consumer trends and exploit minimal production lead times
to match supply with uncertain demand.

Internal Rivalry
Zara is the companys flagship retail format and the key to their success, accounting for
66.1% of overall sales in 2012. Zara offers greatly imitative high-fashion trends at low to
midrange price points, drawing the attention of young, fashion enthusiasts around the world.
As a broad, yet highfashion style retailer, Zara competes with most major fashion chains as
well as local independents around the world. While other competitors such as Hennez &
Mauritz (H&M) also promise affordable trendy clothing, Zara is more closely aligned with the
styles one might find in Paris or Milan, so much so that it has garnered negative criticism for
copying high-end designers too closely without credit or payment. To summarize what a
unique niche Zara occupies in such a highly competitive industry, a Goldman Sachs analyst
described the brand as Armani at moderate prices.
Another industry observer suggests Zara fashions are more Banana Republic, while its
prices are more Old Navy. Zara not only competes with product differentiation, offering the
most closely imitative European runway styles among its competitors, but also on price.
Inditex first identifies the prices customers will pay for competitors products, and then
targets prices often 15% below this amount. More noteworthy, Inditex was the first fashion

retailer to compete based on time-to-market. Inditexs unique business model is what gives
it a competitive advantage as the pioneer and frontrunner of fast fashion, causing its
competitors to either adapt or fall further behind. In recent years, European fast fashion
chains have grown more quickly than the retail fashion industry as a whole. While this
drastic growth rate means that other companies have learned to replicate parts of Inditexs
model, the retail giant has so far managed to stay one step ahead of the competition.
Their first mover advantage has given them more time to fine-tune production and design
processes and grow their global presence. The companys vertical integration, short supply
chain, and minimal inventory allow it to be responsive and avoid risk. To illustrate what an
asset this model truly is, we can examine the fall of the former retail leader and current
competitor, Gap Inc. Gap, following the traditional fashion model, places orders for seasonal
collections months before they hit the stores in order to accommodate the long lead times of
their contracted overseas manufacturers. This means that Gap and others have to predict
what customers will want months in advance, and the cost of failure is high. Gap was able to
manage this successfully until the turn of the new millennium, at which time the company
tried to revitalize the brand to ease falling sales, but predicted trends horribly wrong.
Chasing a new teen demographic that never came, the store was left with a stale inventory
of mini skirts and low-rise skinny jeans, styles unappealing to Gaps typical customer. As a
result these classic customers turned to other retailers, and because of the long lead time
required to get new clothes back into the stores, the company could not quickly mediate the
issue and saw a decline in sales for a consecutive 29 months. While the Gap was faltering,
Inditex was gaining traction in the market and by August 2008, sales edged ahead of Gap
and Inditex took the title of the worlds largest fashion retailer.
Not only does Inditexs business model uniquely protect it from risk, it also creates a buying
environment that promotes more frequent sales. The industry average length of time it takes
clothes to go from the design stage to the store floor is 5-6 months. When it comes to Zara,
this process takes a mere 2 weeks, and to avoid excess inventory, only a relatively small
number of each garment is shipped to stores. This means that new designs enter stores
frequently, but wont be available for long. This cycle creates a buy now attitude within
Zara stores, and encourages customers to return more frequently for new items. The
average Zara customer visits the store 17 times per year, compared with only three annual
visits made to competitors.
Why has no one exactly copied Inditex's business model? One executive at Gap is said to
have answered: I would love to organize our business like Inditex, but I would have to knock
the company down and rebuild it from scratch. Inditexs head start and deep knowledge of
this type of production has given it a huge advantage, though in the fashion industry nothing
lasts forever and the margin between Inditex and its rivals is bound to shrink. Other retailers
are looking to move production out of Asia and some have even started poaching Inditex
corporate employees. The Swedish company H&M, Inditexs most similar rival and second
largest global retailer, has incorporated many similarities into their own business. H&M has
expanded substantially in recent years, and today there are 2,800 stores in 48 markets,

Germany being the largest, followed by the US, UK and France. H&M sees potential for
continued expansion in existing as well as Asian markets. Like Inditex, H&M collaborates with
franchise partners in certain markets, but franchising is not part of their general expansion
strategy. The H&M Group includes H&M, H&M Home, and five other apparel brands with
varying target audiences: COS, Monki, Weekday, Cheap Monday and & Other Stories. H&M
employs a blend of traditional and fast fashion, offering two main collections each year, but
within each season there are sub-collections that allow H&M to continually refresh its
inventory. The primary collections are traditional long-lead items while the sub-collections
are trendier items with three to six week lead times, made possible by the companys 20 to
30 production offices placed close to its suppliers. While Inditex has twice the number of
stores as H&M and still boasts a faster response time, the Swedish entity offers a lower price
point while controlling a much higher percentage of the American market. While Zara and
the likes of Gucci and Prada are not direct competitors, Zara is changing the high-end
fashion game as well. Masoud Golsorkhi, the editor of Tank, a London culture and fashion
Magazine says The retail strategy for luxury brands is to try to keep as far away from the
likes of Zara. Zaras strategy is to get as close to them as possible.
As the brand grows and fast fashion becomes trendier, Zara has a unique offer for
consumers. Duchess of Cambridge Kate Middleton, whose outfits and style have been the
center of much media attention, was even photographed wearing Zara. Golsorkhi went on to
say, [Zara] broke up a century-old biannual cycle of fashion. Now half of the high-end
fashion companies make four to six collections instead of two each year. Thats absolutely
because of Zara. While Inditex will undoubtedly face increased competition as other
retailers adapt to a faster fashion approach, it currently holds a strong, distinct, and
influential roll in the market. Louis Vuittons fashion director Daniel Piette calls Zara possibly
the most innovative and devastating retailer in the world.
As for Inditexs other seven retail concepts, Pull & Bears casual product offerings makes its
closest competitors other casual surf wear and lifestyle/sportswear companies. Massimo
Duttis closest competitors are upper mid-market fashion retailers and lifestyle brands such
as Banana Republic and Ralph Lauren. Given Berkshas narrower consumer demographic, it
occupies a smaller competitive landscape than Zara, and faces competition from other large
international chains with a young fashion focus such as H&M, as well as varying local
independent retailers. Stradivarius, like Berksha, has narrower competition than Zara given
its sole female focus, and faces similar competition. Oysho, Inditexs specialized lingerie and
accessories retailer, faces competition from other lingerie and accessories chains as well as
department stores, local specialists, and other Inditex concepts. Zara Home competes within
the homeware market, which is also highly fragmented. Lastly, Uterqes focus on
accessories and leather goods makes its competitive landscape quite broad. Uterqe must
compete with the accessories offerings of department stores and specialist retailers, while
its prime realestate and prices allow it to compete against affordable luxury and premium
lifestyle brands.
Entry

Barriers to entry are relatively low in the fashion retail industry. Historically, acquiring
property, inventories, and a physical storefront was the biggest upfront cost and barrier for
companies wishing to enter into the brick-and-mortar apparel space. However, with the
sizeable growth in e-commerce platforms and online retail this initial barrier is reduced,
encouraging the entry of more competitors and increasing competition. In addition to this
relatively low capital requirement, workshops and storefronts do not require highly skilled
laborers. Despite this, economies of scale in production impact entrants who will either
accept a cost disadvantage or produce in large volumes. Entrants wishing to compete on a
greater, global scale face the highest barriers to entry. Competitors that outsource
manufacturing develop a broad network of suppliers over time, giving them a resource that
cannot be immediately copied by new entrants. Similarly, Inditex has spent decades
perfecting its integrated network, and a new competitor cannot duplicate this advantageous
large-scale integration, IT response structure, or distribution system upon entry. Moreover,
Inditex and its closest competitors have a high brand value that cannot be achieved
immediately. Lastly, the current global economic condition is a potential barrier to entry that
must be considered. During a recession, retailers offering low price points become more
competitive, and new entrants are more likely to hesitate. As the global economy moves out
of the recession and customers regain buying power, then the incentive to enter increases.
Despite Inditexs high percentage of sales within its home Spanish market, the companys
low prices allowed it to remain competitive during the downturn of the economy.
Supplier Power
Inditex has 13 textile manufacturing subsidiaries located in Spain and 11 logistics
subsidiaries (one for each concept and 4 for Zara). The most prominent company owned
manufacturer is Tempe, which designs, manufactures, and distributes shoes to each fashion
retail format. Due to its scale, Zara is the only concept to source internally, though it is free
to source as much as necessary externally to ensure that its internal sourcing remains
competitive. The other concepts use only external suppliers. Zara does not produce its own
fabrics, and outsources low value-add, laborintensive parts of production such as sewing.
The majority of fabric dyeing is outsourced to partly owned subsidiaries in Northern Spain,
and Inditex has a 50% stake in high-value add production firms, giving them considerable
price bargaining power. About 50% of Inditexs suppliers are located in Spain, Portugal, and
Morocco, about 35% in Asia, while the rest are spread throughout Europe. Asian
manufacturers largely supply simple, standardized orders such as t-shirts and jeans since
these products dont require particularly fast lead times. Due to its higher offering of sewing
intensive tailored clothing, Massimo Dutti sources the majority of products from proximity
markets and Europe.Inditex uses a total of 1,237 suppliers across the globe. By increasing
suppliers, the company is shielded from risk because it is less dependent on each individual
firm and can keep each stage of production competitive. Furthermore, Inditex is known to
value corporate responsibility, and by having so many options they are able to cease
business with a supplier if unfavorable or unethical conditions are discovered within that
factory. Beyond morals, this also makes good business sense since scandal could tarnish the
brand name.

Buyer Power
Buyers in the fashion retail industry have no switching costs and can easily search for best
prices because the industry concentration is high. External conditions and economic
instability are potential threats to fashion retailers due to their effect on purchasing power
and demand. Recessions affect companies differently depending on their price position in
the market. About a quarter of
Inditexs sales are generated in Spain, and within the Spanish market its prices are low due
to the proximity to its suppliers and low transportation costs. Despite the reliance on its
stalling home market where consumption is dropping and businesses are struggling, Inditex
was able to remain competitive given its price leader position, and even managed a 1%
increase in revenue in 2011. However, in other markets, especially those overseas, higher
transportation costs are transferred to the consumer so Inditex is not able to maintain as low
of a price point. Furthermore, in foreign markets with lower prices in general and with higher
proportions of lower income shoppers, Inditex prices seem less like a bargain and are less
assessable. Therefore, in these markets, economic downturns could result in a loss of market
share.
Substitutes & Complements
Given the relatively nonexistent switching costs for retail consumers, the threat of
substitution within the industry is high. Inditexs broad range of offerings and brand formats
give it an advantage.
Within its eight retail formats Inditex offers clothing, lingerie, swimwear, purses, jewelry,
accessories, and footwear in casual to formal styles. Similarly, within the eight brands the
company caters to both men and women, kids to adults, and low price to mid/high price
shoppers. Zara especially has gained a loyal consumer base eager to return again and again.
By offering so many products and appealing to various market segments, Inditex minimizes
its own substitution risk within the fast fashion industry. Furthermore, by rolling out its own
e-commerce platforms in 2010, the company also diminished the threat substitute electronic
retail channels pose to brick-and mortar companies.

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Why Is Zara Vertically Integrated?

Zara is vertically integrated as a result of its focus on being the quickest and most agile fashion retailer in
the market. Zaras structure vertically integrates the design process, just-in-time production, sourcing,
delivery and sales which provides a very close and informal information network and efficient coordination
across all of the production and sales units. For example, store managers are able to share feedback on
how new designs are being received by the market with the relevant design and production departments
to help improve the process. Production and delivery of items, such as incremental design and volume
adjustments, can thus be tweaked and improved during the season and put into the stores with little lead

time. Another example is the speed at which Zaras can take a product from design to market. The
industry standard is for a design to market cycle of six weeks while Zara is capable of executing a three
week production to market cycle.

Moreover, Zara is also a vertically integrated company. Vertical integration describes a company that has
control over several or all of the production and distribution steps involved in the creation of their product.
The retailer operates with a vertically integrated demand and supply chain while most other textile chains
rely on outsourcing and cheap labor, whereas Zara owns its on textile dye house.Vertical Integration a
distinctive feature of Zaras business model, has allowed the company to successfully develop a strong
merchandising strategy. This strategy has led Zara to create a climate of scarcity and opportunity as well
as a fast-fashion system. Zara manufactures 60% of its own products. By owning its in-house production,
Zara is able to be flexible in the variety, amount, and frequency of the new styles they produce

At the heart of Zara's success is a vertically integrated business model spanning design, just-in-time
production, marketing and sales. This gives the group more flexibility than its rivals have to respond to
fickle fashion trends. Unlike other international clothing chains, such as Hennes & Mauritz (H&M) and
Gap, Zara makes more than half of its clothes in-house, rather than relying on a network of disparate and
often slow-moving suppliers. H&M, for instance, buys clothes from more than 900 firms. Vertical
integration has gone out of fashion in the consumer economy, says Richard Hyman of Verdict, a retail
consultancy in London. Zara is a spectacular exception to the rule.
Zaras aim, according to Amancio Ortega, founder of Inditex, is to democratise fashion by offering the
latest fashion in medium quality at affordable prices. What differentiates Zaras business model from that
of its competitors is the turnaround time, and the store as a source of information.
Zaras vertical integration of design, just-in-time manufacturing, delivery and sales; flexible structure; low
inventory rule; quick response policy and advanced information technology enable a quick response to
customers changing demands (Castellano, 1993; 2002). A completely new piece of clothing can be
designed, manufactured and delivered in less than four weeks.
Changes of an existing garment can be put on display within two weeks, much faster than the competition
(The Economist, 2005). About 11,000 new items are launched every year (Ghemawat and Nueno, 2003).
While Zara controls its entire production chain, Gap Inc and H&M outsource all their production. Zara
vertical integration enables the firm to have a faster turnaround than its competitors.