H&M and Zara

H&M and Zara, are well known reputed fashion designing and manufacturing companies in
fashion industry. They are two of the worlds largest fashion retailers and engaging in fast
fashion market.
Marketing Strategy
H&M is easily one of the leading fast fashion companies as it has found a way to legally
incorporate designer lines into this cost-efficient business. Its main marketing strategy is to
partner with high fashion designers and have them design a limited collection - for example
the upcoming line with Balmain. It partners with top celebrities to then promote these
exclusive collections.

The difference between this fast fashion company and most is the normal clothing stock and
styles. H&M does not replenish its shelves with new things as often as others in this industry
do, making stores less attractive to some people looking for the newest, best thing.

H&M offers two main collections each year, one in spring and one in fall. Within each season,
there are several sub-collections so there are always new products in the stores. The main
collections are the traditional long-lead items, and the sub-collections are the trendier items
with short lead times. It relies on understanding what their customers want and have built
systems for identifying consumer preferences.

Zara may have a slightly faster lead time, but H&M uses a different strategy. Apart from the fast
fashion product, some products with long-lasting and ongoing styles have not yet tried by the
company and are a domain where customers are still willing to pay. There is a market segment
that needs stylish fashionable clothes over a longer period of time. That is same style, with a
brand name and renowned design of that particular brand. So, introducing some designs that
change over a period of a year or six months and that remain available throughout the year can
open a new dimension for business.

Around one quarter of their stock is made up of fast-fashion items, but they also keep a large
inventory of basic, everyday items sourced from cheap overseas, mainly Asian, factories. For
this reason, we feel that H&M will be more appealing to the masses in the teen and young adult
segment. Some consumers might be afraid to go too fashion-forward, so those that have a
more reserved style may also find something at H&M.
Zara

Zara prides itself on its team of designers. These designers work to assess customer
preference and demands weekly. Zara uses a strategy called Vertical Integration, which
means the company owns the whole process from the stores to the factories and is in charge
of each step of the way. This control allows for quick adaptability and continuous flow of
products.

Zara has spread a common concept of fast fashion. New style ranges are frequently introduced
in market and thus Zara is moving parallel to market trends. Zara has an efficient and
continuous communication system with its customers and thus changes in markets and streets
flow directly to the designers and this information is depicted to be used in next range of
designs.

Such rapid and fast paced response has created competitive advantage and other companies
that take six months to take a design from idea to realization form are now moving towards this
continuous and consistent communication with market. The basic concept behind this strategy
was to stay in contact with the customers, the real target of a company, taking their feedback
and then changing the products according to the demands. Zara is successful in creating an
edge for itself and dominating its competitors as no other firm can reach this level of fast
delivery of inventory in store. Zara has focused customers with short term needs and the
reason behind was to minimize the operating capital.

What sets Zara apart from many of its competitors is what it has done to its business
information and business process. Rather than concentrating on forecasting accurately, it has
developed its business around reacting swiftly. As far as finished garments are concerned,
rather than forecasting, it just quickly produces the least amount possible of what is hot with
consumers, and moves to the next hot style fast. With its range of clothes constantly being
updated, one or two slow-selling items are unlikely to hurt profits. Customers are also more
likely to visit its shops regularly to see new stock.
BMS model

Distribution Channels

H&M has the most physical locations of the three companies, with over 3,450 stores worldwide
as of November 2015. Zara boasts 2,000 stores, and Uniqlo has opened 1,400 stores. Uniqlo's
introduction into the U.S. market occurred in 2005 with three stores; since then, 42 stores have
opened on the East and West Coasts as of November 2015. H&M's infiltration into the U.S.
market has been more prolific, with 407 stores. Zara currently has 55 stores open in the United
States, with a majority of its locations in Spain, where there are over 450 locations.

Part of H&M's strategy to boost sales has been to offer customers featured products that have
been marketed as designer collaborations with well-known names such as Versace and
Alexander Wang. By offering these products within H&M locations, the company boosts its own
reputation by partnering with valuable figures in the fashion world, and it offers its customers
additional lines for purchase that are different in look and style from the mainstay designs of
the company.

Zara's strategy is to offer a higher number of available products than its competitors. While
most clothing retailers manufacture and offer to the public for sale 2,000 to 4,000 different
articles of clothing, Zara's production has been markedly higher, at over 10,000 pieces
produced per year. This unique feature of the company's strategy has allowed Zara to appeal to
a broader number of customers with unique tastes.

Segmentation of offering at Zara vs H&M

H&M and Zara have very different strategies when it comes to the weighting of their offering.
The bulk of H&Ms offering is womenswear and this focus is communicated in their advertising.
Menswear at H&M takes a backseat. Zaras apparel split is much more even considering the
retailer gets so much coverage for its womenswear offering, the breakdown is in fact very
balanced.

These weightings suggest that Zara and H&M are competing for and pitching at different
consumer types. The Zara customer could be more mature, and shop across the breadth of the
retailers offering for his or her partner and children, while H&Ms predominant consumer is
shopping for womenswear. Strategically, Zara splits its focus across all three channels. A sign of
confidence and clarity? Or perhaps an overly broad vision?
Dramatically Different Pricing Strategies

H&M have the bigger online offering, with currently around two thousand more options than
Zara. The pricing strategy at the two retailers varies dramatically, despite having similar entry
and exit points. H&Ms apparel pricing spans $1-$291 and Zaras is $5-$322, however average
price point at H&M is $21.40 and at Zara is $48. Even more telling is the the price point which
each invests in most heavily. At H&M 56% of the offering sits in the $1-$20 bracket, whereas
Zara gives its price architecture a more even ratio their most optioned price point is $20-$40
and represents a more modest 32% of their offering.

The differential pricing structures are very visible when comparing two of the most competitive
categories: womenswear tops and dresses. H&Ms most optioned price bracket in tops is $20-
$30, whereas Zaras is $40-50. The two have clearly defined places in the market for this
category their consumers expectations will be tried and tested and their point of difference
clearly honed through product type, quality and detailing. The structuring around dress price
points is less clear from both. H&M give equal weighting to products priced $20-30 and $40-50,
and ease off on the $30-40 bracket. Zara have an equally unbalanced spread of product through
their price points: $40-50 is their most optioned (and being one of H&Ms most common price
points for dresses, doesnt define their point of difference as clearly as the tops category), they
ease off on the $50-$60 bracket, and come back in again for $60-$70. Both retailers may want
to assess these bumps in their assortment its far easier to encourage a consumer to up their
spend if pricing runs on a smoother scale.
Supply Chain

Synergy between business and operations strategy

Zaras overarching strategy is achieving growth through diversification with vertical

integrations. It adapts couture designs, manufactures, distributes, and retails clothes within 2
weeks of the original design first appearing on catwalks.

The company owns its supply chain and competes on its speed to market, literally embodying
the idea of fast fashion.
Just in time production

The retail giant delivers fashionable and trendy numbers catered for different tastes through a
controlled and integrated process just in time.

Zara keeps a significant amount of its production in-house and makes sure that its own
factories reserve 85 percent of their capacity for in-season adjustments. In-house production
allows the organization to be flexible in the amount, frequency, and variety of new products to
be launched.

The company often relies heavily on sophisticated fabric sourcing, cutting, and sewing facilities
nearer to its design headquarters in Spain.

Zara also commits six months in advance to only 15 to 25 percent of a seasons line. And it only
locks in 50 to 60 percent of its line by the start of the season, meaning that up to 50 percent of
its clothes are designed and manufactured smack in the middle of the season.

If a certain style or design becomes the new must-have on the street, Zara gets to work.
Designers churn out the new styles and they're fast-tracked to stores while the trend is still
going strong.

Store managers communicate customer feedback on what shoppers like, what they dislike, and
what theyre looking for. That data is instantly funneled back to Zaras designers who begin
sketching on the spot.

INVENTORY MANAGEMENT

Inventory optimization models are put in place to help the company to determine the quantity
that should be delivered to every single one of its retail stores via shipments that go out twice
every week.

The stock delivered is strictly limited, ensuring that each store only receives just want they
need. This goes towards the brand image of being exclusive while avoiding the build up of
unpopular stock.

This quick in-season turnaround, from production facilities located close to Zaras distribution
headquarters in Spain, allows Zara to ship more often and in smaller batches. If the design Zara
hastily creates in an attempt to chase the latest trend does not in fact sell well, little harm is
done.
CENTRALIZED LOGISTICS

Zara sticks to a deep, predictable and fast rhythm, based around order fulfillment to stores.

Each Zara outlet sends in two orders per week on specific days and timing. Trucks leave at
specific times and shipments arrive in stores at specific times. Garments are already labeled and
priced upon destination.

As a result of this clearly defined rhythm, every staff involved (from design to procurement,
production, distribution, and retail) knows the timeline and how their activities pan out with
respect to other functions. That certainly also extends to Zara customers, who know when to
visit stores for fresh new garments.

SOLID DISTRIBUTION NETWORK

Zaras strong distribution network enables the company to deliver goods to its European stores
within 24 hours, and to its American and Asian outlets in less than 40 hours.

According to Nelson Fraiman, a Columbia Business School professor who wrote a 2010 case
study about Zara, the retail giant can get a product out from concept to store in just 15 days,
while the industry standard is 6 months.
H&M- Supply Chain

FROM IDEA TO STORE: PRODUCTION PROCESS

H&M doesnt own any factories, instead we work with around 820 independent suppliers
who are close, long-term partners.
They work with long-term partners and invest significant resources in our sustainability work
in the supply chain.
H&M does not own any factories; their products are sourced from independent suppliers,
mainly in Europe and Asia. These suppliers manufacture our products and generally source
fabrics and other components needed.

The H&M production offices located in our sourcing markets are the main point of contact
for the local suppliers, handling timing and practical aspects of all orders.
H&M has a team of around 80 people who audit working conditions at supplier factories
against our Sustainability Commitment.

The production offices also perform extensive safety and quality testing as well as ensuring
chemical requirements are met.
Ordering each product at the optimal moment is an important part of finding the right balance
between price, time and quality.
Lead times vary from a few weeks to six months, with high-volume products such as basics
and childrens wear ordered far in advance while more trend-led garments in small quantities
can be produced at considerably shorter notice.

FROM IDEA TO STORE: LOGISTICS AND DISTRIBUTION

Efficient logistics and greener transport make sure the latest trends and the right basics are
always available in stores at the best price and with minimum impact on the environment.

Efficient flows
H&M is both importer and retailer, and they make careful choices regarding every transport
link in the supply chain from factory to store. Efficient flows and cost-consciousness at every
stage are crucial to our success. These factors ensure that the right goods end up in the right
quantity for each store and at the best price
for customers.
The greater part of shipments from the suppliers factories goes directly to logistic centers in
their markets, which support stores in their geographic vicinity independently of national
borders. Further, stores do not have back up stocks, but are replenished as required from the
distribution centers.
Around 90 percent of all transports are by rail or sea.

Green transports
One of the challenges is to fulfil their requirements and keep up with the rapid pace of
H&Ms growth while making sure our transports have the least possible impact on the
environment. They therefore strive to:
avoid air and road transports whenever possible
work with environmentally friendly transport companies
have more efficient logistics with as little impact as possible on the environment
In 2015, more than 90 percent of the goods were transported from suppliers to distribution
centers via sea or rail.

Here is a comparison of the approaches taken by H&M and Zara to managing their supply
chains* divided in the following strategic areas :
Design:

H&M: The three main components are: fashion, Price and quality. 50 pattern designers,
100 buyers, Budget controllers.
Zara: Market specialists, 3 different product areas: womens, mens and childrens
garments. Has around 300 designers producing 40,000 items per year of which about
10,000 go into production.

Supplies:

H&M: Buyers and budget controllers have to find the optimum balance between the
three main components (fashion, Price and quality), and then volumes and delivery
dates are decided.
Zara: Market specialists and buyers are in regular contact with Zara retail stores,
discussing customer reaction to new designs.

Manufacturing:

H&M: Does not own any factories, and works with around 750 suppliers, half of its
production takes place in Europe, and the rest mainly in Asia.
Zara: They own most of the manufacturing capability used to make their products.
About half of its products are produced in its 20 network factories in Spain.

Distribution:

H&M: The stock management is handled internally and physical distribution is

subcontracted, most of the product arrives to H&Ms transit terminal at Hamburg,
where merchandise is inspected and allocated to the stores.
Zara: Automated warehouses close to main production centres, Zara is planning to open
a second automated warehouse.

Retail:

H&M: Stores average size are 1,300 square meters and are owned and run by H&M.
Zara: Stores average size are 800 square meters, garments rarely stay in store for more
than 2 weeks.