Always Trust the Customer: How Zara has Revolutionized the Fashion Industry and Become a Worldwide Leader

Always Trust the Customer: How Zara has Revolutionized the Fashion Industry and Become a Worldwide Leader

Eric Viardot (EADA Business School, Spain)
Copyright: © 2014 |Pages: 27
DOI: 10.4018/978-1-4666-4357-4.ch007

Abstract

This case study illustrates the effectiveness of pursuing a customer centric marketing approach in order to achieve long term strategic success and market leadership in the fashion industry. The case study provides the most significant elements of Zara’s history. Then it describes the competitive environment. Next it reveals how Zara has set up a unique, lean, and agile supply chain strategy in order to deliver new products on a very frequent basis and faster than any of its competitors, as fashion customers expect constant changes. Then the case study details the customer centric marketing strategy, with the use of customers as the source of the inspiration for fashion design, the central role of the stores to build a very high level of trust with its customers, which is used by Zara to make a distinctive brand strategy. Finally, the case study discusses the new challenges that Zara customer centric marketing strategy is meeting when confronted with the expansion on the Chinese market and the online market.
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Background

The amazing success of Zara-and Inditex-is closely linked with his founder, Amancio Ortega Gaona. He began his career in 1963 as a clothing manufacturer. The business grows steadily over the decade until Ortega owns several factories, which distribute their merchandise to other European countries.

In 1975, Amancio Ortega opened the first Zara store on a street in downtown La Coruña, Spain in 1975. The expansion strategy which made a small Spanish clothing firm into the undisputed worldwide leader in apparel can be described in three phases: First came the national development in Spain, then the international expansion in Europe and in the US and Latin America (1988-2003), and finally the global surge in Asia and the rest of the world. There were about 1750 Zara stores in 80 countries. Zara was also extremely successful in China and online Zara shop was planned to be launched in summer 2012 for the winter season opening in China.

As illustrated in Figure 1 the rise of Zara and Inditex has been extraordinary. From 1991 to 2003, Zara sales grew more than 12-fold from €257 million to €3.220. From 2003 to 2008, the company managed to double its size. By August 2008, sales edged ahead of Gap, making Inditex the world’s largest fashion retailer and Zara the worldwide leading brand in the apparel industry. From 1991 to 2011, the compound average growth rate is about 18.5%, meaning that Zara has managed to double its size almost every 4 years! This commercial success reflects the importance of growth in the Zara culture. The founder Ortega likes to repeat that “a company that does not grow will die.” Ortega stepped down as CEO in 2011 leaving the place to Pablo Isla, but he is still very involved in the strategic decision of the company.

Figure 1.

Inditex sales and net income from 1975 to 2011

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The Industry And The Competition

In the apparel industry, Zara global’s main competitors are H&M, Gap, & Benetton.

Hennes & Mauritz AB, also known as H&M, is an apparel and accessory store founded in 1947 in Sweden known for offering the latest fashion trends. H&M is the world's second biggest-selling clothing retailer and it has proven to be a very aggressive competitor for Zara .H&M specializes in taking advantage of the season’s latest looks inspired by design houses around the world and providing women, men, and children contemporary clothing styles at low prices. Targeting the 18 to 34-year-old market, the company manufactures affordable, stylish clothing. H&M operates more than 2,500 stores in 43 countries, with more than 200 stores in the U.S. Its brand has a strong recognition worldwide.

Gap built its iconic casual brand on basics for men, women, and children first in providing jeans, khakis, and T-shirts which had become the standard fashion in the U.S. in the 1990’s from hip teens to suburban moms to Sharon Stone, who wore a Gap turtleneck to the Oscars in 1995. The group expanded with the urban chic chain Banana Republic and chic at a discount Old Navy. The diversification was initially successful but entered in trouble in the mid 2000’s as the brands went too deep in their concept and frustrated the clients who switched to fresher competitors. Gap experienced a decrease in revenues and market share as well as financial losses. Since then, it seems that Gap struggles to recapture customers who have abandoned it though it has some hit products like the Perfect Black Trousers in 2010 or the special collections in collaboration with Stella McCartney. In 2011, Gap operates about 3,200 stores worldwide. It has sold more than 150 stores in the US because of the competition of specialty retailers like Abercrombie & Fitch and low price fashion specialists like H&M and Zara.

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