Conquering the Digital Customer: How Zara Is Confronting the Digital Innovation Revolution

Conquering the Digital Customer: How Zara Is Confronting the Digital Innovation Revolution

Eric Viardot (EADA Business School, Spain) and Petra A. Nylund (University of Vic, Spain)
DOI: 10.4018/978-1-5225-2139-6.ch016
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Abstract

This case study illustrates the effectiveness of pursuing a customer centric marketing approach in order to achieve long term strategic success and global 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 of Zara to adapt its customer centric marketing strategy to the digital 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.

As illustrated in Figure 1 the rise of Zara and Inditex has been extraordinary. From 1991 to 2015, the compound average growth rate was about 18.5%, from €257 million to €20.900 million meaning that Zara has managed to double its size almost every four 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 making of the company and owns nearly 60 percent of Inditex shares.

Figure 1.

Inditex sales and net profit from 1975 to 2015 (million EUR)

Source: Inditex annual reports and documents complied by authors.
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The Industry And The Competition

In the apparel industry, Zara’s main global competitors are H&M and Gap. In addition, new competitors born online are emerging using the Internet as their only or primary sales channel such as Zalando and Asos. Figure 2 shows the sales of each competitor compared to the sales of Inditex. Whereas H&M and Gap have taken a drop in sales during 2015, Inditex has experienced continued growth. Zalando and Asos are still far from the sales of the incumbents, but are growing at a steady pace.

Figure 2.

Sales of Inditex, H&M, Gap, Zalando, and Asos from 2011 to 2015 (million (EUR)

Source: Factiva, complied by authors.

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 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 4,000 stores in 62 countries, with online presence in 32 of these markets. The H&M brand has a strong recognition worldwide. The H&M group also includes brands COS, Monki, Weekday, Cheap Monday and & Other Stories, as well as H&M Home. Stefan Persson, chairman of H&M and son of the founder Erling Persson, is the largest shareholder with a 28 percent holding

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