Zara: The Spanish Retailer on the Top of the World Fashion

Introduction

Though fashion retailing is one of the most prosperous areas of the business, the high level of competitiveness makes the process of achieving big success in this business rather challenging. The history of development of the Zara (Inditex) fashion retail chain can serve as one of the brightest stories of success in fashion business. The owners of the company managed to create a giant of fashion retailing which dominates the market and has huge popularity among people from all over the world. The analysis of the specifics of the company’s approaches to internationalization, competitive ability, multi-brand store strategy, and joint ventures will help to evaluate the strategies used by Zara on the way to enormous revenues and worldwide fame will help to reveal the. These aspects will be discussed in the paper with the help of the application of relevant theories and concepts in business marketing and management.

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Analysis of Zara’s internationalization

Zara (Inditex) has walked a long way to the internationalization of its business. Nowadays the company operates an unprecedented number of stores in numerous countries and has gained success and popularity in all parts of the world. The analysis of the theoretical internationalization model applied by Zara on practice will help to reveal the specifics of the company’s strategy that enabled it to build a strong network of stores across the globe despite cultural and economical differences between the countries it operates in.

There are three main internationalization theories widely used by scholars to ensure the quick and successful accomplishment of the international emerging markets: the Uppsala model, the Transaction Cost theory, and the Network model (). The Uppsala model suggests that companies eager to enter foreign markets first receive essential experience and gather knowledge in the home country. The model also suggests that the expansion to foreign countries starts from entering the markets of the countries that are geographically or culturally bound to the home country of the company (). Only after making this step, the company gradually expands its representation to distant countries. Besides, gradual expansion to the foreign market supported by traditional exports slowly changed for more intensified operational modes is another significant feature of the Uppsala model. The Transaction Cost theory regards the process of internationalization as the one focused on ensuring the minimization of transaction cost that serves as the main factor influencing the choice of a new market (). The Network model is based on the assumption that the process of expansion to foreign markets relies on interpersonal relationships and bonds between the organizations (). Such a model suggests that internationalization occurs within the network of business actors surrounding the company.

It is rather obvious that the internationalization strategy used by Zara is best represented by the Uppsala Model theory. Before starting the expansion to international markets, the company gathered the necessary experience and attained relevant knowledge by broadening the network of stores operating in the domestic market in Spain. The first step in its internationalization was the expansion to Portugal, which is a culturally, religiously, and geographically close country to Spain. Only after getting positive experience in Portugal and receiving practical knowledge of how to adjust the business model to foreign markets, Zara start the realization of plan aimed at broadening its target market to other countries that are not culturally distanced from Spain, such as Western European countries and the countries of Latin America with Spanish-speaking population.

Only after gradual and careful expansion to such countries, Zara venture to enter the markets of the regions that have rather different cultural environments, such as the Middle East, Eastern Europe, and Asia. Besides, though Zara used a hierarchical entry mode to countries that are socio-culturally close to Spain, the company used lowly-intensified operational models in culturally and geographically distant countries such as India, China, or Saudi Arabia. Therefore, all of the steps made by the company towards building a strong international presence correspond to the main features and assumptions of the Uppsala model. The history of Zara’s internationalization serves as an illustration of validity of the Uppsala model, as the company followed the strategy described in this theory and managed to achieve enormous success in foreign markets.

The analysis of Zara’s internationalization strategy reveals that the company’s approach corresponds to the Uppsala model, which appears to be rather successful as nowadays Zara operates nearly six thousand stores in 85 countries.

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Evaluation of the competitive strategy of world market’s leaders

Three main global competitors in fashion retailing include Zara (Inditex), Gap, Inc., and H&M. The analysis of the competitive strategy of these giants of fashion retailing will help to evaluate their effectiveness and identify the future leader in the industry.

Zara’s competitive strategy is based on several aspects that make the experience of its customers unique. The first aspect is related to the fact that most of the products sold in the company’s stores are made at company-owned factories and Spain and Europe. Such a feature makes the retailer stand out from the rest of the fashion brands by offering the exceptional quality of products as it controls the whole process of manufacturing the items. While the products of many fashion retailers are produced in Asia, Zara’s fashionable items are mostly produced in countries that have high reputation in provision of quality.

Another beneficial tool of promotion of Zara’s competitive ability is the developed multi-brand network of stores. Such a network enables the retailer to offer products that correspond to any taste, age, and preferences and expand the range of target customers. Zara’s orientation towards creating fashion items that match the latest trends and preferences of the population is another advantage of its strategy. The efficient process of gathering the feedback from the customers and the developed time-effective system of providing immediate supply of the items that are found to be in demand also contribute to the competitive capacity of the brands. Therefore, the analysis of the competitive strategy of Zara reveals that the company has multiple distinctive features that make it stand out from the rest of its competitors.

Gap, Inc. is an American fashion retailer that has built a strong reputation in the fashion world. The competitive strategy of the company is mainly based on the multi-brand store brand portfolio and successful advertising companies promoting the image of the brand as the one that represents the best American quality. Gap, Inc. has a developed network of stores operating under various brand names. Each of the brands offers a distinct style and corresponds to the needs of a certain group of population. Such an approach enables the brand to stay competitive in several segments of the fashion retailing market. However, the brand perception, which is based on the reputation of American products, can be harmed by the fact that the company uses a partial vertical integration production model and outsource the production. Therefore, though the company tends to build an effective competitive strategy, the lack of control over the manufacturers placed in Asia can cause the dissatisfaction of customers with the quality of the products.

H&M is a Swedish fashion retailer known for its determination to combination of moderate prices and nice quality. The company’s emphasis on reasonable prices for its products gives the company a significant competitive advantage, as its stores attract a wide range of customers interested in wearing fashionable items without spending much. Another aspect of the company’s competitive strategy is the huge advertising campaigns aimed at promoting the brand image. The company has managed to build a good reputation and expand the range of its customers by promoting each of its collections in media. However, the company’s one-brand store format makes it rather narrowly specialized as it sells products that are interesting for a distinct group of customers. Besides, as well as Gap, Inc., H&M outsources its production. Therefore, the competitive strategy of H&M can be considered as rather successful, but lacking control over production and expansion of target customers.

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The analysis of the leading fashion retailers reveals that Zara appears to be destined to remain the leader in the world of global fashion retailing. The company’s competitive strategy has such advantages as direct control over production, time-effective introduction of new items, a developed range of varied brands, and focus on customers’ preferences. All of these factors present the competitive advantage of Zara over H&M and Gap, Inc. and enable the company to attract millions of new fans every year without investing in media advertising and promotion.

Advantages and disadvantages of Zara’s multi-brand store strategy

Multi-brand store strategy is applied by companies eager to sell competitive products under various brands. Though the scholars suggest that customers’ multi-brand loyalty is a phenomenon that is not investigated enough, numerous companies use such strategy for creation of a wide range of brands corresponding to various preferences of the customers (Felix 2014). The analysis of Zara’s multi-brand store strategy will help to reveal whether there are more advantages or disadvantages of such an approach used by the company.

The main advantage of Zara’s multi-brand store strategy is the ability to sell products that target different segments of population. The company operates brands that target various groups of customers, e.g. Massimo Dutti – adults preferring classy style, Bershka – teenagers and young people, etc. Another significant advantage of the discussed strategy is the company’s ability to increase the market share, as Inditex has managed to become the largest fashion retailer in the world thanks to the range of brands it operates. One more advantage of the strategy is related to the ability to satisfy the preferences of customers in various cultural environments due to the wide range of products offered by the brands. Such a factor contributes to the company’s ability to adjust to new markets and identify the brand that will serve the target population best of all. Lack of effort needed to be put into the promotion of new brands is another advantage, as the positive reputation of previously-launched brands contributes to the initial interest of new entrants. Therefore, the old brands provide a promise of quality to the customers interested in buying the products of the new brand. Finally, such a well-developed network of multi-brand stores provides Zara with significant revenues, as the total number of fans of the company’s various brands is huge.

The main disadvantages of Zara’s multi-brand store strategy are related to the risk of cannibalization. Besides, maintaining several brands requires significant investments aimed at provision of competitive ability to each of them. Managing such a wide range of products is also a rather challenging task, as it requires the implication of a comprehensive approach to production, which, at the same time, needs to correspond to the specifics of each brand. Therefore, constant expansion of personal and improvement of management are of vital importance when realizing the discussed strategy. Another disadvantage is the possibility of dilution of the distinction between the brands of the same company caused by the fact that their products are designed and produced by the same team. However, this risk can be easily overcome by Zara, as the company has numerous teams of talented designers focused on the creation of different products. The ultimate disadvantage is related to the harm to the reputation of one brand caused by the negative feedback to the products of another brand.

The analysis of the advantages and disadvantages of the multi-brand strategy used by Zara reveals that the company uses it successfully. Zara receives numerous benefits from operating a diversified range of brands and manages to overcome the potential risks by making careful strategic choices in a timely manner.

Meeting the risk of cannibalization

The risk of cannibalization refers to the situation when the newly launched brand of the company capture’s the target customers of already existing brands instead of attracting a new segment of the population. The evaluation of how successful Zara is in meeting the risk of cannibalization requires the analysis of the methods used by the company to prevent the development of the discussed problem.

Zara puts much effort into developing an effective functioning of all of its brands. One of the main methods used for overcoming the risk of cannibalization by the company is strong brand differentiation. Each of the brands operated by the company has its distinctive feature that attracts different segments of the customer population: Zara presents the latest trends in fashion, Pull & Bear focuses on casual urban fashion, Bershka offers avant-garde items, etc. Besides, each of the brands operates in different price categories, including medium-low, medium, and medium-high. Such an approach contributes to the strong differentiation between the products sold by different brands of the company. The design and thematic focus of the stores are also chosen corresponding to the brand image. For example, Massimo Dutti differs from casual, youthful, and trendy Pull & Bear by restrained designs and classy interior.

Conclusion

The analysis of the methods used by Zara to avoid the risk of cannibalization shows that the company can be considered rather successful in preventing this problem. Zara has managed to develop a unique range of brands, which operate simultaneously but do not cause any threat to each other. On the contrary, the excellent reputation of the flagship chain contributes to positive attitude and huge interest in newly-launched brands of the company.

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YourDissertation. "Zara: The Spanish Retailer on the Top of the World Fashion." January 13, 2022. https://yourdissertation.com/dissertation-examples/zara-the-spanish-retailer-on-the-top-of-the-world-fashion/.

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YourDissertation. 2022. "Zara: The Spanish Retailer on the Top of the World Fashion." January 13, 2022. https://yourdissertation.com/dissertation-examples/zara-the-spanish-retailer-on-the-top-of-the-world-fashion/.

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