Challenges Faced by Zara in the United States
In the United States, fast fashion accounts for only 1% of the $181 billion U.S. apparel market, compared to 10% in the EU1. Although they are running 1000 retail stores efficiently, only 44 of them are located within the U.S.2. Zara has emerged as a global fast fashion leader as they are able to get up to the instant trends on their shelves within 2 weeks compared to their competition’s 6 weeks to 4 months, while still operating on a low-cost model.3 However, Zara is facing unique challenges in the U.S. market. The low cost, fast fashion model that is successful in Europe and Asia is facing challenges in the U.S. due to a lack of North American infrastructure combined with the demographics, preferences and obesity problem of the United States Zara’s vertically integrated model is a threat to Zara’s success in long run in the United States. The model will not work once Zara scales its operation.
Currently, Zara’s designing, production, distribution and retails stores are tightly coupled together and operate very closely. Expanding operations in the U.S. requires addressing different fashion trends at a time. Zara’s business model is based on ever changing fashion. For countries like US, where people are less fashion forward, it may be a challenge for Zara to sustain its presence. With changing time, advertisement is becoming an important part of the business and it reflects directly to the sales. Zara’s in-store advertisement model may not work going forward due to the intense competition in the United States and the saturation of advertisements for the 17-26 year old female demographic4. As other fashion companies attempt to replicate Zara’s fast fashion model, advertisement is key to differentiating themselves for the competition. Zara’s centralized logistics model may not be able to supply more stores in U.S. The major threat of Zara for their sales in U.S. is lack of distribution facility in America5.
Zara should think about opening the distribution center near the U.S., which can give them the opportunity to be the trendiest and low price retailer in U.S. Zara is facing inability to penetrate the American market due to different tastes of Americans and Europeans. Given different sizing and trends in the United States compared to Europe and Asia, Zara needs to adapt a more local model to the United States. Zara, which is allegedly struggling in the U.S., has been blamed for selling sizes too small for its American customers. While the Zara’s signature slim-fit, fashionable cuts have had huge success in Europe and now Asia, it seems to be having a hard time finding a profitable audience outside major American cities like New York6. The on trend cuts such as small arm holes and skinny fit jeans have been labeled as too small for America’s growing waistlines. Most U.S. retailers use “vanity sizing” which means that women fit into a size 6 when instead they are actually a size 8 or size 107.
This is a deterrent for the size conscious Americans women. Obesity rates are lower in Europe and almost nonexistent in Asia. Meanwhile, 30 to 40 percent of U.S. adults are considered obese8. To gain popularity in the U.S., Zara would have to redesign its clothing. In conclusion, as a wealthy country with a high proportion of discretionary spending, the U.S. market represents a huge growth opportunity for Zara. However, without adapting to the intensely competitive U.S. market and creating brand awareness, Zara will be overtaken by the competition that is more familiar with the American preferences.
