Expansion of the Spanish clothing retailer Zara in India Executive Summary The main goal of this report is to analyze the environment how Zara wil be marketed and launched in India. Analysis shows that the main problem of the product is to in terms of making the target market know the existence of the product in the country and the competition of the current clothing lines available in the market. In order to solve such complexities, the solution is to implement strategic marketing approach in terms of advertisement and promotion to make the target market become aware of the existence of the product in the marketplace.
In addition, strategic market planning can also be attributed as a better solution to ensure that the product will be introduced effectively. The only problem that is unsolved is to find a company that will commit to the distribution of the product. With this, it is suggested that the organization must be able to use a more effective market planning and strategy which will enhance the market value of the product. This paper examines the case of the Spanish clothing retailer Zara’s experience of and plans for further expansion into one of the fastest emerging markets in the world, India.
It argues that given the unique distribution and production functions of the retailer that possible problems exist for continued expansion in the US market. The problems associated with this given the characteristics of local markets and pressures from rival operators’ means that a recommendation is made for an adjusted international strategy for the company despite its broad successes elsewhere globally. Introduction
Globalisation has become an essential element of international marketing principles and it has been argued that one of the keys to success in global markets is the effective development and marketing of standardised products and brands (Douglas & Wind, 1987). Jay (2000) suggests that the development of international enterprises is as a consequence of reduced barriers for trading due to developments in information technology. Jones (2002) argues that successful international operations are those which integrate and cooperate in business activities across national boundaries.
It is clear that the clothing industry is a significant part of the internationalisation process in terms of the critical growth of the clothing retailing sector in global markets and attendant activities such as global sourcing. The international expansion of Zara is led by its parent company Grupo Inditex which is based in Spain and Zara has achieved an impressive annual growth of 26% over the last five years (D’Andrea & Arnold, 2002). Based in Spain Zara has grown from 180 stores to 1. 080 stores in 33 countries and in 2002 150 stores were added in 9 countries and further expansion has been planned and expected.
As the biggest economy in the world the American market is an attractive one for Zara and stores located in New York were announced as being successful indicators towards future market penetration. The huge American market and especially the North American marketplace was highlighted as the next move for the company’s expansion plan yet the diversity in this market and high level of competition creates challenges for continued Zara’s success. COMPANY BACKGROUND Inditex is a global specialty retailer that designs, manufactures, and sells apparel, footwear, and accessories for women, men and children through its chains around the world.
Zara is the largest and most internationalized of the six retailers that Inditex owns: (Zara, Massimo Dutti, Pull & Bear, Bershka, Stradivarius, and Oysho). By the end of 2001, Zara operated 507 stores around the world, including Spain. Inditex Group is comprised of over one hundred companies associated in textile design, manufacturing and distribution. The achievements of the company and the uniqueness of its management model, which is based on innovation and flexibility, made Inditex one of the largest fashion distribution groups in the fashion industry.
The company’s fashion philosophy -creativity and quality design together with a rapid response to market demands- has resulted in fast international expansion and excellent response to sales concepts. With over 3,100 stores, in over 70 countries around the world, and Zara are around 1,000 of those stores. Zara has a high response when it comes to their supply chain. Latest fashion designs are easily supply to all the stores/branches of Zara worldwide, in just a matter of two weeks. Zara was described by Louis Vuttion fashion director as “possibly the most innovative and devastating retailer in the world”.
Zara has also been described as a “Spanish success story” by CNN ( CNN, 2001) Even though there are threats and risks involved along with other challenges, the firms move into the direction of expansion so as to reach and to penetrate new markets segments. Zara, a vertically integrated company, yet controls most processes in the supply chain wherein 50% of its products are manufactured in Spain, 26% in the rest of Europe and 24% in Asian countries. Although it outsourced the production of labor intensive processes, it still preserved the in-house other capital intensive processes, shielding its knowledge and know how.
The quick-response capability of Zara is made possible by the three main stages that define the competitive edge of the company: design, manufacturing and distribution. Zara grips the strategy to focus on operations that boosts cost efficiency thereby conducting most of the processes in-house, where the rest of the manufacturing activities including finishing stages are completed through a network of 300 small contractors which specialize in one particular part of the production process or garment type.
These contractors work solely for Inditex, and are a given max of 4% control of the production services so that if there is any problem with one contractor, there will 299 to back them and maintain it even though its manufacturing costs are 15 to 20% higher than its competition. Zara makes more than for the cost disparity through its supply chain to guarantee that merchandise in the stores meets customers’ demand. The important reasons of the competitive advantage of Zara are: cost leadership, product variation and extremely fast production line.
It trades quality, fashionable products at rational prices. Based on its positioning, Zara is less expensive than its leading rivals as Benetton and Gap. It also has the talent to design and finish goods to be delivered in stores within 4 to 5 weeks hence very quick to get designer-influenced products into their stores. Also, this unique clothing brand has the skills to launch new trends and designs in a much shorter period. In this manner, Zara possesses the standards for low level of inventory, efficient distribution system and high turnover of product.
OVERVIEW OF ZARA COMPANY Zara is one of Spain’s primary fashion and clothing line companies with regards to profit and sales volume. The company has also one of the most extensive presences among all international fashion and clothing companies. This is done through the use of a marketing strategy of global networking of distributors. Zara Company utilizes the prestigious name of both the company and its excellent clothing labels, and this strategy has enabled the company to fulfill an integrated marketing approach which gives emphasis to the company name.
There are also a wide range of Integrated Marketing Communication (IMC) strategies available that Zara Company could utilize of in order to manage their promotional endeavors. These strategies involve a variety of advertising, branding and personal selling strategies. When utilized appropriately, these IMC strategies can help Zara Company to disseminate in an efficient manner the critical information that they want to tell to their esteemed customers. However, several issues have to be understood and evaluated by Zara Company about IMC tools.
Since their income is slightly bigger than most of their competitors, the duration for implementation of their selected IMC tools would take a much longer time than expected, aside from being costly. But since the objective of Zara Company is towards obtaining a long-term market leadership and stability in the fashion industry, then the pursuit of these promotional strategies will be crucial for the company in the future. Competitors Analysis Competitor’s analysis is very important when a company will be considered as a new entrant within the market place.
It is essential so that the company will be able to know their competitors and the possible strategy that they may use to level up such competitors and know the needs of the target market (http://cebuecommerce. info/case-study-analysis-blair-company-inc-in-india/ , Cebue Commerce Info, May 2010) The success of Zara can be seen with its outstanding financial performance since the beginning. Inditex’s corporate profits have tripled from 1996 to 2000 and in the year 2001, when there was economic slump in the retail industry Zara recorded a profit of 31%.
Zara has strong customer based loyalty and brand recognition and the number continues to increase day by day which has helped Zara in securing a top position in the financial market. The successful execution of Zara’s business model has granted great value to the stakeholders and distinguishes Zara’s supply chain from other retailers. TABLE 1 Source : (Inditex Annual report, 2008) The above model shows Inditex’s sales format and Zara’s contribution to the company’s overall performance in the year 2008 .
The table shows that as of the start the year 2008 has been very productive in terms of sales and contribution format. This shows that the company’s starting performance is at a good start. And it will likely continue to be productive in the long run. Since the time Zara started out in the retail sector it has always retained its market position at the top due to its strong hold on its supply chain and its strategy to provide affordable fashion to its customers. The Inditex company has always remained at the top despite facing major competiton from H ; M and Gap. Company Name Flagship Brand)| Country| Fiscal Year End| Sales (? Billions)| GAP| USA| Jan. 2008| 1723. 7| INDITEX (ZARA)| Spain| Jan. 2008| 1517. 5| H;M| Sweden| Nov. 2007| 1342. 1| Limited Brands| USA| Jan. 2008| 1108. 2| NEXT| UK| Jan. 2008| 666. 2| FAST RETAILING (UNIQLO)| Japan| Aug. 2008| 586. 5| Polo Ralph Lauren| USA| Mar. 2008| 533. 6| Liz Claiborne| USA| Dec. 2007| 500. 5| Esplit| Hong Kong| Jun. 2007| 415. 0| Abercrombie ; Fitch| America| Jan. 2008| 410. 0| Benetton| Italy| Nov. 2007| 335. 4| TABLE 2 Source: Compiled from the annual reports of the companies listed above. uniqlo group, 2008) * Figures calculated in yen using August 31, 2008 foreign exchange rates The above model shows Inditex at the second position after Gap on a international scale with H; M and Benetton third and eleventh postiton. Zara has always remained a market leader and works hard to retain its position . COMPETITORS According to Kotler and Armstrong 2001, Competition is an important factor to consider before entering a business. Companies should have successful competitive strategies to be able attract, retain and grow customers.
However, before the company can plan and execute these strategies, it should be able to recognize its sources of competitive advantage which can be differentiated through products, services, channels, people and image (Thinking Made easy, 2007) As Zara is a global apparel chain Benetton (Italy), Gap (U. S) and H;M (Sweden) are considered to be Zara’s main three strong international competitors with H;M being the closest one. H;M’s focused approach to international market is more similar to Inditex’s expansion style than the other two closest competitors.
In the product positioning index, Zara is more fashionable and creative offering clothing lines at lower prices helping it to take full advantage in the fashion industry and to sustain its competitive edge in the market. Zara and H;M is more about latest fashion at affordable prices whereas Gap and Benetton are less fashionable and steeply priced. Competition in the fashion industry has always been tough. Hennes ; Mauritz has always been Zara competitor in this industry. H;M has operations in 24 countries all around the world with its largest markets in Germany, Sweden and the United Kingdom having 1,345 retail outlets.
H;M has been in the business before Zara since1947 while Zara started in 1975. Even though H;M had the experience which could have played a big role in the industry, Zara always had the strategy that gave it an edge in the business. In March 2006, the Inditex group overtook Sweden’s Hennes & Mauritz to become Europe’s largest fashion retailer. In the 1990’s, Gap and Benetton were still dealing with issues such as long supply chains, market saturation, imbalances and inconsistency(PankajG. ,Jose L. 2003) which led to a decline in both the companies and it took no time for Zara to take over the market.
Zara’s unconventional strategy has never been pursued by any company in fashion retail and it makes the companies product more anticipated by the customers. Other retailers use a different strategy than Zara which gives it’s the accountability in managing everything from designing, to manufacturing, to shipping etc. This allows the company to focus on each process, making each process vital. Identify and explore the external factors which impact upon the marketing performance of fashion companies in the global context and assess differences in country environments;
A clear understanding of the business environment is essential for companies in competing in the global economy. This is particularly important in relation to international strategy. Environmental analysis can be made from both a macro and micro perspective and both the PESTEL and Porter’s industrial analysis are useful instruments of analyses (Johnson ; Scholes, 2002). PESTEL analyses the political, economic, social, technological, environmental and legal events that have impacts on a business.
Language as one of the most important elements of culture plays a vital role in shaping international marketing strategy simply because people under different social and cultural environments share different value systems and display varied consumer behaviour (Bradley, 2005). Additionally it is useful to be aware of the new form of political economy which suggests that economic phenomena are highly linked with political issues in that governments seek to use political power to achieve economic benefits (Rugman ; Hodgetts, 2003). Examples of this can be seen in the increasing role of developing countries in the world economy.
In the case of the textile and clothing industry more and more retailers and manufacturers source from lower labour cost developing countries resulting in significant competitive pressures on Zara which insists on sourcing mainly from Europe and relying on its in-house design and production. Porter (1980) provides a useful framework in understanding the industrial environment in which companies are involved in. The competitive level in an industry shapes a firm’s strategy in competing in its marketplace and in turn this is shaped by the performance of operators within the industry. : Political and Legal Factors
First and foremost the political situation gives emphasis to the role of the government and its impacts in a company or firm. It also involves the extent to which the government participates in the political situation (2000). The political condition in India, Russia and Mexico can be considered as an open market. In this manner, the governments of these three international markets are willing to accept new investors or company that will operate within their region. In addition, the government of India, Russia and Mexico also provides their own version of corporate policies which should be followed by different organization.
In this manner, the pressure is on the Zara product in terms of ensuring that they always have legal actions in their business operations. Screen 2: Technological and Economic Factors The Indian market is the target of Zara Company. In this manner, it is essential that the economy of these countries must be analyzed. On the other hand, India has been ranked as the 12th in the world in terms of GDP and has the fourth per capita income in Asia ( 1981). Hence it can be said that there is a bigger opportunity for Zara company to become successful in operating in India.
The continuously growing market economy of the country has been a good indicator that Zara company will be known in the marketplace. When speaking of technological issues, the three countries have been able to utilize advanced technology. This includes their acceptance of information technology especially for business operations and or organizational needs. This aspect will give Zara clothing lines an opportunity to grow in the market and make use of state of the art technological facilities to enhance the quality of the service given by both public and private corporations.
Screen 3: Societal and Cultural Factors Social and cultural aspects are also essential and have to be given tremendous consideration when one wishes to participate into a foreign market. Also, culture is considered an integral aspect in the analysis of an industry, because for any company or firm to function efficiently it must for some extent possess an acceptable set of perspectives and beliefs on the role of culture in giving influence to the progress or downfall of any organization. Culture environment is one of the critical perspectives that greatly affect the company. 2004) states that there exists four aspects that separate cultures at a national level (power distance, individualism-collectivism, masculinity-femininity, uncertainty avoidance), which encourage the analysis that individuals enter into companies with their own national culture. It can be said that when talking about social context India is able to give more priority to social security. In addition, India is also in the process of thinking about participating in trades and agreements to various companies which can possibly give them high quality products or services.
In addition, the society is open to investors who will provide technologically advances products and services. In India, it can be noted that the social and cultural condition are diverse. This can be a big factor for the Zara clothing lines to become marketable in the country. Select and apply techniques for international fashion market segmentation. Market Segmentation Market segmentation aims to provide relevant information for a basis for the selection of target markets (Bradley, 2005). Zara’s targeted customers are people who seek for higher quality clothing products at reasonable prices.
In this case targeted Indian customers were those who expressed interest in European branded clothes. First of all Zara’s women collection is divided into three categories: Zara Women, Zara Basic and the sporty Trafaluc representing market segments for women who look for a more formal style, younger women for a more informal style and younger women and teenagers while menswear included Men’s Line at Zara, Zara Basics, its club-wear brand 100Zara and Zara Sport (D’Andrea ; Arnold, 2002).
In this sense the general public from all age groups can be seen as potential customers targeted by specific sub-brands of Zara. A second important variable in defining segmentation is based on psychographic characteristics such as lifestyle which will be discussed in detail in the next section (Jobber, 2001). As one of the most famous and successful European brands Zara in its existing Japanese market targeted people who were especially interested in European styles at affordable price levels.
One definition of consumers suggests that it can be seen as individuals as well as groups of people purchase products or services for personal use, household or gifts. In other words they can be classified as end users of particular products (Solomon et al, 2002). Retailers are situated in the final steps of the distribution chain and are closely linked with end users or customers. Therefore it is useful to look at the concept of consumer behaviour in relation to clothing buying in light of target segmentation strategies pursued by Zara.
Blackwell, Miniard and Engel (2000) define the initial step of consumption processes as the recognition of needs which can be influenced by various factors such as reference group values, self esteem and external cultural and social value systems. Particularly modern customers have become more sophisticated and learn more from their purchasing experiences with price often deployed as a key indicator as to the quality of goods (Jobber, 2001).
This is arguably the case for buying activity in the clothing sector with brand name, price, style as well as quality tending to have important effects on the decision making processes leading to purchasing. According to Entwistle (2000) clothing is not simply about physical garments but takes on a multi-faceted significance where people use fashion to define and negotiate their identity in wider social contexts. Increasing power for consumers enables them to bargain for lower priced clothing yet it remains the case that pure discount on price is not necessarily important for them in make purchasing decisions.
This aspect of consumer behaviour offers a useful insight for Zara in establishing its competitive advantages based on an effective logistics and supply chain through ensuring quality with reduced costs matched to a strong brand name. Foxall, Goldsmith and Brown (1998) argue that there are several stages after need recognition leading to final buying activity and as such the communication strategy used to build up effective customer relationships and brand image by clothing retailers is most useful at the early stage in order to have a lasting impact on purchasing decisions.
In this retail context women are suggested to constitute a major proportion of consumers (Domosh, 1996). Particularly women are more involved in both social and economic life functions which results in increasing demands on fashion in terms of style and self identity. Additionally a determinant of the degree to which customers evaluate a brand is the level of involvement with high involvement meaning extensive evaluation of the product and/or alternatives (Hawkins, Best and Coney, 1989). For clothing products the degree of involvement is suggested as being typically medium to high (Breward, 2000).
Bearing in mind the concept of involvement and the role of women in purchasing Zara used a suite of effective marketing tools in maintaining customer loyalty through providing value added clothing relevant to identified market preferences. This is because in terms of fashion a stylish and sophisticated brand image in terms of trends, styles and tastes is a key success factor in building a brand name for a retailer such as Zara. Similarly effectively maintaining customer loyalty in terms of repeat buying is a major contributor to successfully expanding its market share in the US market.
Plan and use techniques and tools to evaluate country markets and country risks and assess the most suitable international market entry strategies Demographic When speaking about demography, India contains a population of almost more than 100 million people. This implies that India will have tremendous opportunities to maintain multiple target markets that will maintain its products. It is said that the dies of majority of Indians, excluding bigger cities, mostly depends on what is manufactured in that particular region. With regards to food expenditures, spending is not distributed fairly over the entire population.
Like for example, over 50% of the food supply is being utilized by 30% of Indians who reside in the urban areas. The target market for urban consumers spends at least twice as much food products as compared to those residing in the rural areas. As the incomes become larger in India, the consumers gain the power to demand for more quality and fashionable clothing. Therefore, it can be concluded that with the quality and fashionable clothing lines offered by Zara Company, there is a guarantee that it will be loved by the Indian consumers.
Cultural Concerns Social and cultural aspects are also essential and have to be given tremendous consideration when one wishes to participate into a foreign market. Also, culture is considered an integral aspect in the analysis of an industry, because for any company or firm to function efficiently it must for some extent possess an acceptable set of perspectives and beliefs on the role of culture in giving influence to the progress or downfall of any organization. Culture environment is one of the critical perspectives that greatly affect the company. 2004) states that there exists four aspects that separate cultures at a national level (power distance, individualism-collectivism, masculinity-femininity, uncertainty avoidance), which encourage the analysis that individuals enter into companies with their own national culture. It can be concluded that with regards to social context India will be able to give more special attention to social security. Aside from this, India is also planning to participate in new trades and partnerships to various companies which can offer them better quality products or services.
Launching Zara Clothing in India A. Market Entry Plan In order to participate in the Indian market, Zara Company must be able to select the type of market entry to be utilized. In this scenario, one of the strategies that Zara Company will use is by pursuing a joint venture with highly recognized clothing line distributors in India. It can be mentioned that the joint venture option occur by pursuing a venture with other larger and competitive organizations.
An international joint venture is a solitary enterprise or multi-organizational agreement, established as an alliance between two or more primary entities functioning over various nation territories in planning and managing the venture. B. Marketing Strategy In order to successfully attain these goals, Zara Company needs to pursue a strategy of selling a variety of its local clothing lines and international clothing lines, but maintaining Zara as the primary brand in India. Zara Company must also target larger positions including either the first or second positions in the Indian market of clothing lines.
Any of these positions would be sufficient enough for Zara Company to establish an excellent level with regards to manufacturing, marketing and distribution. Aside from this, these positions can establish a platform from which Zara Company can sell their clothing lines and other special fashion products. Zara Company’s branches in the Europe are excellent examples of huge market leadership positions. And with a concerted effort on the structures of the costs, the above mentioned goals should be attained without a doubt. C.
Promotion / Communication To promote the organization and its clothing lines, Zara Company will utilize video advertisements, print ads and the idea of e-marketing. These promotion and marketing strategies will be able to fulfill the varying needs of consumers from India and beyond; especially those priority Indian markets or the consumers in the urban India areas. For this promotion campaign, the perfect information that Zara Company may utilize will be “Providing quality and fashionable clothing lines that fulfills your needs’.
Zara Company has been able to establish its reputation as one of Spain’s primary clothing line companies for several years now. It is able to rise up to the challenges in most of its markets directly(1999). This is made possible through the efficient promotional and positional strategies established in order to maintain not only large profits, but also on establishing the foundations of Zara Company’s clothes and fashion trends. The promotional campaigns and strategies of Zara Company in India must prioritize the significant growth of its clothing lines and improving the company’s financial situation.
These strategies will also be able to help Zara Company maintain critical mergers and partnerships among companies. And more importantly, these campaigns can lead to the eventual unleashing of the potentials of the company’s workforce, thereby establishing a quality performance- based culture. The promotional strategies of Zara Company in India can be easily implemented by the local employees themselves. This strategy will definitely enable the organization to vastly improve without the burden of implementing costly technologies.
These initiatives can also lead in improved financial profit for the organization and will enable the foundation of distribution networks for Zara clothing lines in India. D. Target Market Zara Company has maintained a reputation for targeting the teenagers, those in their twenties and even the individuals considered young at heart. This is a customer sector that other clothing companies have previously ignored in place of the adult consumers. Zara Company also has the unique strategy of portraying the generations in their campaigns.
These campaigns in India will tell that Zara Company is not a mere simple clothing line for the next generation; its users are also a generation ahead of their competitors. Zara Company can establish an image for itself in India as the clothing line for the present generation. It has discovered that the purchasing power of the youth and the marketing power of celebrities were similar (1998). They have garnered significant profit gains out of this strategy, and there is no reason why this won’t also work in India. E.
Pricing Strategy Zara Company must use as a foundation of its pricing strategies various critical trends that constantly dominate the global marketplace of clothing lines in India. One unique trend is called “premium-tization”. This trend triggers the polarization of various markets. This circumstance would then force the consumers to demand and pay much larger prices for perceived quality. However, putting significant deductions in prices is also simultaneously happening, therefore putting pressure to the middle range.
More often than not, supermarkets enter the process of internationalization which leads to a tighter squeeze for shelf space (1994). This will eventually leave Zara Company as a winner. It is for this reason why Zara Company must prioritize the Indian “premise sector” so much because this would enable their consumers to try their clothing lines at lower risk and costs. With regards to market segments, premium and specialty clothing lines of Zara Company have an unequal share of volume growth at an evaluated 4-5% annually, as against the 2-3% entire growth rate.
These rates are a result of both the emergence of GDP values among recently established markets and consumer demands for greater value propositions, which is undoubtedly headed by international clothing lines. Therefore, Zara Company has to elevate its portfolio and function in India to outperform the home market. Zara Company practically functions on a slightly fragmented market, with the top four clothing companies accounting for 22% of global volume five years ago and only about 28% today.