This feature first appeared in the August 2011 issue of Marketing magazine.
Australia held its breath, waiting for the fashion giant to descend. Now that Zara is finally open for business on our shores, Belle Charlene Kwan finds out what makes this Spanish business the juggernaut of clothing retail.
The Spanish have arrived
No four-page spread in a glossy publication, no gaudy red posters with tacky WordArt bubbles screaming discounts, no half-naked B-grade celebrity with perfect hair prancing across a billboard.
This is a story about the brand that made it sans advertising, sans endorsement and sans almost all forms of mainstream marketing. And when we say ‘made it’, we mean a loyal global following across 78 countries, and a name that draws squeals of excitement from consumers and nods of respect from industry experts.
A brand that has sent Australian women oohing, ahhing and maxing out their credit cards on Pitt Street in Sydney and Bourke Street Mall in Melbourne. A brand that has made local retailers sit up and reconsider their entire business operation, strategies and marketing plans.
This is a story about the brand called Zara.
For the fashion-conscious, Zara ignites the hopes and dreams of looking catwalk-worthy on a budget, with the brand’s ever-changing range that keeps up with the latest trends and fads of the glitterati, minus the exorbitant price tags. And even for the less dramatically dressed, the fashion house promises a new destination for stylish staples – tailored jackets, white shirts, classic shoes.
Yes, Marketing’s new assistant editor happens to be a female with a passion for fashion, but, no, this is not about to become a fluffy, frivolous exclamation of my wardrobe obsession. With Harvard Business Review on my side, Zara is, in fact, a brand giant that has defied all best practices and industry norms, ignored retailing trends and is now sitting pretty with the title of being the flagship brand of the world’s largest clothing retailer, Inditex.
Surpassing Gap in 2008, when Inditex reached 3900 stores in 70 countries, the company reported a total of €2.22 billion in sales in just the first quarter of 2008, cementing its position as the leader in the clothing industry.
Apart from Zara, Inditex also owns international labels Pull & Bear, Massimo Dutti, Bershka, Stradivarious, Oysho, Zara Home and Uterqüe.
The formula for Zara is simple: latest catwalk trends reproduced, plus new stocks delivered to stores in fewer than 15 days, plus giggle-inducing prices, equates to global success.
With its first Australian store on Pitt Street in Sydney still drawing queues despite opening its doors three months ago, and its second outlet in Melbourne attracting crowds that resembles the scene in front of the Melbourne Cricket Ground every Friday night, Zara is definitely making its presence felt on our shores.
Causing a stir
From Fortune magazine and The New York Times to The Economist and even the Harvard Business Review, Zara has been touted as one of the biggest success stories out of Spain and has been on a march towards world domination since opening its first international store in Portugal in 1988.
Aware of its strong presence across Europe and in Asia and the healthy 12 percent of sales coming from the Americas, Australians who have travelled overseas have been waiting with bated breath for the brand to finally arrive.
Jesus Echevarria, chief communications officer of Zara, says that the brand plans its arrival in various countries over a long period of time, and is patient in waiting for the right opportunities.
“Our decision to come to Australia now is based on two main reasons. Firstly, our operations are at that capability level of supplying to a country like Australia, which is quite far away from our headquarters in Spain. With new stocks needing to be sent every two weeks, we had to be absolutely sure we could handle this new amount of orders.
“Secondly, we were waiting for the right locations to become available, and now we [have] found two excellent spots in Sydney and Melbourne and were happy to launch into Australia.”
Fleur Madden-Topley, managing director of PR agencies Red and Blue by Red, feels that Australian consumers have also created the demand for the brand’s entrance onto our shores.
“The Australian fashion industry isn’t quite as isolated as it once was – we love international fashion, we read about what is on the runways and, indeed, we travel enormously. We have a huge aspirational fashion segment to our fashion industry.”
Nancy Georges, retail strategist, owner of retail consultancy Magnolia Solutions and author of 7 Powerful Ways to Boost Retail Profits, also believes that the global financial crisis help pushed Zara into Australia.
“I think the GFC’s impact on European and US markets was hard and while pre-GFC, Zara probably had Australia in their plan for some time down the track and was busy growing in the European and US markets, post-GFC they had to look elsewhere to support their growth and Australia was the answer.”
The news of Zara opening in Australia spread like wildfire, but, in line with the brand’s global marketing strategy, there was no advertising done at all. Despite the lack of communication from the brand, newspapers, magazines and television shows showered Zara with media coverage, resulting in anxious fans lining up overnight before each of the two Australian stores’ grand opening.
Georges feels that the warm welcome with which Australians have greeted the brand can be attributed to an erstwhile lack of choice.
“Not just for the obvious reason that Zara makes fashion accessible and affordable, but the brand has also received so much hype because the Australian consumer has only been able to choose from three categories of clothes – ‘super cheap, nasty quality, not very fashionable’, ‘expensive, made in China and of poor quality’ or ‘super expensive, high quality products’,” she says.
“Anyone who has shopped overseas has commented that they do not understand why clothes are of such poor quality, yet sold at such high prices in Australia. It is disappointing that this has not been addressed as a matter of business, but hopefully it will be now.”
Echevarria, who was in Australia for the Sydney launch and the Melbourne media preview, has high hopes for Zara’s performance here. “I believe that the fashion sense of Australians is changing,” he says. “They are very open to trends, designs and influences from around the world, and there is a demand here for affordable designer wear.”
According to Echevarria, the decision to launch into a new market also involves different departments of Inditex, from apparel designers and stylists to architects.
“We must be very accurate in analysing the spirit of each country’s culture and customers and ensure it is in line with what Zara can offer,” he explains.
Zara’s history, however, is not littered with glamorous beginnings of billion-dollar dreams or international stardom. In 1963, Amancio Ortega, owner of a small lingerie manufacturing factory in Spain, had a cancel on a large order. Not knowing what to do with his stock, Ortega opened up his own shop, named it Zara, and sold his goods.
With his knowledge in clothing manufacturing, Ortega began listening to what his customers wanted, and designed clothes to their demands. Echevarria believes that this honest, humble start to Zara is the reason behind the company’s modus operandi.
“Everything from Zara, and Inditex, comes out of Spain. It is part of the DNA of the brand and strongly rooted in the history of the company. From the first day of opening, we were always about what customers wanted, and making what they wanted because we could. From that moment on, it has been the way we conducted our business – listen to what the customer wants, and deliver.”
Today, Ortega still owns 59 percent of Inditex and has built an empire in the town of Galicia in north-west Spain, where the Inditex factory operates around the clock to design, produce and ship the latest fashion trends to its thousands of stores globally. Touted as one of the world’s most successful logistics operations by the Harvard Business Review, the production line is executed like clockwork, where lorries move in and out on schedule to ensure each store gets its fortnightly update of stocks right on time.
With Zara being seen in most capital cities of the world as an iconic fashion destination, it is hard to believe that the brand does not advertise. In the process of writing this profile, the publisher of a sister travel magazine asked if I had a contact person from Zara to speak to about advertising in the publication. When I informed her that Zara does not advertise, she stood back in shock, and near disbelief.
But, true enough, Zara shuns all commercial ties with the media.
Echevarria explains: “Different brands have different business models, and I’m sure there is not one that is better or worse than the other, but rather what works best for each brand. For Zara, I believe that we have found a model that works very well for us, and this does not include heavy investments in advertising.
“Advertising is about building up expectations, and telling customers what they can expect and what we can deliver. At Zara, we want expectations to come from the in-store experience, and to come from the customer’s personal journey and satisfaction from shopping at Zara. That way, there is no opportunity for disappointment and there is no way for Zara to give false promises.”
Zara also refrains from employing international marketing agencies in its different locations, and prefers to generate the majority of its corporate communication via its Spanish headquarters through Echevarria. Without a marketing department, Echevarria oversees all international marketing activities and media relationships, engaging assistance from a local public relations firm only during momentous occasions like new store openings.
Zara’s closest competitors, such as Swedish label H&M, the UK’s Top Shop and the US’s Gap, spend typically three to five percent of annual revenues on advertising campaigns, and have a penchant for involving celebrities, either in their advertising or their product lines.
Top Shop has its sought after Kate Moss collection, while H&M has limited pieces designed by the likes of Madonna and Kylie Minogue. Gap is well-known for attracting star names, such as Lucy Liu, Jennifer Aniston and John Mayer, to appear in its advertisements.
Zara’s closest competitor, in terms of origin, is international label Mango, marketed in Australia as MNG. Also originating from Spain, Mango, another high-street fashion label, engages Hollywood celebrities like Penélope Cruz and Milla Jovovich to drive sales.
Zara, on the other hand, relies on very different assets in promoting the brand.
“Our store locations and window fronts are our biggest form of advertising,” says Echevarria.
Zara takes pride in sussing out iconic locations for each of its outlets, and believes that the address to every Zara store is crucial in driving customers in.
“Wherever we plan to open a new Zara store, we will do research into the areas we feel are suitable for our brand, and choose locations that are prominent in each city. We are patient in this process and, if nothing comes up, we will not compromise, but, instead, wait until a good opportunity arises,” adds Echevarria.
Window fronts, he says, are another avenue that Zara uses to entice consumers to pay stores a visit.
“When a customer walks past our shopfront, he or she sees our latest designs, which no doubt will be different from the ones we put up two weeks ago. We also spend a lot of time designing window fronts that are artistic and attention grabbing, and not just fill them with mannequins.”
Echevarria reveals that all window front designs are conceptualised and created in Inditex’s Spanish headquarters, and are often completed months ahead of each execution.
“We have a full team of window front designers who constantly travel around to our international locations to understand the culture and customers of each store. They then come back and create the window design that is unique to the store, and all the props and details are then shipped to each store to be put up under strict guidelines.
“I think this is the best form of advertising, because the customer walks past a shopfront, becomes interested in our display and can immediately come inside to start shopping. It is an instant process.”
This attention to location and window design is also specifically highlighted in Inditex’s 2009 annual report, which stated that: “The stores constitute the chain’s main advertising medium. Their chief characteristics include: preferred locations, meticulously designed window displays, unique internal and external architectural design, tailored coordination of the product, excellent customer service.”
Customer service, for Zara, goes beyond simply providing a friendly shopping experience, and delves into what the customers are buying, or not buying, and what trends are being followed.
“All the staff in our stores talk to their customers and find out what looks are in fashion for each week, which outfit on the catwalk did they like, which celebrity’s get-up are they coveting,” says Echevarria.
“All this information, along with a daily stocktake on which are our best-selling styles and which pieces are not moving as quickly, are reported back to our headquarters every day.”
The daily reports, he says, help each store keep current on the popular trends, and ease store managers into ordering new stock every two weeks, picking pieces and designs that will cater to each store’s particular customers.
Every clothing design is manufactured in limited numbers, and is not repeated, even when stock runs out. Zara customers know this, and snap up a favourite piece quickly, because the chances are it will no longer be available on their next visit.
Echevarria explains: “We change our designs very quickly, so that our customers will always have a new collection to choose from each time they come into the store. Producing in small quantities also means that we save on cost, should a design not be very well-received.”
Ivan Castano, a US-based freelance writer for Ad Age and Warc, wrote in a fashion marketing piece that Zara’s strategy of understocking on-trend garments “creates an aura of exclusivity around the product”.
According to The Economist, this constant high-speed wardrobe makeover model is Zara’s secret to success.
In fact, research by Fortune magazine has found that while the average High Street shopper in London visits a store four times a year, the average Zara shopper drops in 17 times annually.
Bill D’Arienzo, owner and founder of US fashion brand consultancy WDA BrandMarketing Solutions, said in an interview with Warc: “They generate demand by reducing supply. By having a very limited stock of key items, they train consumers to know and expect that what comes in on Monday won’t be there on Friday. That creates a perception in shoppers’ minds that they are getting something unique and that they are special.”
Nancy Georges believes that Zara has successfully transformed its customers into brand ambassadors.
“Consumers are their favourite brands’ advocates and a satisfied, happy customer will share and promote on behalf of the brand, and I believe this is something that Zara has mastered and one of the reasons the brand is performing so well globally,” she says.
“Another key to Zara’s success is that they actually deliver what they say they do. The brand sells accessible, wearable and in a way ‘disposable’ fashion. Their customers have either seen the look on the catwalk and can’t afford it, or they want new fashion at a mid-range price. Zara does not sell high-cost, aspirational fashion that needs a massive marketing and advertising campaign behind it to sell the ‘dream’. They are about being realistic and achievable,” says Georges.
The plan of attack
The intricacy of Inditex’s full business operations can be boiled down to a few simple principles – speed, customisation and keeping it all close to home. Pablo Isla, chief executive of Inditex, said in an interview with the Financial Times, “Proximity sourcing is extremely relevant to us, to be able to react during the season and to maintain flexibility.”
Forty-nine percent of all Inditex products are made in Spain or the surrounding nations of Portugal and Morocco, while 35 percent, most of which is the simple, basic collections, is produced in Asia. The remaining 14 percent comes from Italy and Turkey.
Contrary to competitors who eagerly seek out foreign manufacturing plants that promise low cost, Zara’s decision to keep the majority of sourcing and production in Europe has paid off in recent times.
“With raw materials’ prices increasing in different Asian countries, in our case it has had much more of a limited impact because of our sourcing and structure,” Isla told the Financial Times.
Echevarria also credits founder Ortega’s roots as a manufacturer in providing a unique understanding of logistics and supply chain procedures. “We did not follow anyone else’s way of doing business; it was a method that we were comfortable with, and knew how to manage, and I believe this is why we have survived until today.”
Understanding the various climates and weather-based trends across its global stores, Zara pays close attention to catering to each destination with the latest, timely designs and trends. Unlike certain competitors that recycle seasonal collections in various international locations, Zara produces separate collections targeted specifically for its northern and southern hemisphere stores.
“Of course, the seasons in Australia and Europe are very different, but this does not mean that Australia will get the European summer collection six months later,” promises Echevarria.
“We have hundreds of designers at our factories that will work according to the different seasons, so each country will get only the most trendy and up-to-date looks. We will also incorporate pieces from different global locations into each collection and judge customer responses to gauge what to supply for the next stock order.”
The high frequency of new arrivals also generates a viral marketing hype around the label, fuelled by word of mouth between consumers about limited must-have items. This ‘you never know what you’re going to get’ mysticism of Zara keeps customers intrigued and glued to the stores, hungry to see what surprises will come in the next drop from headquarters.
The process of each new seasonal collection starts from the big picture, and is altered, changed and revised constantly throughout the months, depending on customer feedback.
“The only prediction we do is for the start of each season, where we release the main collection. After that, we pay attention to purchasing patterns and feedback from the stores and adjust our production lines to suit each location,” says Echevarria.
Zara creates approximately 40,000 clothing designs annually, of which only 10,000 are produced.
“There is no point in sticking to one set of designs if customer feedback is that certain pieces are not popular,” adds Echevarria. “We only want to put pieces in-store that customers are happy with, and that suit their current and changing styles and taste.”
The Harvard Business Review, while researching Zara’s operations and business strategies, noted that while the brand’s controversial methods have worked well for the label, they certainly go against the industry’s best practice.
“In fact, some of Zara’s practices may seem questionable, if not downright crazy, when taken individually,” wrote Kasra Ferdows, Michael A Lewis and Jose A D Machuca in the article ‘Rapid-Fire Fulfilment’, published in the Harvard Business Review in 2004.
“Even many of Zara’s day-to-day operational procedures differ from the norm. It holds its retail stores to a rigid timetable for placing orders and receiving stock. It puts price tags on items before they’re shipped, rather than at each store. It leaves large areas empty in its expensive retail shops. And it tolerates, even encourages, occasional stock-outs.”
Victory for the taking
Industry forecasters believe that Zara’s business model of quick fashion, and placing strong focus on supply chain flexibility, rather than outsourcing to countries with the lowest labour cost, will soon become a common model in the fashion retail sector. Australian retail experts, similarly, predict that Zara’s arrival will produce a significant impact on local fashion providers.
“With large international retail chains coming to Australia, this will put pressure on local labels and retailers to compete on price and this will also potentially drive more international fashion trends, forcing Aussie designers to be more northern hemisphere focused,” says Fleur Madden-Topley.
“I just returned from six weeks in New York, where the fashion trend of colour blocking is huge, but, on my return, I find very little of this fashion direction in local shops.”
Georges too believes that an impact of Zara’s presence will be felt with local retailers. “The Australian fashion industry has had a bit of a monopoly until now,” she says, “being able to manufacture offshore and compromising on quality because, most of the time, customers have nowhere else to go.
“Zara’s arrival will be a real Catch-22 for Australian fashion brands and stores. For those who manufacture offshore, it will not be easy to change what they are presently doing, or to bring it all back locally. For those who already manufacture locally, they will continue to be bound by labour costs that are simply not competitive.”
Georges feels that local designers and brands will use this opportunity to review their ranges, design lifespans and speak with suppliers. “The industry needs to engage and excite the customer again,” she says.
Echevarria, however, insists that Zara’s plans on entering the Australian market are not to overthrow the local economy.
“We do not enter a country with the intention of taking over or making big money. Of course, being profitable is the bottom line for any business and, if we are not making money, the business is a failure. But, more importantly, it is about deciding whether the country’s customers are ready for our fashion, and whether we have the capabilities to support a new store in a new location that will generate growth for our business.”
Reports from newspapers on Zara’s grand opening in Melbourne already show evidence of its neighbouring stores adapting to the new kid on the block.
While Forever New extended its opening hours to match that of Zara, Bardot offered free coffee while Just Jeans opened its doors half an hour earlier to catch the attention of shoppers heading for the grand opening.
Local fashion brand Portmans recently underwent a brand redesign for its store on Pitt Street, offering higher quality clothing at more competitive prices in the preparation of Zara moving in.
Pip Stocks, founder of BrandHook, a local branding and insights consultancy, feels that smart retailers in Australia would have already been well-prepared for Zara’s arrival.
“Eighteen to 20 months ago, Australia’s retail market was going through somewhat of a flat period; however, the industry has now been revitalised thanks to existing retailers changing themselves to become more competitive with their new neighbour,” says Stocks.
She also believes that Zara has done well in catering to individual markets within Australia.
“If you compare the Sydney and Melbourne stores, there are clearly a lot more black pieces in Melbourne and this is an example of how Zara tailors its products to each city. Zara stays very close to the customer, and definitely shows that a brand is created and owned by the people, and not the boardroom.”
Aside from daily meetings and reports that help keep track of what items are selling well and which ones need to be pulled, store managers are also often on the lookout for occasions when a design may suddenly become highly in demand, and ensure that the store can properly cater to those demands.
According to a news report in London, when Kate Middleton, the new Duchess of Cambridge and wife to Prince William, was spotted by Zara store managers purchasing a blue dress, stores around the area immediately prepared themselves for a surge of interest in that piece and, while the item sold out, new stocks swiftly arrived within a fortnight.
Despite its highly affordable price tags, Zara has not only earned itself a following from British royalty, but has also been seen on multiple celebrities, including singer Taylor Swift, reality TV star Kim Kardashian and actress Diane Kruger.
Echevarria, however, has no plans to follow in the footsteps of other international retailers by using brand ambassadors to support marketing activities.
“Using celebrities can definitely be effective, but I feel there is also a big risk involved. You can never predict how a person, celebrity or not, will behave and react, and if this shows a poor reflection of Zara, it is not ideal.”
Sentiments from marketing professionals across Australia appear to agree that Zara’s lack of advertising works well with the brand’s offering of mid-priced fashion products.
“Zara has effectively utilised word of mouth, or strategic public relations, in building and maintaining its brand. While I would not rule out engaging in advertising or celebrity endorsement as a secondary method to reinforce brand messages, I think this strategy has worked for Zara, due to the sheer size of their business and the brand’s price-driven, fashion-forward direction,” says Madden-Topley.
Georges, in fact, feels that Zara’s success is a reflection of the failure in brands that do use advertising.
“I think Zara’s current marketing strategy says a lot about how mainstream advertising is lacking and not keeping up with the times and, therefore, becoming almost ineffective. In response, businesses and brands are now using other, more successful ways to connect with their customers. The Australian fashion industry has been complacent and not very innovative in how they do business and, hopefully, Zara’s presence will stir about a new change.”
Both Madden-Topley and Stocks point to Zara’s excellent customer-retention techniques as another strong factor in the brand’s marketing methods.
“In this current market, it is all about building your community and making them feel engaged, rather than spending big dollars on advertising and, indeed, Zara is testament to the fact that it works,” says Madden-Topley.
Stocks, too, believes that Zara’s ability to retain customers is a lesson for local retailers to learn from.
“At the end of the day, Zara is all about listening to customers and responding. It’s that simple. Once your customers feel like they are being heard, and their opinions shape your brand, you have secured yourself a loyal fan base.”
What lies ahead
While Zara is doing its part in breathing fresh air into the Australian fashion retail industry, it is undeniable that there is also a new trend among consumers that will challenge the Spanish fashion giant – online shopping.
With Forrester Research predicting that Australian online sales will reach $33.3 billion by 2015, and the rate of Australians shopping online increasing twice as quickly as visiting physical stores, retail therapy on the internet could potentially hinder Zara from achieving large profits on our shores.
Echevarria, however, is not fazed about this phenomenon.
“At the end of the day, when a person walks past a Zara store and is greeted by a beautiful window display, he or she will instinctively want to enter the store, browse through our collections and try on a few outfits. I believe that a large, iconic physical store and a well-designed window front are still effective at attracting shoppers.”
Online retailing, though, is not an avenue that Zara is turning away from. With online shopping available on 17 of Zara’s European websites, Echevarria believes that this new offering will be executed gradually across the rest of the brand’s global destinations.
“Right now, we see online shopping as a support for our physical stores, but not a replacement. We will be launching our US online shopping site in September, and other countries are in the planning process,” he explains.
“As a brand, we are a strong believer in bringing our customers what they want, and we recognise that the capability to purchase online is something we need to provide.”
Georges notes that, while Zara has not yet launched an Australian online buying portal, this is a gap that local retailers must look at filling in order to stay competitive.
Madden-Topley, on the other hand, is advising Australian brands to follow in Zara’s footsteps of communicating with consumers in order to stay relevant and top of mind.
“More creative communications with customers will be required to ensure they feel valued and that they wish to remain a customer. The rise of social media is a current way of making your audience feel connected to your brand and a good way to continually engage with them even when they are not in-store.”
Other suggestions from Madden-Topley include brands being involved in unique alignments, sponsorships and events to keep customers engaged with a brand’s identity and values.
With Zara now firmly in the Australian market, and its dominance in Asia growing tremendously (with another 80 new stores due to open in China this year), Echevarria believes that Zara customers can expect to see a more significant Asian influence on the brand and its products.
“While we are very proud of our Spanish roots, Zara is a constantly evolving brand and with our designers travelling to Asia and learning the trends and fashion preferences of our new consumers, this will definitely influence our future collections.”
While sales from Asia currently only contribute 12.2 percent of the brand’s current sales (based on figures in the 2009 annual report), industry experts are questioning how efficient will Zara’s model (basing the majority of its activities in Spain) be in catering to this growing customer base.
Does it make sense to run product design, manufacturing and logistics just from Spain?
“In the last 40-over years, Zara and Inditex have risen to where we are based on flexibility and understanding our consumers. This will continue to be our principle and, if changes are necessary, we will respond with what is best for the company and for our customers,” concludes Echevarria.