The New Spanish Giant

INTRODUCTION

Zara, one of the most, if not the most, important organization in Spain has surprised analysts and academics due to its quick positioning in the international market. Currently, Zara has decided to undertake the US market, even though the Spanish Giant has already conquered it. Being at the forefront of Inditex’s group, Zara has become a point of reference for American customers in the fashion World, as well as a marketing model for publicity experts. Even though it just counts 24 shops in US, considering that more than 700 of them are all over Europe, “Advertising Age”, the American publicity magazine has ranked Zara as one of the 50 firms with the best 2006 marketing strategies.

Zara’s success relies on very basic features such as: a good and centralized distribution chain, the use of no publicity, and the fact that they do not only sell their products, in this case clothes and accessories, but they also provide for the design and manufacture themselves.

ZARA ORIGINS

From the middle of the 20th century, 1963 till 1974 the chairman and founder of Inditex, Amancio Ortega Gaona, began his career in the textile-manufacturing sector. His business started to grow progressively throughout the decade and intended to include a number of manufacturing centres distributing products to various European countries.

In 1975, the first Zara store was opened and it was located in a central street of A CoruÐ"±a (Spain). Over the 70’s and 80’s Zara started to have a positive impact on the public and, as a result of this, its network of stores began to appear in the major Spanish cities. In 1985 Inditex was positioned as the head of the corporate group. In December 1988, Zara went a step further and opened the first Zara store outside Spain, in Oporto (Portugal). In a second moment, in 1989 and 1990, the Group expanded into the New York and Paris’ market. Along the 90’s decade, Inditex continued to experience new international markets such as MÐ"©xico (1992), Greece (1993), Belgium and Sweden (1994), Norway and Israel (1997), Argentina, Japan, Venezuela, Turkey and the United Arab Emirates (1998), or Germany, Canada, Brazil (1999). In 2006 countries such as Serbia, Mainland China and Tunis joined this list of markets in which Inditex was present.

ZARA’S STRATEGY

Many people still ask themselves where Zara’s success lies; the answer is very simple, its success comes from the strategy that Amancio Ortega has followed, since the very beginning, and which has reported very good results. Very few firms in the same business world have had the possibility of not to alter their strategy all along their history. This is the reason why it is thought that Zara represents a rather good example.

Firms such as Gap or H&M (Hennes and Mauritz), decided to work just as how traditional clothing retailers did and subcontracted to developing countries the majority of their manufacturing in order to low down costs, whereas Zara, a part from selling their product, has also designed and made them; currently, Zara’s design team can produce 11,000 different designs a year. This clever strategic of controlling the whole process from the industrial unit to the shop, has let Zara to be able to respond very quickly to changes on the market trends and give the customer what they want, when they want it. This represents an important point in Zara’s strategy and this has led some to described it as "possibly the most innovative and devastating retailer in the world"(LVMH fashion director Daniel Piette).

The designers in La CoruÐ"±a, up to 200 professionals, receive every day from Zara’s shop managers a detailed report on what has been and has not been sold. All that information sent is used to decide which product lines and colors are going to be kept or modified, and whether new lines are going to be created. All this just occurs in the space of a couple of days. Customers’ opinion and choice is very important; they have direct input on what the shop sells since their response is sent back to the designer. The efficient management of this system can keep down costs since stocks can be reduced; such practice has been called by Castellano, the organizations Deputy Chairman and CEO, as the "democratization of fashion."

For Zara, consumers’ desires are salient and due to this fact the company has an important department of human resources which exclusively works towards the following goal: to speed, as quicker as possible, the information from customers to designers. In order to cover the consumer’s desires, a whole team travels constantly in research for new styles; for instance they go to clubs, universities, fashion and stylish places.

In addition to this, while other retailers concentrate their money and efforts on building a brand image through marketing strategies and advertising campaigns, Zara is one of very few brands who spend nearly no money on advertising. “Fashion retailers spend on average 3.5% of revenue on advertising their products, while Zara's parent company Inditex spends just 0.3%” (http://edition.cnn.com/BUSINESS/programs/yourbusiness/stories2001/zara/). In fact, Amancio Ortega considers that advertising is a pointless distraction and for this reason, Zara relies mainly on its stores to project its image. In order to achieve this Zara has a department concentrated on the acquisition of global prime real estate locations, which is also responsible for the redecoration of store layouts and for designing the common window display for Zara’s global stores; the same window display which gives to Zara that stylish, elegant and prestigious image that it has created throughout several years.

ENVIRONMENTAL FACTORS

Like in any other organization, Zara has to take into consideration the environment around which its business moves. Any manager needs to know the different factors that may affect its company in order to try to control them and anticipate what might happen in the future.

Taking for instance Zara’s example, its business can be affected by political factors such as the administrative barriers, the difficulties that it may incur in order to obtain good locations for their stores in the city center, or the restriction on foreign ownership; all these are important aspects to bear in mind. A part from the political factors, economic and sociocultural factors may come into play as well. For example, the