Posted - 02 Apr 2024
Zara is one of the largest international fashion retailers, known for its on-trend designs at affordable prices.
"Zara generated €5 billion 💵 in profit before tax in 2023, compared to €4 billion in 2022, nearly €3 billion in 2021, €971 million in 2020, and €3 billion in 2019."
Zara pioneered the fast fashion concept, which focuses on rapid product turnover and quick response to emerging trends. Its unique business model and marketing strategy has propelled the brand to global success.
Who owns ZARA?
Zara, is owned by Spanish fashion empire "Inditex" owned by Amancio Ortega. Zara is Inditex’s most important asset, contributing over 70% of the group’s revenues. Inditex generated nearly €36 billion in 2023, and Zara generated over €26 billion in the same period. Other groups under Inditex are Bershka, Pull&Bear, Massimo Dutti, Stradivarius and Oysho
Founded in 1975, as a family business by Amancio Ortega and Rosalia Mera, Zara has grown to over 2000 stores, 📈 spread in 96 countries as of 2023.
But, how Zara did that? 🤔
Dive below to know, about Zara's Genius Marketing strategy and High Profit Startegy, using which, ZARA is making billions. 💰💰
Zara adopts a multi-pronged marketing strategy focused on product variety, affordable pricing, targeted advertising, and premium locations.
Zara employs a comprehensive 4P's Marketing Strategy centered on several key elements like
Product diversity
Competitive Price
Targeted Promotion
Strategic Placement
PRODUCTS - REPLACED EVERY TWO WEEKS
"Zara takes 30 days to develop a product and get it to stores, whereas industry standard is 5-6 months"
Zara excels in swiftly translating runway and celebrity trends into new designs.
Their approach involves limited production runs of each style, ensuring a sense of exclusivity and freshness through twice-weekly inventory updates. This way Zara launches 10000+ new styles every year, as compared to 2000-4000 by H&M.
Consequently, consumers are enticed by the constant influx of new offerings, with short production batches driving a sense of urgency to make purchases before items sell out. (Artificial Scarcity).
Thus, Zara, have a low inventory cost, and by creating sense of Artificial Scarcity, it boosts demand.
"ZARA prices its items 30-40% lower than its competitors"
Zara maintains a value-conscious affordability stance.
This positions the brand as offering greater value for money compared to premium counterparts, despite lower profit margins. (But obviously, its a high sales Volume).
This strategy enables Zara to appeal to a broader mass market audience while still retaining its premium brand identity.
"Zara positions itself as exclusive brand, by opening its stores, near high end luxury brands. Zara invests 6-8% of its sales on store expansions"
Zara strategically selects prime retail locations, favoring high-traffic shopping districts and malls, particularly in capital cities.
Their stores feature visually striking designs and window displays, contributing to their high brand visibility and appeal.
With a presence in 96 countries, Zara is selective in its retail locations, opting for areas where they can attract a large customer base and justify higher rents.
Plus, they open stores near to luxury brand stores, Although they end up paying high rents, but this creates a premium brand perception in customer's minds.
"Zara spents only 0.3% of sales on advertising compared to industry average of about 4%."
Zara employs an integrated approach, leveraging both traditional and digital channels.
Fashion shows and creative campaigns help build aspirational appeal, while advertisements in fashion magazines and billboards in major cities increase brand visibility.
Eye-catching window displays further entice shoppers, and in-store promotions during peak seasons enhance customer engagement.
Additionally, Zara utilizes digital platforms like Instagram and Facebook for viral social media marketing, aiming to sustain global brand awareness and remain top-of-mind among consumers.
Next question is, How ZARA have so huge profit margins? 🤔
"Zara has a profit margin💹 of whooping 85%, whereas the industry average is 60-70%"
To grasp this question, Firstly we need to understand ZARA's founding story and its core philosophies.
The story of Zara started in the late 1950s when a Spanish 14 years old boy Amancio Ortega dropped out of his school in order to support family finances and worked at a local shirt making shop.
He worked up to 10 years in the garment industry, from an assistant to a tailor to delivering clothes directly to customers.
Throughout those 10 years, Ortega observed 3 factors, which later on became pillar of entire Zara, thereon:
1. Status Instrument
We, as humans, tend to run behind status symbols, like we tend to think people with iPhones are rich 🤑. Ortega perceived that this instrument of Status of 20-35 years women is Fashion clothing.
2. Critical Parameters
People, who perceive things as status symbols, they tend to emphasize on quality and utility lesser than the need of variety and designs. And going by that, Women only considered variety, design, and prestige of a brand tag, far high compared to quality
3. Fascination from Fashion Icons
Customers desired designer yet inexpensive clothes. But other brand were not catering it, designs as they generally brought new designs in 5-6 months. .
Upon keen observation of these factors, Ortega built an Agile supply chain, which revolutionized the clothing industry. Ortega used a 3 step formula for this :
He strategically procured medium-quality garments in substantial volumes, adeptly negotiating for significant discounts.
Meticulously researching prevalent societal trends and sought-after designs in premier outlets, as well as closely monitoring the pulse of pop culture across various urban landscapes, Ortega swiftly identified lucrative designs.
Promptly engaging his team of tailors, he commissioned the replication of these designs, swiftly presenting them for display in record timeframes. (Within the least time possible
As you now understand the backstory, how Zara basically works & loads up its inventory, Coming back to our question of huge profit margins,
ZARA's INGENIOUS HIGH PROFIT STRATEGY
"Zara designs only 15-25% of its line pre-season, compared to competitors' 80%."
"Zara produces 50%+ of units mid-season based on demand, while competitors make only 20% in real-time at peak season."
Procuring Medium quality material along with discounts, ensured Zara could sell products at ultra-low price, than competitors, which enticed customers and ignited a surge in foot traffic across Zara's stores, leading to higher sale Volumes.
Driven by substantial profits from high sales, Zara introduced irresistible discounts across its product range, again fetching higher sales.
As Zara swiftly launches new designs every 15 days, they capitalize on the fear of missing out (FOMO) among customers. While maintaining minimal inventory, customers are compelled to make additional purchases due to the "just in case" mentality, resulting in increased sales.
Zara's clothing is crafted to endure approximately 10-15 washes, prompting customers to purchase 3x more frequently and acquire a greater number of garments, again driving more sales & revenue.
Zara designs 15-20% of products beofre season and rest during mid season based on the demand. While other retailers are left with excess inventory due to advanced manufacturing ahead of the season, they have end up selling stocks at a heavily discounted end-of-season sale.
This ingenious supply chain strategy has catapulted Zara into a highly profitable realm, propelling its rapid expansion and growth.
BUSINESS LESSONS FROM ZARA’S
Ensure that business strategy resonates with the target audience. Zara's rapid production model succeeds because customers crave constant access to new styles.
Tailor messaging and products to local preferences. Zara adapts its designs based on the unique tastes of customers in each country.
Reinforce brand identity across all marketing channels. Zara's advertisements consistently convey its trendy yet approachable image.
Maintain a competitive edge. Zara's swift supply chain and strategic store locations create formidable challenges for competitors attempting to keep pace.
