-3-

CONTENTS
Executive Summary
6

PEST Analysis
7

MICRO Analysis
10

Consumer Segmentation
13

Brand Positioning Map

15

Marketing Mix
16

Branding
22

Conclusion and Recommen-

dations
24

-4-
‘Fashion is the imitation of a given example and satisfies the demand
for social adaptation…The more an article becomes subject to rapid
changes of fashion, the greater the demand for cheap products of its
kind’
-Georg Simmel, Fashion (1904)

-5-
EXECUTIVE SUMMARY
This report aims to provide an analysis of the fashion retailer
Zara, one of the leading brands within the fashion industry.
The methodology used to analyse the brand includes models
such as a PESTLE and SWOT analysis and Michael Porter’s
Five Forces (1980) as well as both secondary and primary re-
search, such as comparative shopping and observational re-
search.

Zara is a Spanish retailer established in 1975 by Amancio

Ortega, and since then it has experienced a strong national
and international expansion; currently the brand operates in
87 countries with more than 1.830 stores centrally located.
It is the flagship store of Inditex (Industria del Diseño Tex-
til, SA), one of the largest world’s corporations, headquar-
tered in La Coruña. In addition to Zara, which accounted for
64,9% of the group’s 2011 retail sales (Annual report,2011),
Inditex owns seven other retail chains: Pull and Bear, Mas-
simo Dutti, Bershka, Stradivarius, Oysho, Zara Home and
Uterqüe.

Its vertically integrated business structure allows the brand

to control most of the steps on the supply chain: it designs,
produces, and distributes itself and most Zara stores are
company-owned, which enables a quick response to consum-
ers’ changing demands and a greater flexibility.
Zara’s aim according to Amancio Ortega is “to democratise
fashion by offering the latest fashion in medium quality at
affordable prices”.

-6-
 MARKETING
ENVIRONMENT
POLITICAL ECONOMICAL
FORCES FORCES
•Government: An organization
•Recession: Inditex sales in Spain in 2011
must be able to consider issues
accounted for 25%, which was 6.8% less
such as how stable the political en-
than in 2009 (Inditex annual report).
vironment is and what government
However, thanks to its global presence,
regulations influence the policies
the firm has been able to offset the slow-
that regulate or tax the firm. Zara
down in Spain (El País, 2011). The Span-
having a global presence, they
ish company is increasingly aiming at the
must take this into account when
global market because of stagnant results
entering a new market.
in its mother country due to the heavy re-
cession in Spain.
•Price: Differences in prices between es-
tablishments of the same brand from one
country to another and the likely response
of local customers, for example Zara Japan
and Zara Spain.
•Difference in income per capita across
countries in which Inditex operates.

-7-
 SOCIOLOGICAL
FORCES
•Zara being a global brand, it operates
in countries with strong cultural and
style differences. Socio-cultural factors
are extremely important when entering
a foreign market. For example, people in
Bangladesh do not change their ward-
robe too often and a strong preference for
bright colours dominates, as opposed to
blacks and whites, more worn in Europe.

TECHNOLOGICAL
FORCES
•Social media: Having a presence in social networks such as
Twitter or Facebook allows access to live information involv-
ing the consumer and making him/her feel more connected
to the brand.
•Online presence: Zara.com has become one of the brand’s
most popular storefronts thanks to their permanent sections
such as Lookbook, where the latest of the chain’s articles
are shown, or People!, an initiative in collaboration with the
customers, who send photos of their own fashion displays
from the latest Zara trends (Inditex, 2011). This involves the
customer emotionally and creates a more interactive way of
shopping.
•New technologies: Information and communications tech-
nology is at the heart of Zara’s business. Information on cus-
tomer needs and demands flows daily and is fed into a data-

-8-
 LEGAL
FORCES
•Plagiarism: High street retail-
ers create affordable garments in-
spired from the catwalk and luxury
brands. However this is sometimes
a concern for the latter. Zara was
sued in 2008 by Louboutin for sell-
ing an open-toed red-soled shoe
which it claimed was similar to its
Yo Yo model (Retail Week, 2012)
•Sweatshops: In August 2011 Zara
was accused of sweatshop facto-
ry conditions and the employing an
underage worker (The Guardian,
2011). This might have an extremely
negative impact in the brand’s image.
ENVIRONMENTAL
FORCES
•Sustainability: People are increasingly
aware of problems caused by pollution so in
2007, the firm’s CEO unveiled an environ-
mental strategy that included the use of re-
newable energy systems at logistics centres
and the introduction of biodiesel as fuel for
the firm’s trucking fleet (Palladino, 2010).
Zara is also opening some eco-efficient
stores.This company’s environment-friend-
ly image may attract more customers.

-9-
 MICROANALYSIS
I
n terms of revenue and To avoid multiple intermediaries and
growth Zara’s main competi- time waste Zara deals directly with its
tor is the Swedish firm H&M network of suppliers. The same hap-
who, unlike Zara, outsources pens with the distribution; the brand
all of its production to developing wants to keep control and owns almost
countries with low labour rates. all of its stores, all placed in strategic
While H&M has 900 suppliers and locations.
no factories, nearly 60% of Zara’s ‘Inditex selects suppliers all over the
merchandise is produced in-house world to produce its collections and
(Gallaugher, 2008). In terms of cus- has an extensive supply chain with a
tomers, Zara is facing all the trendy presence in over 40 countries. The fact
and fashion clothing designers and that a significant part of its supplies are
has positioned itself as the smart carried out in areas close to the head-
choice of those who want to com- quarters of each of the chains makes
bine fashion with affordable prices. possible a rapid and flexible response
to the market.’ (Inditex, 2011)

-12-
-10-
PORTER’S FIVE FORCES MODEL
APPLIED TO ZARA
(MICHAEL PORTER, 1980)
P orter’s model identifies five forces that impact the competitive power
and probability of a business within a particular industry (Harriet
Posner, 2011). The diagram shown in Fig-
ure 1 examines the current competitive
environment of Zara within the fashion
•Intensity of rivals:
There are a high number of com-
petitors with a strong rivalry among
them as they have to fight for mar-
ket share. Zara competes with inter-
national retailers such as H&M and
Gap but also national brands that
advertise lower prices, like Primark,
now that the economy is faltering
(Gallaugher, 2008).

•Threat of substitutes: Fig. 1 Porter’s Five Forces model applied to Zara

The threat of substitutes is low be-
•Bargaining power of suppliers:
cause it is a basic need to be dressed
Zara has bargaining power over its sup-
and clothing products cannot be re-
pliers as it is part of Inditex. Being ver-
placed. However, vintage and hand-
tically integrated means that Zara de-
made clothes might act as a substi-
signs, produces, distributes and sells by
tute.
itself, although at the moment, due to
its expansion, the brand counts on some
•Threat of new entrants:
independent suppliers.
The threat is medium to low because
there are many entry barriers and a
•Bargaining power of buyers:
high initial capital is needed to start
The bargaining power of buyers is low
up in order to cover creation, pro-
because costumers lack the ability to
duction and distribution costs. Fur-
bargain for high quality products at
thermore the new entrants wouldn’t
lower prices and the purchase volume
be able to compete with the offer of
per customer is really low.
the established retailers.
-11-
 SWOTANALYSIS
Strengths: Weaknesses:
•Vertically integrated system
•Fast Fashion/ Ability to recre •Centralised production
ate fashion
•Many stores around the World •Tagged as imitators
•Strong supply chain and distri-
bution channels •Euro-centric model
•Diversified product range
•Each store wants customer •Lack of advertising
comments and opinions.

Opportunities: Threats:
•Rivals may copy Zara strategy
•Designers’ collaborations
•Manufacture based in Spain is
could expand the company into
becoming expensive
new markets
•Potential oversaturation in Eu-
•Zara’s brand awareness
rope
•Emerging markets (BRIC
•Competitor H&M is doing great
countries) with designer collaborations and
a broader target market (ex: Ma-
ternity)

-12-
 CONSUMER
SEGMENTATION
Z
ara seems to have a
wide range of target The brand uses a differentiated
markets, from kids to market strategy as it aims to
teenagers to women target various segments.
and men. However, the core Zara situates its stores in high
customer tends to be a wom- profile locations and provides
an aged between 15 and 35. customers with a turnover time
A typical Zara customer is a of 4-5 weeks for its new col-
person that wants fashionable, lections, made available at very
trendy and unique outfits at af- affordable prices. This, along
fordable prices. As Zara has its with the brand identity, the
origins in Spain and is primar- clothes and accessories collec-
ily a European fashion brand, tion and the limited produc-
its consumers are also heavily tion run, attracts the target
influenced and moved by Eu- markets to Zara stores. The
ropean fashion. Aside from average Zara customer visits
that, the customer may belong the store 17 times per year,
to any social stratum or demo- compared with only three an-
graphic segment as Zara caters nual visits made to competitors
to a wide range of tastes. (Gallaugher, 2008)
The market segmentation
strategy employed by the brand
is based on the demographic
and psychographic variables
like gender, age, generation,
lifestyle and social aspirations.
However, aside from this the
company also targets custom-
ers based on their sense of
fashion and style e.g., contem-
porary, trendy, classic, etc.

-13-
 PEN PORTRAIT
Lucía is a 19-year-old
Fashion Journalism stu-
dent in London College of
Fashion. She is originally
from Madrid in Spain and
moved to England to attend
University. Now in her sec-
ond year of study, she has
rented a student flat with
three friends. She is a very
sociable and lively person
that loves going out to bars
and night clubs and try new
things. She is looking to fit
in with the current trends
by purchasing garments
that are both fashionable
and affordable because she
doesn’t have a vast amount
of money at her dispos-
al. She is extremely fash-
ion conscious so she likes
to keep up with trends by
Fig.2 Visual Pen Portrait reading blogs and fashion
magazines. Her favorite blogs are ‘Style Bubble’
and ‘Becaria de la Moda’; she reads magazines like Vogue and Harper’s Ba-
zaar. Her style icons are people like Alexa Chung or Olivia Palermo. She is
a fashion follower and likes to shop at Zara so that she can look fashionable
without spending a lot of money; however she also likes H&M (particularly
their designer collaborations), Mango and Topshop. Even though she can’t
afford it right now she purports to own a designer bag one day and buys
into high luxury brands by purchasing, for example, a Chanel fragrance.

-14-
 BRAND
POSITIONING MAP

Fig.3 Zara Market Position

This Positioning map gives Zara an overview of its position in relation to

that of competitor brands within the market (Posner, 2011). There is a very
strong rivalry between competitors as firms have to fight for market share.
Zara is perceived as being slightly more fashionable than its competitors.

-15-
MARKETING MIX
AND BRAND
STRATEGY

-16-
 PRODUCT
Zara has four main product lines;
women, men, teenager (Trafaluc)
and children (Zara kids) cloth-
ing. Each of them is subdivided in
Lower Garment, Upper Garment,
Shoes, Cosmetics and Comple-
ments. Women’s clothing ac-
counts for 60% of Zara’s revenue
(Bhagwat, 2011)
The shorter the product life
It is the leading brand in ‘fast
cycle, the more successful it will
fashion’, it can not only offer up
have been in meeting customers’
to 12 collections a year where
preferences, ‘If a style doesn’t
its competitors can only offer 3
sell well within a week, it is with-
or 4 but the brand is also known
drawn from shops, further orders
for the average time it takes for
are cancelled and a new design is
them to go from an idea to the
pursued’ (Roux, 2002). Another
actual appearance of a garment in
key element in the brand’s prod-
store, which is only 15 days. The
uct strategy is manufacturing a
brand adapts to customer wants:
limited production run which al-
if it finds that they are coming
lows the firm to offer exclusivity
in asking for a rounded neck on
and uniqueness to their consum-
a jumper rather than the V neck
ers and also encourages the latter
on display, a new version can be
to buy right away at full price.
in the stores within about 10 days
The chain allocates 85% of the
(Tagliabue, 2003). Rather than
full ticket price to its merchan-
creating trends the brand fol-
dise, while the industry average is
lows with designs where there’s
60% (Kluyver, 2010). Finally this
evidence of consumer demand
allows the firm to reduce the risk
(Gallaugher, 2008) and provides
of making a mistake. These par-
a considerable number of prod-
ticular product strategies have
ucts, approximately 30. 000 items
therefore helped Zara to become
a year versus 2.000-4.000 items
a powerful brand in the fashion
offered by big chain stores like
industry.
H&M (Gallaugher, 2008).

-17-
PRODUCT
COMPARAISON
£39,99
Although the Zara bag is
10 pounds more expensive
than the H&M one it also
looks more fashionable. The
Zara bag is offered in two
colours, black and brown.
Although the H&M has a
larger colour offer (Pink,
White and black) this only
makes it come across as
very tacky. In this particu-
lar case the 10 extra pounds
that Zara charges for its
£29,99 bag are completely justified.
It is very elegant and looks
expensive while the H&M
one looks cheap and of poor
quality. The bag has been
so successful that Zara has
created other similar ones.
It has even been adopted by
the “it” girl Olivia Palermo
and the singer Mollie King
and it has appeared in sev-
eral fashion blogs.

-18-
 PRICE
Z
ara is positioned in the
premium price segment,
which means its prices are
slightly higher than those
of its competitors.
Price varies by country depend-
ing on the purchasing power of the
target market segment and on the
margin the company wants to gain.
For example, higher prices are
charged within the UK. Zara used
to show the key European curren-
cies on its price tags and the UK
price was generally higher than
elsewhere in Europe (Jackson et al.,
2009).

Prices are, on average, 40% high-

er in Northern European countries
than in Spain, 10% higher in other
European countries, 70% higher in
the Americas, and 100% higher in
Japan (Palladino, 2010).
But how long Zara can go on
charging such markedly varying
prices in different countries? Jap-
anese customers pay about half as
much again as west Europeans but
Luca Solca of Sanford Bernstein,
a research firm, says consumers in
China, where Zara also charges
more, see high prices as part of a
product’s appeal (The economist,
2005)

-19-
Fig.4 Zara’s
Vertical integrated
model PLACE
There are currently 1.830 Zara stores over the
world: 207 in America, 1.280 in Europe and 243
in Asia and the rest of the world (Inditex, 2011)
The Zara business model is characterized by a
high degree of vertical integration, rather than
other models developed by international com-
petitors. It has a flexible structure and a strong
customer orientation. To be as reactive as pos-
sible in this competitive market, Zara has cho-
sen to privilege local production, indeed it has
decided to group activities near its headquar-
ters in A Coruña so as to gain time and get bet-
ter control. Vertical integration allows it to have
total control at all levels from suppliers to retail
shops.
Zara has expanded internationally through
company-owned stores but these stores entail
a number of costs and management commit-
ments. As a result, Zara is now using two oth-
er modes of market entry, franchises and joint
ventures (Ghemawat et
al. 2006)
Zara also uses the on-
line channel. The brand
opened its e-store on
2nd September 2010
and has managed to
keep its spirit and con-
vey it to the internet.
Indeed, colours, font
styles, everything in
the online store is built
on Zara’s trademark
characteristics: luxury
and simplicity.
-20-
PROMOTION
Advertising has traditionally been
the main method of communicating
a brand image (Jackson et al., 2009).
However, Zara spends on average
0.3% of its income on advertising,
which is considered very low com-
pared to the 3-4% typically spent by
rivals (The economist, 2005). The fact
that it spends so little has reinforced The strategy adopted by Zara consists of
its identity as a clothing retailer that is investing in the location and visual mer-
low cost but high fashion. chandising of their stores. The company
One of the reasons for this non ad- believes that its shop windows, the con-
vertising policy is the fact that Zara tents of which are decided in A Coruña,
changes its collections very often, so it are all the advertising it needs. Displays
is obviously unnecessary to promote are regularly updated since they are crit-
products that won’t be available a few ical for Zara to remain visible and entice
days after the consumer has been in customers. The stores are large and ap-
contact with the advert. pealing in their interior design, window
“The reason for not spending mon- displays and sophistication and are posi-
ey on publicity is that it doesn’t bring tioned in prime locations for more visi-
any added value to our customers. We bility.
would rather concentrate on our of- For Zara word of mouth has also a great
fering in terms of design, prices, rapid significance because despite the fact that
turn-around of stock and the store ex- the company has seldom used the me-
perience.” says Carmen, a press officer dia to advertise its products, Zara is still
at Inditex (Tungate, 2005). popular among the population at large,
which proves that people talk about it.
The Zara customer needs neither to
be reminded of nor to know what is in
the shop to come back. He does it be-
cause he knows he/she is going to find a
product he/she is going to like. There is
therefore no reason to do any promotion
since customers go to the shops of their
own accord.
-21-
BRANDING
‘The secret to Zara’s appeal is
that, although shopping there
is cheap, it doesn’t feel cheap’
(Tungate, 2008).
Zara imitates luxury companies:
choosing the best locations in
the main cities, showing a few
selected looks in their windows
and through a sophisticated mer-
chandise display inside the stores.
Occasionally stores have been
opened in characteristic build- The elegance transmitted by the
ings of the city as is the case of logo is also found in the store in-
‘Palazzo Bocconi’, in Rome, or teriors. The brand has adopted a
the ‘Convent of San Antonio El strategy tending towards the resem-
Real’ in Salamanca, Spain, which blance to luxury brands. The stores
is considered one of the great- are large, giving the customers room
est restorations carried out by to breathe instead of overwhelming
Zara, something that in terms of them; the sections are widely spaced
investment return will never be in keeping with the spirit of luxury
cost-effective and that was un- boutiques. When getting into a Zara
dertaken to strengthen the image shop we can also see that the goods
of the brand. are organized according to colours
and sophistication. Inside Zara
stores, the window displays and the
internal arrangement of the product
play a key role.
Zara’s famous dark blue paper bags
are also part of the brand identity
and they are a way of promoting it
too, ‘dandling smartly from wrists
on buses and trains and in the street,
in every city, everywhere’ (Tungate,
2008)

-22-
IMPORTANCE OF
BRANDING IN THE
FASHION Branding is really important within

MARKET the fashion industry. Chanel, Gucci,

Dior are all iconic brands that imme-

TODAY
diately convey a message about the
style and quality of the products. Cre-
ating a favorable brand image is key
in order to gain a larger market share
but also to differentiate yourself from
your competitors. Furthermore, fash-
ion branded garments are better per-
ceived by consumers than unbranded
items. Branding will provide the busi-
ness, among other things, with brand
equity and secure future income as
long as the brand is credible and rele-
vant.

-23-
 CONCLUSION AND
RECOMMENDATIONS
Z ara is nowadays one of the biggest retailers in the clothing industry,
however the firm is still facing some challenges and further recom-
mendations might help to improve its current business strategy.
Zara’s just-in-time manufacturing model has some limitations. By mov-
ing all of the firm deliveries through just two locations, both in Spain, the
firm remains hostage of any risk that could shut down operations (Gal-
laugher, 2008)
Another big question is how far Zara can go on growing from its home
base. Now that 15% of its sales are in Asia, does it make sense to run
product design and logistics just from Spain? (The economist, 2011)
Zara should consider slightly decentralizing its vertically integrated pro-
duction and distribution chain in order to keep being cost-effective as
well as opening plants in American and Asian countries to benefit of the
lower production costs.
There are 1.938 Inditex stores in Spain (Inditex, 2012) which cannibal-
ize Zara’s revenues and 335 Zara stores that can also cannibalize sales
from each other, particularly if they are within the same location. Only in
Madrid there are more than 40 Zara stores.
There are currently four Zara stores in Oxford Street, London; to de-
crease the competitive ‘cannibalism’ phenomenon among the stores the
firm should offer a different range of products in each of them, thus en-
couraging customers to visit them all.
Figure…Zara stores in Madrid
In regard to marketing issues Zara might consider adoptingsimilar strat-
egies to the ones employed by H&M and other brands, which take on
designers’ collaborations. They could do it for example once a year, it
would slightly increase the advertising budget but I believe it would re-
port benefits and attract new customers that might not be familiar with
the brand.
Overall Zara’s business strategy is very successful and has been studied
by many other businesses (Gallaugher, 2008). It is a successful interna-
tional retailer, which in 30 years has transformed itself from a Spanish
local brand into a truly global firm.

-24-
 BIBLIOGRAPHY
Annual Report
Inditex Annual Report 2011, Inditex.com [Online], Available from:
www.inditex.com [Accessed 20 December 2012]

Inditex Annual Report 2009, Inditex.com [Online], Available from:

www.inditex.com [Accessed 20 December 2012]

Books
JACKSON, T & SHAW, D (2009) Fashion Marketing, Basingstoke: Palgrave
Macmillan [Accessed 3 January 2012]

MARTÍNEZ, D (2012) Zara, visión y estrategia de Amancio Ortega, Ma-

drid: Conecta [Accessed 10 January 2012]

POSNER, H (2011) Marketing Fashion, London: Laurence King Publishing

Ltd [Accessed 3 January 2012]

TUNGATE, M (2008) Fashion Brands, 2nd edition, London: Konan Page

Limited [Accessed 5 January 2012]

Journal Article (Online)

(2005) The future of fast fashion, The Economis. [Online], Available from:
http://www.economist.com/node/4086117 [Accessed 7 January 2012]

(2011) Fashion for the masses, Global stretch: When will Zara hit its limits?
The Economist. [Online], Available from:
http://www.economist.com/node/18333093 [Accessed 7 January 2012]

-25-
FAULKENER, R (2012) Zara wins appeal case against Christian Louboutin,
Retail Week. [Online],
Available from: http://www.retail-week.com/sectors/fashion/zara-wins-appeal-
case-against-christian-louboutin/5037534.article
[Accessed 5 January 2012]

HANSEN,S (2012) How Zara Grew Into the World’s Largest Fashion Re-
tailer, The New York Times [Online]
Available from: http://www.nytimes.com/2012/11/11/magazine/how-zara-
grew-into-the-worlds-largest-fashion-retailer.html?pagewanted=all&_r=1&
[Accessed 6 January 2012]

HALL,J (2008) Zara is now bigger than Gap, The Telegraph [Online]
Available from: http://www.telegraph.co.uk/finance/newsbysector/retailand-
consumer/2794912/Zara-is-now-bigger-than-Gap.html [Accessed 6 January
2012]

Websites
LOPEZ,C (2009) Journal of Fashion Marketing and Management,
[Online], Available from: http://www.emeraldinsight.com/search.htm?PH-
PSESSID=6bs273a61hhecgu92un4k6hbv0&st1=ZARA&ct=all&ec=1&b-
f=1&go=Go [Accessed 15 november 2012]

HEIDEMANN,N (2001) The Zara Case Study, WGSN [Online], Avail-

able from: http://www.wgsn.com/content/wgsn-ms/business-resource/re-
search/2001/nov/br2001nov22_002908.html [Accessed 13 January 2013]

Case Studies
GALLAUGHER,J (2008) Zara Case: Fast Fashion from Savvy Systems,
[Online], Available from: http://www.gallaugher.com/Zara%20Case.pdf
[Accessed 14 January 2013]

FERNÁNDEZ,I (2011) La Precariedad en los mercados de trabajo y con-

sumo de los jóvenes: El Caso Zara [Online],
-26- Available from: http://eprints.
ANON, Zara y H&M: Dos modelos que intentan acercar el lujo al sector
del gran consumo [Online], Available from: http://www.cogefilog.com/pdf/
ZARA&HM_ES.pdf [Accessed 14 January 2013]

GHEMAWAT, P & NUENO, J (2006) ZARA: Fast Fashion, [Online],

Available from: http://researchingsustainability.files.wordpress.com/2012/01/
zara-harvard-case.pdf [Accessed 13 January 2013]

PALLADINO, A (2010) Zara and Benetton: Comparison of two busi-

ness models [Online], Available: http://upcommons.upc.edu/pfc/bit-
stream/2099.1/9620/1/67041.pdf [Accessed 10 January 2013]

(2012) Zara, etudes des techniques de commercialisation [Online],

Available: http://www.distripedie.com/distripedie/IMG/pdf/Dossier_
Zara_30mars2012.pdf [Accessed 10 January 2013]

-27-
-28-