Zara letting the stores and consumers do the marketing

Ivan Castano Warc Exclusive August 2008

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Zara letting the stores and consumers do the marketing Ivan Castano Warc Exclusive August 2008

Zara - letting the stores and consumers do the marketing

Ivan Castano Powered by the growth of its flagship chain Zara, Inditex, the Spanish retailer, recently overtook Gap as the worlds largest clothing retailer. Inditex - based in north-west Spain - pioneered the fast-fashion business model. Two decades after opening its first store outside the country, Zara has become a global byword for supplying fickle consumers with affordable yet stylish garments invariably on shorter turn-around times than its rivals. It has risen without employing retailer marketing techniques, especially the brand advertising campaigns on which, according to industry consultants, some of its rivals typically spend 3%-5% of their annual revenues. And most analysts believe that however much the likes of H&M or Gap imitate Zara products, they will struggle to copy its business model. SohowdoesInditexdoit?Accordingtofashionbrandingconsultants,thestrategyisbasedontwokeyactivities: understocking and frequent window-changing. The company hooks customers by stocking a minimum amount of on-trend garments and displaying them in shop windows for a very short time, creating an aura of exclusivity around the product.

Zara uses understocking and frequent window-changing to create an aura of exclusivity, as above (respectively) in
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Fukukoa (Japan), Casablanca, 5th Avenue in New York, and Beirut They are tremendously clever marketers,enthuses Bill DAriano, owner and founder of US fashion consultancy WDA Brand Marketing.Unlike competitors, 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 wont be there on Friday. That creates a perception in shoppersminds that they are getting something unique and that they are special. The understocking bet can also create a viral marketingphenomenon that fuels consumer word of mouth about a collections hot items, keeping people glued to the stores, say consultants who follow Inditex. When Inditex managers receive customers requests for a sought-after garment, managers can order them for a one to two-week delivery - a speed unmatched in the industry where factory-to-store times can range from one to six months. Katrin Magnussen, a fashion analyst with Mintel consultancy in London, agrees that Zaras shops are its main marketing tool. She said: The stores are its advertising. They are situated on prime and highly visible locations so people can see what they have in their windows.

Zara often uses prime locations, such as this store situated in Paris Zaras windows are also very different from those dressed up by H&M and Gap, observers say. With just a few fashionable styles on display, it is set up to give a cat-walk designer feel to the shop,says a fashion consultant speaking on condition of anonymity. This reinforces Zaras plan to be known as a designer-led brand away from Gap, which is seen as a commodity seller, or H&M, which presents itself as a supplier of throw-away fashion. A tightly-controlled manufacturing chain enables the quick turnaround at Inditex, which has become the pride and soul of corporate Spain and a case study at leading business schools. Unlike rivals, the company does very little outsourcing, making most of its clothing in its Spanish factories or with nearby third-party suppliers. All designers are based in in-house. In visits to Inditex, DArianzo has seen the beast at work. He notes: All design and merchandising is integrated in an openwork environment. There are no senior designers in one floor or different gradations of merchandisers in other floors. This
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allows input to happen very quickly. Learn from the customer Inditexs communications director Jesus Echevarria acknowledges that Zaras stores (and those operated by its sister chains), are its main marketing, branding and communication vehicle. The strategy is based on having the accurate product in the correct place at the right time and price,he says. Instead of predicting shoppersdemands, Inditex plays close attention to customerspurchasing patterns and feedback while in the store. According to Echevarria, the company works to ensure that its 4,000 stores receive new garments twice per week. Adds Echevarria: Inditexs aim is to learn form the customer so we try to turn away from spectacular shows or catwalks. Asked if Inditex does any below-the-line marketing, Echevarria says its merchandise may sometimes appear in fashion media or films but that is a rare occurrence. We try to accommodate these requests whenever possible but we dont seek them out, he says, adding that Inditexs apparel was recently showcased on Woody Allens new film Vicky Cristina, without identification. Inditexalsoplacesnewspaperadstopublicisenewstoreopeningsorsalecampaigns,andhostsshop-opening events, but in a very humble way. Echevarria oversees marketing activities and institutional relations at Inditex because the company does not employ a marketing director or have a marketing department like other multinationals. Inditex says it doesnt employ any external marketing agencies. Apart from Zara, Inditex owns premium chain Massimo Dutti (a European answer to Gaps Banana Republic) and more downmarket youngster chains Paul & Bear and Bershka, among others. The multi-format concept (which Inditex continues to expand) is the ideal way to market to different consumer segments, says Echevarria. The chains follow Inditexs core marketing plan and non-advertising policy. However, they operate as independent entities competing with each other. Each label targets different age groups but has a clearly differentiated identity and product offering. Inditex will invest 1bn in its business this year, most of which will go to open and refurbish stores to enhance their marketing appeal, according to Echevarria. In the first quarter of its financial year, Inditex beat struggling Gaps sales, reporting a 9% jump to 2.22bn compared to Gaps 2.17bn. It has outstripped H&Ms turnover for some time and is likely to do this through 2011, according to analysts at Sanford Bernstein in London. Inditexs turnover will climb to 14.6bn in the next three years, up from 9.5bn for the year ended January 2008, the broker predicts, adding that H&M will chalk up 13.5bn, up from 8.4bn in 2008. Gap sales are forecast to shrink to 10.1bn by 2011, down from 10.6bn for the year to February 2008. Analysts say Zaras ambitious expansion - strongly focused on Brazil, Russia, India and China (BRIC countries) - coupled with its savvy marketing model, will help it grow faster than its rivals. The chain is unlikely to change its marketing philosophy any time soon, says DArianzo: It has worked very well so they are not going to modify the concept,he says. However, as Inditex grows its going to be tougher to maintain a vertical supply chain located within a days drive from merchandising and design. They are trying to build this model in other countries but this will be challenging. Inditex versus H&M/GAP

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Given its brimming success, will H&M and Gap move to copy Inditexs marketing? Thats unlikely, as they would have to change their business structure drastically, analysts say. Though it spends significantly more on marketing than Inditex, Swedens H&M promotes itself very successfully, observers say. H&M is not going to change its marketing,says DArianzo. It would require them to change its back-end business model [to tighten the supply chain] and this would be very hard. H&M moves merchandise quickly enough and its advertising is very successful in its own right. H&M has slower delivery times and is less geographically diverse than Zara so it needs to advertise to promote a new collection or build its brand in new markets: Because of its slower turnround schedules, H&M cant change its windows as quickly as Inditex so they need to advertise a new collection through traditional methods,says Magnussen.

An ad for H&M, featuring Madonna; the chain has also worked with celebrities such as Kylie Minogue Gap, which continues to lose market share against Inditex and H&M, is sticking to its classical advertising strategy to publicise collections, which take three to six months to reach shops, according to observers. It recently scrapped US national ads to cut spending and boost profits. This month, however, the chain launched a new celebrity-inspired ad campaign.

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An image from Gap's new celebrity-endorsed campaign, featuring actress Liv Tyler Gap has lot its way,says DArianzo. They dont know who their customer is, and they cant create excitement. They are very driven by meeting Wall Streets earnings targets. They just hired a new CEO from a drugstore company and I wonder, What does he know about creating the romance and excitement of Zara?Despite this, Gaps large real-estate network and US market lead should help it for some time, analysts say. As the fast-fashion industry continues to grow, will emerging retailers emulate Inditex? They should look at their big rivals best practices and identify fits with their organisational structure to create a unique brand,DArianzo says. Of course, copying the Spaniards wont necessarily produce the same results: There are no guarantees,says Magnussen. Zara has its own style. It was the first to launch this strategy so if everyone does it the novelty will wear off. About the author: Ivan Castano, a former contributor to Ad Age, is a freelance journalist who covers advertising and marketing. He has previously written for WARC Online on the efforts of US banks to win Hispanic consumers.

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