Less than five years ago, in 2011, fast-fashion giant Zara opened its first store in Melbourne. The resulting cult-like following has been well documented. A year later, Zara’s Australian sales exceeded $100 million—remarkable growth for a new player in a highly competitive $19 billion industry growing at 3% per annum.
Fast forward to 2016 and the Zara juggernaut appears to be slowing. The flagship Melbourne store was remodelled this year to reinvigorate its presence, boost sales ($179 million in 2015) and thwart increasing competition from fast-fashion players who appear to be responding to Zara dominance.
Traditionally, the retail fashion industry’s distribution models aligned with typical definitions of distribution (such as that of Kotler and Levy or Perreault and McCarthy) and focused on designing goods, outsourcing production and making the final product accessible to buyers through normal distribution channels such as wholesalers, department stores and bricks-and-mortar or online stores.
Zara initially followed this model, but identified benefits in marrying manufacturing and retail by vertically integrating its supply chain and controlling the entire distribution process. While Zara’s store locations, fit-outs and online presence were aligned with its branding—similar to normal industry practice—Zara’s innovation was to move away from designing products from scratch and instead focusing on distribution.
The disruption of an industry
The ‘Zarafication’ and disruption of the industry’s operating model, has largely been due to Zara’s unusual distribution model. More contemporaneous definitions of distribution, such as that of Balasescu, include distribution through marketing channels that stimulate customer demand via information, proximity and promotion—all aiming to create value for customers. These definitions explain Zara’s phenomenal success. As Bonin explains, Zara started a ‘democratization of fashion’—reproducing catwalk designs at affordable prices by using lower grade fabrics and making them available to customers within two weeks of being designed. This compared to traditional fashion retailers where catwalk designs were not affordable, or took months to become available.
Further capitalising on its quick production times, Zara actively sought to continuously adapt its products to market demands and customer feedback through significant customer interaction in-store and online. Opewal et al identify that such multi-channel strategies to reach customers allows businesses to develop strong relationships with customers and Zara’s focus on obtaining customer feedback and quickly translating it into new products not only allowed it to beat the competition to market with new products that met customer’s changing desires, but also conveyed a sense of currency to the brand’s offerings that could not be replicated. Zara coupled this with carefully selected store locations, which Ferdows et al ote were near high-end fashion retailers who offered similar products, but at higher price points—resulting in increased demand for what Willems et al identify as the brand’s sophisticated and trendy products.
Caro et al identified that to support its value proposition Zara had to develop innovative and highly responsive design, production, and distribution infrastructure. By owning the entire supply chain Zara could reduce production runs and establish global just-in-time manufacturing systems—attributes previously unheard of in the industry—minimising the risk of obsolete stock and price write-downs whilst providing customers with frequent product updates. This also increased the urgency for customers looking to purchase items as Zara’s low inventory holdings, and high stock turnover, forced customers to frequently come back to stores or shop online to buy products because they were at risk of selling out.
While Zara’s distribution model can be described as a simple, multi-channel, manufacturer to consumer, pull model (as defined by Wright)—due to its vertically integrated supply chain—it was completely atypical of the fashion industry and led to significant differentiation from competitors, ultimately leading to rapid growth. But while Zara’s Australian results appear strong, its dominance and competitive advantage in the local market may be waning as competitors being to replicate the replicator. Zara’s response from here will be interesting as it looks to re-differentiate from its competitors.