Fast Zara, Fast Fashion
Fast Zara, Fast Fashion Introduction Everyone, no matter youngsters or middle-aged mothers, love to buy clothes and keep updated on latest fashion trend. In the past, people could only consume western styles clothing if they are rich enough to go shopping by travelling in European countries or able to afford expensive air mail to send the consumed western clothes back from overseas. However, it took a period of time and the fashionable clothing may become “old” at the time received.
As the information technology grows rapidly and, at the same time, trend of globalization makes the world become flat, people in every corner of the world receive updated news and knowledge quickly. They started to learn cultures from different part of the world. Cultural differences are no longer barriers on communication. People accepted cultures other than their own one. Therefore, more and more organizations started to set up subsidiaries in countries outside home town so as to gain some advantages on resources and labor; but the most important is to enlarge the customer bases and thus earn more profits.
Spanish retailer, Zara, noticed the trend and set up subsidiary in Hong Kong few years ago. Nowadays, Zara becomes the most popular fashion brand in Hong Kong. You will see there are always crowd of consumers inside its stores both after working hours and on weekends. Other fast fashion retailers, like H&M, UNIQLO, also catch the brightly trend to set up subsidiaries in Hong Kong. Clearly, these popular retailers are riding two of the winning retail trends – being in fashion and low prices – making a very effective combination out of it.
Zara is, especially, an interesting case study for many other retailers and fashion brands around the world. The goal of this report is trying to discuss internationalization strategy of Zara through looking at its winning elements in business model, especially finding out the factors leading Zara succeed in Hong Kong. Background of Zara Zara is the flagship brand of the Spanish retail group, Inditex SA, one of the super-heated performers in a soft retail market in recent years. Inditex s very popular to investors because it seemed to have higher profit margins than comparable retailers and the trend seemed sustainable. Amanclo Ortega Gaona, the founder of Inditex, though that consumers would think that clothes as a perishable commodity, such as bread, to be consumed quickly, rather than stored in warehouse, and he has gone about building a retail business that provides “freshly baked clothes”. Zara was established in 1975 with over 2000 stores in around 56 countries. It is very famous among the youngster all over the world.
It has a team of designers with unique design of clothing. It tried to sell high fashion with low prices. It was the beginner of fast fashion. In 2005, Zara was ranked in 77 in the 100 most valuable brands of the world. Harvard Business School recognized Zara as the worthiest European brand on research study. Wharton School considered Zara as the model to study future manufacturing industry. Zara has a good financial background with rapid growth. Its growth rate on earnings per share is 10. 9%, compared with that of five largest luxury brands, like Burberry, only has 7. 7%. What is “Fast Fashion”?
Fast fashion is used to describe clothing collections which are based on the latest fashion trend presented at Fashion Week in both the spring and the autumn of every year (Muran, 2007). These trends are designed and manufactured quickly and cheaply to allow the mainstream consumer to take advantage of current clothing styles at a lower price. This philosophy of quick manufacturing at an affordable price is used in large retailers such as H&M, Forever 21, Zara, and Primark. However, these retailers have been in pending lawsuits over violations of Intellectual Property rights (Casabona, 2007).
The alleged violations are brought on as pieces of merchandise at the large retailers are considered to be knockoffs of designs from Diane von Furstenberg, Anna Sui and Gwen Stefani’s Harajuku Lovers line and many other well-known designers. Hong Kong Business Environment Hong Kong business environment is very special compared with other cities in Asian, or even all over the world. Hong Kong was British colony for more than 150 years which has left significant influence on the population and history of Hong Kong, especially the legal and educational foundation.
Unlike long-term orientation held in Chinese, Hong Kong people tend to have a short-term orientation, i. e. short-term measures and quick profits. Although we are influence deeply by Chinese values through traditional family education and parents and elderly, Hong Kong people see themselves a mixture of Eastern and Western values, cultures and practices. This might be because most of the business leaders have been educated abroad or have graduated from local business schools which emphasize lot on Western business theories (Holt and Mailer, 1992). Such uniqueness makes culture-driven analysis worthy to Hong Kong people.
PESTLE Analysis for Hong Kong Business Environment PESTLE Analysis is a new version of “PEST Analysis”. This external, strategic analysis gives overview of different macro-environmental factors of a particular area for understanding market growth or decline, business position, potential and direction for operations. “PESTLE” stands for political, economic, social, technological, legal, and environmental factors, using for environmental scanning and strategic management. Legal and environmental factors newly added into the analysis as these two factors become a new concern. Political: Hong Kong Government adopted a “free” policy to nearly all types of industry. Both multi-national corporations (MNCs) or small-medium enterprises (SMEs) or even sole-proprietors are welcome to set up headquarters or subsidiaries or start their business in Hong Kong. The Government even set up an organization to help the businessmen or investors to start their business by providing consultation and assistance. In addition, the law system in Hong Kong is relatively transparent that any enquiries of the laws could be easily to find the solutions. Hong Kong Government tried to construct an environment with minimum intervention to ll business. ?Economic: Hong Kong has a solid economic system in which there is no any serious and specific economic crisis happened in the past. The Hong Kong Monetary Authority (HKMA) is responsible for maintaining monetary and banking stability. Its main functions are (i) keeping the Hong Kong dollar stable; (ii) managing the Exchange Fund – Hong Kong’s official reserves – in a sound and effective way; (iii) promoting the safety of Hong Kong’s banking system; and (iv) developing Hong Kong’s financial infrastructure to enable money to flow smoothly, freely and without obstruction.
With the work of HKMA, Hong Kong economy could be kept stable and safe for investors to do business. ?Social: Under such historical background mentioned at the beginning of this section, Hong Kong is a mixture of eastern and western cultures with people of different races, nationalities, colors of skin, etc. People in Hong Kong could learn many different cultures through and are influenced by interaction and communication with foreigners. By observation of the dressing styles of western people, Hong Kong people would like to follow western fashion style.
Together with the sound reputation of fashion industry in western countries, Hong Kong people started to look for the way to consume western clothing. Fast Pace of Life: Hong Kong is a place with fast pace of life. People in Hong Kong eat fast, walk fast, move fast… Everything needed to be fast. Once they got the latest fashion trend in the west, they cannot wait for a long time before getting those trendy clothing on hand. ?Technological: Technological level in Hong Kong is quite high. There are several science and innovative centre to help organizations on this aspect.
Besides, there are various exhibitions about electric and high-tech products for manufacturers to exchange knowledge or newly developed techniques. ?Legal: Hong Kong has a solid legal system. Organizations have to follow all the rules and regulations set by the Government, e. g. discrimination laws, employment law, and health and safety law. ?Environmental: The weather and climate in Hong Kong has to be considered. Besides, the growing concerns on environmental change will affect the operation and decision of companies. For example, the materials used for production needed to concern the harmless to the earth.
This environmental awareness is a newly concerned issue. Organizations needed to take this into consideration and set a series of policies on this area as this is the new trend and harm the reputation in the future. Hong Kong is an international city with well-established infrastructure, legal and economic systems to support and protect the set up and development of all investors. However, as the information technology in Hong Kong is updated, any latest news and trends could be received, like the growing awareness on environmental protection.
Organizations have to be updated at the same, or even better, faster rate of the Hong Kong society so as to change and implement new strategies to cope with the trend. Zara’s Winning Formulas SWOT Analysis for Zara SWOT analysis specifies objective of business and identify the internal and external factors that are favorable and unfavorable to achieve the objectives which may be incorporated into strategic planning and model. “SWOT” stands for strengths, weaknesses, opportunities and threats. Particularly, strengths and weaknesses are internal attributes of company while opportunities and threats are external conditions.
For Zara, it aims to be the best fast fashion retailer which is being in fashion and low prices. In order to achieve this goal, Zara has hit on a winning formula for its supply chain. However, there are still drawback on it and external factors influencing the sustainable success of Zara. ?Strengths 1. Short Lead Time: The time between identifying a new trend and having clothes in its stores is only 30 days. That means Zara could catch up the latest fashion and put the clothes on shelf when they are still hot.
It allows Zara to gain a better profit margin as the sales produced at full prices and fewer discounts. This is achieved by a very large design team to identify constantly and design styles to match the trends. The modification only takes 2-4 weeks. As a result, fast identification and modification make shorter lead time than competitors. Even Hong Kong is far way from Spain, the head office, Zara stores in Hong Kong could receive latest fashionable clothing when the trend is still hot. 2. More Styles, More Choice: Zara has a very large design team and research team.
Once they receive message of the coming fashion trend, they start to produce the garments. The stores will receive new clothing twice a week. Zara can offer more choices in more recent fashions than many of its competitors. The stores look fresh every 3-4 days. In Hong Kong, it is found that there is a crowd of people in Zara’s stores every day. Most of the clothing will be sold out in a week. 3. Strategy of Producing Low and renewing fast: Top management of Zara adapted a strategy of producing low volumes per style and changing products quickly in its stores.
Zara is not afraid the low volumes of clothing will drive away customers but attract them to come more. As the clothing is limited and at low prices, the customers might not buy the same clothes if they come back few days later. Therefore, they have to decide whether to buy it now or do not want it. Since clothing is renewed twice a week, this strategy attracts customers to come frequently to see whether the new arrivals are suitable or not. Hong Kong customers always go to have “crazy” shopping at Zara, no matter at the time not offer season sales in other brands usually. 4.
Centralized Super Market Research and Product Development Team: 80 per cent of Zara’s production is carried out in Europe, much of it is very close to headquarter in Spain. In order to gain large amount of flexibility and control, almost half of its production is in owned or closely-controlled facilities. With vertical integrated group of manufacturing facilities in Spain, Zara owned up-to-date equipment for fabric dyeing and processing, cutting and garment finishing. The cost might be considered as high but it could ensure the materials match the design and shorten the time on dealing with manufacturers outside.
Heavy workload on design and product development is managed by a team of over 200 people which is all based in Spain. The source of market research is rich as they combine information from visiting university campuses, discos and other venues to observe what young fashion leaders are wearing, from daily feedback from the stores, and from the sales reports. 5. Sound Information Technology and Communications Infrastructure: Well-established information technology and communication system keep streaming up-to-date trend information to product development team and top management for decision making.
Customized handheld computers (PDAs) support the connection between the retail stores and head office. These PDAs support regular weekly phone conversations between store managers and marketing professions. The top management could receive information, like orders and sales trends, customer reactions, and “buss” around a new style. The rapid flow of information allow Zara catch trend, design and launch new clothing quickly. Besides, a computer-aided design system helps a lot on catching trends. Once the team selects a prototype for production, designers refine the colors and textures on the system.
The final draft will be sent directly to relevant cutting machines or else in the factory. Tracking with bar code of cut pieces to make sure consistent and correct in production, distribution, and delivery to stores. This facilitates the communication and shortens the meeting of different functions and thus achieves the competitive advantage. Therefore, although Hong Kong and Spain are in different time zone, Hong Kong store managers could still report through the 24-hour operated PDAs. 6. Design of Organization Structure:
Zara has a flat organization structure which ensures that important conversations do not fall through high, multi-level bureaucratic cracks. This type of structure is like knowledge network which is a network for transmitting information within organization that is based on informal contacts between managers within an enterprise and on distributed information systems. This flat organization structure encourages store managers to exchange information they observed. Therefore, it facilitates the speed on catching latest fashion trends and shortens the lead time. ?Weaknesses 1. Quality of Employees:
The most important competitive advantage of Zara is to catch the latest fashion trends. Stores managers and sales associates play very critical roles on this competitive advantage. In order to collect the latest data needed, the cooperation of the employees worked in the stores in which they should take the initiative to report their observation. It would be a difficult job on recruiting and selecting right people. The methods on proper recruitment and selection are great challenge to Zara’s human resource department. Hong Kong has many sources let candidates know how to perform in the test so as to “win” the vacancies.
Even the selection did well, the amount of work force located in the stores needed to justify at the optimum rate so that sales associates would not be too busy with the store affair and ignore the observation. Or, they should not be too free and thus waste the resources of Zara. It is especially true in Hong Kong as the turnover rate in service industry, particularly sales, is high. Sales associates in stores are always changing. When sales resigned and there are vacancies, remaining sales associates need to share the job duties of the resigned sales. Their workload increase and no extra time would be pay on observation. . Complicated Three Spacious Line – Women, Men and Children: As there are three different lines under Zara, spate design, sales and procurement and production-planning staff are dedicated to each clothing line. Store manager might receive three different calls from marketing specialists of the three lines and report the observation. Factory making dress might need to deal with more than one Zara managers, one for women’s dress and another for children’s dress. It makes the communication complicated and wrong data might be received. 3. Sales Associates’ Familiarity of Products:
Stores receive the new stock twice a week. Such a frequent stock flow might make the staff confuse and not familiar with the types and numbers of stock. Once customers have any enquiries, sales associates need to check system all the time. Thus, impatient customers might affect the reputation and take a loner time for staff to manage each enquiry. As mentioned in the above, the turnover rate is particularly low in Hong Kong, sales associates could not pay much time on observation and also updates their own information on new products. Hong Kong is an international city with brand name “shopping paradise”.
Each year many tourists from different corners of the world come to Hong Kong to travel. Reputation is affected more seriously since Zara stores in Hong Kong have to face tourists with different nationalities. Tourists, with different cultural values and concerns, might have different needs, e. g. different body shapes, height, favorite colors, etc. ?Opportunities 1. Rapid Flow of Information/ Advanced Information Technology: Advanced information technology allows Zara to catch the fashion trends rapidly and transmit the design and draft to different corresponding functions.
Besides, updated western fashion trends let Hong Kong people know what styles are popular in the coming season. Thus, they tried to follow immediately by shopping at fast fashion retailers. 2. M-Shape Society: “M-shape society” is a hot topic which means that polarized society with the extreme rich and the extreme poor. Then, “poor” consumers would like to buy western high-end clothing with lower prices at fast-fashion retailers, e. g. Zara. ?Threats 1. Increasing Awareness on Environmental Concerns: Consumers are more aware on issue of environmental protection as global warming is getting serious.
Fast fashion allow consumers buy more and frequently. Zara will face the challenge in the future. Recommendations ?Human Resource Department –Sound Recruitment and Selection In order to maintain updated, good quality information on fashion trends, Human Resource Department should try to adopt a series of effective attitude tests on assessing the personality and competence of the potential employees. Also, it should be stated and explained clearly details of job duties on the job description. In addition, a recognition system could be designed to award the outstanding performance on reporting. Environmental-Friendly Campaign Zara could launch a series of environmental-friendly campaign to customers, like recycling the unwanted or used clothing and sending to the Third World countries. Try to employ biodegradable materials into the selection of raw materials. ?Product Descriptions Placed near the Product The problem on the sales associates’ familiarity of products could not be solved in long term. It is because the turnover rate could not be adjusted solely by Zara; and the frequent clothes arrivals could not be managed by staff as numbers of staff is quite large and they are in shift.
What Zara could do is to place product description – contents, size, and color – next to the products. This not only provide a channel to customers to know more details but Zara could also make use of that for promotion. Conclusion Zara is an amazing international fast fashion retailer. It set up subsidiary in Hong Kong and spread rapidly. This is because Hong Kong people love to follow the western fashion trends and most of them could not afford the prices of those high-end fashion brands, this is especially true in M-shape society nowadays.
Also, Hong Kong people tend to follow the trends and thus buy nearly all new clothing for coming season. Zara fits their needs to provide quality, fashionable clothing with low, affordable prices. However, to be sustainable in the future, Zara needs to keep on tracking its strategy and policy and the external environment as well, so as to get ready beforehand and cope with the latest trends which might benefit or harm Zara, like environmental concern. (around 2,970 words) ? Reference 1. Casabona, Liza. “Retailer Forever 21 Facing A Slew of Design Lawsuits. WWD: Women’s Wear Daily 194. 15 (23 July 2007): 12-12. Textile Technology Index. EBSCO. Mary Couts Burnett Library, Fort Worth, Texas. 13 Nov. 2008 2. Holt, D. H. , and Mailer, A. (1992). Entrepreneurial perceptions among Hong Kong’s emerging managers. Hong Kong Journal of Business Management 3. Muran, Lisa. “Profile of H&M: A Pioneer of Fast Fashion. ” Textile Outlook International (July 2007): 11-36. Textile Technology Index. EBSCO. Mary Couts Burnett Library, Fort Worth, Texas. 13 Nov. 2008 4. www. zara. com
