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Running Head: ZARA IN CHINA 1

Fashionably Fast: An International Marketing Case Study

Sammy Al Moukadem, Mark Boutilier, Katherine Cameron, Mark Hamilton, Allison Jeffcoat,

Matt Lee, Martina Mai and Marie Price

Kennesaw State University


ZARA IN CHINA 2

The Company at Home and Abroad (Target Market)

Zara was founded in 1975 by Amancio Ortega and his ex-wife Rosalia Mera , in La

Coruna, Spain. Before Zara had an official name, he founded Confecciones Goa in 1963 which

was a dressmaking manufacturer. Later on, he wanted to improve the manufacturing interface,

thus leading him to opening the first Zara store in northern Spain. Throughout the 1980s, Zara

started to operate nationally including in the United States. Inditex is the parent company to Zara

and became the holding company to it by 1985. “Ortega created a new design, manufacturing,

and distribution process that could reduce lead times and react to new trends in a quicker way,

which he called “instant fashion”. This was driven by heavy investments in information

technology and utilizing groups instead of individual designers for the critical “design element.”

(Martin Roll, 2019)

Zara has grown to be one of the world’s largest fashion retailers with over 2,000 stores

that operate in about 90 countries. With that many stores, they have around 13,000 employees in

their stores, manufacturing warehouses and corporate side of the company. In recent years Zara’s

revenue has been low but in 2018 and 2019 the company has reported higher profit and sales in

their online platform. For 2019, they posted that their annual revenue was 3.44 billion euro. Most

of their revenue comes from their online store which is in many different markets around the

world. One of Zara’s most important markets is China. They first came to China in 2006 with a

flagship store in Shanghai and now they have over 500 stores. Zara’s market strategy into China

was focused on differentiation and their short supply cycle. They also focus on putting Zara

Home outlets across their major cities. Zara usually puts their stores in either fashionable

locations or in classy department stores.


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Zara markets to young, price-conscious consumers who are highly sensitive to the latest

fashion trends. The target market is not defined by segmenting ages and lifestyles, which gives

them a broader audience and an advantage over other retailers. By the early 1990s, they started to

expand internationally by offering cutting edge fashion at affordable prices by following the

latest fashion trends. When new trends start to arise, other retailers take 4-12 months to start

having clothes ready to sell. Zara, on the other hand, can have their clothes ready to sell in the

market in thirty days. They do this by “controlling almost the whole garment supply chain design

to retail.” Through cutting down their production time, Zara has become increasingly successful

throughout the years. Zara earns more of its profits from its online platform, but their brick-and-

mortar stores are the center of communication because they only advertise twice a year. To stay

above their competition, they use a pull marketing strategy by creating customer curiosity. Their

biggest global competitor, H&M, still focuses on pushing out their products. For Zara, keeping

their customers attracted and interested in the brand is the key to their success on both domestic

and global markets.

The Country

China is easily known as one of the powerhouse countries of the world. China is the most

populated country with approximately 1.39 billion people (Blazyte, 2019). Most of the

country resides in the eastern half of the country as the western half is defined by mountainous

terrain and harsh conditions. The higher populated areas are often found to be along many of the

rivers and Beijing, the country's capital. China is also a large country sizing at 9,596,960 square

kilometers which ranks 5th in the world. (The World Factbook, 2020). The country’s GDP in US

dollars amounts to $12,237,700m or about $8,827 per head with a real GDP growth of about
ZARA IN CHINA 4

6.1%. (Europa World, 2019). Many citizens of China are victims of low wages and a decrease of

value in their assets. (Making a Breakthrough in Reform, 2013). Yet, China holds the title of the

world’s largest economy and exporter! (The World Factbook, 2020). China’s success as a

country plays a huge role in nearly every economy’s stability. USA Today reported, “China is so

big a part of the global economy that any hiccup in its growth rate or signs of instability in its

markets affects everything.” This is where China’s government comes into play, China is

governed as a communist party-led state. Communism often controls a country because it is

based on the ideas of one that controls nearly every aspect of a country such as its government,

citizens and economy. Yet there is discussion whether China should be classified as a market

economy. (Green & Keegan, 2020).

China has a rising middle class but as shown below; many perceive themselves to be

middle class when they actually fall into upper class status due to income. Many residents of

China actually work a job that doesn’t fall in the middle-class category. A huge reason for this

success could be credited to China’s education. China is a country that prides itself on its

emphasis on education. China has a literacy rate of 96.4% as of 2015. (The World Factbook,

2020). One report writes “A total of 333,000 people have graduated from China’s MBA

programs in the last 20 years, with 150,000 granted the MBA degree.” (Economy, 2011).

China formerly had a “one-child policy” that was uplifted due to its rapidly aging

population. (The World Factbook, 2020). The fourth diagram below shows the breakdown of

China’s age groups dividing them by sex. China’s male to female ratio is 105.5 males to 1

female. See the fourth diagram for a further breakdown of how disproportionate China’s gender

ratio is.
ZARA IN CHINA 5

Overall, China is a huge opportunity for any company to venture into. China is the most

populated country and you could only benefit from the potential growth in business from an

extra billion people. The greatest challenge will be to try to adapt to the culture of the country

and what appeals most to them.

Industry

The global apparel retail industry accounted for $1 trillion in revenue in 2017 and is

projected to grow. Much of this growth is expected to be in the Asia-Pacific region which

accounts for 37.1% of the industries total value and has had a growth rate of 6.9% since 2017

(MarketLine, 2015). A subsector within the global apparel industry is an industry referred to as

“fast fashion,” which is worth $35 billion USD (2019 Fashion Resale Report, 2019). The fast

fashion industry replicates luxury fashions of the runways for cheap prices. The word “fast” in

this context describes the nature of the expedited production and consumption of clothing

articles. Due to the increased accessibility, consumers are enticed to keep up with the latest

fashion trends. As a result, suppliers release many new styles in smaller batches every few weeks

so that the consumer can constantly replenish his or her wardrobe (Mohn, 2018).

Zara specializes in fast fashion and offers from 2,000 to 4,000 clothing items in its stores

(Anwar, 2017). After experiencing major success in Europe, Zara expanded into the Chinese

market in 2006 with its affordably priced fast fashion products. The market for fast fashion

products has been valued at $295.2 million (Sofya, 2019).


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Competitive Landscape

It has been speculated that the fast fashion industry in China is becoming more

oligopolistic with the top competitors enjoying the respective market shares: Uniqlo 29.8%.

H&M 22.3%, and Zara 13.7% (Gi 2019). Zara’s main competitor is the Japan-based store

Uniqlo, with other competitors including H&M, Gap, and Benetton (MarketLine, 2015). (An

extensive list of all Zara’s competitors is noted in Appendix 1: Competitors).

Currently Zara is outperforming Uniqlo with a larger global presence, more efficient

supply chains, and better manufacturing networks. Both Zara and Uniqlo are pressured from the

increase of e-commerce and rising costs of production. However, although Zara outperforms

Uniqlo on a global scale, Uniqlo enjoys a larger market share of 29.8% in China (Gi, 2019).

H&M plans to expand further into China after experiencing a sales increase of 11% and

the success of its current 299 stores with plans to open an additional 240 stores (Schlossberg,

2015). H&M reported record annual sales of 8.85 billion yuan, which is approximately 1.2

million USD (Gi, 2019).

Local brands also challenge the expansion of companies like Zara and Uniqlo because

consumers tend to favor native brands over emerging markets (Anwar, 2017).

An expansion into the growing Chinese market would make Zara sacrifice its

competitiveness in terms of cheap transportation from its factories to most of its stores that are in

the European Union. If Zara were to expand dramatically into China it would increase lead times

and their current factories would not have the capacity to satisfy the large demand (Hall, 2013).

After reviewing the large amount of market share that Uniqlo, H&M, and Zara enjoy, it is

clear to see that these firms are borderline oligopolistic. Fast fashion is in high demand in China
ZARA IN CHINA 7

and in order for Zara to maintain its growth, it is essential for it to maintain a competitive edge in

this unique market.

The Customer

Zara’s customer relationship department uses scarcity as a means to pressure customers

to buy by displaying unfilled shelves and “limited only” stickers; it creates the urge in the

customer to try and want the item of clothing.

Zara tries to establish and reach different audiences using their clothing. Zara attracts

different genders to their collection. Their retail is divided into main categories: Women (60%),

Men (20%) and kids (20%). All these categories have accessories associated with them. Zara

introduces their collection in two main seasons: Spring/Summer and Fall/Winter. Their stores

keep restocking all year. Zara collection in China is basically the same all over the world.

However, some elements may vary a little depending on every culture difference. Per example

sizes in China are smaller compared to the United States. Some clothes in the middle east should

comply with their religion. (Heller, 2001)

The difference between Zara and the other brands in China is that Zara’s supply chain

strategy can adjust quickly to all new fashion trends and have enough supply to meet consumer

demand. Their latest trends deliver better customer gratification.

The Spanish clothing store increased the variety of materials in their products. This

change helped improve customer satisfaction and enhance competitiveness with other clothing

brands in China. While Zara enhanced the quality of their products, this move later came at a

different cost. Chinese shoppers found themselves getting pushed away from the Spanish luxury

store due to the increase in their prices. (Mehrjoo & Pasek, 2014)
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When products meet expectations, shoppers spread a good word of mouth and attract new

customers. Given the size of China, delivery time can heavily influence the company’s image

and customer service. If the customer does not find what they are looking for in store or get a late

delivery, 20% of the time it tends to turn the customer to the competition with no room for

regaining their trust (Zhelyazkov, 2018). The importance of delivery cannot be neglected and can

affect their market share in the country, and that is why Zara supply chain must always be near

perfection. The shopper needs to feel that they can always rely on the efficiency of the company.

The need for decreasing delivery time is very important to attain high levels of customer

satisfaction. However, just like Zara did in China, Zara needs to be able to adapt to rapid change

everywhere in the world. Luckily, Zara was able to develop an efficient supply chain system in

China where all designers, suppliers and management are in one place; that allowed them full

flexibility to control suppliers in the country. (Zhelyazkov, 2018)

Zara has the same goods in every country, but they adopt their retail to different weather,

like in Sydney when it’s summer. Zara focused on making their online stores easy to browse

around. The clothing company wants to be an environmental friendly company that is successful

in meeting their customer needs.

Product

Zara specializes in fast fashion clothing, including womenswear and accessories,

menswear and accessories, children’s clothing, and footwear. Their product mix reflects the most

current trends and are typically economically emulated from popular designers. Because their

clothing is trendy and affordable, it is in higher demand by a larger market than that of slow
ZARA IN CHINA 9

fashion. This, along with the styles and trends to be discussed are in direct observation from the

customer standpoint.

Currently, their women’s product line is gearing up for S/S and consists mostly of midi

dresses, blouses with balloon sleeves and other “romantic” details, faux satin materials, and high

waisted flare denim. Their men’s product line is focused on unique basics such as relaxed-fit

knitwear, faux leather sling bags, straighter cut cargo pants, and understated floral prints. Their

products rotate on a frequent basis and are made with cheaper materials such as cotton/elastane

blends, viscose, polyester, and other synthetics (Zara 2020). This remains constant on both the

U.S site and China’s.

While Zara owns other brands such as Pull&Bear and Bershka, their website’s

merchandise is all under the “Zara” label. These other brands are meant to penetrate new

markets, having very large influence in other countries. Most of these brands have a different

target market, varying price-points, and range of unique product-lines. Zara also has a home

section where they sell bed linens, home furnishing, and kitchenware (Hanbury 2019). Having a

variety of different brands gives Zara a competitive advantage in the market and aids in

attracting varying cultural preferences.

Zara also provides value in their products through merchandising and creating a positive

store atmosphere. Zara has a similar aesthetic all over the world, including China. Their

headquarters in Spain has pilot stores where merchandising specialists create a “mock store” that

is completely private from consumers, specifically for mastering their store’s aesthetic and

sharing with the rest of the company. The company opts for a minimal, sleek visual appeal,

where the garments stand out. The visuals also focus heavily on new products, as stores receive

new pieces every two weeks (Hanbury 2018). As the industry continues to get more competitive,
ZARA IN CHINA 10

Zara is able to consistently be a frontrunner, as they have added digital screens and other

innovations, new products constantly rotating, and a sleek aesthetic that help attract their target

market.

Zara’s big competitor, Uniqlo, offers trendy fast fashion garments that are presented to be

minimalistic and sheek. Their line of Uniqlo U garments and the various collaborations they do

are big for their company. Zara must pay close attention to this as they move forward in China,

as Uniqlo has not been slowing down, releasing new collaborations with JW Anderson and

Engineered Garments this year.

Pricing

Zara, first entered China’s clothing market in 2006 and has become the fourth largest

selling brand when it comes to apparel and footwear (Sofya, 2019). During that time, growth rate

was almost halved by having their GDP growth be about 13% (GDP China, 2006).

Currently, 1 Chinese Yuan equals $0.14 dollars in the United States when you convert

their currency on Google. On their website, they have prices ranging from as cheap as 99 Yuan,

which would equal to $14.27. One of the highest prices on their website, 899 Yuan, would equal

to about $130.

Zara’s pricing strategy had a report of rise in sales of 16%, as well as profits that were up

by 20% in the first three quarters of 2016(Yusuf, 2016). Half of the goods Zara makes are in

their home country, Spain, while the rest are made in factories in China, making the prices for

their goods cheaper(Hall, 2013). Based on the two websites, for example, a men’s faux leather

jacket is 89.95 euros and when you convert it to US Dollars, it’s $100.46. And if you go on the

China site, the same item runs for 899 yuan. And if you convert it to US dollars, it runs for
ZARA IN CHINA 11

$126.68. Because half of their goods are made in China, this helped ease themselves into the

market, as they adapted to China’s economy during the first years when they introduced the

company in China. However, over time, they still struggle in gaining customers because although

they have factories in China, Spain, where Zara originated, will overall be the cheapest place to

buy any Zara products. For example, cloth could be purchased in Spain for 29.99 Euros, whereas

China would be 45.5 Euros (Admin, 2014).

The country with the highest prices is in South Korea, which is recorded to be 96% more

expensive than their home country, Spain, While USA is 92%, and China being 78% (Ceballos,

2015). Because of this, Zara in China is still to this day trying to innovate ways to regain more of

their market presence in China even when they have factories there, compared to other countries.

Distribution

One of Zara’s greatest strengths is in their short supply chain. Because Zara produces

their own styles in their own factories, the company has been able to enjoy organizational

flexibility, product variety, and quicker turnaround than their competitors. This competitive

advantage is further achieved by frequent, small-batch deliveries from factories to stores that

keep up with the consumer’s quick changing tastes. The factories dedicate specific segments of

their operation for in-season production, with a much smaller segment for the next season

(Bhana, 2018).

Zara believes in lean production when referring to their raw materials as well as finished

products. Optimization models allow company management to decide how much product needs

to be produced and delivered to each of its retail stores. The quantity delivered is extremely

limited, reducing deadstock and excess inventory.


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Along with their in-factory strengths, the company has strategically placed its

headquarters, the majority of its factories, and its design center in its home country of Spain. The

location of these factories along with the design center in Galicia, Spain has kept distribution

costs low as most Zara stores are located in the European Union. Parent company, Inditex, has

been able to take advantage of cheap truck transportation costs over more expensive air freight

options.

However, Translate Media reports that the number of stores have grown in China by 60%

between 2007 and 2012 (Bhana, 2018); thus making China one of Zara’s most important

markets. They have 514 stores in China, which makes up 7% of the sales(Sofya Manager, 2019).

In 2014, Zara created its own flagship website for China, in order to create more of a presence in

e-commerce (Sofya, 2019). However, over time, they closed most of their stores because of the

declining interaction from customers. In order to regain control, they have decided to expend

more of their resources more in-store experiences, as well as improving their delivery by having

it to be delivered within a day (Sofya, 2019).

As the popularity of Zara in China increases, Zara will begin facing a few major

obstacles. With expansion in Asia, the company will have to employ more air freight services in

order to keep up with quick-changing style trends. Thus, causing a sharp increase in

transportation costs and decreasing earnings margins.

In order to combat these costs, experts have suggested the company build an additional

design center along with low-lead time factories in mainland China in order to take advantage of

China’s inexpensive freight services. However, this may be unlikely for the company since the

owner, Amancio Ortega Gaona, is reluctant to make this move in fear of loss of company culture

and identity (Lamson-Hall, P, 2013)


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Communication

For any company competing in the global retail industry, it is important to develop an

effective integrated marketing communications strategy. Zara focuses heavily on social media

presence as a part of their IMC. As of February 2020, Zara has 1.3 million Twitter followers,

38.3 million Instagram followers, and 27.3 million Facebook likes. One social media platform,

Instagram, has allowed Zara to get a leg up on their competition. Because Zara is able to produce

merchandise in a shorter amount of time than their competition, they are able to see what

consumers demand based on today’s trends as seen on social media and produce merchandise

that allows customers to dress like the models they see on Instagram (Shlossberg, 2015).

Being a business that focuses on offering fast fashion at a medium quality for affordable

prices has impacted Zara’s promotional mix. Unexpectedly in this day and age, Zara’s store is

seen as one of the most effective means of communication (Lopez & Fan, 2009). The quick

turnover of merchandise in the store combined with the emphasis placed on creating a flawless

storefront has effectively communicated a sense of urgency to purchase to customers. This tactic

has also been effective in creating an incentive for customers to return to the store more

frequently. (Ghemawat & Nueno, 2006).

Because the store is seen as Zara’s greatest method of communication, the brand has

allocated 0.3% of its revenue to media advertising, which is significantly less than the average

3%-4% fashion retailers typically put towards this area of marketing (Ghemawat & Nueno,

2006). Zara opted to limit advertising to avoid creating an extremely specific image for the brand

and their different clothing lines. Even now as an international brand, Zara chooses only to

advertise twice a year during sales periods, which are influenced by Western European norms
ZARA IN CHINA 14

(Ghemawat & Nueno, 2006). Being a global fashion retailer, this “less is more” execution of

advertising is a very strategic move because it creates the idea that Zara is for anyone by not

identifying the brand with one type of consumer.

In China the potential of the fashion market is huge because of the amount of shoppers

with money they are willing to spend on European fashion. Zara had not previously experienced

a fall in profit, however in 2014, Zara experienced a decline in net profit in China that

contributed to the redevelopment of their marketing strategy. For example, Zara has increased

their presence in China’s e-commerce market by joining a large, online mall called Tmall. With

more active users than Amazon and Ebay combined, Tmall is expected to generate over 310

billion Euros from online sales by the end of this year. Through Tmall, Zara is able to continue to

use their own pricing and logistics and simulates opening a store in a physical mall (Verot,

2014).

Along with increasing their online presence, Zara also claims that one of the keys to their

success in China’s physical stores is delivering new merchandise that has new designs as often as

every two weeks. They produce many new designs often by looking past the traditional ways of

business that start with the design and end with customers. Zara’s business model starts with the

customers and works backwards to ensure they are producing exactly what their consumers want

in China. The differentiation of strategy coupled with the distribution methods of Zara in China,

contribute greatly to their success (Zara in Indian and Chinese Markets, November 2018).
ZARA IN CHINA 15

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Appendix

Appendix 1. Compeititors

Appendix 2. Competitor Sales


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Appendix 3. China’s Social Class Distribution

Appendix 4. China’s Age Distribution


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Appendix 5: Zara’s Selling Price by Country

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