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Zara and H&M Essay

Zara

History of Zara

Marked as the first prestigious venture of the Inditex group the first store of Zara, the chain of Spanish fashion stores came into reality on central A Coruna Street in 1975. In 1985, Amancio Ortega integrated Zara in a new holding company, Industria de Diseno Textil, INDITEX S.A. The Zara fashion concept was well received by the public later in 1976, allowing it to expand its network of stores to the other main Spanish cities. During 1981-1988 with the growing popularity Zara started new ventures by multiplying in number not just in Spain but around the world. In 2003 enjoying being the eye candy among the fashion followers Zara entered the home furnishing market by opening the first Zara home store. Everything else is a history; today Zara is present in 73 countries, with a network of more than 1,540 stores, ideally located in major cities. Its international presence clearly shows that national frontiers are no impediment to sharing a single fashion culture.

Product Design

Zara’s unique approach to product development is instrumental to their success. Zara gives store managers significant autonomy in both determining the products to display in their stores and which to place on sale, and relaying market research and store trends back to their headquarters in La Coruña. At headquarters there are teams of commercials who take this information into account to design and effectively plan and produce all of Zara’s products. Zara maintains a design team of 200 people, all of which produce approximately 12,000 new styles per year for Zara. The process of obtaining market information and relaying it to design and production teams expedites product development by shortening the throughput time of a product to 3-4 weeks from design to distribution.

This process is very different from its competitors. Many competitors rely on a small elite design team that plans both design and production needs well in advance. Stores have little autonomy in deciding which products to display or put on sale because Headquarters plans accordingly and ships quantities as forecasted. Zara’s speed to market in product development exceeds the capabilities of its competitors. This in itself provides additional value to stakeholders, customers, and stores in producing quality clothing at affordable prices .Zara’s product development capabilities are essential to Zara’s business strategy and future success.

Advertising and Marketing

Zara’s unique approach to advertising and marketing is an additional factor within their business model that adds to their success. Zara spends 0.3% of total revenues on advertising and marketing. This is significantly less than their competitors who on average spend 3-4% of their total revenues on similar expenditures. Hence, Zara maintains a cost advantage to their competitors in marketing activities. In order to effectively complete with their peers Zara uses location, store layout, and product life cycles to act as their marketing tool to consumers. For instance, Zara strategically locates all of their stores in prime retail districts for visibility marketing.

Additionally, because of the product development cycles mentioned earlier, customers are trained to visit Zara stores often because new items are presented weekly and are often not restocked. This feeling of scarcity encourages customers to come to the stores and buy frequently. Lastly, in order to keep the stores looking fresh and trendy; Zara invests heavily in their store layouts. They have a testing facility nearby their headquarters in Spain where different types of store layouts are tested.

Each Zara store is remodeled every 5 years in order to keep up with current trends. Zara does not invest heavily in direct marketing, though their efforts in image/brand marketing do a great deal to attract a loyal customer base. Their cost advantage and ability to maintain brand recognition and customer loyalty are essential elements of Zara’s capabilities that build value in the company.

The success path – Segmentation, Targeting and Positioning

* Positioned as a fast fashion brand globally, Zara, targets the mid-market. * Zara’s core TG in the country consists of people familiar with the brand much before it entered the country. They are well travelled and aware about global fashion trends * High import duties ensure that the pricing of Zara remains premium * Does not invest in advertising, and largely relies on PR * It has clearly chosen the locations – high-end malls – where its core target group, that is, the upper middle class is surely present Zara’s Strategy for Growth and Positioning

Zara believes in Zero advertising. It would rather spend on store expansion than to advertise. However, the minimally advertise in fashion magazines. The rationale behind this is the quick turnaround of store display, which is around 4 weeks, which renders advertising an unnecessary cost. Also, Zara concentrates on efficient design to market cycle and focus on showcasing large number of designs annually. The workforce in Zara is essential to its success right from the production to the store level as the feedback generated about fashion performance at store is percolated to the designer and production and supply chain helps to put the latest styles in 2 weeks’ time. We need to take a look at the factors that determine these strategies and also the shortcomings associated with these strategies * Growing online sales

Online retailing has been growing at a scorching pace in the last decade and considering UK market, more than £14 billion has been spent on online shopping. Zara should try to open online retail shops to cater to the audience who need to shop for standardized version of Zara’s products. This also presents an opportunity to display the entire product lines from Zara and can be easily searched. It will enable strong growth in online and well as, offline retail sales.

Cultural adaptation

Zara did not follow any localization in the countries where it was present and provided only standardized products. Also it believed in providing the latest fashion at the low costs. Thus from the Global Strategy Grid it can be seen that Zara Followed a Global Standardization Strategy. By doing so it hoped to increase its profitability by reducing costs and achieving economies of scale.

Entry Mode

* Wholly Owned Subsidiaries: Zara entered UK markets by opening up wholly owned subsidiaries, to take advantage of the controls that it could exercise in those countries. When it comes to other markets, company also prefers to expand through franchising, joint ventures.

Distribution

* All production, regardless of its origin, is received at the logistical centers for the brand, from where it is distributed simultaneously to all the stores worldwide on a highly frequent and constant basis. * In the case of Zara, distribution takes place twice a week and each delivery always includes new models, so that the stores are constantly refreshing their offer. * The logistics system, based on software designed by the company’s own teams, means that the time between receiving an order at the distribution center to the delivery of the goods in the store is on average 24 hours for European stores and a maximum of 48 hours for American or Asian stores.

Manufacturing

* A significant proportion of production takes place in the Group’s own factories, which mainly manufacture the most fashionable garments. The Inditex Group takes direct control of fabric supply, marking and cutting and the final finishing of garments, while subcontracting the garment making stage to specialist firms located predominantly in the North-West of the Iberian Peninsula. * The Group’s external suppliers, a high percentage of which are European, generally receive the fabric and other elements necessary for making the clothing from Zara itself.

Pricing strategy

Zara’s dual price policy – Euros for pounds
Spanish women wear chain Zara is charging the same amount in UK pounds as it is Euros in Spanish shops for some of its clothing, potentially netting the retailer huge extra profits at the expense of UK customers.

H & M

History of H & M

The history of H&M started with a man named Erling Persson, who was a Swedish former salesman that became fascinated with America’s high-volume efficient outfits that 8 Barneys and Macy’s carried. Persson first discovered the outfits when coming to the United States after World War II. Persson brought the retail concept – that high turnover produced lower prices – and brought it back with him to Sweden. It was then that Erling chose to open his own store which he called Hennes, standing for “hers” in Swedish. During this time the store only sold women’s clothing (International Directory of Company Histories, 1999). The company Hennes was established in 1947 in Vasteras, Sweden and by 1968 Persson had purchased the men’s sportswear inventory and property of a Stockholm hunting equipment store which was named Mauritz Widforss.

Erling Persson then changed the name of his store Henne to Hennes & Mauritz to express the expansion, and later downgraded to just the abbreviations H&M. When Persson began to exporting his business overseas he began with Norway in 1964 and then joined Denmark in 1967. Persson bought the inventory, which was a left supply of men’s clothing which lead him to expand into men’s apparel.

By 1970 Hennes & Mauritz developed a children’s clothing line and by 1978 the store offered much of all family clothing. With Hennes & Mauritz offering a wide range of family clothing, it helped the company expand with the new generation of youth wanting to be able to express their individualities. There are around 2,700 H&M stores in more than 40 countries and 94,000 employees all work hard to bring you fashion and quality at the best price.

Product design

H&M designers design fashionable and trendy apparel products that are of respectable quality. Their product line includes t-shirts, fashion shirts, cardigans, jeans, pants, undergarments, dresses, jackets, shoes, purses, jewelry, and other fashionable trendy accessories. H&M is able to offer their consumers fine quality apparel at an economically friendly price. Hennes & Maurtiz is able to provide superb quality products for a low price due to their reduction of a middle man who buys the material for the company and sells the material for a higher margin. H&M buys their apparel fabrics in bulk straight from the suppliers

Pricing strategy

The price strategy of H&M is designed based on their customers’ need which is low price and high fashion. The company purely focuses on following penetration price policy.

Promotion

To develop a promotion strategy, a company should firstly identify and understand target audience. (Jobber, 2007). H&M’s target customers are young women who want more fashion cloth at low price. Young people have plenty access to information. A multi-channel promotion strategy including

* advertising,
* internet promotion
* sales promotion

Hennes & Mauritzs’ promotional strategy includes mobile marketing through SMS text messaging, celebrities, charities, and popular music artists. In doing this mobile marketing strategy consumers receive SMS coupons, mobile banner ads placed on major portals and media sites. Cultural adaptation

H&M does not change anything from price of a product to commercials. They keep the same strategy as they have in their country. Everything remains the same as in the country it first started in. It reduces cost of inventory, as well as an allowance to an increased product innovation since the company focuses more on developing their product instead or spending too much time trying to adapt to the market.

Distribution

H&M distribution channel is direct distribution, from producer to customers. By cutting middle transaction, it reduces cost and assures quick delivery, which echoes the concept of fastness and economy. Jobber (2007) suggested that channel selection is affected by producer, product and competitive factors. H&M choose to sell clothes and cosmetics in around 2,000 stores which belong to H&M. Store selling, on one hand, assures basic access to customers and helps the command from headquarters go to outlets efficiently and correctly.

Because the inventory for H&M is refreshed every day (H&M website, 2010), direct command is important for correct adjustment in more than two thousand stores. On the other hand, controlling so many stores gives rise to the managerial cost. Besides stores, H&M starts to launch online sale in several areas. It was suggested that well-known fashion retailers have advantages of their brand to attract customers (Marciniak and Bruce, 2004). Therefore it is beneficial to take the initiative to launch online shop. And this step could satisfy online customers and complement the shortcomings of store sale.

Manufacturing

H&M does not own any factories. Instead, clothes and other products are commissioned from around 700 independent suppliers, primarily in Asia and Europe. The H&M buying department plans the range. After that, all practical aspects are dealt with by our production offices. These production offices, where most of the employees are drawn from the local population, are in constant contact with the suppliers.

The production offices are responsible for placing the order with the right supplier and for items being produced at the right price, making sure that they are of good quality and delivered at the right time. They also audit that production takes place under good working conditions. The production offices perform extensive safety and quality testing, including checks for shrinkage, twisting and colorfastness, as well as ensuring that the chemical requirements have been met.


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