This article examines the case of the Spanish clothing retailer Zara's connection with and plans for even more extension into Southern and Northern American marketplaces. It argues that given the initial distribution and production functions of the retailer that possible problems can be found for continued enlargement in the US market. The problems associated with this given the characteristics of local markets and stresses from rival providers' means a recommendation is perfect for an modified international strategy for the company despite its extensive successes elsewhere globally.
Globalisation has become an essential element of international marketing guidelines and it's been argued that one of the keys to success in global marketplaces is the effective development and marketing of standardised products and brands (Douglas & Breeze, 1987). Jay (2000) shows that the development of international enterprises is really as a rsulting consequence reduced obstacles for trading anticipated to trends in it. Jones (2002) argues that successful international functions are those that incorporate and cooperate running a business activities across countrywide boundaries. It is clear that the clothing industry is a significant part of the internationalisation process in terms of the critical development of the clothing retailing sector in global market segments and attendant activities such as global sourcing.
The international enlargement of Zara is led by its father or mother company Grupo Inditex which is based in Spain and Zara has achieved an impressive annual expansion of 26% over the last five years (D'Andrea & Arnold, 2002). Based in Spain Zara is continuing to grow from 180 stores to at least one 1. 080 stores in 33 countries and in 2002 150 stores were added in 9 countries and additional enlargement has been prepared and expected. As the biggest economy in the world the American market can be an attractive one for Zara and stores situated in New York were announced as being successful signals towards future market penetration. The huge American market and especially the UNITED STATES market place was highlighted as another move for the company's expansion plan the diversity in this market and advanced of competition creates challenges for ongoing Zara's success.
A clear understanding of the business enterprise environment is vital for companies in competing in the global market. This is specifically important in relation to international strategy. Environmental evaluation can be made from both a macro and micro perspective and both PESTEL and Porter's industrial analysis are of help tools of analyses (Johnson & Scholes, 2002). PESTEL analyses the political, economic, social, technical, environmental and legal occurrences that have impacts on a business. Of interest in cases like this is the signing of the North American Free Trade Agreement (NAFTA) which helped regional economic expansion among member countries through eliminating tariffs and administration encouragement of overseas immediate investment. This creates hazards to Zara in terms of an entrance model as well as marketing strategy. The American market is highly attractive for multinational companies such as Zara. THE UNITED STATES is the main economy on the globe although because the terrorist disorders in 2001 the American current economic climate slowed down followed with a decrease in consumer confidence.
According to Jobber (2001) where nationwide monetary performance and customer self confidence is poor consumers will reduce utilization of non essential products. This poses problems for Zara in competing in an extremely competitive current market where demanding for clothing has reduced. Zara however provides luxury clothing products at a reasonable price which provides the company with competitive advantages in terms of price, quality and brand. The success of Zara is determined by a highly effective logistics system which is mostly of the companies with in-house design and development enabling those to provide new clothing lines within 15 times rather than the 9 calendar months average lead-in time of the textile and clothing industry. It is fair to say that logistics system based on information technology and computerized design and production programs permits Zara to keep competitive advantages over other international competitors.
However previous experiences in operating in SOUTH USA where a complex and large syndication centre was set up in order to provide the southern region noticed obstacles in the designed supply chain being created. Vocabulary as you of the most important components of culture takes on a vital role in shaping international marketing strategy simply because people under different sociable and cultural surroundings share different value systems and display varied consumer behavior (Bradley, 2005). It is also useful to be aware of the new form of politics economy which implies that monetary phenomena are highly associated with political issues for the reason that government authorities seek to use political power to achieve financial benefits (Rugman & Hodgetts, 2003). Types of this is seen in the increasing role of producing countries on the globe economy. Regarding the textile and clothing industry increasingly more suppliers and manufacturers source from lower labour cost developing countries resulting in significant competitive stresses on Zara which insists on sourcing mainly from Europe and counting on its in-house design and creation.
Porter (1980) provides a useful framework in understanding the industrial environment in which companies are involved in. The competitive level in an industry designs a firm's strategy in competing in its marketplace and subsequently this is designed by the performance of operators within the industry. It is apparent that competition levels are high in both North and South North american marketplace. Zara came into the Southern American market where American brands such as GAP and the Swedish brand H&M were major competition within the middle clothing market. Likewise buyer vitality has increased in the modern business environment and Zara must effectively fulfill customers globally from different countries and social backgrounds. Improvement in US consumer self confidence demonstrated in the study creates opportunities for Zara in increasing its market from south to the north (BBC Reports, 2005). However the problem of different source systems must be solved utilising Zara's built in global resource and logistics string.
The strategic plan to establish a specific source and circulation centre for the THE UNITED STATES market aims to control cost and maintain competitive capacities in fighting with companies from member countries of NAFTA such as Canada and Mexico as well as local players who source from cheaper international suppliers. Because of the aspect of the clothing retailing industry the diversity of retailing forms in america is sophisticated including both good sized quantities as well as different types for suppliers including large vendors, department stores, products shops, small specialty providers and discount stores. You will find potential new entrants into this marketplace and hence it is critical for Zara to understand the high competition level in america clothing retailing industry at all levels of the marketplace.
Market segmentation aims to provide relevant information for a basis for selecting target markets (Bradley, 2005). Zara's targeted customers are people who seek for top quality clothing products at realistic prices. In cases like this targeted American customers were those who portrayed interest in European branded clothes. To begin with Zara's women collection is divided into three categories: Zara Women, Zara Basic and the sporty Trafaluc representing market segments for women who look for a more formal style, more radiant women for a more informal style and more radiant women and young adults while menswear included Men's Brand at Zara, Zara Fundamentals, its club-wear brand 100Zara and Zara Sport (D'Andrea & Arnold, 2002). In such a sense everyone from all age groups can be seen as customers targeted by specific sub-brands of Zara. Another important varying in defining segmentation is based on psychographic characteristics such as lifestyle which is discussed at length within the next section (Jobber, 2001). Among the most well-known and successful European brands Zara in its existing south American market targeted people who have been especially enthusiastic about Western european styles at affordable price levels. This targeting strategy continued to be the same for Zara in broadening in the UNITED STATES marketplace.
One meaning of consumers suggests that it can be viewed as individuals as well as communities of folks purchase products or services for personal use, home or gifts. In other words they can be classified as end users of particular products (Solomon et al, 2002). Retailers are situated in the final steps of the distribution string and are closely linked with end users or customers. Therefore it is useful to look at the idea of consumer behaviour in relation to clothing buying in light of target segmentation strategies pursued by Zara. Blackwell, Miniard and Engel (2000) identify the initial step of consumption operations as the reputation of needs which can be inspired by various factors such as reference point group values, self-confidence and external cultural and interpersonal value systems. Particularly modern customers have grown to be more advanced and find out more of their purchasing experience with price often deployed as a key indicator as to the quality of goods (Jobber, 2001).
This is probably the truth for buying activity in the clothing sector with brand, price, style as well as quality tending to have important results on the decision making processes leading to purchasing. Regarding to Entwistle (2000) clothing is not simply about physical apparel but assumes a multi-faceted relevance where people use fashion to explain and discuss their identification in wider communal contexts. Increasing electricity for consumers allows them to bargain for lower priced clothing yet it remains the situation that 100 % pure discount on price is not necessarily very important to them in make purchasing decisions. This aspect of consumer behaviour offers a useful perception for Zara in building its competitive advantages predicated on an effective logistics and supply chain through ensuring quality with reduced costs matched up to a strong brand. Foxall, Goldsmith and Brown (1998) argue that there are several stages after need popularity leading to last buying activity and therefore the communication strategy used to build up effective customer human relationships and brand image by clothing vendors is most readily useful at the early stage to be able to have a lasting impact on purchasing decisions.
In this retail context women are advised to constitute a significant percentage of consumers (Domosh, 1996). Particularly women are usually more involved with both social and economical life functions which results in increasing needs on fashion in conditions of style and do it yourself identity. Also a determinant of the degree to which customers assess a brandname is the amount of engagement with high involvement meaning extensive analysis of the product and/or alternatives (Hawkins, Best and Coney, 1989). For clothing products the degree of involvement is suggested to be typically medium to high (Breward, 2000). Considering the concept of involvement and the role of ladies in purchasing Zara used a suite of effective marketing tools in keeping customer devotion through providing value added clothing relevant to identified market choices. It is because in conditions of fashion a stylish and complex brand image in conditions of movements, styles and tastes is an integral success factor in building a brand name for a store such as Zara. In the same way effectively retaining customer loyalty in terms of duplicate buying is a significant contributor to effectively growing its market show in the US market.
Based on its successful experience in functioning in NY Zara pursued a strategic market growth strategy in order to keep up organisational development in conditions of market share and the accruement of financial benefits. The establishment of your circulation centre in the outskirts of Buenos Aires enabled Zara supply the southern region as well as played a strategic role in offering the new north market (D'Andrea & Arnold, 2002). With Zara being mostly of the companies utilising in-house design and production intended sourcing locally was its main strategy rather than transitioning to international suppliers. This strategic choice did enhance the competitive features of Zara in conditions of short lead time and effective logistics control but put into pressure from rivals who sourced overseas resulting in competitive pricing in the centre market by competitors such as H&M and GAP.
In addition in considering a supply string the circulation centre to some extent induced inefficiencies in the entire system for the reason that decisions on the decision of local manufacturers have been made difficult because of the closure of American textile and clothing manufacturers who migrated development lines to Asia. Therefore the market expansions strategy remains unclear in terms of it attaining growth based on effective franchises alternatively than through adding new stores and entering new markets. This can be said to be especially the case for the UNITED STATES market. Although the marketplace size is large and entry obstacles are low because of the cultural distinctions between south and north US regions means significant attention must be paid to the marketing combine in order to achieve synergy from integration. Life-style will vary in North and SOUTH USA hence the branding strategy used by Zara is vital in differentiating itself with both from existing competitors and attracting clients within each one of the respective market segments.
In the framework of international market and keeping in mind different macro and micro environmental conditions a global marketing mix needs to be varied in one context to some other (Keegan & Green, 2003). Predicated on the branding marketing combination strategies it is of importance to check out international marketing models in the UNITED STATES market considering different functional environments and various consumer behaviour in southern and north markets.
The term product not only identifies tangible goods but also entails intangible attributes such as customer service and brand name (Keegan & Green, 2003). Like a retailer Zara provides a similar range of products in both the southern and north markets in the US as those provided in its domestic market. Nevertheless the intangible tool which Zara as a solid brand in New York occupying the middle fashion market appears to be less visible more broadly in the UNITED STATES markets in comparison to the countrywide brand image of Space. Traditionally the brand image of Zara as a dealer is one targeted on middle income consumers seeking high fashion styles at realistic prices. As a result of successful operation in the European union market as well as Asian and South American marketplaces Zara could create a solid brand image in the centre fashion market to be able to contend with GAP and H&M who are also two major providers in the wider global market.
Price is argued to be an important indicator for customers in analyzing the quality of products and within the clothing sector this also holds true (Easey, 2002). The purchase price mix deployed in the US market is double that within its domestic region in Spain anticipated to higher functional cost and higher labour costs. It's been recommended that the clothing industry is labour intensive and that effective human tool management strategy contributes in an integral manner to effective cost control and in turn enable competitive pricing in the market (Jones, 2002). As a result the operational strategy utilized by Zara has been consistently challenged by competitive rates from competitors who source from cheaper expanding countries. As a result the efficacy of a built-in logistics and offer chain can be questioned combined with the ability of maintaining this over the permanent given the diversity and complexity of the clothing processing industry in america. In sum Zara's procedure in international markets appears to be experiencing rapid expansion in conditions of new branches and improving sales and revenue but longer term challenges need to be addressed as important. Easey (2002) argues that rates regimes for clothing products might need to change depending on different characteristics in each nationwide market but that communication and management of these changes have to be directed from a proper level.
An built in communication strategy is an important area of the marketing mix inside a branding strategy platform. This appears to be even more essential in the clothing retailing professional context involving the use of superstars as a critical communication tool in interacting with customers. For Blythe (2000) marketing communications objectives are created in order to develop a customer platform and improve sales through increasing both new and existing customers' expenses over a brand's products. However Zara has rarely exploited advertising campaigns except in the case of its start of two main product runs occurring seasonally each year. This can help describe its low brand recognition in the UNITED STATES market which really is a menace to successful entry into this current market. Additionally visual merchandising such as store design and structure has become broadly thought to be important communication tools with consumers (Lea-Greenwood, 2002).
In the situation of Zara store design such as clear lamps, white surfaces and ceiling and style-related accessories such as photos were deployed in order to create an elegant atmosphere emphasising a brandname image reflecting Western trends. Likewise worker outfits helped Zara maintain a visible and physical occurrence of the brand image and helped in interacting with customers and needed only slight modifications between southern and northern stores. It really is believed that the format and experience of a trading environment especially in clothing retailing interacts strongly with merchandise, customer support and the success of marketing communications strategies (Walters & Hanrahan, 2000). It could be argued that the communication strategy used by Zara works well in conditions of communicative effects and of a lesser cost than its competitors. Alternatively establishing a significant nationwide presence in North America may require either a large expenditure over a celebrity endorsed advertising campaign or the effective use of novel techniques such as viral marketing.
The distribution route is the network which links producers with users yet international distribution strategies are difficult to control since distribution buildings differ from one country to another (Keegan & Green, 2003). For Zara the united states market reveals unique challenges. As mentioned prior the closure folks local manufacturers and moves to Asian production functions poses major risks to Zara which typically exploits local resources in promoting its in house design and creation. Because of the highly fragmented characteristics of fashion retailing it is essential for Zara to differentiate itself from other rivals during its access stage in to the UNITED STATES market. In considering these difficulties in enter the forex market and different cultural backgrounds included Zara pursued an organic growth in conditions of beginning stores in its extension.
This is because a solid financial background predicated on its successful operation both in New York and support from its parent company Grupo Inditex allowed for an extended term fiscal view to be taken. However the use of British in the US market is likely to present troubles for the Spanish company but successful international human reference management should counter this and business lead to successful implementation of its proper expansion ideas.
In order to maintain organizational expansion Zara utilized an aggressive enlargement strategy in responding to internationalisation and globalisation. Research shows that a strong global brand is one of the very most vital elements contributing to the success of international procedures (Wigley et al, 2005). However a key consideration is ethnical influences which have shaped international marketing strategies for Zara in america market. A global marketing strategy to some degree remains the same as strategies used in other markets gratify targeted customer groupings effectively. However because of local variations and consumer complexity in the American market modifications were used such as the establishment of a dedicated circulation centre for the American market.
The marketing mixture employed by Zara in america market has been more effective in New York than in other locations. Brand is a substantial part of product principle hence it is useful for Zara to cooperate with local fashion magazines in conducting publication campaigns in order to boost brand awareness at the marketplace entry stage. Lea-Greenwood's (2002) suggestion that the communication process will involve three key participants namely sender, message and device must be put into in the sense that useful contexts of business functions in the clothing retailing sector makes this model more complex scheduled to changing pushes in the exterior environment such as developments in advertising technology and changing characteristics/choices of consumers. That is also of particular importance in international market segments as different cultural and interpersonal backgrounds have substantive influences on consumer behaviour as well as effective communication models.
Secondly higher costs resulted in higher charges for Zara in these locations. This happening can generate potential hazards to its brand image of quality clothing products at realistic prices. It really is undoubted that in house design and local sourcing provides Zara with competitive advantages such as short lead times and high response rates to clothing movements but a knowledge of local characteristics available on the market is essential. Regarding international expansion money rates have a major impact on functional and labour costs. Subsequently competitiveness on price might be taken away because of stresses from competitors who are able to provide even cheaper but goods that happen to be of high quality. As Jones (2002) highlights global sourcing is an integral trend and will continue to be so scheduled to globalisation.
Although sourcing in another country increases concerns on source chain related risks which are generally called the Iceberg theory it is crucial that Zara be familiar with the significant features of sourcing from countries with lower labour costs especially considering that quality levels have advanced (Jackson & Shaw, 2001). With all the UNITED STATES market there have been challenges for Zara in preserving its famous on an in house production model due to too little local suppliers and manufacturers. Additionally labour costs in the us are substantially higher in comparison to its operation in Europe. It really is hard for Zara then to take pleasure from cost advantages provided by Eastern European countries as well as cheap home cost in Spain (Jones, 2002). The suggestion here is to consider broadening businesses to Mexico which is comparably cheaper than the united states yet offers a circulation route to the North American market. The establishment of a syndication centre in Mexico is much more likely to be cost effective rather than building specific making factories in order to provide the North American market.