Zara Case Study

D. ERNESTO RAMÍREZ RODRÍGUEZ

 1. What do you think are the challenges facing Zara’s Pre-owned service in the next
five years? (STRATEGY)

Currently, Amancio Ortega's Spanish group, INDITEX, is one of the best-known

companies in the fashion world. One of the best-known brands within the group is ZARA. To
give us an idea of the importance of this brand, ZARA has more than 1,770 stores in 86
countries around the world. But what is it that has made ZARA become an example for other
companies to follow? This is due to what is known as "Fast fashion", which is nothing more
or less than knowing what the customer needs constantly and creating the need to be
fashionable, without the need for it to be very expensive due to the low prices offered for its
products.

As a repercussion, the brand has received a lot of criticism, especially in recent years,
due to climate change. The "Fast fashion" strategy has a very high carbon footprint due to
the large number of products manufactured and the high logistics network involved, and if
we add to this the fact that the textile sector is one of the most polluting sectors in the world
today, we get the perfect bomb that goes against the ideology that is currently being
pursued: to be sustainable and care for and protect the environment.

For all these reasons, ZARA is adopting new concepts of stores and business, with
which they want to instill new consumer habits. With this, it manages to reduce criticism,
adapt to the new needs that customers and states demand and a "Rebranding" (new
positioning of the company in the market). To this end, it has been introducing new products
to the market under the "Join Life" category. These products are more sustainable as they
consume less water, energy and emit fewer emissions when manufactured or are made from
recycled materials. But ZARA not only wants to stay there, but it has also taken a new step
and now wants to enter the second-hand clothing market.

On November 3, 2022, ZARA opened its first store worldwide dedicated to second-hand
clothing under the name ZARA'S PRE-OWNED. This new business, which INDITEX is
introducing to the market, consists of customers being able to resell their unused clothes,
even from past seasons to other customers who wish to do so. In addition, ZARA offers to
repair clothing that is torn, so that it can be used as new. On the other hand, if the customer
does not wish to receive any financial compensation but wants to donate the clothes and
give them a second life, ZARA'S PRE-OWNED offers the possibility to pick up the clothes at
the customer's home and take them to the RED CROSS for the most disadvantaged. The
United Kingdom has been chosen as the test market for this test. This is not a coincidence,
but has its reason for being, and that is that the ZARA Logistics Network in the UK is very
mature and one of the best it has. In addition, at a socio-cultural level, the buying and selling
of second-hand clothing is more evolved and consolidated in the UK than in other European
countries. Therefore, one of the main problems that this new business will encounter is the
extrapolation to other countries because not all markets where ZARA is located have a
logistics network as efficient and robust as the one in the UK, in addition to the mentality of
buying clothes used by other people. It is true that little by little this mentality is coming to
stay in all countries, but... how long will it take for this change of mentality to arrive? Will
ZARA'S PRE-OWNED help to bring about this change of mentality sooner?

Another strategic problem that ZARA'S PRE-OWNED will face is market competition.
Currently, the leader in this sector (buying and selling second-hand clothing) is Vinted. This
Lithuanian company has been in the market for years and is one of ZARA'S main
competitors because it is stealing customers due to the change in their habits and the
inclination to buy second-hand clothes because it is cheaper and because of the mentality of
taking care of the environment. Although Vinted currently enjoys a competitive advantage, it
is transitory because other companies are beginning to appear. For this reason, ZARA has
taken the decision to undertake this new business. Apart from Vinted, there are other
companies that are entering the second-hand clothing business, such as H&M. So, entering
this market and making it profitable for ZARA is an obstacle to be faced.

2. How should this new business be positioned (describe the positioning statement
based on a very clear differentiating factor that would connect with consumers)?
(POSITIONING)

As discussed in the previous section, ZARA'S PRE-OWNED is a Rebranding intention,

i.e., it is a technique to update the brand's position. Because the intention of ZARA'S PRE-
OWNED is that it is simply a tool to help customers extend the useful life of their clothes and
be able to adopt a more circular approach, not necessarily being a profitable service for
ZARA; ZARA'S new business makes it position itself as a "Sustainable Clothing Store" due
to 3 causes:

- First: you can sell clothes that the customer no longer uses and another, who wants to
buy clothes that he/she does not have and wants them cheaper, can buy them.
- Second: clothes can be donated so that they can have a second life without receiving
anything in return.
- Third: the clothes can be repaired, in case they are damaged, by the same company
that manufactured them, making them as good as new.

The second and the third cause is what differentiates it from the rest of companies that
are in the market of buying and selling secondhand clothes, thus achieving differentiation
from the rest.

3. One of the secrets of Zara’s success is that the brand trains and empowers its store
employees and managers to be particularly sensitive to customer needs and wants,
and how customers enact them on the shop floors. In comparison, traditional daily
sales reports can hardly provide such a dynamic, updated market picture. The Zara
empire is built on two basic rules: “to give customers what they want” and “get it to
them faster than anyone else.” Is this something that could be considered a
competitive advantage developed by the company? How easy is it for a competitor
to copy? How can other companies implement similar concepts around the role of
the front-line salesperson? (PRODUCT)

From my point of view, I consider that the idea of "Fast fashion" carried out by ZARA is a
competitive advantage developed by the company because it is an approach strategy which
has focused on a market where it has managed to establish mechanisms to obtain
information that no one had used before and thus be ahead of other companies. And if you
add to the above, mass production to reduce costs and be competitive in price with respect
to competitors, you get the strategy developed by ZARA.

It is easy for a competitor to copy, but difficult to implement because INDITEX has an
impressively large store structure spread all over the world, which makes it tremendously
difficult for competitors to match. In addition, ZARA is a pioneer and has been developing it
for many years, so it is very difficult for companies that manage to copy ZARA's strategy to
match it, basically because of experience.

Companies could implement small customer surveys to evaluate their customer

experience during the purchase, what they think of the store or the brand, if it is enough or if
they need something they did not find, etc. Another way to get customer feedback is through
implementing technology that allows customers to search for what they want to buy and see
if it is in the store or not, or if there is something similar. In this way, it would be possible to
analyze what is most sought after and is not yet on the market. Another possible option for
obtaining customer information would be to make the customer part of the company's value
chain, being able to discover changing needs and being able to identify them in good time
before competitors.

4. What should be the price charged for pre-owned articles on the app? Should they
focus on making this outlet profitable, or should the focus be on improving the
company’s sustainability image? (PRICE)

As previously mentioned, this new business is nothing more than a new strategy that
ZARA is taking in order to rebrand and not as a main profit-making business. Therefore, the
company should allow customers to set a selling price since they are the ones who mainly
benefit from it. However, ZARA should act and control such sales and, for example, not
allow the price set for the product to be higher than when it was bought new, as this is not
the main idea of the new business. This will allow the company to obtain a more sustainable
and environmentally conscious image in the eyes of customers and governments, reducing
criticism and improving its Corporate Social Responsibility. It will also take market share
away from its main competitor in this sector, Vinted.

5. How will product fulfillment be handled (how will the product get into the hand of
consumers)?

The channels that have been established for the new trade of buying and selling second
hand by ZARA have been the physical store establishment, online through its website and a
mobile app. So, customers who want to sell their clothes or donate them, can take them
directly to the store or they can do it through the internet and have them picked up at home.
The transportation to the buyer is the responsibility of the company itself as it can sell it in
the same physical store or, however, it can take it home or to another store through its
established logistics network. Why are they the ones who will transport the clothes?
Because one concern they had is that the trucks from the logistics centers to the stores are
full, but on the way back they are empty. Therefore, to take advantage of that empty trip,
they have created the second-hand sale and transport the products to the customer. The
benefit is clear, since the service has to be paid for whether the truck is loaded or not.

6. Zara has used almost a zero advertising and endorsement policy throughout its
entire existence, preferring to invest a percentage of its revenues in opening new
stores instead. It spends a meager 0.3 percent of sales on advertising compared to
an average of 3.5 percent by competitors. This might have been a good strategy in
Europe, but would it work in other global locations? Should they adapt their strategy
to other markets that require the company to take a more proactive communications
approach? (PROMOTION)

From my point of view, ZARA has established a good marketing strategy, as it has
allowed it to open stores all over the world. This has helped them in their marketing because
they were in all the important streets in many countries. However, not all countries are the
same, so I think that depending on the characteristics of the market where you want to enter
and the power of the company in that country, you should make a study and see if you have
to invest more in advertising or simply have to continue doing what you have been doing for
years, that is, little spending on advertising. Taking ZARA'S PRE-OWNED as an example,
as it is a new business, maybe it must spend a little more on advertising to make itself
known and attract new customers and create that need. It may be that in the United
Kingdom it is not necessary to advertise so much because the second-hand clothing market
is implemented there, but here in Spain it would need a greater investment in advertising to
create the need for a change of mentality and care for the environment. Therefore,
everything will depend on who you want to target and how the market is.