Internal Rivalry
Zara is the company’s flagship retail format and the key to their success, accounting for 66.1% of
overall sales in 2012. Zara offers greatly imitative high-fashion trends at low to midrange price
points, drawing the attention of young, fashion enthusiasts around the world. As a broad, yet highfashion
style retailer, Zara competes with most major fashion chains as well as local independents
around the world. While other competitors such as Hennez & Mauritz (H&M) also promise
affordable trendy clothing, Zara is more closely aligned with the styles one might find in Paris or
Milan, so much so that it has garnered negative criticism for copying high-end designers too closely
without credit or payment. To summarize what a unique niche Zara occupies in such a highly
18
competitive industry, a Goldman Sachs analyst described the brand as “Armani at moderate prices.”
Another industry observer suggests Zara fashions are more “Banana Republic”, while its prices are
more “Old Navy.
23” Zara not only competes with product differentiation, offering the most closely
imitative European runway styles among its competitors, but also on price. Inditex first identifies the
prices customers will pay for competitors’ products, and then targets prices often 15% below this
amount.
24
More noteworthy, Inditex was the first fashion retailer to compete based on time-to-market.
Inditex’s unique business model is what gives it a competitive advantage as the pioneer and
frontrunner of fast fashion, causing its competitors to either adapt or fall further behind. In recent
years, European fast fashion chains have grown more quickly than the retail fashion industry as a
whole.
25 While this drastic growth rate means that other companies have learned to replicate parts of
Inditex’s model, the retail giant has so far managed to stay one step ahead of the competition. Their
first mover advantage has given them more time to fine-tune production and design processes and
grow their global presence.
The company’s vertical integration, short supply chain, and minimal inventory allow it to be
responsive and avoid risk. To illustrate what an asset this model truly is, we can examine the fall of
the former retail leader and current competitor, Gap Inc. Gap, following the traditional fashion
model, places orders for seasonal collections months before they hit the stores in order to
accommodate the long lead times of their contracted overseas manufacturers. This means that Gap
and others have to predict what customers will want months in advance, and the cost of failure is
high. Gap was able to manage this successfully until the turn of the new millennium, at which time
the company tried to revitalize the brand to ease falling sales, but predicted trends horribly wrong.
Chasing a new teen demographic that never came, the store was left with a stale inventory of mini
skirts and low-rise skinny jeans, styles unappealing to Gap’s typical customer. As a result these
classic customers turned to other retailers, and because of the long lead time required to get new
clothes back into the stores, the company could not quickly mediate the issue and saw a decline in
sales for a consecutive 29 months. While the Gap was faltering, Inditex was gaining traction in the
market and by August 2008, sales edged ahead of Gap and Inditex took the title of the world’s
largest fashion retailer.
Internal RivalryZara is the company’s flagship retail format and the key to their success, accounting for 66.1% ofoverall sales in 2012. Zara offers greatly imitative high-fashion trends at low to midrange pricepoints, drawing the attention of young, fashion enthusiasts around the world. As a broad, yet highfashionstyle retailer, Zara competes with most major fashion chains as well as local independentsaround the world. While other competitors such as Hennez & Mauritz (H&M) also promiseaffordable trendy clothing, Zara is more closely aligned with the styles one might find in Paris orMilan, so much so that it has garnered negative criticism for copying high-end designers too closelywithout credit or payment. To summarize what a unique niche Zara occupies in such a highly 18competitive industry, a Goldman Sachs analyst described the brand as “Armani at moderate prices.”Another industry observer suggests Zara fashions are more “Banana Republic”, while its prices aremore “Old Navy.23” Zara not only competes with product differentiation, offering the most closelyimitative European runway styles among its competitors, but also on price. Inditex first identifies theprices customers will pay for competitors’ products, and then targets prices often 15% below thisamount.24More noteworthy, Inditex was the first fashion retailer to compete based on time-to-market.Inditex’s unique business model is what gives it a competitive advantage as the pioneer andfrontrunner of fast fashion, causing its competitors to either adapt or fall further behind. In recentyears, European fast fashion chains have grown more quickly than the retail fashion industry as awhole.25 While this drastic growth rate means that other companies have learned to replicate parts ofInditex’s model, the retail giant has so far managed to stay one step ahead of the competition. Theirfirst mover advantage has given them more time to fine-tune production and design processes andgrow their global presence.The company’s vertical integration, short supply chain, and minimal inventory allow it to beresponsive and avoid risk. To illustrate what an asset this model truly is, we can examine the fall ofthe former retail leader and current competitor, Gap Inc. Gap, following the traditional fashionmodel, places orders for seasonal collections months before they hit the stores in order toaccommodate the long lead times of their contracted overseas manufacturers. This means that Gapand others have to predict what customers will want months in advance, and the cost of failure ishigh. Gap was able to manage this successfully until the turn of the new millennium, at which timethe company tried to revitalize the brand to ease falling sales, but predicted trends horribly wrong.Chasing a new teen demographic that never came, the store was left with a stale inventory of miniskirts and low-rise skinny jeans, styles unappealing to Gap’s typical customer. As a result theseclassic customers turned to other retailers, and because of the long lead time required to get new
clothes back into the stores, the company could not quickly mediate the issue and saw a decline in
sales for a consecutive 29 months. While the Gap was faltering, Inditex was gaining traction in the
market and by August 2008, sales edged ahead of Gap and Inditex took the title of the world’s
largest fashion retailer.
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