According and Mexico. Zara is a Spanish fast-fashion
According to people, the notion of success can be different. Throughout the whole essay, a successful retailer will be a retailer which succeed to understand the market where it has envisaged an expansion. The essay is going to be focused on two retailers, Zara and ASOS, into two different: China and Mexico. Zara is a Spanish fast-fashion retailer created by Amancio Ortega and Rosalia Mera. It’s the main brand of the Inditex group (Industria del Diseño Textil, S.A). Inditex owns seven other clothing brands: Pull and bear (youth clothes), Massimo Dutti (conventional fashion), Stradivarius… ASOS is an English online retailer operating in more than 240 countries. It was named Online Retailer of the Year in 2008 by Retail Week Awards. With the example of these two retailers, this essay will explain how both retailers succeed/failed on its internalization into the different markets, the comparison in terms of customers and cultural influences, the point of entry and entry modes and environmental/competitive forces and at the end the ethical considerations of each brand.
1.1 Successful Zara’s internationalisation in Mexico
In 2017, it’s inevitable to consider Zara as one of the world’s most successful fashion retailers. The success of Zara wasn’t expected. Before being an international company, the founders worked in a small dressmaking shop in Galicia. Amancio Ortega opens his first shop “Zara” in 1975 in La Coruña (Spain). The brand started its internationalisation in Oporto (Portugal) in 1988, following by New York in 1989. Nowadays, Zara has opened more than 1400 shops in 70 countries.
Zara offers products for men, women, and children as example jeans, trousers, tops, skirts, shoes, perfumes… Zara adapts itself to its customers. The company offers different styles of clothes as the example of Zara woman for classy women, the collection “TRF” which is an abbreviation of Trafaluc (young and trendy in Spanish) for casual women. According to Amancio Ortega, Zara’s aim is to offer medium quality at affordable prices. There are 300 designers who scrutinize each luxurious fashion show to find inspiration.
According to the Salmon and Torjdman’s classification, the case of Zara it’s complicated to classify because this brand combines these two strategies. Zara uses global strategy in the fact that it reproduced its successful retail formula from its own domestic retail market (European Market) around the world. At the same time, Zara uses multinational strategy because the company had the capacity to adapt to another local market (Rose Mary Varley, 2001). The brand had a fast turnaround, Zara decided to renew its collection every month (The Economist). More than 11,000 items are produced every year (Guemawat and Nuevo, 2003) That’s a big change in the fashion industry because most of the ready-to-wear brands renew their collection in accordance with the seasons. Staff members travel around the world to observe people in the street and then, they take into consideration the local preferences (colors, sizes…) in the aim to have a better adaptation to the local market (Fernando Fabrega, 2004).
In 2017, thanks to its expansion online and a bigger emerging market presence, Zara has increased its like-for-like sales up 10 percent in the year to end-January in the European Market. Inditex group opened stores in 56 countries during the year. They opened first stores in New Zealand, Vietnam, and Paraguay. Inditex launched online sales across its stable of brands in Turkey and said they would start online sales in India in 2017 (The Guardian, 2017).
1.2 Unsuccessful Asos’ internationalisation in China
Asos.com (As Seen On Screen) is an English fashion and beauty online store. Located in the UK, ASOS is the second fashion online store in the world. The idea of ASOS started in 1999 when founders Quentin Griffiths and Nick Robertson had the idea of starting an internet business where people could find clothes or accessories they had seen on celebrities. Nowadays, the fashion website achieves a turnover of £1.9 billion per year. ASOS is available in 6 languages and exports in more than 240 countries all around the world. Asos’ headquarters are in Camden Town (London).
ASOS offers items for women and men like women-swear, menswear, footwear, accessories, jewellery and beauty products. It sells over 850 brands. The fashion online store targets fashion conscious 16-34 years old. On asos.com there are 9,000 products available at any one time,
with 450 new fashion items added every week. ASOS has websites targeting the UK, Australia, USA, France, Germany, Spain, Russia, Italy and China. It also ships to over 240 countries from fulfilment centres in the UK, US, Europe and, China. ASOS counts 6 million active customers in 2016.
According to the Treadgold’s typologies, ASOS belongs to the cautious internationalists. In 2016, the UK retail sales reach £603.8 million, £374.9 million in the European Union, £179.2 million in the US, and £245.8 million in the rest of the world. The English online retailer started its expansion with markets which are geographically or physically close to the company’s domestic market. ASOS decided to concentrate all the opportunities on its priority territories: the UK, continental Europe and, the US. To accomplish its objectives, in 2016, ASOS elected to close its operations with China because of a complicated adaptation to the Chinese Market.
2. Compare and Contrast
2.1 Customer and Cultural Aspects/Influences
Zara started its expansion in the domestic market (Spain). The success of this expansion gave some ideas to Amancio Ortega. In 1988, he decided to search international opportunities with Portugal. He chose this country because there is geographically and cultural proximity between Portugal and Spain. Amancio Ortega had the aim to internationalize his company Zara, but he wasn’t ready to take risks. In this way, he acquired knowledge and he saw what he has to do to suit a new market (Bonache, J. and Cerviño, J, 1996). In 1992, Zara opened its first shop in Mexico. Mexico became the 5th country where Zara has decided to establish the brand (after Spain, Portugal, the USA, and France). Amancio Ortega chose to establish his brand Zara into the South America Market before the rest of the European Market for many reasons: even if Mexico became Americanised, Mexican people are very close to Spanish people in term of language, customs, faith…There is a low physical distance Zara succeed its establishment in the USA thus Amancio Ortega decided to start his expansion to a country with cultural similarities and Western consumption, then Mexico has an important middle-class with a significant disposable income (Giovanny Fernando Benavides, 2015).
ASOS decided to conquer the Chinese Market in 2014. After having conquered the UK, the US and, continental Europe, the ASOS Chairman, Bryan McBride saw big opportunities in China. The Chinese market gives big opportunities for investors. Chine is one of the countries which receives the most of foreign direct investment. China had a huge territory and a lot of customers, that’s a real challenge for all the company. Chinese people are starting to consume like Western people in term of clothing. ASOS saw an entry point to the Chinese Market. Unlike the case Zara, ASOS (UK) don’t have a real proximity to China (Upsulla Model). The UK didn’t have a psychic distance to China. Even if China is starting to consume as Western People, there are some significant differences in term of language, customs etc… The ASOS brand name was too weak in China, in the past, for Chinese people, foreign meant quality, reliable and trendy. Now the winds have changed.
2.2 The point of entry & entry modes
Zara rather quickly expanded in Mexico. Nowadays, Zara manages almost 60 stores in the main cities of Mexico. In 2014, Zara opened its E-commerce in Mexico, thus expanding its operational marketplace. Amancio Ortega with the Inditex group elected to establish a small distribution centre, called satellite site in Mexico, in order to consolidate shipments from the main distribution centre located in Spain (Ghemawat and Nueno, 2006). Zara selected one type of entry mode in Mexico: the joint venture (Quinn and Biondi, 2012). Inditex Group owns 50% stake in the Tempe Group that has subsidiaries in Mexico, Brazil and other countries from South America. Tempe Group is involved in footwear production to Inditex Group companies (Annual Report, 2011). Tempe has accompanied the Inditex Group in its global expansion, progressively adapting to the Group’s evolution and growth. Approximately 95% of Zara stores are company managed, the rest are franchises (Annual report 2013). Zara prefers to create subsidiary because they want to manage every part of the distribution process. According to the labelling, Zara’s products following a dualistic brand-name strategy. The company uses the name of the firm for the all the product ranges. (for example Zara woman, Zara TRF, Zara Basic).
Regarding ASOS, the online retailer was launched as standalone website asos.ch (China Digital Report 2016). For this launch, the online retailer chose the Hybris platform for its capacity to offer an optimised platform for online purchase. ASOS didn’t partner with JD.com or Alibaba (Taobao, Tmall and Tmall Global). These e-commerce platforms are very powerful in China. Forbes stated that Alibaba predominates over roughly 80% of the Chinese E-commerce market. Tmall (from Alibaba group) accounted for about 57% and main contender JD.com accounted for 21% (Forrester Study, 2015). Asos suffered from the competition. Nick Beighton (Asos ex-CEO) said that “the Chinese market is unlike any other we operate in. Getting eyeballs on our products has proved very difficult” (Annual Market 2016). Unlike the case Zara, ASOS doesn’t have any physical shop, it’s complicated to establish a brand when there isn’t a physical contact with this brand. Zara started to develop physical shops and then, its ecommerce. The first step of ASOS in China was laboured because Chinese customers had to pay for importation. ASOS exports in more than 190 countries, the cost of transporting was very important because of lack of the physical shop. The retailer had some adjustment problems, it was difficult for the brand to get used to the Chinese management. In 2014, ASOS knew some problems with labelling. ASOS offers a lot of brands on its website, it was very complicated for the English online retailer to certify more than hundreds of brands.
2.3 Environmental and Competitive Forces
Zara’s has achieved a competitive advantage due to its unique business model: the supply chain. Zara uses a short distribution channel. The retailer takes only two weeks to develop and get new products. Other retailers need six months to design and produce new collections. Zara produces 12 inventory turnovers by year, the other retailers produce on average 3/4 inventory turnovers. The retailer counts only 10% of the unsold items contrary to the other retailers which count on average 17-20%. The supply chain of Zara can be considered as “vertically integrated” where design, production, distribution and retailing were integrated (Martin Christopher, 1992). Zara wants to control the process in its entirety, since design to sales. This organisation allows Zara to produce and export its products in record times. Regarding Mexico, Zara exports its products from Oporto, with KLM airline. Mexico has a redistribution rig. With this principle, every shipment is made in 48 hours (Jean-Jacques Salaun, 2002). According to the market share of Zara in Mexico, Zara occupied the 3rd place with 2.5% of the market share and 6202 million sales in 2017 (El Financiero, 2017). Mexico is a big market with almost 90 million inhabitants. Zara targets the middle-class population in Mexico, a young, dynamic and trendy customers who would like to wear clothes in harmony with his way of life. The customers would like to be classy and have an impact on the society: success, important westernisation… (Kotler and Armstrong, 2007). Zara has an advantage over other retailers because the retailer doesn’t define its target by segmenting ages and lifestyles. It depends on localisation of the different target customers. It enables a much broader market (Arif Harbott, 2011).
ASOS uses the “producer-customer” distribution channel. This kind of distribution enables economical cost because producers directly sell their products to consumers. With this method, the online retailer cuts distribution costs and sells industrial products of high value. ASOS delivers to 240 countries and territories and has agreements with several logistics providers to fulfil deliveries to customers. ASOS can suffer from dependency because, for example, the deterioration or loss of delivery services from suppliers to the Group’s warehouses, and from their warehouses to their customers, may affect their ability to complete sales (ASOS Annual Report 2016). Their supply chain isn’t as effective as one of Zara. ASOS is trying to do an international expansion (as China). However, they need ever more warehousing space that is close enough to customers to serve them in line with their expectations (ASOS Annual Report 2016). The ASOS’ online approach is one of the most important competitive advantages. They invested £80 million in the technological area (4-traders). Its approach is totally different from other competitors. They have a powerful customer engagement programme to drive interest direct to their website. This strategy is unique in the fashion retail sector (as Zara). They attract more than 16.4 million visitors per month in 2016 (ASOS Annual Report 2016). They have a high level of website traffic. ASOS offers a marketplace where smaller fashion retailers can sell their products. It’s allowed ASOS to have a large range of products without increasing their stock. According to the target market, ASOS would like to attract young people (16-34), interested in fashion.
3. Ethical considerations
Zara isn’t a brand which would like to attract customers with ethical considerations. Zara has achieved the C-label (Reasonable but could be better). According to Rankabrand study, Zara has started to take sustainability into account. For example, Zara has implemented measures to reduce climate emissions, using preferable raw materials, such as ecologically grown cotton, and signing the Detox Commitment to eliminate hazardous chemicals. Zara has collaborated with several organisations, such as Ethical Trading Initiative, to improve the labour conditions in its supply chain. Nevertheless, Zara still has more to do in terms of labour conditions. In 2011, an investigation by the Argentinian NGO “La Alameda” accused Inditex of sourcing Zara clothing produced under slave-like conditions in Argentina (Ethical consumers). Zara prefers to attract customers with its “no-marketing”, and its capacity for adaptation. Zara doesn’t spend a lot of money for promotion, they prefer spending their percentage of revenue in opening new stores. Zara believes that its show windows are sufficient for advertisements. The stores are located in posh locations and are spacious and modern in look with walled mirrors and excellent lightings with the aim to attract middle-class (Fabrega, 2004). In Mexico, Zara wants to attract middle-class customers who would like to wear clothes inspired by Chanel, Yves Saint Laurent… (Kotler et Armstrong, 2007). However, there are some adjustments to do because of the customer’s size differences in Asian countries (Monllor, 2001), cultural differences in Arab countries, and a different season in the southern hemisphere as Mexico (Euromonitor, 2002).
Concerning ASOS, they see ethical trade as being in their responsibility to ensure that every worker in the supply chain is respected and protected. People who work in their supply chain should be safe at work, financially secure and respected by their employers. For reaching this aim, they set high ethical standards, assess and support suppliers to help them and collaborate with others to bring about long-lasting improvements in supply-chain working conditions. They created ASOS Supplier Ethical Code to protect migrant and contract workers and ASOS Young Worker and Child Labour Policy. They’re also offering a range of sustainable fashion and beauty products under the ASOS Eco Edit section of our website (ASOS Annual Report 2016). However, as Zara, ASOS doesn’t try to attract people with ethical strategies. ASOS offers items for all woman (young, mature) with their differences (ASOS Tall, ASOS Petite, ASOS Curve and Plus Size, ASOS Maternity). ASOS spent £9 million to launch their activity in China and they sustained a net loss of £4 million (The Guardian, 2016). This failure is due to lack of Chinese customers’ understanding. ASOS digital approach on Chinese Social media platform seemed rather conservative, which offered limited help to its sales. Then, their pricing strategy wasn’t successful to meet the needs of its Chinese potential buyers (Econsultary, 2016).
That’s not because you’re a powerful retailer in your own domestic market that you can be powerful when you decided to internationalise your brand. ASOS and Zara have illustrated this situation. Zara chose to be cautious and internationalise its brand in a psychic distance (Mexico) before trying to extend its company in a risky market, as China. Zara used the joint-venture with the Tempe Group because the Spanish retailer wanted to control all the manufacturing process. ASOS thought China would be a conquered land. The online retailer succeeds in Europe, US and arrived in China without thinking about a potential adaptation even if it used the Hybris platform in order to launch its e-commerce business. Zara can count on its powerful supply chain and its collaboration with KLM Airline to export its product in a record time to Mexico. ASOS didn’t have any partnership in China to export its products and its supply chain isn’t as effective as Zara. Then, it’s complicated for a brand as ASOS to certify more than a hundred of brands. Zara and ASOS aren’t ethical brands. Even if they’re trying to take ethical actions, both retailers don’t count on this to be attractive. ASOS and Zara have in common the fact they use the “no-marketing”. ASOS is focused on its website design and Zara on its shop window appearance.
For the future, ASOS have to learn about its failure and put some more efforts into understanding the Chinese market. In the past, in the Chinese Market, foreign meant quality, reliable and trendy. Now things have changed. The retailer will need to sustain a competitive advantage. It will require a blended analytic programme and a significant focus on the customer’s voice.
Concerning Zara, some business experts consider such business model as very vulnerable. Some claim that it will be complicated to keep the control over the production quality and efficiency (Hansen, 2012). Zara should be more informed about what’s happening in its subcontractors to avoid another scandal. The emergence of “slow-fashion” (consume less but better) can be a menace for Zara.