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Expecting Zarafication?

June 12th, 2010 by Devangshu Dutta

My first brush with Zara and Inditex (Zara’s parent company) was in the 1990s, when we were comparing product development and supply chain best practices for another European retailer.

In 2002, after writing a case study on the Zara business model, I was (and continue to be) surprised at the number of downloads from the website (referenced at the bottom of this article).

In 2004, the interest at the Images Fashion Forum was so intense that the Q&A after the presentation exceeded the allotted time, to the extent that I was almost declared persona non grata by the organising team!

I’m glad to say that we’re all still friends and, together, witness to the logical next phenomenon: the much anticipated Zara store launch in India in May 2010. And what a phenomenon! On a high-footfall day, at full price, the Delhi store looks as if the merchandise is being given away for free.

In 2006, India was the 8th highest source of traffic to the Inditex website (more than half a million, almost 2 per cent of the total); incredible, considering that the other Top-10 countries already had Inditex stores. Although Zara finally signed a joint-venture with the Tata Group, I’m pretty sure that those thousands of other rejected prospective Indian licensees and franchisees must be getting their Zara-fix now as customers.

What does the Zara launch mean for the Indian fashion and retail sector? Is this the beginning of a new era? Should we expect Zarafication of the market, where the customer is driven by fashion, and the supply chain will turn and churn products faster than ever before? Should other international brands and Indian fashion brands be worried?

A peek at history is useful here. It is said that when Spanish conquistadors landed on the shores of the Americas they managed to conquer the land and the people through a combination of guns, germs and steel. [Credits to Jared Diamond for that evocative phrase.] That is, the Spanish carried guns and fine steel swords but, most importantly, they also carried diseases that were alien to the local population. In many places, the weakened and leaderless indigenous people were simply too battered psychologically and physically by disease, to fight the colonisers.

Keeping that in mind I would say, Zara’s entry is a warning bell only if your business is suffering from recent financial and operational illnesses. It is only dangerous if your team are psychologically weak, and would be overwhelmed just by the thought of the supply chain wizardry that Zara has deployed in its business internationally. It may be fatal for sleepy marketing teams whose only strategy has been to spend lots of money on advertising in season and on mark-downs after the season.

But it’s not doom and gloom for brands and businesses that have a competitive spark of life. If you’re prepared to learn, Zara’s business can provide lessons on how to create a product mix that doesn’t stay on the shelf for months, and on how to create the buzz and excitement around the brand.

Zara’s business success in India is not a foregone conclusion. Let’s look at the facts.

Zara’s business model in its home market was built on getting up-to-date fashion into the market before anyone else, and at lower costs. Its prices encouraged fashion-conscious consumers to buy more frequently, and though its limited production quantities were a way of reducing risk, it added to the allure of the brand. In most overseas markets, however, Zara is a somewhat more premium brand. The “value-for-money” for the brand rests on fashionability rather than product quality.

The Indian consumer base, on the other hand, is less fashion-sensitive than the European consumer. This is not equivalent to being less sensitive aesthetically – Indian consumers can tell good design from bad; allowing, of course, for varying taste! However, value consciousness drives many consumers to buy during discount sales with delay of 2-3 months, rather than buying current fashions at full price. This can be a problem for a brand that thrives on change.

Zara will initially have a limited physical footprint. It is targeted at the premium to luxury end of the market, fitting a certain physical profile of customer. Its products that are imported are disadvantaged by a hefty import duty and shipping costs, as well as the shipment lead time. So, there is time available to Indian businesses that want to adapt their business model, and learn from this new competitor.

With the product development strengths and the agility that Indian apparel companies have displayed in the past, there is no reason why Indian brands cannot compete effectively with Zara on their home turf. When it comes down to it, I think Indian businesses (the small ones, with less “organisation” and “process” orientation) are fast on their feet in identifying design trends and are able to responding to the trends with products being available in the market very quickly. I would call them the Indian “baby Zaras”.

So the real question is this: can these Indian “baby Zaras” learn to be disciplined and structured, and learn to scale up their businesses?

Could we, perhaps, even see some people creating copies of Zara’s styles and bringing them to the market quickly at much lower prices (in effect doing a Zara on Zara)? Let’s not forget, what is today an 11-billion Euro business was once a contract manufacturer to other retailers, and Zara started with one shop carrying low-priced versions of products inspired by those of high-fashion designer brands.

The coming years promise to be interesting and I think we should watch out for an Indian version of an Inditex emerging in the next few years. It remains to be seen whether it will be from among the existing players in the domestic market, an exporter who is a contract manufacturer for western retailers (as Inditex once was), or someone totally new.

The people who should be really worried are those international brands whose product mix in India is weak, whose prices make you want to marry a rich banker, and whose brand ethos is totally unclear. To them I would say: Zara has you in its gun-sights.

Click here for “Retail @ The Speed of Fashion” , if you haven’t read it yet:
http://thirdeyesight.in/articles/ImagesFashion_Zara_Part_I.pdf

[If you are working for a company looking entering the Indian market, you may be interested in looking at our list of services > India Entry.]

Posted in Apparel, Branding, Footwear, India, Lifestyle & Fashion, Marketing, Product Development and Design, Retail, Soft Goods, Strategy, Supply Chain, Textiles, Uncategorized | 18 Comments »

18 Responses

  1. vivek mathur Says:

    I agree, despite what appear to be fantastic sales numbers in the first few days, I would not say success is a foregone conclusion.
    I believe that Zara’s fashionability proposition is more relevant to womenswear, which is a relatively much smaller segment in India compared to other markets, particularly at the premium end.
    Dont know how much ice the fashionability proposition will cut in menswear.

  2. Bela Gupta Says:

    imo, think there would be a few Indian Zara’s in the making, we have been jugaadi’s and made it in so many different verticles, let’s wait and watch..

  3. Richa Bansal Says:

    Zarafication..not quite sure… I haven’t been able to visit the store as yet…but going by general feedback, and I’ve had aplenty… Zara’s been a damp squib, at least in terms of the wears it has brought in here. That apart, you raise pertinent points, and I quote: The “value-for-money… See More” for the brand rests on fashionability rather than product quality. — it will be interesting to watch how this plays out in the market here; “It is targeted at the premium to luxury end of the market,…disadvantaged by a hefty import duty and shipping costs, as well as the shipment lead time” — I need not elaborate here; you’ve said it all, and of course how the “baby Zaras” scale up to offer what they can and give Big Daddy a run for his money. I cannot fathom why these baby Zaras haven’t woken up to the reality and the opportunity that the home turf offers…

  4. Mukti Says:

    Does anyone know what standardized sizing model Indian consumers follow when shopping at stores like Zara? Is there a government researched sizing chart similar to the US Standardized one or UK’s EN 13402 in the making for India?

  5. Priya Mary Mathew Says:

    Just the initial hype that every brand gets initially. Truth is, sadly no brand has succeeded in creating a niche for itself.

  6. shilpee Says:

    Zara is apt for the cash rich and luxury segment. it can do well in premium catchments and selected location. but actual India is much much bigger.till five six stores zara will do well may be very well but beyond I have doubts because indian taste is different, it is spicy. they may have to come up with alloo ticky version to conquer.

  7. manish Says:

    With the opening of second store in tend-um…The brand is sure to have a charted road map for Indian market….however it will be clear in coming years if there is ‘Zarafication of Indian buying behavior of or Indianisation of Zara selling phenomenon…

  8. Belinda Carp Says:

    Interesting article – how does the launch compare with those of other Western brands in India? The initial reaction isn’t necessarily an indicator of the future – that depends on how quickly they react to the market. Havind said that, if Zara understands the market as well as the PR department knows how to promote it, they’ll do well!

  9. Ekta Pachnanda Says:

    This was a very interesting read! Just a couple of thoughts which came to my mind: Do you see ZARA making a presence in B-Tier cities, if yes, do think the product line is well suited for the Indian consumer? Is ZARA setting up a(has already set up) a product development team in India to work alongside the European PD Team?

  10. Derek Dickins Says:

    What was significant here in Greece was that when Zara first came to Athens we thought it would fail as the Athenian lady tends to be rather picky when it comes to buying Fashion. How wrong we all were – Zara, followed by Massimo Dutti and more recently Uterque would seem to big successes whereas sadly several small boutique stores have closed , victims of the economic situation.

  11. Ken Watson Says:

    I was taken by the comment recently at Prime Source 2010 in Hong Kong that the definition of a business idea by a label is the death of the trend. So is this case for Fast Fashion? Possibly. Clearly there is much confusion as to what it is. How fast is fast? Is it just many more phases or is it just fast enough to move with the fashion trend (provided the fashion is right)? Fashion is defined by being on trend, but who decides the trend? Hollywood or Bollywood, Hello or Grazia, or the fashion press? If we define the trend through effective guerrilla marketing, PR or Advertising to arrive at the time we deliver, are we fast or just clever in manipulating the trend to be recognisable when we deliver? Fast Fashion is normally at a lower perceived price. But is it cheap or just cheaper than the reference point?
    If you take the definition as: “The delivery of fashion which is perceived to be up to date/on trend on a regular basis ….and lower in price than traditional fashion”, does the Zara model in India meet the ‘definition’? Probably not. It is not perceived to be low price (except in reference to high cost fashion brands). It is not at a price point which makes it widely accessible which you could say of the Zara price point in Europe. Is it on trend in an Indian sense? If India is slower to adopt fashion trends is Zara moving faster than the market?
    As others have commented Zara will have a longer term strategy – it will be interesting to see whether it limits itself to servicing a more ‘premium’ end of the market or whether it will over time adjust its prices (with local sourcing) to reach a wider market. It appears to have adopted both strategies to date in overseas markets.
    In the debate about the detail we may be missing the plot. Which is that fast fashion is a brilliant example of the application of lean thinking and from it we can learn a lot. We have found worldwide interest in the model because it a profitable business model and one that intrinsically has great consumer appeal.

  12. Pooja Nanda Says:

    First 2 days at zara Delhi launch were mind boggling because of the sale @ launch. Found that the store had done somewhere around INR 2 crore business. But what after that? The collection went bust after the initial week and come the 3rd week, that too on a weekend, people are just there to observe the collection, try it out n then leave the product. Also, the store has in part sales.
    I believe in targeting the premium to luxury segments, most of the product line cannot be what could be available at Sarojini Nagar, for no value in comparison. I am sorry for having put such a comment, but having spoken to a few shoppers, especially the cotton dresses, remind them of Sarojini.
    For Zara to be a success in India one thing is for sure, not only they will have to look at the fashionability, it will also have to be quality such that the whole package is Value for Money.

  13. Luxafarian fashion Says:

    Zara’s target is not the whole India. If it was, it they wouldn’t have opened it in only one mall. Zara has a focussed buyers who will run after Fashion and Trend, no matter what.

    Zarafication!?! I’d be waiting for that… We Indians keep our capabilities hibernated until they see an international brand doing something in India… Read, something big.

    Name it… movies, resto chain, hotels, fashion etc.

    Thanks.

  14. Amit Says:

    The baby Zara’s pretty much resonate the same wait & watch tactic that we Indians follow – I dont know why, but a result of that is why we are not where we should have been by now!
    The parallels drawn to Sarojini, “damp squib” & “capabilities hibernated” resound that already inferred above – a reverse of that is what I would like to see & soon!!!!

  15. Sanjeev Mohanty Says:

    A very good start indeed. Even though numerous international brands have seen good starts during their launch. The first 100 crores at retail and the first 10 stores don’t tell the entire story. The second store in Promenade has been a damp squib. Even if you sell a mediocre brand in Select Citiwalk it delivers record numbers, there is no doubt. One of the top brands globally in the best mall in the country with the most affluent concentration of consumers, that’s a potent mix. In India, numbers start talking after 250 Million $ retail value. Very few brands like Benetton and Reebok have made that league or are close to it.The initial numbers sound outstanidng but the real test will be after the first 6 months of operations. The same hysteria has not been created by any other brand for sure. Also, watch out for people complaining about quality, customer service etc. We are closer to the US market than the European market in terms of consumer behaviour.Also a lot has been written about Zara which any 10 year old can write. Consumers want great merchandise with great brand appeal at a good value at a place which is easily accessible to them. That’s the game but the execution is far more complicated and understanding regional preferences of consumers is even more complex. Also, these brands have a larger womenswear play which is still a developing market and drops sharply outside the top 12 cities. Menswear will determine the success of any international brand in India. For this one has to localise slightly to cater to a wider audience. Even though big box retailers may not need to do anything to tinker with the merchandise range. Lastly, last speed varies in different markets, in India like you have to be careful while driving and cannot go beyond a certain speed even if you have a 350 horsepower V8 turbo charged engine. The same principle applies to Fast fashion, the fundamental core of this nmodel where majority (90%+)of the consumers may not want to update their wardrobe every 30 days, let alone every week like some of the European core consumers. Even though it is inevitable that every successful global brand will finally find ways and means to find their date with destiny to succeed in the Indian market. There is no choice. Winning the world cup may not be enough to lift the Spanish economy out of the gloom.

  16. Ankur T Says:

    Well..It goes like this. India doesn’t/Indians don’t wear according to the season which most of the countries in the world do. If we see Zara as a “Fashion Brand” or “Sought after brand”, it may be the hype that works for the time being. People do tend to forget brands once they have a “Low price” & “Best-fit” option, even if it comes from a factory in Bellary or Bhiwandi or any C-class town. But that doesn’t mean Zara lacks all the expertise. The above can only be few of the factors influencing Zara’s presence or growth. Other major concern (still not so public) are the export surplus stores which are rapidly coming up in every city. You will find the Brand you name at a 50% cheaper price. If you get your brand at this price, who cares whether it is from the EBO or some surplus store. If you have it flaunt it! is the gesture.
    But it would be interesting to see how Zara fares in India. We see M & S is opening around 12 more stores in India but how profitable they are in comparison with an MBO?
    Let’s wait to see how India really responds to Zara.

  17. Runa Says:

    I loved the article on Zara, exactly what i was looking for…it kind of relates to the business startegy I was having in mind. Thank you for the deep analysis done. Helps entrepreneurs like us

  18. Devangshu Dutta Says:

    You’re welcome, Runa. :-)

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