Zara to Enter United States Cautiously

I accidentally found out that there is a Zara store that has opened in San Francisco. I learnt that when I was stumbling on a review of the store in SF. Here is the linkto the review: review of Zara in SF, CA on Yelp.com. I than tried to see if there is also a store that has opened in Chicago, since Mango has one store opened already. I was disappointed, they apparently only open stores in the coasts and some other parts of the States including LA, TX, FL, NY, but not in the midwest. I was trying to find Zara's press release about their store opening in the US, hoping to see some information about them going to open more stores in the US by the end of this year or something like that. Turned out I didn't find any press releases but I found this article on International Council of Shopping Centers. It has all the information on Zara's strategy in the US:

Zara's Watching
Spanish retailer uses U.S. stores to gather fashion intellingence - but dont expect a big rollout for now

BY ED MCKINLEY

Photo: Ian Ritter

Zara International ranks third in annual sales among the world’s apparel-only retailers, but U.S. landlords with ambitions to lure a unit to their centers shouldn’t hold their breath. La Coruña, Spain-based Zara appears likely to remain a small, quiet player in the United States, at least for now.

Retailing experts say the company’s 11 “affordable chic” stores on these shores serve mainly as listening posts where sales associates carry personal digital assistants to relay information on American fashion trends to the company’s team of 200 designers in Spain. To gather clues on what’s next in American apparel, Zara employees in the United States pay close attention to the look of the clientele; they record the comments and questions they hear from shoppers browsing Zara’s lines. Europeans seek American innovation in much the same way Americans pursue Continental chic, observers say.

“I think it’s a very smart way to gather intelligence,” said Candace Corlett, a principal at WSL Strategic Retail, a New York City-based consulting firm. “A key to their success is taking customer feedback.”

Some of the clues Zara unearths at these U.S. stores may reveal American fashion trends the retailer can incorporate into its worldwide apparel offerings, she says. The company makes most of its merchandise in its own workshops and factories.

Though sleuthing remains the prime directive in America, observers say Zara’s plans call for opening two or three more stores here this fall. Meanwhile, the chain’s serious expansion efforts are likely to play out on its home continent, some say.

“They still have a lot opportunities in northern Europe,” said Lois Huff, senior vice president at Columbus, Ohio-based consulting firm Retail Forward. “They hardly have any presence in Germany, and that’s the biggest market in Europe.”

In America, though, the retailer is making its name by selling European panache at Banana Republic prices. Its customers buy the high-fashion, high-quality apparel in an attentive boutique atmosphere at 600 stores in 47 countries.

Though Zara is primarily a seller of women’s lines, some stores also carry men’s and children’s clothing. The chain is the flagship of an armada of seven retailing firms operated by Spain’s global apparel manufacturer, Inditex. Inditex profits tripled between 1996 and 2000. They rose 31 percent in 2001, when many retailers saw profits collapse, says John Gallaugher, a professor of information systems at Boston College who uses Zara as a case study in his classes. Among stores that sell almost nothing but clothes, only Gap and H&M generate more dollar volume, he says.

Zara officials in the United States didn’t respond to requests for an interview for this article, but information on the retailer’s Web site underscores the importance the company places upon listening to consumers’ thoughts on fashion. The site says Zara sees the design process as driven by the public. Information from the stores, the site says, is passed on to the chain’s creative team.

According to Corlett, that’s exactly what Zara does — it follows fashion, it doesn’t lead it. It also responds quickly to changing public taste, thanks to an efficient organization.

“Zara’s plan is to keep reducing the cost of production and maintain quality and pass the savings along to customers,” she says.

Controlling production, as well as warehousing, distribution and retailing, makes Zara an entirely integrated vertical supply chain, says Huff. The retailer operates large manufacturing facilities in Spain that perform the capital-intensive processes, she says, but also maintains a network of 400 small workshops throughout Spain and Portugal. She calls this workshop approach a variation on the just-in-time supply-chain theme, with lots of flexibility.

“They can use people as needed, and they don’t incur a lot of overhead because of that,” she says. “It’s an unusual system, and it would be hard to duplicate from the ground up in a developed economy, mostly because of the cost of labor,” says Huff. “When they started developing it, Spain was bordering on being a Third World country.”

Zara has something for her, too: Some stores sell children’s as well as men’s apparel.

The setup has made Zara founder Amancio Ortega Gaona a billionaire many times over, according to published reports. He now serves as Inditex chairman and remains the company’s largest stockholder. He started his textile business in 1963 and opened the first Zara store in 1975, according to a recent Inditex annual report.

Even now the company churns out 60 percent of its clothes, and it even makes 40 percent of its own fabric, according to Gallaugher.

When Zara feels the need to outsource, it turns to sources fairly close by in northern Africa and Asia Minor, though quality remains paramount, Corlett says. The company outsources some sewing on a few items, but it makes sure to keep a lot of the elements of production in-house, including sizing, design, tailoring, ironing and creation of tags, says Corlett, who adds that doing this ensures quality.

Such control also allows Zara to bring fashion to market with nearly unprecedented immediacy, Gallaugher says. Some 12,000 fresh items flow into the stores annually by means of shipments that arrive twice a week on the much anticipated “Z-day,” he adds.

“While the Gap may have new clothes come in twice a season, Zara’s cycle time from idea to product and distribution back to the store is about two and a half weeks,” Gallaugher said. “That means their cycle time is 12 times more responsive than the Gap’s.”

Huff suggests there are two ways to describe Zara’s introductions. “You could say they have no seasons at all or many, many seasons,” she said.

Zara sharpens its inventory in ways few other retailers can, says Gallaugher. Because the company knows what’s selling and produces small lots, it has few inventory write-downs and doesn’t need many clearance sales.

Gallaugher compares Zara to Dell Computer, another company that manufactures and retails its wares. But pointing to a possible weakness in the Zara structure, he notes that Zara makes all its own apparel; Dell, on the other hand, uses a hybrid model, manufacturing some of its merchandise while relying on other companies to make the rest. The computer maker sells printers made by Lexmark, for example, and can thus offer a wider selection of products than Zara can under its own model.

The retailing experts who praise Zara’s clothing lines and who marvel at the company’s production prowess also issue plaudits for the atmosphere in the stores.

“One of their strategies is to make the discount experience attractive,” says Corlett. “In the U.S., discount means unattractive.”

Huff says she likes Zara’s presentation of apparel in small collections. “It’s boutique-oriented,” she said. “Southern Europeans, and the Spanish in particular, are used to small boutiques,” she notes. “Zara grew up with that same mentality.”

As Zara expands in Europe, it is experimenting with larger sizes for taller customers in the northern areas, but those bigger garments might still seem small by American standards, Huff says.

“In Europe they’re introducing larger sizes for older customers,” she said. “That translates to 12 to 14. They’re considering those larger sizes.”

That sizing could be something the company may want to pay closer attention to in the United States. “If they want to be successful in the U.S., they have to address size differentiation that is just as different across the U.S. as it is from southern Italy up to the Netherlands, where the tallest people in Europe live,” said Huff. “That’s a real challenge for them.”

Zara doesn’t advertise in Europe, and it entered the United States without a splashy ad campaign, observers say. The first U.S. Zara opened in 1989 in New York City, on 59th Street and Lexington Avenue, across the street from Bloomingdale’s flagship. Others followed in the fertile retail grounds of the Flatiron District, south of midtown; on Lower Broadway; and on 34th Street.

The retailer exercised extreme caution, making a slow entrance into the United States, says Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide, a New York City brokerage firm that handles retail real estate here and abroad.

“They are always in 100 percent locations, as we say in real estate,” said Consolo. “They do not compromise location for rent.”

The other U.S. locations are the Aventura and Dadeland malls, both in Miami; the Mall at Millenia, Orlando, Fla.; Roosevelt Field Mall, Garden City, N.Y.; Willowbrook Mall, Wayne, N.J.; a streetfront location in the Georgetown section of Washington, D.C.; and the Plaza Las Americas, San Juan, Puerto Rico. (At press time a Zara unit was scheduled to open in the Fashion Show mall, Las Vegas.)

Though Zara has entered the United States cautiously, other European apparel retailers have followed more noisily. H&M came in with ads that featured movie stars and celebrity models, and its store count now approaches 60. Mexx, which has its headquarters in the Netherlands, opened stores recently in Manhattan (see story) and in White Plains, N.Y., with more on the way, Consolo says.

She says she doesn’t expect the invasion to end there, however. “You’re going to see some other names in fashion coming out of other countries in Europe, including Spain — one by the end of the year, and by next year another two or three.”