Christopher Hunter's Blog

Immediately upon reading Joey Luo’s blog, I developed a curiosity as to how Zara became one of the world’s leading fashion retailers despite only allocating 0.3 percent of revenue from sales to marketing. With 5,618 stores operating in 85 countries, Zara has experienced extraordinary growth over the past decade (there were only 1,000 stores operating in 2010). Additionally, Zara has consistently overshot analysts expectations. For example, between March and May of this year, they posted a profit of 432 million euros, which is a 31 percent increase compared to the same time last year.

The fashion powerhouse strictly adheres to its fast-fashion model, which means that they have a very high turnover rate and basically no inventory. This allows the company to react to the changing trends of the fashion industry more quickly than their competitors. Further, it makes their product highly differentiable; new items appear in Zara’s stores twice a week, and because Zara doesn’t carry very much inventory, these items do not return to Zara’s stores after they sell out. This also allows Zara to capture impulse buyers who are aware that items of interest may not be available the next time they return to the store.

Given Zara’s enormous success by using a rather unconventional business model, it’s no wonder that they aren’t spending any money to advertise their products. At the end of her blog post, Joey suggests that Zara should allocate more of their budget towards marketing, especially if they want to further expand. While I agree that it is useful for many companies to advertise their products while trying to expand, I think that in Zara’s case, their success using their existing business model and their commendable growth proves that an  ad campaign would be futile.

Sources:

http://leadingcompany.smartcompany.com.au/big-ideas/no-advertising-no-outsourcing-why-zara-is-beating-expectations-despite-a-languishing-economy/201206151434

http://www.forbes.com/sites/lydiadishman/2012/03/23/the-strategic-retail-genius-behind-zara/