Created in 1975, the famous fast-fashion company has proven the reliability of its widely acclaimed business model, built on technology innovation and customer experience. Using little to no advertising, Zara achieved a €16 billion turnover in 2017.
However, the brand has recently faced three main challenges: e-commerce, competition and sustainability.
To sustain its global expansion, the brand decided last year to strengthen its digital footprint. But if Zara thrived in a physical, touch-and-feel retail era, its e-commerce sales are still lagging. Furthermore, pure-play online retailers have established an even faster production rhythm by using the latest cutting-edge marketing tools. Finally, Zara’s image has suffered recently due to concerns over the sustainable impact of its speedy logistics.
Thankfully, Zara can count on artificial intelligence to make a difference by better forecasting trends of best-selling products to boost its e-commerce sales.
A risky but urgent digital transformation for a fashion retailer
The Zara business model is a good example of the high stakes of a digital transformation for a brick-and mortar retailer. Pablo Isla has said that by 2020 all the Inditex brands will be online. However, this decision implies penetrating a market already dominated by strong competitive players such as Fashion Nova.
To achieve this, Zara’s strategy is now focused on closing small stores and opening huge flagship stores with the aim of boosting online sales. The latest store, Zara’s Westfield Stratford flagship store, which is the first store to offer a dedicated click and collect area, shows the strategic importance given to phygital. The digital move will enable Zara to reach a broader audience in remote locations, like China.
At first glance, Inditex’s late entry into e-commerce helped it avoid making the same mistakes as its competitors. The retailer only started to tap into the e-commerce market in 2010. Now, Zara’s e-commerce is present in 46 countries. It recently entered India, Malaysia, Singapore, Thailand and Vietnam and wants to push further by penetrating the promising online Brazilian market by the end of the year.
On the downside, it implies constantly improving its reactivity regarding its competitor’s offerings and reviewing its European production by pushing it even further to keep up with its signature speed. With an upcoming expansion towards new remote territories, its major competitive advantage remains the predominance of its “proximity sourced” suppliers (51% of its 1500 suppliers are located in Europe and North Africa) cutting customs taxes and delivery times that could be reassessed.
Predicting the threat of the rise of ultra-fast fashion
Accounting for 12% of net sales, e-commerce remains a small portion of Zara’s business. It pales in comparison to its online native competitors like Boohoo and Fashion Nova. These digital pureplay retailers deliver designs faster than Zara thanks to marketing tools. Moreover, because they exclusively launch celebrity-led collections, they master influence marketing better. InfluencerDB revealed to Business of Fashion that Fashion Nova made over $125 million from social influence alone since its foundation in 2018, while Zara brought in just $59 million. With these new entrants, time-to-market has shrunk while variety has ballooned.
Freed from physical store loans and benefiting from more efficient supply chains, new fast fashion competitors have large stock inventories and more agile capabilities.
One of its main suppliers, the Indian Tata Group, even decided to build its own brand which is able to commercialize fashion items in only 12 days.
The necessity to transform into a sustainable model fuelled by trend forecasting
Due to a disruptive time-to-market, quick response policy and just-in-time manufacturing, Zara applies a lot of pressure on its end-to-end supply chain. There is growing evidence that clients, concerned with sustainability issues, are beginning to wonder whether they should make fast-fashion purchases. To answer these concerns, Zara has developed its own sustainable line under the #joinlife label. Contrary to H&M’s conscious collection, the initiative was discreetly implemented.
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Artificial intelligence can improve customer centric strategies to help win the e-commerce race
If Zara has succeeded in mastering its physical fast-fashion production chain, it is running late on digital. AI-powered trend forecasting is the way forward.
Zara recently multiplied technology-powered initiatives. In 2018, the fast fashion powerhouse teamed up with Jetlore, an AI-powered consumer behavior prediction platform, and Spanish big data company, El Arte de Medirn. Furthermore, it partnered with Intel and Fetch Robotics to measure clothing volume in boxes and improve stock inventory. Finally, to secure its product inventory and improve its traceability all along the supply chain, Zara implemented micro-chips from Tyco.
Developing e-commerce to fight competition
In launching e-commerce platforms to boost its online sales it will take time for its visual merchandising teams to manage product features. Finding relevant mix and match styles to build silhouettes in line with real consumers habits can be really time-consuming.
Artificial intelligence can enable Zara to improve its trend radar to maintain a distance from its competitors and ultra-fast fashion’s new entrants.
The cutting-edge technology can spot and predict the most popular product and brand associations, most attractive styles, colors and textures to provide guidance for online merchandising photoshoots and other lookbooks.
Most of all, through its analysis of 3 million images each day on social media, Heuritech offers a powerful market intelligence tool capable of identifying the best influencer styles and forecasting the latest upcoming trends.
From just-in-time production to forecasting demand and trends: how Zara can become more sustainable
The Zara case study shows the difficulty for a fashion retail leader in changing its image when faced with a rampant consumerism shift towards more sustainable brands.
The speedy logistics champion now wants to be seen as a “responsible fashion” player.
Artificial intelligence can help solve the “just-in-time” manufacturing loophole, by improving demand forecasting. The company focuses on responding to current fashion needs rather than forecasting fashion trends for a distant future: 85% of its production is done during the current season. By doing so, Zara can avoid overproduction, an issue its rival H&M also faces, and become more sustainable. Identifying client needs months in advance and suggesting specific product designs will enable the retailer to launch products that customers really want.