The fast fashion market dividend has been exhausted, the Zara family finally ended up with a "hurried escape" ending?
Recently, some media reported that the three ZARA sisters would collectively "say byebye" with the Chinese market. It is expected that all stores in Bershka, Pull&Bear and Stradivariu will be closed by the middle of 2021.
However, how can ZARA, as the "king of fast fashion", be willing? Is there any secret behind the family retreat? How should ZARA stand firm in the Chinese market in the future? Is online transformation the way out?
The ZARA family that has been retreating
The fast fashion cold wave is coming, and the ZARA family has no connection with the Chinese market after all. According to foreign media reports, Bershka, Pull&Bear, and Stradivarius under the Inditex Group, the parent company of Spanish fast fashion brand Zara, will close all Chinese stores, and all related store work is expected to be completed by mid-2021.
In fact, the news of the retreat of the ZARA family has already begun. ZARA’s parent company Inditex Group put forward a global store closure plan last year. It will close up to 1,200 stores in 2021, mainly for stores with profitability less than 260,000 euros, including small brands such as ZARA, Massimo Dutti and Pull&Bear. Store.
The culprit that led to the collective retreat of the ZARA family is actually the decline of the fast fashion industry and the decline in sales and losses of the Inditex Group. In Q1 of 2020, Inditex Group's sales were 3.3 billion euros, a year-on-year decrease of 44%; the net loss reached 409 million euros, which was the first quarterly loss in its history, and the net profit in the same period last year was 734 million euros. Therefore, the withdrawal of the three sisters from the Chinese market seems to be an inevitable result.
In addition, there are endless negative comments about ZARA on the Internet. Everyone thinks that the domestic ZARA is too different from the European ZARA, and the styles and types of clothing are too few; in addition, they also sneer at the plagiarism of ZARA, thinking that ZARA is similar in style now, and now it is "uncopyable".
It can be seen that ZARA has not had a good life in recent years. However, the life of fast fashion brands in China has long been difficult, and the industry has already set off a wave of store closures. In addition to the three sister brands of Zara, many fast fashion brands have withdrawn from the Chinese market in recent years, including NEW LOOK, Topshop, Forever 21, etc.
So, what happened to the once smashing fast fashion industry? What exactly caused the industry boom to fade and the retreat tide to emerge?
Fast fashion: come and go fast
Fast fashion started "fast" and prospered "fast", but it also declined "fast".
In 2002, Japan's Uniqlo took the lead in entering the Chinese market and opened its first store on Nanjing Road in Shanghai. This also set a precedent for foreign fast fashion brands to enter the Chinese market, and then in 2006 ZARA and H&M entered the Chinese market at the same time. After that, ZARA quickly became the king of fast fashion by virtue of "new fast, trendy, and excellent price".
In 2010, the Chinese market has become the sweet pastry of all strategists, and fast fashion brands are blooming everywhere. However, after 2016, the fast fashion industry began to decline, when Marks and Spencer announced that it had withdrawn from the Chinese market, followed by the influx of fast fashion brands in the industry.
It started in 2002, prospered in 2010, and declined in 2016. An industry has traces to follow from the beginning to the climax to the trough, but how did the fast fashion industry decline?
Summarizing the reasons for the passing of fast fashion trends can be divided into the following points:
First, fast fashion can be called a plagiarized empire of hundreds of billions, and the serious homogeneity phenomenon has accelerated the decline of the industry. The rise of fast fashion is mainly due to the three elements of fast delivery time, affordable prices and keeping up with fashion trends. However, this determines that fast fashion brands use "fast" as the only law to compete for the market. Product launch is "fast", franchise expansion is "fast", and bankruptcy is also "fast".
Therefore, the homogeneity phenomenon among the fierce competition in the industry is serious, and plagiarism continues. Among them, the king of fast fashion ZARA bears the title of "plagiarism", and the homogeneity of its three sister brands is also serious. The styles of clothing are roughly the same and the competition between sisters is also fierce.
Second, it is precisely because of "fast" and "copy" that the fast fashion industry is notoriously declining. Most of the fast fashion brands do not have their own factories and processing lines, but because the fast fashion business model generally adopts a mode of deducting manpower to ensure speed, it exacerbates the problem of overcapacity.
As a result, the issue of fast fashion "sweatshops" and environmental pollution caused by overcapacity were once the focus of public opinion in the global market. In the era of advocating green consumption, fast fashion may only be able to withdraw from the stage of the times.
Third, fast fashion is no longer popular and fashionable. In the Chinese market, the wave of consumerism is receding, and practicality and environmentalism have gradually become the mainstream of the market. In addition, when the national tide, OEM brands, and luxury co-branded models flourish, the competitiveness of fast fashion brands is obviously not obvious, and it is only a matter of time before they are replaced.
Fourth, last year's epidemic accelerated the decline of fast fashion, which also promoted the emergence of store closures in the fast fashion industry. Whether it is the domestic market or the global market, the impact of the epidemic on fast fashion cannot be underestimated. According to observations, in Q1 of 2020, H&M closed 3778 stores in 54 markets, resulting in a sharp decline in operating income in the first quarter; in addition, Uniqlo temporarily closed 311 stores due to the epidemic in April 2020.
On the whole, it is precisely because of its "fast" that led to the decline of fast fashion, so fast fashion should have been "slowed down". However, how can ZARA, the king of fast fashion, easily take off the "crown"? And when the three sisters withdraw from the Chinese market, how should ZARA stand firm in the Chinese market?
ZARA, who doesn't want to withdraw from the Chinese market, what to do?
ZARA, which has always been recognized by the market as a textbook, cannot easily take off the "crown".
Summarizing the secret of ZARA’s success lies in the three magic weapons it masters: 1. Produce clothing in small batches, and use hunger marketing methods; 2. Build a complete supply chain, and update faster than peers; 3. Do not invest in advertising, but store stores The brand logo effect is maximized.
Zara adopts the method of placing products on shelves in small batches and quickly adding new products. Among them, Zara's new speed is a record in the industry. It is updated twice a week, and the process from product to design to new store is completed within 15 days, and 25,000 new products are designed every year. Coupled with the restriction on the sales volume of each apparel product, the effect of hunger marketing is magnified.
Therefore, this has also stimulated consumers' sense of urgency in buying clothes. With new styles, fewer and cheaper prices, it is a matter of minutes for consumers to chop their hands. To achieve fast shelf speed, new styles and fewer styles, it depends on a complete supply chain and designer system. It is reported that Zara has nearly 2,000 designers worldwide, and its supply chain covers Asia, Europe, South America, Africa and other places.
On the other hand, Zara's marketing investment is the lowest in the industry. According to observations, ZARA’s marketing accounts for only 0.3% of the total input cost per year, while the industry’s marketing investment is generally around 3%-4%. Therefore, ZARA never advertises, but it does store logo advertising. In the commercial street, you can find that Zara will open the store next to luxury stores or maximize the brand logo, which also makes consumers mistakenly believe that Zara is a fashionable brand, and the store logo thus acts as a "no advertising but The utility of attracting passenger flow".
However, can ZARA, which has been losing out, still rely on the above secret to keep its "crown"? When the fast fashion dividend is gone, what crisis does ZARA face?
With the disappearance of dividends in the fast fashion industry, the slowdown in ZARA growth has become a reality. The whole trend chart shows that ZARA's Asian business growth rate and total revenue growth rate are declining, and there is no upward trend since 2012.
At the same time, after ZARA's first financial year with a loss, the increase in losses also revealed obvious signs of company decline. Financial report data show that in the first half of 2019, Inditex Group's net loss reached 195 million euros; in Q1 of 2020, the net loss reached 409 million euros; in 2020 Q2, the net loss reached 195 million euros.
However, the collective withdrawal of the three sisters from the Chinese market was not ZARA's abandonment of the Chinese market, but ZARA's strategic approach. The purpose is to "close small stores and open large stores" and focus on building up the brand to further stabilize its market position.
In recent years, ZARA has long been aware of the crisis of losing market dividends. Therefore, in 2016, it began to expand its business online while slowing down its store expansion plan. In 2016, it was reported that the growth rate of Inditex's offline retail sales was slowing down, and the growth rate of 6%-8% was lower than the expected 8%-10%.
The expansion of ZARA's online channels is now also very effective. Financial report data show that in Q3 2020, Inditex Group's e-commerce business has maintained a strong growth momentum, with online sales increasing by 76%. Therefore, "closing small stores and opening large stores" also serves as a means for ZARA to reduce expenditure, providing a solid backing for retaining funds and strength to find incremental markets for corporate transformation.
On the whole, the crisis of ZRAR is the disappearance of fast fashion dividends, and when e-commerce becomes another way for ZARA to survive, the three previous magic weapons may not be used. So, how should ZARA do well in e-commerce in the future?
The life-saving straw is e-commerce, can ZARA do well in e-commerce?
For today's fast fashion brands, there are two options: one is to withdraw from the Chinese market; the other is to transform the brand or move online.
At present, all ZARA can do is cut off offline store channels, and then add more e-commerce channels to protect the interests of the parent company while reducing expenditures. In turn, the brand image will be enhanced through measures such as refurbishing and expanding stores to obtain a better brand effect to harvest consumers.
It can be seen that ZARA will practice its brand strategy in the future, and how can ZARA do a good job of branding and harvest consumers in the e-commerce track?
For the apparel industry, there are seven major models for transforming e-commerce, which are divided into platform e-commerce, vertical e-commerce, O2O e-commerce, Tao brand, brand name, B2B e-commerce, and C2M e-commerce.
As a foreign brand, ZARA generally considers the platform e-commerce model, that is, joining the platform e-commerce, such as joining Taobao, Tmall, Vipshop, JD and other e-commerce platforms, and then opening official flagship stores.
However, under traditional e-commerce platforms, competition is extremely fierce. There are not only new trendy stars and sportswear brands, but also many luxury brands. At the moment when fast fashion is no longer fashionable and popular, ZARA's fast fashion label is also difficult to wash away, so under the e-commerce Shura market, ZARA is difficult to walk.
On the other hand, most of the products of fast fashion brands do not take into account the needs of C-end users. For example, fast fashion products are generally made according to foreign trends. However, the height and body shape of foreigners are quite different from those of domestic people. Therefore, it is difficult for domestic consumers to buy suitable fashionable clothing.
At the same time, ZARA's gameplay of small-batch products on the shelves cannot meet the needs of consumers, and there are often out of stock and out-of-stocks of the same clothing on the market. In the e-commerce platform, the supply of clothing and the variety of styles can have a good reputation and sales.
Therefore, it is foreseeable that if ZARA wants to make an e-commerce track, the first thing to do is to consider the actual needs of C-end users and provide everyone with enough products and a wide range of styles.
The second situation is that ZARA adopts a vertical e-commerce model or is more conducive to brand building, that is, to become its own official website platform. However, observing ZARA's official website interface, page frame, product display area and functional attributes are too lacking. For apparel brands, building their own official website can greatly enhance their brand value. For example, clothing brands such as Bangte.com and Monbazaar are all well-known in the industry.
In fact, the author believes that foreign fast fashion brands generally adopt the model of "store + official website + flagship store + mobile APP" when they use e-commerce. This diversified model can expand brand influence and cover consumers in all channels. . At present, the operability and functions of ZARA's APP are not convenient enough.
It can be seen that ZARA can adopt many models for e-commerce, but it takes a lot of thought and investment to be a good e-commerce company.
Therefore, Inditex Group has increased its investment in online platforms in recent years. It is reported that Inditex Group has invested 1 billion euros to support online platform business. At the same time, it also invested 1.7 billion euros to upgrade the integrated store platform. In addition, Inditex Group also predicts that the proportion of online sales will rise from 14% in 2019 to 25% in 2022.
To sum up, ZARA e-commerce companies should take this step, not only consider the problems of their own products and fast shelves, but also consider the actual needs of consumers. In the future, ZARA may succeed in its online transformation only after it has officially launched its brand and considered the needs of the Chinese market. If the transformation is unsuccessful and no new breakthrough can be found, Zara may be forgotten by this era when the fast fashion market is full of dividends.
Author: Yexiao An
Article source: Songguo Finance, please indicate the copyright for reprinting.