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CASE STUDY Spanish fashion

brand Zara
Internationalisation of the
Spanish fashion brand Zara
279
Carmen Lopez and Ying Fan
Brunel Business School, Uxbridge, UK Received May 2007
Revised June 2008
Accepted January 2009
Abstract
Purpose – Research on the internationalisation of retailing has been mainly focused on market entry
issues. This paper attempts to examine the internationalisation process from an international
marketing perspective using Spanish fashion retailer Zara as a case study.
Design/methodology/approach – An in-depth case approach was adopted based on extensive
secondary research, which includes literature published in English and Spanish as well as internal
company documents.
Findings – The internationalisation of Zara seems to follow the classic “stage model” by firstly
entering geographically or culturally close markets before taking opportunities in more distant
markets. This global expansion was triggered by both push and pull factors. Compared with the
competition, Zara has three distinctions: vertical integration to achieve a faster turnaround time; use of
franchise and joint ventures for rapid expansion; and use of the store as the main tool for promotion,
with low spend on advertising.
Research limitations/implications – The main drawback in case studies is that of limited validity
and representativeness, constraining the potential for making generalisations. However, this case is
deemed sufficient to provide valuable insights and improve understanding in this area.
Originality/value – Little attention has been devoted to the internationalisation process from an
international marketing perspective. Aiming to fill this gap in the literature, this study provides
important insights into Zara’s internationalisation process.
Keywords Fashion, Retailing, International marketing, International business, Market entry, Spain
Paper type Case study

Introduction
Zara is one of the world’s most successful fashion retailers, operating in 59 countries.
However, there is little research about the firm in English as the majority of publications
have been written in Spanish. This paper seeks to address this gap in the literature by
examining the internationalisation process of Zara. This study adopts an in-depth case
approach based on extensive secondary research. Literature published in both English
and Spanish has been reviewed, including company documents such as annual reports.
The paper starts with a brief overview of the global textile and clothing industry,
followed by the case study of Zara. The main part of the case examines the key aspects in
the internationalisation of Zara, namely motives for internationalisation, market
selection, entry strategies, and international marketing strategies. In the final section,
comparisons are made between Zara and two of its main competitors, H&M and Gap. Journal of Fashion Marketing and
Management
Vol. 13 No. 2, 2009
The global textile and clothing industry pp. 279-296
The removal of all import quotas in the textile and clothing industry from January q Emerald Group Publishing Limited
1361-2026
2005, involving the unrestricted access of all members of the World Trade DOI 10.1108/13612020910957770
JFMM Organisation (WTO) to the European, American and Canadian markets, is considered a
13,2 key driving force in the development of the clothing sector (Keenan et al., 2004). This
new scenario has created opportunities for large exporters like China and India that are
considerably increasing their market share whilst at the same time creating challenges
for European Union member states in order to remain competitive internationally.
The major trends that are restructuring and characterising the textile and clothing
280 sector are as follows:
.
The European textile and clothing industry is characterised by fragmented
production with a large number of small and medium-sized companies mainly
located in Italy, Great Britain, France, Germany and Spain (Nordas, 2004), whilst
distribution channels are highly concentrated (Stengg, 2001).
.
Increasing internationalisation in the textile and apparel sector and the
emergence of international competitors (Cerviño, 1998). Consolidation of the
sector through mergers, acquisitions (Dunford, 2004) and strategic alliances
(Samiee, 1995).
.
Sub-contracting or delocalisation of textile and clothing production to countries
with lower labour and transportation costs and reduced lead-time (Berkeley and
Steuer, 2000).
.
Re-evaluation of the business models to adapt to the customers’ changing taste
(KPMG, 2005). Fashion companies are becoming more flexible and vertically
organised, limited vertical integration being more frequent than complete
integration (Samiee, 1995). Adoption of new technology to expand productivity
and increase competitiveness (Berkeley and Steuer, 2000).
.
Democratisation of the fashion sector over the last decades (Mazaira et al., 2003).
Zara has contributed greatly to this shift by offering the latest design at
affordable prices.

The case of Zara

Established in 1975, Zara is the flagship of Inditex (Industria del Diseño Textil, SA), a
holding company located in Galicia (Northwest Spain). In a relatively short time frame
Inditex has become the world’s second largest clothing retailer with 2,692 stores spread
across 62 countries worldwide by the end of January 2006. In addition to Zara, which
accounted for 66 percent of the group’s turnover in 2005, Inditex owns seven other
clothing chains:
(1) Kiddy’s Class (children’s fashion);
(2) Pull and Bear (youth casual clothes);
(3) Massimo Dutti (quality and conventional fashion);
(4) Bershka (avant-garde clothing);
(5) Stradivarius (trendy garments for young women);
(6) Oysho (undergarment chain); and
(7) Zara Home (household textiles).
The Zara concept Spanish fashion
Zara’s aim, according to Amancio Ortega, founder of Inditex, is to democratise fashion brand Zara
by offering the latest fashion in medium quality at affordable prices. What
differentiates Zara’s business model from that of its competitors is the turnaround
time, and the store as a source of information. Zara’s vertical integration of design,
just-in-time manufacturing, delivery and sales, flexible structure, low inventory rule,
quick response policy and advanced information technology enable a quick response to 281
customer’s changing demands (Castellano, 1993, 2002). A completely new piece of
clothing can be designed, manufactured and delivered in less than four weeks. Changes
of an existing garment can be put on display within two weeks, much faster than the
competition (The Economist, 2005). Zara internally manufactures its “live collections”,
the most receptive garments to fashion, which account for almost half of its production,
and outsources those that are not subject to seasonal variation. About 11,000 new items
are launched every year (Ghemawat and Nueno, 2003).
The store acts not only as a point of sale but also influences the design and speed of
production. It is the end and starting point of the business system. Zara’s production
cycle starts with customers’ judgements on the new designs of clothes and the
information collected by staff members who travel to fashion cities, observing people
on the streets, browsing publications and visiting the venues that are frequented by
their potential customers (Fabrega, 2004). What distinguishes Zara from its
competitors is the feedback that Zara’s managers get from the customers at the
point of sale about new garments or new products that they are interested in. Store
managers report the demands of customers and the sales trends to the headquarters on
a daily basis. The design group will use the feedback to create new articles or
modifications to the existing goods and then deliver the items to the stores (Martinez,
1997). Every store receives small batches of products twice a week, avoiding large
inventories and creating a “climate of scarcity and opportunity” (Crawford, 2000).
Around 60 percent of its products are permanent and the remaining 40 percent vary
continually. The company estimates that customers visit a Zara store 17 times a year
on average, compared to merely four visits for other fashion firms (Castro, 2003). The
outlets are situated in main commercial areas and the interiors are designed to create a
unique atmosphere with attractive window displays. The firm spends only 0.3 percent
of its annual turnover on advertising (Ghemawat and Nueno, 2003), normally at the
beginning of the sales season or on the occasion of a new store opening. The store is
considered its most effective communication tool.
The two key factors in Zara’s business model – the time factor and the store as a
source of information – demonstrate the company’s customer orientation. Zara
continuously adapts to market demands, aiming to deliver a unique service to the
customer. The quality of customer service and other variables such as the music,
temperature and layout are evaluated by using a mystery shopper (Monllor, 2001).
Zara follows a market-based pricing strategy which sets the target prices that the
buyer is willing to pay. The budget for the cost of the material, production and
suppliers is fixed according to the target price and the profit margin that the
management department wants to achieve with that item (Bonache and Cerviño, 1996;
Mazaira et al., 2003).
Over the past 30 years, Inditex has built a portfolio of brands (see Table I for
details) through brand acquisition – Massimo Dutti in 1991 and Stradivarius in
 13,2

282

Table I.
JFMM

January 2006
Inditex’s brand portfolio,
Kiddy’s
Zara Pull & Bear Massimo Dutti Class Bershka Stradivarius Oysho Zara Home

Number of stores 852 427 369 149 368 263 154 110
Percentage of Inditex 65.9 6.6 7.9 2.3 9.5 5.1 1.6 1.2
Year of
foundation/acquisition 1975 1991 1991 1993 1998 1999 2001 2003
Target Women, man and Women and Women and Children, Women and Women, Youths N/A
children, ages 0-45 men, ages men, ages 25-45 ages 0-16 men, ages ages 15-25
14-28 13-34
Product Fast-fashion Casual clothes Quality and Children’s Avant-garde Trendy Lingerie Household
clothing conventional fashion clothing clothing clothing
fashion
Price Medium-low Medium-low Medium-high Medium-low Medium-low Medium-low Medium-low Medium-low
Quality Medium Medium Medium-high Medium Medium Medium Medium Medium
Sources: Compiled from annual reports, press dossiers, Blanco and Salgado (2004), Fabrega (2004) Ghemawat and Nueno (2003), and Monllor (2001)
1999 – and brand development by using a multi-brand strategy and an extension Spanish fashion
strategy. In line with the multi-brand strategy, Zara was created in 1975, Pull &
Bear in 1991, Kiddy’s Class in 1993, Bershka in 1998 and Oysho in 2001. The
brand Zara
extension strategy was applied to Zara Home. Inditex used the name of the existing
Zara brand to take advantage of the transfer of associations between the parent
brand and the extended one, Zara Home.
All these brands were built within the domestic market and then launched for 283
international markets. This multi-brand portfolio has allowed Inditex to target
different segments more effectively. However, the cost of maintaining several brands
and the risk of cannibalisation are the major drawbacks of this strategy. Inditex has
tackled cannibalisation by differentiating the brands mainly through the product,
target market, presentation and retail image (Fabrega, 2004).
The success of the Zara concept is also reflected in the impact that the company has
created in the fashion industry, which brought changes in the organisational methods
of other clothing retailers, namely Benetton and Mango (Cinco Dias, 2003), and has
even obliged luxury fashion brands like Gucci and Burberry to increase the rotation of
their goods and develop sister brands to expand their customer base (Fernie et al., 1997;
Foroohar, 2005).

The internationalisation of Zara

Zara opened its first store in 1975 in La Coruña, Northwest Spain. During the 1980s,
Zara expanded within the domestic market, opening stores in all Spanish cities with
a population greater than 100,000 inhabitants (Ghemawat and Nueno, 2003). The
international expansion of Zara started with the opening of a store in Oporto
(Portugal) in 1988. By the end of January 2006, Zara was operating in 59 countries
with 852 stores: 664 stores were located in Europe (259 in Spain), 112 in America, 45
in the Middle East and Africa and 31 in Asia (see Figure 1). International sales
accounted for 69 per cent of total turnover in 2005, with Europe being the largest
market by far. This section will discuss the internationalisation process of Zara,
focusing on three issues:
(1) motivation;
(2) market selection; and
(3) entry options.

Motives for internationalisation

The existing literature has classified the motives for retail internationalisation into
push and pull factors (Treadgold and Davies, 1988; Alexander, 1995). Push factors are
those that encourage the organisation to search for international opportunities. Pull
factors involve attractive conditions in the host market (Alexander, 1995). The limited
market growth opportunities at home was the main influence on Zara’s decision to
expand internationally as recalled by Jose Maria Castellano, former CEO of Inditex:
Of course before opening the first store in the host market, we had the feeling and then we
knew for certain that the Spanish fashion and design market was on the verge of saturation
(Martinez, 1997).
In addition to the maturity of the market, there was a change in Spanish consumer
behaviour over this period, with increased spending in their spare time on travelling
JFMM
13,2

284

Figure 1.
International presence
of Zara

and education, and less on clothes. The key pull factors that explain the
internationalisation of Zara include Spain’s entry into the European Union in 1986,
the globalisation of the economy and thus potential economies of scale, the
homogenisation of consumption patterns across countries – Zara’s belief is that
“national frontiers are no impediment to sharing a single fashion culture” – and the
abolition of barriers to export as well as the development of information technology.
McGoldrick (1995) provides a third group of factors related to the organisation: the
facilitators or enabling factors. The expansion of Zara in New York (1989), Paris (1990)
and Milan (2001) was justified by image and status reasons (Castellano, 2002). These
three cities are considered fashion capitals that are highly competitive. The USA
offered Zara the opportunity to learn first hand about its American competitor Gap and
consumers in a large market with an interest in fashion. The USA was perceived to be Spanish fashion
a high-risk market, a view justified with hindsight (Martinez, 1997). Amancio Ortega brand Zara
wrote in his 1998 annual report regarding the learning experience:
International expansion is the objective that cannot be delayed and will allow us to enrich our
culture and vision of the market.
Last but not least, the internationalisation involved the spreading of cost and risk into 285
different markets.
McGoldrick (1995) also mentions the inhibitors: factors related to the organisation or
the environment that hinder internationalisation. As explained below, the first stage of
the internationalisation was marked by the physical and cultural distance, perceived
risk and lack of experience. Administrative barriers and a different season in the
southern hemisphere inhibited the expansion in Italy and South America, respectively.
Finally, geographic distance and a low level of economic development hindered the
internationalisation of the firm in Asia and Africa, respectively. Table II summarises
the factors influencing the decision to internationalise.

Market selection
The internationalisation of Zara seems to follow the classic “stage model” (Johanson
and Wiedersheim-Paul, 1975; Bilkey and Tesar, 1977; Cavusgil, 1980) by firstly
entering geographically or culturally close markets before taking opportunities in more
distant markets. Zara has moved through a learning curve during these stages. These
phases are described in detail as follows.
Reluctance and trial. Between 1975 and 1988 Zara focused its expansion in the
domestic market. The maturity of the Spanish market led Zara to search for
international opportunities in 1988. Portugal was an attractive and familiar market due
to its geographical and cultural proximity to Spain. By opening a store in Oporto, Zara
acquired experience and realised that it had to adjust its business model to suit the new
markets (Bonache and Cerviño, 1996; Fabrega, 2004).
Cautious expansion (1989-1996). During this stage Zara expanded into markets
geographically and/or psychologically proximate and with a minimum level of

Push factors Inhibitors Facilitators Pull factors

Saturation Administrative barriers International status Spain joined the EU

Low growth Geographic distance Learning process Economies of scale
opportunities
Changes in consumer Low economic Spreading cost and risk Globalisation
behaviour development
Different seasonality Abolition of economic
Cultural distance barriers
Lack of experience Growth chances
Risk perception Cultural affinities
Information
technologies Table II.
Motives behind Zara’s
Source: Adapted from McGoldrick (1995) internationalisation
JFMM socio-economic development, adding one or two countries per year to its market
13,2 portfolio. In 1990 Zara started operating in France (Paris) a geographically contiguous
country, a fashion capital and a starting point for the later expansion in Northern
Europe (i.e. Belgium and Sweden) in 1994 (Bonache and Cerviño, 1996). Mexico was
added in 1992. This market, though geographically distant, is culturally close to the
home country Spain, and provided with a reference of the South American market.
286 Greece was next in 1993, followed by Malta and Cyprus in 1995 and 1996, respectively.
The exception at this stage is the opening of a store in 1989 in New York, a distant and
very competitive market. It was a strategic decision by Zara to build brand awareness
and international prestige and to get close to fashion trends (Bonache and Cerviño,
1996; Martinez, 1997).
Aggressive expansion (1997-2005). The experience gained in the international
environment made Zara more determined and intent on a rapid global expansion,
regardless of cultural or geographical proximity. Zara started this stage by opening a
store in Israel in 1997. One year later, 1998, Zara entered eight countries, consolidating
its presence in the Middle East with Kuwait, Lebanon and the United Arab Emirates.
Argentina along with Venezuela, Great Britain, Japan and Turkey were also added in
1998. This was followed by nine countries in 1999 (Germany, The Netherlands, Poland,
Canada, Chile, Brazil, Uruguay, Saudi Arabia and Bahrain). Between 2000 and 2003
Zara consolidated its position in the European market as opposed to gaining a foothold
in new countries. The enlargement of the European Union in 2004 justifies the
considerable number of European countries that were incorporated that year. Costa
Rica, Monaco, Philippines and Indonesia were added to the market portfolio in 2005. At
the beginning of 2006 Zara was operating in 59 countries with 852 stores with plans for
more stores in its existing markets in Europe (France, Italy, Germany and Great
Britain) and Asia as the centrepieces of its international operation (Fabrega, 2004).

Market entry strategies

While Zara owns a majority of its stores in Spain, the international expansion has
adopted three different entry modes.
Own subsidiaries. This direct investment strategy is the most expensive mode of
entry and involves high levels of control and risk in case the firm exits the market. Zara
has adopted this strategy for most European and South American countries that were
perceived to have high growth potential and low business risk (Flavian and Polo, 2000).
Joint ventures. This is a co-operative strategy in which the manufacturing facilities
and know-how of the local company are combined with the expertise of the foreign firm
in the market, especially in large, competitive markets where it is difficult to acquire
property to set up retail outlets or where there are other kinds of obstacles that require
co-operation with a local company (Camuñas, 2003). In 1999 Zara entered into a joint
venture with the German firm Otto Versand and benefited from the latter’s experience
in the distribution sector and knowledge of one of the largest markets in Europe. The
administrative barriers in Italy, wherein local traders decide whether an international
brand can operate in a specific city and the amounts of money required for the transfer
of the stores (Expansion, 2001) led Zara to link with Gruppo Percassi, a successful firm
in the property sector, in 2001. The experience of Biti in the clothing sector together
with its knowledge of the property market encouraged Zara to sign an agreement with
this company to enter Japan in 1998 (Castro, 2003). In Germany and Japan the deal was
on a 50-50 joint venture. In Italy Inditex held a 51 per cent investment in Zara. Spanish fashion
However, Zara has recently increased its ownership to 78 per cent in Germany, 80 brand Zara
percent in Italy and 100 percent in Japan.
Franchising. This strategy is chosen for high-risk countries which are culturally
distant or have small markets with low sales forecast like Saudi Arabia, Kuwait,
Andorra or Malaysia (Flavian and Polo, 2000). Zara’s franchisees follow the same
business model as its own subsidiaries regarding the product, store location, interior 287
design, logistic and human resources. However, they are responsible for investing in
fixed assets and recruiting the staff. Zara gives franchisees the chance of returning
merchandise and exclusivity in their geographic area, although Zara has the right to
open its own stores in the same location (Castellano, 2002). Table III presents details of
the market entry strategy in each country. Zara owns 90 per cent of its stores. Since Zara
gained management control of the stores located in Japan, Germany and Italy, such sites
have been incorporated in the group of own stores (Ghemawat and Nueno, 2003).
Once the entry decision is made for a particular country, Zara follows a pattern of
expansion known in the company as “oil stain” (Castellano, 2002): Zara opens its first
store, the so-called flagship store, in a strategic area with the purpose of getting
information about the market and acquiring expertise. The experience guides Zara in
the following phases of expansion in that country (Blanco and Salgado, 2004).

International marketing strategies

At the early stages of internationalisation, the management at Zara was following an
ethnocentric orientation whereby the “subsidiary companies had to be a replication of
the Spanish stores” (Bonache and Cerviño, 1996; Alexander and Myers, 2000).
However, this approach encountered unexpected difficulties in some countries due to
cultural differences. Therefore, Zara decided to move towards a geocentric orientation,
allowing the company to adopt in some cases local solutions rather than merely
replicate the home market. Zara sells a largely homogeneous product for a global
market (Flavian and Polo, 2000). Nevertheless, there are some adjustments to its
product offerings because of the customer’s size differences in Asian countries
(Monllor, 2001), laws issued that require the availability of garments for youths in all
sizes in Buenos Aires (La Opinion de La Coruña, 2006), cultural differences in Arab
countries where some garments cannot be sold, and a different season in the Southern
hemisphere (Euromonitor, 2002). The information gathered by the store guides the
decisions of the design department, which finally produces those garments that can be
sold in all the markets where Zara operates (Bonache and Cerviño, 1996).
Zara’s promotion strategy is the same in domestic and foreign markets.
Advertisement campaigns are carried out only at the start of sales or the opening of
a new store. Zara relies on the store as its main promotional tool. The prices of Zara’s
garments differ between countries, with the Spanish market being offered the lowest
prices (D’Andrea and Arnold, 2003). Prices are set centrally following a
market-oriented strategy. Prices in international markets are generally higher due to
longer distribution channels (Ghemawat and Nueno, 2003).
As in the domestic market, the store location is a critical factor in international
markets. All Zara’s shops are situated in prime locations. This decision is based on an
analysis of the local market environment that identifies the niche opportunities for
Zara’s products in those markets, the price of competitors’ products and the
JFMM
Country Year established Mode of entry Number of stores
13,2
Spain 1975 Own stores 259
Portugal 1988 Own stores 46
USA 1989 Own stores 18
France 1990 Own stores 90
288 Mexico 1992 Own stores 39
Greece 1993 Own stores 38
Belgium 1994 Own stores 18
Sweden 1994 Own stores 4
Malta 1995 Franchising 1
Cyprus 1996 Franchising 3
Israel 1997 Franchising 14
Argentina 1998 Own stores 6
Great Britain 1998 Own stores 45
Japan 1998 Joint venturea 18
Kuwait 1998 Franchising 4
Lebanon 1998 Franchising 2
Turkey 1998 Franchisingb 13
United Arab Emirates 1998 Franchising 5
Venezuela 1998 Own stores 9
Bahrain 1999 Franchising 1
Brazil 1999 Own stores 14
Canada 1999 Own stores 14
Chile 1999 Own stores 5
Germany 1999 Joint venturea 41
The Netherlands 1999 Own stores 6
Poland 1999 Franchising 11
Saudi Arabia 1999 Franchising 16
Uruguay 1999 Own stores 2
Andorra 2000 Franchising 1
Austria 2000 Own stores 8
Denmark 2000 Own stores 4
Qatar 2000 Franchising 1
Czech Republic 2001 Own stores 3
Iceland 2001 Franchising 1
Ireland 2001 Own stores 5
Italy 2001 Joint venturea 36
Jordan 2001 Franchising 1
Luxembourg 2001 Own stores 2
Puerto Rico 2001 Franchising 1
Dominican Republic 2002 Franchising 1
El Salvador 2002 Franchising 1
Finland 2002 Franchising 4
Singapore 2002 Franchising 3
Switzerland 2002 Own stores 8
Malaysia 2003 Franchising 3
Russia 2003 Franchisingb 6
Slovenia 2003 Franchising 3
Table III. Estonia 2004 Franchising 1
Zara: mode of entry and Hong Kong 2004 Own stores 4
number of stores by Hungary 2004 Own stores 2
country, January 2006 (continued)
Country Year established Mode of entry Number of stores
Spanish fashion
brand Zara
Latvia 2004 Franchising 1
Lithuania 2004 Franchising 2
Morocco 2004 Franchising 1
Panama 2004 Franchising 1
Romania 2004 Franchising 1 289
Costa Rica 2005 Franchising 1
Indonesia 2005 Franchising 2
Monaco 2005 Own stores 1
The Philippines 2005 Franchising 1
Total 852
Notes: aInditex has increased its ownership of Zara Japan, Zara Germany and Zara Italy. bZara
started operating in Turkey and Russia through franchising. In 1999 and 2006, respectively, Inditex
purchased Zara’s franchises in both countries
Sources: Compiled from annual reports, press releases, Camuñas (2003), D’Andrea and Arnold (2003),
and Ghemawat and Nueno (2003) Table III.

recommended price to achieve a maximum level of profitability (Bonache and Cerviño,

1996). The shop window display and interior design are prototyped centrally and then
replicated in all international shops by professional store decorators. Hence, Zara
standardises the key strategic elements, namely the location, window display, interior
design, store layout, store display rotation, customer service, information systems and
logistics. The rest of the elements are customised to the market to suit local preferences
(Fabrega, 2004).
Once the location for the store is identified, the next stage is the recruitment and
selection of the company personnel. Initially Zara sent Spanish managers to replicate
the management procedure used in Spain (Fabrega, 2004). Difficulties arose in
countries like Mexico and France (Bonache and Cerviño, 1996) which made Zara
change to a practice of recruiting employees locally to get a better understanding of the
local market preferences (Martinez, 1997). Zara makes a great effort to transfer
know-how in order to share the same corporate values. The Head Office in Spain
controls the subsidiaries to maintain Zara’s concept across its international markets
(Bonache and Cerviño, 1996).

Branding considerations
International retailing is regarded as the transfer of a retail brand with its associated
image across national borders (Brown and Burt, 1992), so branding has an important
role to play in the internationalisation of Zara. Zara has transformed itself from a local
brand to a global brand in less than 30 years. Zara brand was ranked 73rd in the list of
the world’s 100 top brands 2006 by Interbrand, overtaking fashion brands like Hermes,
Prada and Armani. The firm declines to use any kind of identification with its origin
(Monllor, 2001; Ghemawat and Nueno, 2003). Hence, the country of origin is played
down to convey a global image. The fact that the prices of Zara’s garments are higher
in the international market affects its positioning in those countries, and therefore its
brand image (Ghemawat and Nueno, 2003).
JFMM Zara’s main competitors
13,2 Zara’s major international competitors in terms of market share are H&M and Gap, Inc.
This section will first present some background information of the two firms before
offering some comparison with Zara.

H&M
290 Established in 1947 in Sweden, H&M’s business concept is to offer “fashion and
quality at the best price” for men, women, teenagers and children. H&M outsources its
production from 700 suppliers of clothes. The location of its stores, flexibility of its
production and low prices can be identified as the key factors behind H&M’s success.
H&M hires celebrity designers like Karl Lagerfeld and Stella McCartney to
democratise fashion and catch consumers’ attention. The firm churns out 500 new
designs every year that can be purchased from its 1,193 retail outlets located across 22
countries (see Figure 2) and also via mail order or through its website for the Nordic
countries.
The growth of H&M has been marked by the addition of cosmetics and accessories
to the apparel line in 1975, the incorporation of new countries to its market portfolio
and the development of the catalogue and e-commerce, available in the Nordic
countries. Compared to Inditex and Gap, H&M is much more internationalised, with
over 90 per cent of its turnover coming from overseas in 2005, Germany being its
largest market with 27 per cent of the company total revenue. Its expansion has been at
a moderate pace, particularly during the early stages. H&M has been able to
consolidate its position in each of the international markets. Having operated in its
domestic market for 17 years, H&M followed the same expansion pattern as Zara and
Gap, Inc. by selecting international markets based first on physical and cultural
distance to the domestic market and then on economic indicators such as purchasing
power, employment rate and purchasing behaviour. Local information about
competitors, demand and accessibility is also considered.
“A combination of market saturation and entrepreneurial ambition” led the
company to embark on internationalisation, which had two distinctive phases in the

Figure 2.
International presence of
H&M
early stages (Laulajainen, 1991): The first focused on Scandinavia, and the second Spanish fashion
aimed at the UK, Switzerland, Germany and other Germanic countries. H&M launched brand Zara
its international expansion first into neighbouring countries – Norway in 1964 and
Denmark in 1967. Both of them, together with Sweden, are markets belonging to the
zone of cultural similarities labelled as “Nordic Europe” by Usunier and Sissman (cited
in Usunier and Lee, 2005, p. 234). The second phase was initiated in 1976 with the
opening of a store in the UK and later on in Switzerland in 1978 and Germany in 1980. 291
These three markets share cultural affinities and are grouped in the “Anglo-German”
cluster by Kasper and Bloemer (1995). The mix of cultures in Switzerland (German,
French and Italian cultures) made this market a reference point for its further
expansion in those adjoining countries. During the end of the 1980s and the early 1990s
other Germanic countries such as The Netherlands, Belgium, Austria and Luxembourg
were entered. The experience gained over the early stages drove H&M to embark on a
third phase of international expansion. This period has been marked by the quick
expansion into distant and different markets like the USA, Canada, Southern Europe
(France, Spain, Portugal, Italy) and Eastern Europe (Poland, Czech Republic, Slovenia,
Hungary) at the beginning of the twenty-first century, adding at least two more
countries per year.
H&M’s expansion has been mainly through its own subsidiaries. Its plan of opening
stores in Dubai and Kuwait in the near future has led H&M to sign a franchise
agreement, which still keeps the management control within the Swedish company to
ensure the H&M concept across countries. The store location is a key factor in H&M’s
business model regardless of the market, establishing new outlets only in the best
shopping areas. The interior design is prototyped allowing some customised solutions.
In 1997 the former Managing Director of H&M, Stefan Persson, stated in his annual
report that:
When we expand, it is important to listen carefully to the local market. We need to adapt but
not at the expense of losing what makes us who we are.
Hence, H&M’s strategy resembles that of Zara: replication of the same concept with
some local adaptations.

Gap, Inc.
Established in San Francisco in 1969, Gap, Inc. is the world’s largest specialist clothing
retailer, with 3,053 stores in five countries (the USA, Canada, the UK, France and
Japan). This holding company sells clothing, accessories and personal care products for
men, women and children. Like Inditex, Gap, Inc. operates several clothing brands:
Gap, Banana Republic, Old Navy and Forth & Towne. Gap, Inc. outsources all its
production from 1,100 suppliers located in the USA and abroad. Gap, Inc.’s market
growth is based on four strategies:
(1) international expansion;
(2) diversification into accessories and personal care articles;
(3) creation of new brands; and
(4) development of other channel of sales like electronic commerce, launched in
1997 to increase its market share and reach a broader consumer base in the
USA.
JFMM Gap, Inc.’s internationalisation process has been steady and focused on a few countries.
13,2 After operating in the home market for almost 20 years, Gap, Inc. opened its first store
in the UK and Canada in 1987 and 1989, respectively; they are both close markets given
their cultural proximity. During the second phase of its internationalisation Gap, Inc.
expanded into France in 1993 and Japan in 1995 despite their geographical and cultural
distance. The experience acquired earlier and the attractiveness of these two markets
292 were the main driving forces. After operating in the German market for ten years, the
unsatisfactory results in sales led Gap, Inc. to withdraw from that market in August
2004 (Wells and Raabe, 2005). Gap’s future expansion markets have been identified in
Asia and the Middle East. International sales accounted for 15 percent of the firm’s
total turnover in 2005.
Own subsidiaries have always been the mode of entry adopted to operate in the host
markets. However, its willingness to establish itself in five markets in the Middle East
(United Arab Emirates, Kuwait, Qatar, Bahrain and Oman) and in Singapore and
Malaysia in the near future has led Gap, Inc. to consider franchising as the strategy to
expand into these smaller, culturally distant and high business risk countries.

Comparisons between Zara and its competitors

Table IV presents detailed comparisons between Zara and its two competitors. The
main distinctions are as follows:
.
While Zara controls its entire production chain, Gap, Inc. and H&M outsource all
their production. Zara’s vertical integration enables the firm to have a faster
turnaround than its competitors.
.
Product and geographic diversification has been used by the three clothing
brands as their main directions for growth. Gap, Inc. and H&M have also
developed new channels of sale. The development of electronic commerce sets
Gap, Inc. and H&M apart from Zara, which does not offer its products online.
.
Gap, Inc. has focused mainly on the home market, international sales accounting
for merely 15 percent of its turnover in 2005. H&M’s expansion strategy is
characterised by developing and reinforcing its business system in each country
entered. Zara has a wider international presence in comparison to both Gap and
H&M, having become a truly global company in a shorter period of time.
.
The international expansion of Gap and H&M has been largely organic. In
contrast, Zara has used franchising and joint ventures as entry strategies. The
expansion pattern of all three brands is marked by the physical and cultural
proximity of the international markets.
.
Advertising is a strong communication tool for both Gap, Inc. and H&M, while
Zara hardly advertises. All three make some adjustments to their product
offerings to satisfy the needs of local consumers. The location of the store is a key
principle of the H&M and Zara business models.

Conclusions
Zara is a successful international retailer which, in less than 30 years, has transformed
itself from a Spanish local brand into a truly global brand. This paper seeks to improve
our understanding of the firm. The research has examined the internationalisation
process of the firm with a special focus on motives, entry options and international
 Inditex-Zara Gap, Inc. H&M
a
Net sales e6,741m (Inditex) e12,700m e6,562m
a
International sales Inditex: 57 per cent 15 per cent 91 per cent
Zara: 69 per cent
Global reacha Inditex: 2,692 stores in 62 countries 3,053 stores in five countries 1,193 stores in 22 countries
Zara: 852 stoes in 59 countries
Internationalisation Extensive and quick international Slow and focused internationalisation Consolidated expansion and at a
expansion strategy moderate pace
Business model High degree of vertical integration Partial vertical integration. Control over Partial vertical integration. Control over
design, distribution and sales. design, distribution and sales.
Production is outsourced Production is outsourced
Production Own production facilities. Control over Outsourced from 1,100 suppliers Outsourced from 700 suppliers
production chain
Electronic commerce No online shopping facility Online shopping facility for US Online shopping facility and through
customers mail order in the Nordic countries
Promotion Lack of advertising, only 0.3 per cent of 3-3.5 per cent of turnover spent on 4 Per cent of turnover spent on
turnover. The store is its main advertising advertising. The store is its main
promotional tool information tool
Business areas Clothing, accessories and cosmetics Clothing, accessories and personal care Clothing, accessories and cosmetics
Brand portfolio of the new Zara, Kiddy’s Class, Pull & Bear, Gap, Banana Republic, Old Navy, Forth Single format
company Massimo Dutti, Stradivarius, Bershka, & Towne
Oysho, Zara Home
Branding strategy of the Brand development and brand Brand development and brand N/A
parent company equilibrium acquisition
Notes: aData refer to 2005. The Inditex fiscal year is from February 1 to January 31 of the following year. The Gap, Inc. financial year is a 52- or 53-week
period ending ion the Saturday closest to January 31. The H’M financial year is from December 1 to November 30 of the following year.
Sources: Compiled from annual reports, Alonso (2000) and Ghemawat and Nueno (2003)

Inditex-Zara and
Spanish fashion

competitor data, 2005

brand Zara

293

Table IV.
JFMM marketing strategies. The main drawback that arises in a single case study is that of
13,2 limited validity and representativeness, which constrains the potential for making
generalisations (Creswell, 1998). Another limitation is that the study was based solely
on secondary data. However, this case is deemed adequate to provide good insight, and
establish the avenue for future studies.
Although the paper has made some preliminary comparisons between Zara and its
294 two main competitors, a more thorough comparative study of all three firms would
reveal what is being internationalised: management expertise and systems? Innovative
technique or strong retail brands (Brown and Burt, 1992)? Two areas are of particular
interests in the further study, namely the linkage between entry strategies and the
degree of standardisation, and the relationship between retail brand image and
positioning in different markets.

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About the authors

Carmen Lopez is a doctoral student at Brunel University, West London. Carmen holds a MSc in
Marketing from the University of Stirling and has over three years’ experience working in the
advertising industry, both in Spain and in Ireland. Her PhD topic aims to investigate the
influence of corporate image on country image.
Ying Fan is a Senior Lecturer at Brunel University in West London. He has held faculty
positions at the Universities of Durham, Hertfordshire and Lincoln. Dr Fan has published over 50
papers relating to marketing and international business. He is currently undertaking research on
nation branding in relation to emerging Chinese multinational companies.

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