Zara, H&M, Benetton and Gap Firms’ Retail Strategy Coursework

Retail Strategy Exercise and Financial Reports

Comparison of the manufacturing, pricing, and merchandise strategy of Zara, H&M, Benetton, and Gap.

• Manufacturing: Benetton manufactures its products in its plants in its European and Mediterranean plants and its Asian plants. It procures a few of its products from independent suppliers. GAP follows complete sourcing of the products model. GAP designs the products and procures them from suppliers and GAP markets and supplies the product. International vendors account for approximately 97 percent of the production outside the US (with around 24 percent from China) and 3 percent production in the US (GAP). It has no manufacturing plant of its own. Zara is a part of Inditex which is a fashion distribution group. Its model of business is sourcing textiles for production and then giving them for manufacturing at third-party plants and then procuring the finished products (Inditex). Zara sources half of its products from third-world countries from low-cost manufacturing set-ups and the other half is designed and manufactured at nearby plants (Kumar). H&M too follows a procurement model of product manufacturing. They design their products in-house. The required textiles are then sourced to third-party plants. But they have an in-house quality control team that ensures the quality of the products sold under the H&M brand name.
• Pricing: Zara’s pricing varied across international markets. The prices of its products were set according to individual market conditions, rather than using cost plus margin as its basis. For instance, in Spain, Zara products were low-cost, while in the US, Japan and Mexico, they were priced as luxury fashion items. GAP’s pricing strategy was to provide affordable fashion merchandise at affordable prices in order to provide value to customers (GAP). H&M follows the GAP pricing strategy with price tags affordable by customers for the luxury branded products that they offered (Larenaudie). On the other hand, Benetton provided fashion merchandise at higher prices in comparison to its competitors Zara, H&M, and GAP.
• Merchandise Strategy: The merchandising strategy of retail strategy indicates the market segment to which the product is to be sold and how the product is displayed in the retail space i.e. visual merchandising of the product on the shop floor. In this section, we discuss the merchandising strategy of the four retail brands: Zara, GAP, H&M, and Benetton.
• Zara: Zara’s retail outlets provide new products twice a week (Zara). Zara’s designs are based on capturing the fashion trend and inclinations of its customers. The brand has a broad market target because they do not define their target by segmenting ages and lifestyles as traditional retailers do. Zara’s target market is a young, educated one that likes fashion and is sensitive to fashion. Zara’s distribution channel is based on franchises and company-owned retail stores. Visual merchandising of its products is important for the brand as this way it cuts 3-4 percent of its advertisement cost. Zara relied on its shop windows to communicate its brand image. Displays were changed regularly, according to designs sent by headquarters, and were critical for Zara to remain visible and entice customers. Store locations were generally busy, prestigious, city center shopping streets.
• H&M: The market that H&M targets for its products are low price, high fashion end of the clothing sector—and is closely attuned to what mainstream consumers want. It enjoys a strong following among women, particularly those in younger age groups, who make up the majority of its customers. By selling a broad range of fashionable collections which are renewed frequently, by offering attractive prices, and by maintaining a strong presence in prime shopping locations, H&M has ensured that its stores enjoy a steady flow of customers. The brand has a strong appeal among less than 25 years customer group. The in-store strategy adopted for visual merchandising depicts the brand’s “fast fashion” image. The retail image shows fresh styles and is in tune with time.
• Benetton: Benetton focuses mainly on quality, breadth of product range and merchandising, customer service, store ambiance, and sales and marketing programs (Benetton). The Group also competes to secure prime retail sites and the best lease and purchase conditions. The target customers of the brand are women, men, children, and underwear collections offer a total look for every day, for work and for leisure, in the city and outdoors (Benetton). It targets no specific demographic segment. It caters to the market of fashion leisure apparel.
• GAP: Target customers are young, below 25 men and women. They target the casual wear section of the market. The stores reverberate with the typical GAP atmosphere with hip and trendy looks which change with every season (GAP).

The key factors of the success of the leaders in the industry

The key factors for success in the retail industry where players like Benetton, H&M, GAP, and Zara are operating are

1. Cost-effective production of merchandise: Procuring quality products at the least possible cost from international markets is an utmost priority of these companies and a source of competitive strategy.
2. Effective Supply-chain management: Since the market demands are high and ever-changing, the supply chain needs to be seamless so that products can be made and trends altered within days.
3. Marketing Mix: Building a strong brand image among the target customers is a priority. Being in the fashion business, brand-building exercise is an inevitable prerequisite for success. Pricing of the product as per the target market is very important, and designing the product as per the taste of the target group is important.
4. The fast-moving retail industry enforces the necessity of changing the trend of clothes every season. This has become an important factor that drives customers and the profitability of the business.

Other brands which fall in this category are Giordano, Target, and Diesel. All these brands target the same market segment as Zara, Benetton, GAP, and H&M. they follow the same supply chain model of procuring low-cost products by exploiting the low-cost manufacturing plants in third-world countries. Their offerings are similar in nature. The prices at which they are offered are almost the same.

Comparison of the sales growth of Zara and H&M over the past three years.

The sales growth of Zara (Inditex) and H&M (H&M) since 2005 is shown in table 1. The figures in the table show that the percentage of sales increased from 2005 till 2007. Sales growth is calculated as the increase of sales of this year vis-à-vis sales of the previous year. The data shows that Zara has experienced a decline in sales growth figures over the last three years. The sales growth figures have fallen from 21 percent in 2005 to 15 percent in 2007. Whereas, in the case of H&M there has been an increase in sales growth from 2005 to 2007, from 14 percent to 15 percent.

Table 1: Sales Growth (%)

The historic percentage of net income to sales in Zara, H&M, Benetton, and GAP is shown in the table below. Table 2 shows the percentage of net income to sales for the four retail companies. The net income sales ratio for 2007 for Zara is 13 percent, for H&M is 23.5 percent, for GAP is 8.3 percent, and that of Benetton is 11.66 percent. Clearly, the best profitability ratio of the four retailers is shown by H&M, Zara, and Benetton being close followers.

Table 2: Net Income to Sales

For this, we first review the growth of sales for H&M, Zara, and GAP for the past three years. In table 3, we see that the percentage of growth of both Zara and H&M are positive but that of GAP is negative indicating a decline in sales. Clearly, from the growth point of view, H&M and Zara are performing much better than GAP.

Table 3: Sales growth (%)

Further, if we consider table 2, we see that the income sales ratio of GAP is lesser than that of Zara and H&M. further, that of GAP has been constantly declining since 2005, whereas that of H&M and Zara has been increasing over the period of last three years.

Hence, it can be concluded that the performance of GAP is declining and is much lower than that of H&M and Zara.

Bibliography

Benetton. United Colors of Benetton. 2008.

GAP. “Annual Report.” 2007. GAP Inc.

H&M. Five-year summary. 2008.

Inditex. Financial data. 2008. Web.

Kumar, Nirmalya. “Zara: Spanish season.” 2007. Businessworld.

Larenaudie, Sarah Raper. “Inside The H&M Fashion Machine.” 2004.

Zara. Fashion. 2008.