Pamela N. Danziger is an internationally recognized expert specializing in consumer insights for marketers targeting the affluent consumer. She is president of Unity Marketing, a marketing consulting firm she founded in 1992. In a recent blog post, she discusses the fast-fashion rivalry between H&M and Zara.
Battle of the Fast Fashion Giants: Why Zara Wins, H&M Loses
Fast fashion is the darling of the fashion retail today. Whereas women’s clothing store sales have declined 2.7% from 2016-2017 in the U.S., a recent report from Hitwise shows the fast fashion market has grown 21% worldwide over the past three years.
Two brands are the leaders in the fast fashion market: H&M and Zara, an Inditex brand. Given that both are international brands, it’s hard to draw line-by-line comparisons for the U.S. market. But here is what you need to know. Zara is growing twice as fast a H&M, up 8% as compared with 4% from 2016-2017. H&M operates 536 stores in the U.S., while Zara operates about 300 stores here out of some 800 Inditex brand stores in the Americas.
FIT Assistant Profession of Technology Shelley E. Kohan and I shared our perspectives on the two brands and why Zara is doing so much better than H&M while operating in the same basic segment. Our conclusion: H&M hasn’t evolved beyond the 4Ps model of marketing – Product, Price, Promotion & Placement – while Zara is operating under the 4Es model in line with the expectations, wants and needs of today’s customers. For Zara, Experiences have replaced Product; Exchange is its Price; Evangelism is how it Promotes and Everyplace is where it’s at.
H&M Still Thinks Product Is King; Zara Knows It’s Experience
In the new retail economy, experience matters more than product in the mind of the shopper. H&M has an overabundance of product to worry about, including a reported stockpile of $4.3 billion of unexciting, uninspired, unsold inventory. All that unsold product clogging up the stores needs tending. They are a mess.
Zara, by contrast, understands that customers want to experience shopping, not just buy products. Zara is an excellent purveyor of product, but also capitalizes on the store experience by continuously offering reasons for customers to visit the stores and catch the hottest trends at affordable prices. Zara has created a loyal customer whose visit frequency is about six times per year, as compared to other retailers in the contemporary market of two-three times per year.
The fast fashion formula for success combines frictionless, expeditious shopping in a highly curated product environment offering scarce supply and new styles that rotate rapidly. The more quickly and efficiently a customer can navigate through the store to explore and find hidden gems, the better the experience. Zara nails that, while H&M requires the shopper to work hard to find what he or she wants.
H&M Focuses on Price; Zara on Exchange for Value
The old pricing formula, “Pile it high, sell it cheap!” worked well through the 20th century, but in the new experience economy, it has been replaced by the concept of exchange.
Exchanging dollars for product is no longer meeting the needs of today’s shopper as they strive for deeper connections with the brand. Retailers must adapt to the changing consumer where the top characteristic is VALUE=Time, Money and Convenience.
Value is, of course, in the eye of the beholder. H&M’s solution to its overstock problem is so old-school; a chainwide fire sale is planned to rid it of its excess inventory. But with cheap prices being one of its primary appeals for customers, how much lower can it afford to go to keep its “good fashion at a reasonable price” brand positioning intact?
Zara, on the other hand, has a deeper understanding of the entire value proposition it exchanges with the customers. Today, value is measured beyond price, but also in time and convenience. In Zara’s case, the fast fashion deliverable is available in the quantity, format and time in which the customer needs the product. Zara expedites shopping for those in “great need” of time thereby creating great value while at the same time, exposing shoppers to an environment that allows for high engagement. That translates into great value.
Branded value aligns customer’s needs with a brand deliverable. For example, the top loyal customers for retailers typically account for 80 percent of the sales. These brand loyalists are also less price sensitive so strategies around tit-for-tat pricing, like H&M’s, will never win. Appealing to the loyal segment of the target market, like Zara does, allows for higher profit margins and caters to customers who seek out branded value.
Zara masters the art of branded value for their customers as they are not the cheapest in the fast fashion arena but they consistently deliver branded value of trend-right product at affordable prices. H&M still thinks in terms of product-price.
H&M Pushes Its Promotions; Zara Evangelizes
By making the brand experience meaningful and the exchange valuable, brands can tap the potential of its customers to evangelize the brand. It requires brands to create individual brand evangelists that will spread the word. It is the highest mark of engagement and the ultimate influence in the new expression of pull, rather than push marketing. It’s activated through content marketing, social media, traditional public relations, influencer blog posts, and through good, old-fashioned word-of-mouth marketing.
H&M is wedded to the idea of traditional paid advertising and push-marketing strategies centered around capsule collections by outside designers. Today these strategies have become tired and formulaic. Its most recent collection by UK-based Erdem was a dud, despite being a designer brand favored by Kate Middleton, the Duchess of Cambridge.
Further, in January, H&M found itself in a hornet’s nest of bad publicity and social media outrage when it featured a young black boy modeling a sweatshirt emblazoned with “Coolest Monkey in the Jungle.” In less than 24 hours it had over 18,000 retweets and 23,000 likes, or rather dislikes, as people were incensed by the insensitivity of the brand. Negative social media spreads like wild fire and can be the death of a brand.
Rather than push, Zara pulls its customers and cultivates them as brand influencers to improve operations, services and products. They become brand evangelists who share excitement about the brand with their networks. Shopper frequency at Zara is 2x to 3x higher than traditional women’s apparel, which indicates super loyalty to the brand. Active utilization of social media by the customer base further drives loyalty and a connection to the brand.
Zara has a highly evolved data infrastructure that allows for super-efficient analysis of what’s selling and being said on social media platforms. This data is used to improve various aspects of the business from product offerings to service enhancements. The two-way communication between the customer and Zara allows for continual improvement of product and services.
H&M Thinks Place; Zara Is Everyplace
Personal commerce is every place where the customers are, rather than only in the place the brand is physically present. This is the new distribution model for retailers today: Delivering the brand experience and products when and where the customer demands are key.
H&M has been slow to migrate sales online and sees a fix for the company in expanding its online presence. But that will fix only a small part of its problems. Its real estate strategies, at least in the U.S., have been uninspired and heavily weighted toward malls where over 80% of its stores are located. With some 536 U.S. stores, H&M faces off with all the other mall-based fashion retailers finding it increasingly difficult to gain traction in an already crowded market.
Zara, by contrast, is way ahead in its every place strategies. It has devoted significant time, money and resources to develop a synchronized strategy between online and offline commerce. Linking a customer’s shopping visit and providing access to inventory not present in the specific location allows shoppers to be in charge of their chosen destinations. It enables mobile connectivity as the conduit across various commerce channels and its mobile payment systems ease transactions on the customer’s own terms. It is a big win for both the customer and the store staff.
And its precise location strategy is another aspect of its every place factor. It currently operates in 2,213 stores across 93 markets and 39 online markets. The flagship locations are located in the most critical markets that appeal to their most loyal shopper. Zara has the courage to continually strengthen their portfolio of stores by closing unprofitable ones, opening new markets, and expanding sister brands in existing markets (Zara Home, Massimo Dutti).
It’s Not About the Brand (H&M), but About the Customer (Zara)
Under the old 4Ps school of marketing, everything focuses on the company and the brand – its Product, its Price, its Promotion, its Place. In the new 4Es approach to marketing, it is all about the customer – Experiences for the customer, Exchange with the customer, Evangelism through the customer, and being Every Place for the customer. In essence, the customer becomes the brand manager.
It’s the unique advantage that Zara has over its competitors, chief of which is H&M. Zara actually listens and reacts to customer feedback as its most valuable brand asset to improve its products and services. In 2016, the service agents responded to more than 17 million customer inquiries. Zara’s foundational principal of focusing on people with initiatives on diversity, respect, equal opportunity, work-life balance and professional development further fosters a highly engaged workforce that translates into highly engaged interactions with customers. Additionally, over 60% of the Inditex workforce is 30 or younger aligning with the target market of the brand.
The result is the customer and the company work cooperatively together with the result that the Zara customer becomes the Chief Customer Officer. In other words, Zara includes the customer in the decision-making process, whereas H&M dictates the decisions down to the customer, like in the old days when designers dictated fashion trends for the customer. But now the consumer calls the shots. Zara gets it, but H&M still has to learn it.