Why H&M Struggles while Zara Thrives: Because Zara Knows the HENRYs
Fast fashion is the darling of the fashion retail industry today. According to the Business of Fashion and McKinsey & Company’s State of Fashion 2018 report:
“Sales of the traditional fast fashion-sector have grown rapidly, by more than 20 percent over the last three years.”
That makes fast fashion the breakout segment in the fashion market. It is also trouncing the premium and mid-tier fashion sectors in online activity, according to an analysis by Hitwise.
When people talk fast fashion two brands immediately come to mind: 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 more than twice as fast a H&M. Inditex is up 7 percent through third quarter 2018 in local currencies as compared with H&M’s 3 percent rise in 2018.
Further, with some 5,000 stores worldwide, H&M has been steadily closing stores, 170 last year and another 160 this year. Currently it operates 578 stores in the U.S., and while it hasn’t announced the number of stores it will close in the states, the company did report that the U.S. is a “challenging” market. Zara, on the other hand, operates about 300 stores here out of some 2,200+ stores worldwide.
In studying these two oft-compared brands, the essential differences revolve around their overall approach to marketing. H&M is still fixed on the old 4Ps of marketing model—Product, Price, Promotion and Place—where the company and the brand is the focus.
By contrast Zara has evolved to the new 4Es of marketing strategy—Experience replaces Product; Exchange is new Price; Evangelism is now Promotion; and Every Place is new Place—that puts the customer at the center around which the company and brand revolve.
With its evolution from the 4Ps to the 4Es marketing approach, Zara excels by pulling customers into the brand, unlike its closest competitor H&M, which remains fixed on pushing its brand and product out to the customer.
The one (Zara’s 4Es approach) is a formula for success, while the other is one for failure with the next-generation customers that matter most to both brands: the millennial HENRYs (high-earners-not-rich-yet) looking for cutting-edge fashion at affordable prices.
Learn how to put the 4Es of marketing to work for your brand
Discover what millennial HENRYs love about brands, like Zara
For Zara, 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.
Shelley E. Kohan, assistant professor Fashion Institute of Technology, and I talked about the Zara difference and why it is so important to the HENRYs with incomes between $100k-$250k, the millennial shoppers with more money. And given their high educational attainment and professional-tracking careers, they have the greatest prospects to earn much more in the future.
For Zara experiences replaces product
In retail, product used to be king, but not anymore. In the new economy, experience matters more than product in the mind of HENRYs. Zara understands this.
“While Zara is an excellent purveyor of product, it also capitalizes on the store experience by continuously offering reasons for customers to visit the stores and catch the hottest trends at affordable prices,” Kohan explains, noting that Zara has cultivated a loyal customer who visits about six times per year, as compared to other retailers in the contemporary market where two to three visits per year are the norm.
The fast-fashion experience formula for success combines frictionless 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,” she says. “Zara nails that.”
Zara exchanges with customers 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,” Kohan states. “Retailers must adapt to the changing consumer where the top characteristic is value. Today, value is measured beyond price, but also in time and convenience.”
Zara has a deep understanding of the entire value proposition it exchanges with the customers. Its fast-fashion deliverable is available in the quantity, format and time in which the customer needs the product. That translates into great value.
“Branded value aligns customer’s needs with a brand deliverable,” Kohan stresses. For example, the most loyal customers for retailers typically account for 80% of the sales. These brand loyalists are also less price sensitive. “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,” she emphasizes.
Zara masters the concept of exchange as it is not the cheapest in the fast-fashion arena, but it consistently delivers branded value of trend-right product at appealing prices.
Zara creates brand evangelists
By making the brand experience meaningful and the exchange valuable, Zara taps the potential of its customers to evangelize the brand. Rather than push marketing out, Zara pulls customers in, cultivates them as brand influencers to improve operations, services and products and stimulates them to spread the word.
“Shopper frequency at Zara is 2x to 3x higher than traditional women’s apparel, which indicates super loyalty to the brand,” Kohan says. These loyalitsts become brand evangelists who share excitement about the brand with their networks. Zara, for example, has over 25 million Facebook followers, 16 million on Instagram and over one million in Twitter.
Zara has a highly evolved data infrastructure, Kohan also notes, 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,” she says.
Zara is every place the customer needs it to be
Personal commerce is the every place where the customers are, rather than only in the physical place the brand is present. This is the new distribution model for retailers today: Delivering the brand experience and products when and where the customer demands it. Zara does that for them.
“Zara has devoted significant time, money and resources to develop a synchronized strategy between online and offline commerce,” Kohan explains. Through this technology and mobile connectivity, it links a customer’s shopping visit and provides access to inventory not present in the specific location. “It is a big win for both the customer and the company,” she says.
And the company’s store 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),” Kohan says.
Zara is all about the customer
Zara has cultivated unique advantages with its 4Es approach to marketing by focusing on experience, exchange, evangelism and every place strategies for the customer, rather than the old product, price, promotion and place concept focused on the brand. “As the brand ethos is so embedded in the customers’ mind, the customer becomes the brand manager,” Kohan explains.
In 2016, the service agents responded to more than 17 million customer inquiries, Kohan found. “Zara actually listens and reacts to customer feedback as its most valuable brand asset to improve its products and services, ” she says.
Further, Zara focuses on its own people with corporate initiatives on diversity, respect, equal opportunity, work-life balance and professional development. Zara fosters a highly-engaged workforce that translates into highly-engaged interactions with customers. Additionally, over 60% of the Inditex workforce is 30 or younger thus aligning with the target market of the brand.
“The result is the customer and the company work cooperatively together so that the Zara customer becomes the Chief Customer Officer providing feedback on all aspects of the business,” Kohan concludes. This is a fundamentally different alignment than brands using the 4Ps approach to marketing operate. Today the customer, not the company, calls the shots. Zara involves the customer interactively in the decision-making process. That is the Zara difference.
Help marketing to millennial HENRYs
This subset of the largest generation of Americans, HENRYs earn between $100K and $250K–the income cohort that accounts for 40 percent of all household spending, yet make up less than 25 percent of households. As a result, they are critical for the success of brands as diverse as Walmart and Gucci, both of which are profiled in my new book Meet the HENRYs: The Millennials that Matter Most for Luxury Brands.
In it, you’ll get a deep-dive into the steps the smartest of the emerging disruptive brands and retailers are taking to keep up with a new generation of consumers who are anything but traditional in their approach to spending.
Learn about the new luxury that resonates with millennial HENRYs
Luxury is in the eye of the beholder and millennial HENRYs look at luxury in a very different way than generations before them.
“HENRYs status symbols are less about traditional high-end luxury brands and more about brands that express one’s values and identity,” Danziger explains. “Think a Mini-Cooper, rather than a Mercedes; or a Filson messenger bag, rather than one by Louis Vuitton; or a Shinola Runwell watch, instead of a Rolex.”
Practical Advice that You Can Use
In addition to explaining why HENRYs are the customers to watch and learn from, Danziger reveals 15 qualities and types of luxury that appeal to these younger trend-setting HENRY shoppers and gives examples of products and brands that have tuned into these new approaches to luxury.
Here are THREE to consider:
- Create-Your-Own Luxury – While Baby Boomers were once knows as the “Me Generation,” the millennials have taken it to a whole new level. They are a generation raised on self-expression about everything, including their skin in the form of tattoos. Interior Define, the digitally-native furniture brand that has now broken into the physical retail space, allows customer to fully customize their furniture’s design online with each piece made-to-order. Now with showrooms called Guide Shops, Interior Define seamlessly blends the power of the internet and person-to-person retail in a non-pressure, comfortable environment.
- Luxury of Convenience – Helping HENRYs navigate their busy, multi-tasking lives is the appeal of the emerging subscription model. From brands like Ipsy and Birchbox in beauty, Harry’s and Dollar Shave Club for men’s grooming, StitchFix and Trunk Club for clothes, subscription-based marketing is a way to grow a business with a loyal customer based that can be counted on for a steady stream of repeat business. But before joining the club, brands need to look out for pitfalls in subscriptions.
- Collectible Luxury – Collecting of art and antiques has long been a passion for the wealthy. Now HENRYs are adopting the collecting lifestyle with a twist. They aren’t looking at collectibles as an investment, but as a form of personal expression, like with ALEX AND ANI jewelry with symbolic charms. Made-in-America and crafted from environmentally-sustainable materials, each ALEX AND ANI piece is infused with “positive energy,” and priced starting at $30, a woman can stack a collection of personally-expressive bracelets worth a thousand dollars on her arm but bought in $28 increments.
In addition to the many examples of how innovative break-through brands are tapping into these values in response to this new generation’s thirst for luxury products and experiences, this road map to the future of the luxury market will leave you with SIX transformative approaches to brand positioning that will help you create a brand that HENRYs love.
(272 pages, paperback, ISBN 978-194168-858-8; January 2019)