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CASE STUDY#1:

H&M and Zara - The differences between the two successful brands.

H&M and Zara appear to compete in the same space in the market, but a dig into our retail data platform shows the clear difference in pricing, replenishment and discounting. The clash of the retail giants continue. As of 2019, H&M's brand value is approximately $15.9bn, a 16% drop from $19bn in 2018. Zara is currently sitting at a brand value of $18.4bn. Both retailers have a global vision and are market leaders in affordable fast fashion, but the shopping experience and product is greatly different. H&M and Zara have very different strategies when it comes to the weighting of their offering. The bulk of H&M's assortment is women's wear, which is actively communicated in its advertising while menswear takes a backseat. While Zara's women's wear assortment gets plenty of promotional coverage, its assortment breakdown is very balanced across segments. These weightings suggest that Zara and H&M are competing for and pitching at different consumer types. While H&M's predominant consumer is shopping for women's wear, the Zara customer could be more mature and shop across the breadth of the retailer's offering for his or her partner and children.

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H&M has a bigger online offering, with currently over 4,000 more women's wear options than Zara. The pricing strategy at the two retailers varies dramatically. H&M's women's apparel pricing spans from $2.99 for a short camisole top to $349 for a cashmere-blend coat. Meanwhile, Zara's pricing ranges from $5.90 for a cropped top to $219 for a belted coat. Although the cashmere coat pushes up H&M's current exit price, its average price still comes in below Zara at $27.61 compared to $40.46. What's telling is the price point which each invests in most. At H&M nearly half of the women's wear sits in the $1-$20 bracket, whereas Zara's most optioned price point is $20-$40, also representing 49% of their products. The different pricing structures are visible when comparing two of the most competitive categories: women's wear tops and dresses. H&M's most optioned price bracket in tops is $0-$20, whereas Zara's is $20-40. With two distinct pricing categories for tops in the market, customer purchases will depend on product type, quality and detailing. Analyzing the structuring around dress price points reveal both H&M and Zara give products priced $20-40 the most weighting at 55.2% and 37.1% respectively. H&M then favors lower price points and eases off on the $40-$60 and $60-$80 brackets, which Zara give equal weighting. The $60-80 price point has been a sweet spot for Zara this year with the viral success of the infamous spotted dress priced at $69.90.

Discounting strategy is one of the most defining differences between the two retailers. H&M currently have 21% of its entire online offering on discount, with 39% discounted between 50-60%. Zara, in contrast have 6% of its online offering discounted - a much subtler approach, and only 9% of the offering discounted by 50% or more.

Replenishment is another area of marked difference between the two retailers. Over the years, Zara has evolved its strategy in line with its competitors by ramping up its replenishment rate with continued investment in its top-performing styles. 26.4% of Zara's current range has seen replenishment compared to 17.6% at H&M. At both, women's wear is the most replenished segment.  

Analyzing new product arrivals compared to other retailers shows a high and frequent level of new product drops at Zara. Ensuring a low rate of discounting combined with consistent newness equals a rapid product sell out. We can prove this with EDITED data, which reveals the speed at which Zara women's wear experiences sell out is an average of 63 days, outpacing H&M at 119, Forever 21 at 168  and Top shop at 85. Evidently, Zara doesn't slow its processes with mass restocking. Instead, it focuses on replenishing the hero items (such as the spotted dress which has been restocked three times online in the US and is still selling). Taking this approach requires the design and buying teams to work very harmoniously, as there are many risks associated. For Zara, however, this is a winning formula.

The way each retailer communicates its brand is very different. H&M is known for collaborations with designers such as Giambattista Valli, Alexander Wang, Moschino, and more, while Zara works with fashion insiders to endorse its products. Despite brands and retailers worldwide increasingly incorporating Instagram influencers within their marketing communications to gain exposure to a broader audience and Make a community. H&M and Zara were late to this party. It wasn't until this year, both brands tapped into influencer marketing to promote its product. Zara launched a collaborative Instagram a..;@livingzara. Each week, a new influencer takes over to create content featuring items available to shop directly from Instagram. H&M got onboard by hiring 22 influencer ambassadors, the #HMLEAGUE, to create content wearing the brands clothing. Comparing email newsletters, Zara strikes an equal balance between its women's, men's and kid's collections while H&M focus predominantly on advertising women's wear. And much like the discount percentages revealed above, Zara takes a softer approach to sales periods. Its minimal and understated branding is consistent in communications, whether promoting a new launch or a percentage off - discounts are never communicated with splashy red campaigns. H&M, however, isn't shy of pushing aggressive sales with the bold red banners associated with slashed prices.

a. What do you think sets ZARA apart from other retailers in the market?

b. Zara strategically splits its focus across all three channels. Is it a sign of confidence and clarity? Or perhaps an overly broad vision?

Please answer as soon as possible. very urgent. Thank you.

Course: BBA

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Category breakdown at H&M vs. Zara
Based on products available in the US on 19 Aug 2019
Childrenswear
Childrenswear
28%
33%
Womenswear
Womenswear
46%
54%
Menswear
Menswear
13%
26%
H&M
Zara

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