To fully understand the world of fashion you need to go back to the 1960s, when French and Italian haute couture houses transformed what was a local boutique industry into a global market. Zara’s initiative represents the latest disruptive move in an industry where business models are constantly being innovated. They are such a force to be reckoned with that everyone else has to compete on their terms. We have seen this with the emergence of value retailers such as Wal-Mart and no-frills airlines such as Southwest or Ryanair. Like a stellar black hole, the low-end competitor creates such a dominant price-benefit position that it literally swallows up the positions around it. The deterioration is caused by a competitor at the low end of the market who creates a dominant low- price-and-benefit position that expands the market share of the low-end of the market.
Zarafication is an example of a commoditization phenomenon I label deterioration. But as the middle-price-point brands change their strategies, the effect cascades to the very top designers, forcing everyone in the industry to shape a response. On European Main Streets, the arrival of Zara, with its combination of high fashion and low prices, first puts pressure on mass-market and mid-priced competitors. Korea, Ukraine and Montenegro are recent additions to Zara’s seemingly endless expansion. Zara now has 1,341 stores in 73 countries. In contrast, in the United States, Zara is positioned as a mid-priced retailer, reflecting the costs of exporting goods from Spain. In Europe, Zara uses new mass-production processes and sourcing strategies to offer imitations of designer products at a low price shortly after their release.
Leading the charge is the Spanish retailer Zara, owned by Inditex. The fashion industry is being transformed, as once-valuable brands find themselves being increasingly commoditized. Faced with such a situation what can and should managers and organizations do? Research on the fashion industry provides valuable lessons for fighting commoditization. Increasing competition and the economic downturn have fuelled a shift to value, increased the emphasis on lowering prices and undercutting the competition.
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