Zara Extension into Fashion Hotel Industry (5 Star) Hotels in China

Zara Extension into Fashion Hotel Industry (5 Star) Hotels in China

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Executive Summary

Zara is the world's largest fashion retailer for men, women, and children clothing. Its success in the global markets has shown its potential for success in China, as it has succeeded in other markets. 

Given the growing number of high net worth individuals in China and the decreasing customer-base for luxury hotels, Zara can use its experience to integrate fashion and hotel services to come up with a fashion hotel chain. 

 

Table of Contents

Executive Summary 2

1. Introduction 2

2. Environmental Analysis 2

Political 3

Economic 4

Social 4

Technological 4

Legal 4

Environmental 4

2. b. Competitor Analysis 4

2. c. SWOT Analysis 5

Strengths 6

Weaknesses 6

Opportunities 6

Threats 6

3. Understanding the Market 7

3. a. Segmentation 7

3. b. Targeting 8

3. c. Positioning 8

4. The Marketing Mix 9

People 9

Product 9

Price 10

Place 10

Promotion 10

5. Conclusion 10

6. Appendices 11

Appendix 1: Zara’s revenue 11

Appendix: Email marketing strategy for China 11

7. References 12

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1. Introduction 

Zara is the world's largest fashion retailer for men, women, and children clothing, was founded in 1975 by Amancio Ortega, and it has grown into a big chain (Zara 2020). Currently, Zara owns over 2,220 stores and operates in 88 countries. With its consistent presence as a pioneer in fast fashion utilizing a highly responsive supply chain, the brand also owns other brands like Massimo, Oysha, Pull&Bear, Dulli, and Stradivarius, and Zara Home and Utergue (Zara 2020). Based on 2019 statistics, Zara generated 19.56 billion euros (see appendix 1) (Statista 2020). Zara's extension into Mainland China has seen the company capture the Chinese fashion market. With this success, entering the hotel industry, particularly running a chain of 5-star hotels, is s future lucrative business.

Therefore, this article presents marketing strategy and plan for Zara to enter the hotel industry in China to run a chain of 5-star hotels. The extension into the new industry is also an extension into new unrelated products. To identify this proposal's viability, both external and internal market environments are investigated (Vlados & Chatzinikolaou 2019) as an approach towards identifying opportunities and threats. 

This article defines and segments the potential market. The marketing mix model is then applied to identify the potential of the 7Ps, and recommendations carried out to inform the way forward. 

2. Environmental Analysis

China has a population of 1.4 billion people. It is an upper-middle-class income country and the world's second-largest economy (World Bank Group 2020); China has 878 billionaires (Quartz 2020). 

2.a. PESTLE Analysis

The information below depicts China's external environment that directly and indirectly affects Zara's extension into China's hotel industry (see table 1). 

Table 1: PESTLE Analysis China. 

Sources: Tian et al. (2019), China’s Business Environment (2018),

Political 

China is a one-party system, under The People's Republic of China (PRC). The political legislation has put business tariffs high, though they are on a decreasing slope due to increased market liberalization and the current foreign direct investment (FDI). However, China exhibits a stable political environment. 

Economic 

China is the second-largest economy in terms of GDP in the world, after the United States. With a growth rate of 8.2%, China has a GDP per capita of US$17,206, thus ranking the first in the world in terms of purchasing power parity. China's economy attracts foreign businesses and other related investments, with resultant increasing investments in other countries of the world. 

Social

With a population of 1.4 billion, China provides a huge environment for the market for products and services. With the largest population between 15 and 64 years (70.7%), China has a huge population of millennials to provide relatively cheap labour and a poverty level of 1.7%, which increases the possibility of affordability. China has more than 880 million millionaires, which provides a huge market for the 5-star hotel segment. 

Technological

China is well known for its advancement in technology, especially information technology and material science. With more than 20% of retailers embracing e-commerce and 76% of hotel industry players embracing online transactions, online business is highly advancing. This is made possible by more than 65% of the population's access to the internet, and more than 55% share the population with a smartphone. 

Legal

The legal environment for business operations is strict. Compliance levels are high, with relatively high levels of government control. There are strict labour laws, with foreign policies regarding investment continuing to be pro-social, through China is increasingly becoming a free-market economy. 

Environmental 

China has the high level of industrial pollution in the world. However, Environmental Protection Law is helping to alleviate this. The population is gaining consciousness concerning sustainable consumption, which is forcing businesses to comply. 

2. b. Competitor Analysis

According to Bloomberg News (2020), Shanghai alone has 19 5-star hotels. However, what is observable is that these hotels remain vacant throughout the year as they receive fewer guests. The city hotel's occupancy rate is at 54.4% for the first nine months of the year. In other hotel segments, however, there has been increasing competition. Based on 2019 statistics, the hotel industry in China is increasing at 2.8%, reaching $68.0% billion in 2020 (IBISWorld 2020). Table 2 below shows five major hotels in China and its competitive landscape. Zara must launch its hotel business in a unique niche, which is a fashion hotel. 

 

Table 2: Competitors rating based on Kotler and Keller (2016) Key Success Factors

Source: Tripadvisor (2020)

2. c. SWOT Analysis

The SWOT analyses Zara’s internal conditions in relation to the external environment to understand the company’s fitness to enter the hotel industry in China, especially the fashion hotel niche, see table 3. 

Table 3: Zara's SWOT Analysis

Source: Marketing91 (2020), Fern Fort University (2020)

Strengths 

The supply chain of Zara is under the company’s strong command. It possesses 90% of its stores in 88 countries (Zara 2020). In other countries, Zara leverages joint ventures or franchises. Besides, Zara has in-house production factories just within its headquarters. Secondly, Zara has an Adroit design strategy; thus, it is a 'fashion imitator.' For instance, Zara imitates fashion trends instead of innovation, making it spend minimally on research and development. However, it maintains a supply chain that helps it maintain a minimum amount of time as possible. 

Weaknesses 

Zara has a centralized distribution system; this system is among the biggest problems that Zara faces. In case of technical issues in the distribution network, the whole system is likely to collapse. Because Zara is an imitator, one of the major problems is the inability to become one of the premium luxury brands. It only imitates runway fashion instead of predicting fashion styles. 

Opportunities

Zara has an opportunity in global market expansion. It has more opportunities in Asia, especially China, which has a substantial number of rich people. The second area of opportunity is expansion into the e-commerce sector, especially online marketing. Also, Zara can enter different industries, such as the hotel industry in China, through a fashion hotel design. 

Threats

Like other industries, Zara faces fierce competition from firms that operate in the fashion and apparel industries. Locally, Zara faces competition from H&M from Sweden and in-house brands such as Dutti, Stradivarius, and Massimo. There are also global brands in countries that Zara operates, which enhance the decision to invest in another industry.

3. Understanding the Market

The proposed hotel market is segmented to ensure that the segment becomes profitable, accessible, and measurable (Vinuales et al. 2019). The segmentation has been created based on table 3 below, based on the generational theory posited by Ryback (2016) and Kotler and Keller (2016) descriptors. Generational theory's preference is based on the precinct that people from a similar age era and influenced by occurrences and culture that persisted by then, which influences future and current consumer behaviour. It means that such people tend to have similar values, consumption beliefs, and triggers consumption decision making. 

3. a. Segmentation

Table 4: Customer segmentation

Source: Ryback (2016)

 

3. b. Targeting

A differentiated approach is proposed where a single segment will be concentrated upon and enhance the marketing program. The selected target is high net-worth individuals (HNWI) in China. According to CPP Luxury (2020), HNWI in China is 2.3 million, with more than 26,700 ultra-high net worth individuals (UHNWI). Most people in this category are generation X, followed by the baby boomers. Given that most baby boomers are likely to follow in this category, the selected segment is generation x, people in the 35-50 age bracket. 

3. c. Positioning 

To make the new product, successful Zara has to integrate fashion into the hotel industry. According to Iyer et al.  (2019), such a success is achieved when there is a balanced integration between product offering and brand image. To achieve high success, the product needs high exclusivity, high customer service experience, and freedom. In this regard, the products' positioning will be based on high price, quality, and exclusivity (see figure 1). 

4. The Marketing Mix

The marketing mix's essence is to determine how a product will be produced, packaged, priced, and distributed to the final consumer (Islaini & Nayan 2020). 

People

For the HNWI to consume luxury hotel products, they do so with an expectation of high levels of customer experience. In this regard, Zara has to deliver beyond customer expectations because, based on such customers, pricing is a perception of a great product value (Hariss et al. 2019). This means that the hotels must have highly qualified staff and investment in automation through AI and robotics for enhanced service provision. 

Product

According to Padma and Ahn (2020), luxury hotels must exude high superior quality levels in terms of servicescape. Zara's hotels must have high levels of servicescape and show scarcity, heritage, high price, and brand superiority. Besides, such consumers are highly sustainable, conscious, and the hotel must have a clear declaration of eco-friendliness. 

Price

For a luxury hotel to attain the expected success, (Padma and Ahn (2020) explain that its pricing must include e high. However, customers must receive back the value for their money. As such, premium pricing is the suggested pricing strategy so that the hotels are not readily available and accessible to remain exclusively for the HNWI. 

Place

For Zara hotels to remain exclusive, they will retain a direct distribution channel. This will enable the company to standardize service provision. However, the distribution of the hotels will be clustered near airports, tourism attracting areas, and within city centres where opulence is experienced. 

Promotion

Due to the HNWI customer segment, there will be a need for personal marketing. Anjum, Thomas, and Prakash (2020) explain that email marketing is essential in addressing high-value customers. As such, communication will be exclusive in addressing touchpoints that are irresistible for the customers. 

5. Conclusion

Zara's success in the fashion industry shows that it can succeed when it extends its brands into China's hotel industry. This success is based on the information posited in this article. Zara's target market is HNWI in China, and entering a new niche of the luxury hotel industry, which includes integration of fashion and hotel services. Zara has demonstrated that it can achieve market domination in the fashion industry. This strength can also be extended into the luxury hotel industry by strategically positioning its chain of hotels concerning premium pricing and luxury level service provision. The fashion hotels' locations include near airports, at tourism attraction centres, and in city centres where opulence is exhibited. 

6. Appendices 

Appendix 1: Zara’s revenue 

Table 5: Source: (Segura 2019)

Appendix: Email marketing strategy for China

Table 6: Source: (Sampi 2020)

 

7. References

Anjum, A., Thomas, M.R. & Prakash, P.K. 2020, ‘Digital Marketing Strategies: Effectiveness on Generation Z’, SCMS Journal of Indian Management, vol. 17, no. 2, pp.54-69.

Bloomberg 2020, In China, there’s too much room at the inn, available at: https://www.bloomberg.com/news/articles/2011-11-23/in-china-theres-too-much-room-at-the-inn  [30 November, 2020] 

China’s Business Environment 2018, available at: https://www.cuatrecasas.com/media_repository/gabinete/noticias/docs/1518172145es.pdf  [30 November 2020] 

CPP Luxury 2020, China overtaskes Japan as the second-largest wealth market, with 2.3 million high net worth individuals (HNWI), available at: https://cpp-luxury.com/china-overtaskes-japan-as-the-second-largest-wealth-market-with-2-3-million-high-net-worth-individuals-hnwi/#:~:text=China%20has%20overtaken%20Japan%20to,to%20research%20company%20Wealth%2DX.  [30 November 2020] 

Fern Fort University 2020, Zara SWOT analysis / matrixi, available at: http://fernfortuniversity.com/term-papers/swot/1433/1094-zara.php  [30 November 2020] 

Hariss, R., Perakis, G., Sinchaisri, W.P. & Zheng, Y. 2020, ‘Markdown Pricing with Quality Perception’, Available at SSRN.

IBISWorld 2002, Hotel in China industry trends (2015 – 2020), available at: https://www.ibisworld.com/china/market-research-reports/hotels-industry/  [30 November 2020] 

Islaini, M.A.A. & Nayan, S.M. 2020, ‘The Role of Price in the Marketing Mix’, Journal of Undergraduate Social Science and Technology, vol. 2, no. 2, 

Iyer, P., Davari, A., Zolfagharian, M. & Paswan, A. 2019, ‘Market orientation, positioning strategy and brand performance’, Industrial Marketing Management, 81, pp.16-29

Kotler, P. & Keller, K., L. 2016, Marketing Management. 15th edn. Essex: Pearson

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Padma, P. & Ahn, J. 2020, ‘Guest satisfaction & dissatisfaction in luxury hotels: An application of big data’, International Journal of Hospitality Management, 84, p.102318.

Quartz 2020, China is rapidly producing new billionaires despite Covid-19, available at: https://qz.com/1919974/china-created-a-record-number-of-billionaires-despite-covid-19/#:~:text=Overall%2C%20China%20has%20878%20billionaires,the%20country%20has%20ever%20seen.  [30 November 2020] 

Ryback, R. 2016, ‘From Baby Boomers to Generation Z: The Generational Gaps and their Roles in Society’, Psychology Today. 22 February 2016. Available at: https://www.psychologytoday.com/gb/blog/the-truisms-wellness/201602/baby-boomers-generation-z  [30 November 2020]

Sampi 2020, 5 Features of Most Effective China Email Marketing Strategy, https://sampi.co/effective-china-email-marketing/  [30 November 2020] 

Statista 2020, Sales of the Inditex Group worldwide by format 2013-2019, available at: https://www.statista.com/statistics/456505/sales-inditex-group-worldwide-by-format/#:~:text=In%202019%2C%20Inditex%20Group's%20format,to%20approximately%2019.56%20billion%20euros.  [30, November 2020]

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Vlados, C. & Chatzinikolaou, D. 2019, ‘Methodological redirections for an evolutionary approach of the external business environment’, J. Mgmt. & Sustainability, 9, p.25.

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