How Zara stood up to H&M and Shein . A touch of luxury made the difference, writes The Economist
Passersby who see Zara's ads on Instagram could easily be mistaken for Chanel ads. For its 50th anniversary campaign last spring, the Spanish fashion brand hired Steven Meisel, a photographer known for collaborating with luxury houses.
Even the hair stylist and makeup artist on set had a similar profile. The commercials featured almost every highest-paid model of the last 30 years, dancing to the beats of Donna Summer's "I Feel Love."
The glitz reflects a winning strategy for Inditex, the Spanish clothing group that relies on Zara for about two-thirds of its sales. Competition from brands such as Shein and Temu, two Chinese retailers, has pushed some rivals to cut prices. But Inditex has competed on style, not cost, says Geoff Lowery of Rothschild Bank.
On March 11, the company reported very strong results. Annual sales rose to 40 billion euros in 2025 and net profit reached a record 6.2 billion euros, an increase of 6% compared to the previous year.
The sale of fast fashion clothing, known as fast fashion, offered with an image and experience closer to luxury, is yielding positive results.
Óscar García Maceiras, the head of Inditex, attributes much of its success to a business model built over half a century. Amancio Ortega, the founder, built the company on a flexible logistics network that allows it to quickly adapt collections to customer tastes.
Zara and its sister brands aim to offer new products every week, sometimes twice a week. This reduces the risk of producing clothes that don't sell and have to be offered at deep discounts.
At the same time, it allows Zara to maintain higher prices, as collections quickly reflect current trends.
When Shein and other Chinese brands entered the market in the early 2010s, they competed on speed and price. This hurt Zara less than its European rival H&M, as it had a wider range of products, including more expensive items.
Zara targets customers in their 30s and 40s, who tend to have higher incomes than H&M customers, notes William Woods of Bernstein. As a result, Inditex has clearly outpaced its rival. In 2009, the two companies’ operating profits were roughly the same; today, Inditex’s are nearly five times higher.
Recently, Zara has been moving even more towards the high-end segment. In late 2021, it appointed Marta Ortega, the founder's daughter, as its president. She has aimed to offer consumers a more luxurious experience.
This week, the brand announced a collaboration with John Galliano, a designer known for his refined collections during his time at Dior and Maison Margiela.
It has also collaborated with Stefano Pilati, former head designer at Saint Laurent. Zara has even ventured into celebrity styling, dressing singer Bad Bunny for his Super Bowl performance in February.
This orientation means Zara is increasingly focusing on more affluent markets. Last year, two-thirds of the parent company's sales came from Europe. The brand has reduced the number of stores by a fifth in the past three years, halving its presence in China, where demand has been weaker.
It also suspended operations in Russia after the start of the war in Ukraine.
However, the stores that remain are larger and more luxurious. From 2022 to 2025, sales per square meter increased by 46%, according to Deutsche Bank. Some stores have separate boutique-style areas for handbags and shoes, similar to those in high-end stores.
The shopping experience is also changing. Many customers are looking for “something that goes beyond just buying clothes,” says García Maceiras. Stores have introduced self-service checkouts to give staff more time to act as personal advisors to customers.
This level of care is increasingly being embraced by Zara customers, who are gradually becoming accustomed to a touch of luxury.
