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New Mango Strategy Looks More Like Zara

After a 60% decline in profit through 2011, Mango has taken a page out of Zara’s playbook and cut prices by about 20% across the board. The company has also cut back on its glitzier, more showy options, instead focusing on the sort of day-to-day stalwarts that made Inditex founder Amancio Ortega the world’s third-richest man.

Investors and analysts agree that Mango is doing its best to emulate Zara. Enric Cais, Mango general manager, said that the two years ago the company was getting about 70 percent of its revenue from party and event clothing and 30 percent from casual wear. That’s now reversed.

Casi said that the company had pushed its party strategy too far, saying, “Not even our employees wore Mango.” They are now betting on a tested business strategy to deliver higher rates of growth.

Off the shop floor, the company is also trying to copy Zara’s tried-and-true fast fashion sourcing model. They’re emphasizing quicker turn times and a split production cycle that creates a more complex and versatile sourcing matrix. They hope to avoid steady discounting and minimize markdowns, along with keeping apparel fresh to attract younger customers. The company is looking to source more goods from higher cost countries closer to Europe in order to achieve this.

At the same time Mango is copying Zara, parent company Inditex may be slowing down a bit. Profit was up 12 percent at the end of 2012, highlighting slowing growth and failing to meet analyst’s expectations. Shares dropped 7 percent after the earnings announcement.

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Sales at Mango grew 22 percent, beating Inditex’s 16 percent growth but failing to meet the company’s own expectation of 30 percent. They are now predicting that revenue will almost double between 2011 and 2015, to 2.75 billion euros. Inditex sales may jump 57 percent to 21.7 billion euros in the same period, highlighting the difference in scale between the two firms.

Zara has recently undergone a redesign reminiscent of high-end Swedish designer Acne. Despite Mango’s matching prices, Zara now gives the impression of being discount designer and, therefore, better value for money. At the same time, Mango’s gross margin has been falling (likely as a result of the price cuts) while Zara’s has been increasing.

Despite the price cuts, Mango is not quite on par with Zara. However, it purports to offer higher quality offerings, and it still offers more party ready clothes than Zara. In addition, the company is adding a teen line, men’s brands, and more accessories. This, combined with a more upscale e-commerce presence, has proven to be a successful combination for many companies. Accessories in particular offer a low cost way to get customers in the store, where they then make other purchases and can showroom new lines.

It may take more than a year to turn the company around, but at least the firm is copying a business model that works.