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Zara1 101017144029-phpapp02

  1. 1. Christian Deing Simon Luyken Julika Reusse Sebastian Stratmann Anna Worster1. What are the sources of Zara’s competitive advantage?What is unique compared to H&M, The Gap and Benetton?
  2. 2. competitive advantageCompetitive advantage is defined as:• a performance feature, which is silhouetted against other competitors• has to be tenable and economic• is able to reach dimensions like price, time and quality, e.g. cost advantage or differentation advantage
  3. 3. INDITEX Brand Number of stores ZARA 1501 Bershka 573Pull and Bear 567Massimo Dutti 461INDITEX Stradivarius Oysho 444 363 ZARA Home 237 Uterqüe 24 Total 4.170 Quelle:
  4. 4. ZARA• 1501 stores in 71 countries in 2008• Employees 25.000• Employed €1,050 million of the company´s capital in 2001 72% of the total capital of INDITEX•Revenue of €6,264 million in 2007 67% of the total of INDITEX
  5. 5. ZARA• Headquarter in Arteixo, outside La Coruna• Manufacturing most of the fashion-sensitive products internally• ZARA´s designers produce about 11.000 distinct items during the year competitors: 2000-4000 items• Products are shipped to well-located stores twice a week• Finished goods in stores within four to five weeks (entirely new designs) in two weeks for modifications of existing products
  6. 6. Competitors H&M The GAP Benettonstores 1.700 3.100 5.500countries 33 19 120employees 68.000 152.000 8.000designers 100 n.s. 300revenue €9.6 billion $15.8 billion €2.085 billion
  7. 7. Comparison: ZARA vs. H&M-vertical integration -all production outsourced⇒Short lead times ⇒Long lead times- engages many designers -60 % fewer designers⇒Originate designs in a few weeks- one distribution center -a distribution center in each country⇒Better survey over inventory ⇒High costs⇒ low costs- expand very fast -expand very slow(stores in 39 countries) (stores in 8 countries)- stores as a „face to the world“ - no focus on store makeups ⇒Competitive advantage
  8. 8. Comparison: ZARA vs. Benetton- three different modes for -one main mode forexpansion: expansion:1.Franchise systems 1. Licensees2.Company owned stores3.Joint Ventures ⇒Competitive advantage
  9. 9. Comparison: ZARA vs. GAP- vertical integration - outsourced all production⇒Short lead times ⇒Long lead times- fast expansion in 39 - slow expansion in 5countries countries ⇒Competitive advantage
  10. 10. What‘s unique about ZARA?- freshness (fast production and distribution to offer the latest fashion)-Change 75 % of the merchandise on display every 3 or 4 weeks ⇒The frequency of customer visits rises ⇒Scarcity-few advertisement ⇒Customers need to visit stores to get the newest fashion ⇒Save costs for publicity
  11. 11. Case Study 2:ZARA: Fast Fashion Group 7: Matthias Freese, Thorsten Hiedels Kirstin Jansen, Sabine Kürten Aleksandra Ludwa, Jennifer Montag Johanna v. d. Asseburg Case Study 2: ZARA: Fast Fashion, Group 7 1
  12. 12. Table of contents1 Introduction2 Zara’s Business System3 Pros and cons of Zara’s activity architecture with regard to The Gap, H&M and Benetton and in light of the changing environment Case Study 2: ZARA: Fast Fashion, Group 7 2
  13. 13. 1 Introduction- Inditex: - umbrella group of Zara and 5 other apparel chains - founded in 1963 in Galicia, Spain- Zara: - headquarters in Arteixo, Spain - till 2002: 507 stores in 42 countries - position: “medium quality fashion clothing at affordable prices“ - competitors: The Gap, H&M, Benetton Case Study 2: ZARA: Fast Fashion, Group 7 3
  14. 14. 2 Zara‘s business systemActivity circle: Case Study 2: ZARA: Fast Fashion, Group 7 4
  15. 15. Design- creative teams- different sources for information: store managers, consumption information system, TV, internet, industry publications, film, trend spotters, ready-to-wear fashion shows- first sketches about nine months before start of a season- presentation in certain key stores- determined prices Case Study 2: ZARA: Fast Fashion, Group 7 5
  16. 16. Sourcing and Manufacturing- assistance of purchasing offices in Barcelona and Hong Kong- more than 200 external suppliers- 60% of the clothes produced externally, 40% internally- 450 workshops where garments are sewed Case Study 2: ZARA: Fast Fashion, Group 7 6
  17. 17. Distribution- own distribution center in Arteixo- satellite center in Argentina, Brazil and Mexico- center works on a dual-shift basis- equipped with mobile tracking system- delivery upon Europe takes about 24-36 hours, outside Europe 24-48 hours- scheduled shipments by time zones- establishment of a second distribution center at Zaragoza in 2003 Case Study 2: ZARA: Fast Fashion, Group 7 7
  18. 18. Retailing- consists of merchandising and store operations- stores placed in premier shopping streets and centers- set high value on presentation of store window displays: prototypes at headquarters- continuous training on their personnel- very low advertising expenditures, no fashion shows- main retailing-tactic: create a sense of scarcity- aim: reduce inventories at marked-down prices Case Study 2: ZARA: Fast Fashion, Group 7 8
  19. 19. 3 Pros and cons of Zara‘s activity architecture- most significant advantage: reduced cycle time due to the implementation of the quick response system Case Study 2: ZARA: Fast Fashion, Group 7 9
  20. 20. 3 Pros and cons of Zara‘s activity architecture- different product precommitement: Case Study 2: ZARA: Fast Fashion, Group 7 10
  21. 21. 3 Pros and cons of Zara‘s activity architectureDesign:+ store managers gather information directly at point of sale+ design department organized in flat structure- Zara has more staff employed although it is smaller than H&M higher labor costs, but lower risk of fashion miss (as H&M)+ continuous tracking of customer preferences numerous variations of items+ presentation of items in key stores reduced failure rates Case Study 2: ZARA: Fast Fashion, Group 7 11
  22. 22. 3 Pros and cons of Zara‘s activity architectureSourcing and Manufacturing:+ in-house production of 40% of the garments better control of most fashionable clothes short lead times+ offers always the latest fashion trends+ change of MFA: no import quotas and reduced tariffs no more barriers for outsourcing production, but larger benefits for H&M- increasing complexity of cross-border intermediaries higher coordination costs Case Study 2: ZARA: Fast Fashion, Group 7 12
  23. 23. 3 Pros and cons of Zara‘s activity architectureDistribution:+ cost savings by centralized distribution center- capacity problems with only one center when Zara keeps expanding establishment of second distribution center- H&M: closer to the market by decentralized distribution center in each country does not need scheduled shipments by time zones Case Study 2: ZARA: Fast Fashion, Group 7 13
  24. 24. 3 Pros and cons of Zara‘s activity architectureRetailing:+ flexibility of operating in the best spots by using joint-ventures+ standardized offering: 85%-90% basic items satisfaction of many markets with little effort even easier in the future as tastes assimilate+ standardization of store window displays consistent image low costs but: ignorance of individual preferences- low advertising expenditures missing of the chance to gain more customers no communication of social responsibility as Benetton does Case Study 2: ZARA: Fast Fashion, Group 7 14
  25. 25. Thank you very much for your attention! Case Study 2: ZARA: Fast Fashion, Group 7 15
  26. 26. Harvard Business Case Study “ZARA: Fast Fashion”Question 3:Evaluate ZARA’s global strategy in light of theMcKinsey recommendations in the assigned reading1.How does it compare?1: Incandela, D.; McLaughlin, K.L.; Smith Shi, C. (1999): Retailers to the World, in: The McKinsey Quarterly, Vol. 3, pp. 84-97.
  27. 27. Agenda• Introduction to ZARA’s international operations• Recommendations by McKinsey• Evaluative comparison• Summary of conclusions and recommendations
  28. 28. Agenda• Introduction to ZARA’s international operations• Recommendations by McKinsey• Evaluative comparison• Summary of conclusions and recommendations
  29. 29. Introduction to ZARA’s international operations largest and most internationalized chain of Inditex 282 stores in 32 countries outside Spain (in the end of 2001) expansion began in 1988 in Oporto, Portugal rapid internationalization between 1998-1999: 16 countries ZARA is expanding very rapidly in comparison to other retailers like H&M, who added only 8 countries in 20 yearsSource: McKinsey (1999)HBS Case Study “ZARA”, Gruppe 8 4
  30. 30. Agenda• Introduction to ZARA’s international operations• Recommendations by McKinsey• Evaluative comparison• Summary of conclusions and recommendations
  31. 31. Five approaches to launch a self-reinforcing cycle ofbenefits propelled by access, scale and expertise Choose your sliver - decisions about which The “virtuous circle” 1 sliver to own, which to control without owning and which to off-load are necessary Get comfortable partnering – access to 2 new distribution systems and brand equity Invest in intangible assets - the new 3 source of competitive advantage 3. Expertise 1. Access • brands and reputation • technology and know how • talent and skills Keep expenses and capital require- 4 ments low – by centralization, restructuring and outsourcing 2. Scale Exploit opportunities to arbitrage – 5 by value proposition arbitrage and/or cross-border arbitrageSource: McKinsey (1999)HBS Case Study “ZARA”, Gruppe 8 6
  32. 32. Agenda• Introduction to ZARA’s international operations• Recommendations by McKinsey• Evaluative comparison• Summary of conclusions and recommendations
  33. 33. 1 McKinsey recommends retailers to optimize the value chain by focusing on slivers Companies have to decide which slivers of the value chain to own, partly-own or to off-load • It is not always efficient to own all parts of the value chain Reason: • Some processes have very high outsourcing potential Outsourcing decision drivers: Cash Flow Capital Requirements Risk Competitive Advantage Source: McKinsey (1999) HBS Case Study “ZARA”, Gruppe 8 8
  34. 34. 1 Selected Slivers of ZARA’s Value Chain Slivers and Processes Design: Sourcing: All design related processes are fullfilled In ZARA’s Responsibility All sourcing activities are done externally. Fully outsourced inside the company. Manufacturing: Logistics: Basic-items are manufactured in Asia. Fashion Logistics are completely outsourced. About Partly outsourced items are more risky and therefore produced 75% are deliveredoutsourced Fully by truck. The remeining by ZARA‘s fully owned factories ones are manily organized by airmal. Sales: Distribution: ZARA delegated store management espacially All distribution processes are supervised and Partly outsourced in smaller and riskier countries by using In ZARA’s Responsibility executed from one central and fully-owned franchising. Joint Ventures are used if prime distribution center in Spain. shopping space is not avaiable for ownership. ZARA decided carefully on which slivers to concentrate and which to off-load Therefore ZARA succeeded in implementing McKinsey’s advice concerning the value chain HBS Case Study “ZARA”, Gruppe 8 9
  35. 35. 2 McKinsey recommends to establish partnerships to be successful internationally Build partnerships • To get leads • To enhance the distribution system • To build brand equity in new markets Remain in control of these alliances ! Source: McKinsey (1999) HBS Case Study “ZARA”, Gruppe 8 10
  36. 36. 2 ZARA has established controlled partnerships in production and downstream activities Manufacturing ZARA has long-term relations with suppliers CONTROL and subcontractors Sales In smaller and riskier countries, ZARA uses Franchise Systems CONTROL Joint Ventures are used in mature and more established markets like for example Germany ZARA has successfully implemented McKinsey’s recommendations regarding partnerships HBS Case Study “ZARA”, Gruppe 8 11
  37. 37. 3 McKinsey recommends the investment in intangible assets as the new source of competitive advantage Brand and reputation IT, technology, skills People and talents • Distinct value proposition • Invest in proprietary • Scarcity of qualified with adjustments to technology to managers challenges HR region/country specific - improve customer access policies differences - raise service levels - increase business • Build up talent pools in • Personality of the brand efficiency several stages must appeal to target group and be reinforced at every contact point • Total visibility of the brand through all appropriate communication channels Source: McKinsey (1999) HBS Case Study “ZARA”, Gruppe 8 12
  38. 38. 3 Regarding the investment in intangible assets, ZARA focuses on innovative technologies Brand and reputation IT, technology, skills People and talents • adjustment of marketing • strong investment in • incentive-intense payment mix to country individual technology since 1990 model for store managers needs - innovative JIT - variable parts based on - experience gained in manufacturing system (co- store performance flagship store developed with Toyota) • low hierarchies - price according to WTP - advanced - store managers as - slightly different portfolio telecommunication system entrepreneurs • concentration on store - sophisticated consumption • advanced training program image information system • But: scarcity of store high brand awareness managers is main barrier to • comparably little further expansion investments in advertising, - 90% recruited from within esp. in foreign markets ZARA almost meets the McKinsey recommendations w.r.t. intangibles ZARA should invest more in international brand power using various media channels and put stronger emphasis on international recruitment HBS Case Study “ZARA”, Gruppe 8 13
  39. 39. 4 McKinsey recommends retailers to strive to be “expense and capital light” Keep expenses and capital requirements low Realize greater purchasing benefits and margins by reducing capital commitment and costs Manage a low need for capital Decide about global sourcing Centralize overlapping by franchising or renting rather activities and IT investments category groups, e.g. finance than owning stores functions Source: McKinsey (1999) HBS Case Study “ZARA”, Gruppe 8 14
  40. 40. 4 ZARA has taken numerous measures to keep expenses and capital requirements low Operation Impact • integrated just-in-time manufacturing system, short lead and cycle times, central distribution center with direct shipping low storage costs to the stores • intense market research incl. interviews with low failure rates, store managers and product development reach planned sales • long-term leases instead of owning • different business types to go global low financial strain (own stores, joint ventures and franchising) • flat hierarchies, e.g. design department • main organization by divisions flexibility and shorter communication lines (women, men and children) • production of price-sensitive items outsourced • minimum amount of advertising low production and selling prices, but with • lean administrative organization expected hold up margins ZARA strategy efficiency control corresponds to McKinsey’s advices ZARA successfully controls its costs, realizing beneficial impact on operational results HBS Case Study “ZARA”, Gruppe 8 15
  41. 41. 5 McKinsey recommends the exploitation of opportunities to arbitrage in order to reduce costs Cross-border arbitrage Value proposition arbitrage • focus on price level when • no real differentiation among product entering a new market portfolio across the different countries • forecasting of prices on local • 85%-90% of products are common market prices not on own costs • no design of products for specific • entering markets with a higher preferences of only one country preference for apparel (Italy) • standardized reporting systems • same business model in similar types high rate of absorption of countries of buying power amortization of centralized concepts by rolling them out across many markets ZARA is implementing the suggestions of the McKinsey concept HBS Case Study “ZARA”, Gruppe 8 16
  42. 42. Optimal expansion path depends on starting situationMcKinsey strategic control map Initial situation… …determines global strategyhigh Address performance problems first. Then 1 grow by a) investing in intangibles/ load-off (4) unattractive value chain parts and/or b) (2) Super- penetrating home market and global expansion Experts leaguers Performance Expand the business into new markets 2 through organic growth or acquisitions; skills transfer and synergies are crucial success factors (1) (3) Incumbents Integrators Invest in intangible assets and take further 3 means to increase performancelow Size 4 Stabilize the successful business concept small largeSource: McKinsey (1999)HBS Case Study “ZARA”, Gruppe 8 17
  43. 43. ZARA heavily invested in technology to increaseprofitability before starting major global expansion ZARA’s expansion path high (4) • high investments in intangible assets (2) Super- (esp. IT) in the 1990s, i.e. before Experts leaguers major phase of international expansion Performance • having a strong performance, ZARA grows in size on a global scale, (1) (3) opening 16 stores from 1998-1999 Incumbents Integrators (282 stores in 32 countries today) low Size small large ZARA has gone the recommended global expansion path, starting from an incumbent’s positionHBS Case Study “ZARA”, Gruppe 8 18
  44. 44. Agenda• Introduction to ZARA’s international operations• Recommendations by McKinsey• Evaluative comparison• Summary of conclusions and recommendations
  45. 45. ZARA almost completely lives up to McKinsey’srequirements; few improvements to be realized Approaches recommended Further improvements to be by McKinsey addressed by ZARA in the future 1 Choose your sliver 2 Get comfortable partnering • increase international investments 3 Invest in intangible assets in advertising • increase international recruitment efforts 4 Keep capital requirements low 5 Exploit opportunities to arbitrageSource: McKinsey (1999)HBS Case Study “ZARA”, Gruppe 8 20
  46. 46. Thank you for your attention.
  47. 47. Case Study Zara “What do you think of Zara’s past international growth strategy? Evaluate, in particular, its strategy for marketselection, its mode of entry, and its marketing approach. What is the best way to grow Zara now?“
  48. 48. Agenda Introduction – What is ZARA? International Growth Strategy Market Selection Market Entry Marketing Approach Best way to grow Zara now21.11.2008
  49. 49. IntroductionWhat is ZARA? Foundation of Inditex (Industria de Diseno Textil) by Amancio Ortega in 1975 ZARA is one of the six apparel chains of Inditex (completely independent and organized individually) ZARA is Inditex’s most important chain ZARA has over 500 stores in 30 countries Fashion Collection changes twice a year (autumn/winter & spring/summer) Benetton, H&M and the GAP are their most important global competitors Unique selling proposition is due to short cycle times 21.11.2008 Case Study ZARA: Fast Fashion 3
  50. 50. International Growth StrategyMarket Selection - Overview Waterfall Strategy Market Selection Process: Countries which are similar to ZARA’s home market Macro Analysis Micro Analysis Preconditions for entering: Minimum level of economic development Low entry barriers Oil-Stain Strategy 21.11.2008 Case Study ZARA: Fast Fashion 4
  51. 51. International Growth StrategyMarket Selection - Evaluation Enough time to explore markets from the Risk of competitors copying ZARA‘s outside business model and entering markets Test if their business model can be before ZARA is able to applied to foreign markets (to reduce -> Increasing market barriers risk) High headquarter costs for only a few No danger of loosing control shops in the beginning Possibility to meet the special cultural Time-and-money consuming process demands Lately, ZARA decided to grow faster, enabled through their bigger experience and equity which is a step in the right direction 21.11.2008 Case Study ZARA: Fast Fashion 5
  52. 52. International Growth StrategyMarket Entry - Overview 21.11.2008 Case Study ZARA: Fast Fashion 6
  53. 53. International Growth StrategyMarket Entry - Evaluation Company-owned stores High level of influence over the behavior Require many resources such as high of the employees capital commitment Ability to control the Brand presentation at POS Franchising Opportunity to generate fast growth Lack of control -> Image losses without needing a lot of equity Dependency on their partner Overcoming cultural barriers Joint Ventures Sharing core competences Dependency on a partner -> need of a More control of the actions taken trust base Different methods enable ZARA to meet the demand of every country 21.11.2008 Case Study ZARA: Fast Fashion 7
  54. 54. International Growth StrategyMarketing Approach - Overview 21.11.2008 Case Study ZARA: Fast Fashion 8
  55. 55. International Growth StrategyMarketing Approach - Evaluation 21.11.2008 Case Study ZARA: Fast Fashion 9
  56. 56. International Growth StrategyBest Way to grow ZARA now (1/2)ZARA needs to be more present in morecountries worldwide to strengthen the brandname and their significanceGrowth potential: Russia, East & NorthEurope, Italy, Australia, South AfricaExploration of new Markets in a short timeperiod -> Danger of competitors growingIncrease the amount of shops rapidly &drastically to play a greater role in thepeople‘s mind 21.11.2008 Case Study ZARA: Fast Fashion 10
  57. 57. International Growth StrategyBest Way to grow ZARA now (2/2)Establish a department whose task isto visit the franchise storesUse E-CommerceBigger focus on marketing (e.g.internet, (TV) commercial, billboards) People who bought online any of the following products or services during the last three months ZARA has big growth potential but they need to find the optimal balance between risk and innovative methods to address their customers 21.11.2008 Case Study ZARA: Fast Fashion 11
  58. 58. Thank you for your attention! Questions?