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Retailing Report on Zara Clothing Store Document Transcript

  • 1. Retailing ReportZara Clothing Store Navin Shankar, and Spencer Verzosa, Julia Mittias, Margaret Sia MKTG 222– 841–Prof. Tom Kaufmann 8/12/2009
  • 2. Table of ContentsExecutive Summary....................................................................................................................................... 3Retail Organization Overview ....................................................................................................................... 4 Introducing Zara – Their Vision and Mission: ........................................................................................... 4 Store History – A Look at the Zara Business Model: ................................................................................. 4Strategic Analysis .......................................................................................................................................... 6 Product Offerings: ..................................................................................................................................... 6 Pricing Strategy: ........................................................................................................................................ 6 Distribution Strategy: ................................................................................................................................ 7 Promotion Strategy: .................................................................................................................................. 8 Zara’s Sustainable Competitive Advantage: ........................................................................................... 10Store Format ............................................................................................................................................... 12 Type, Variety, and Assortment of Merchandise: .................................................................................... 12 Level of Customer Service and Customer Convenience: ........................................................................ 13 Location Strategy: ................................................................................................................................... 13 Store Layout and Design Strategy: .......................................................................................................... 16 Retailing Mix Summary: .......................................................................................................................... 21SWOT Analysis............................................................................................................................................. 21 Internal Environmental Scan of Zara’s Strengths: .................................................................................. 21 Internal Environmental Scan of Zara’s Weaknesses: .............................................................................. 22 External Environmental Scan of Zara’s Opportunities: ........................................................................... 22 External Environmental Scan of Zara’s Threats: ..................................................................................... 22 Table 1.1: SWOT SUMMARY CHART ....................................................................................................... 23Conclusion ................................................................................................................................................... 24 BIBLIOGRAPHY: ....................................................................................................................................... 25 2|Page
  • 3. Executive Summary Zara is a fashion retailer that offers a wide range of clothing for men, women, young adults andchildren. They offer a wide range of clothing that fit the needs of the market and follow the “instantfashion” trend which puts them right in the middle of the highly competitive fashion market. Zara’sapproach to fashion is very unique, responding only to the current trends as oppose to the future trendsin the industry thus, continuing to be competitive. Zara first location was opened in 1975 in Coruna, Spain and has now become one of the keyplayers in the fashion industry. The expansion into different parts of the world in countries includingMexico, Japan and recently, in Canada shows their potential and great success of the business. The report includes Zara’s strategic approach to the retail industry including their pricing,promotion, distribution and location strategies as well as an analysis on their major strengths andweakness,in addition to their opportunities and threats. With Zara competing in a highly competitivemarket, the information that was found summarizes the ongoing success of the company and how itcontinually stays effective with its goal, “To offer the latest trends in the fashion industry at lowercosts.” 3|Page
  • 4. Retail Organization OverviewIntroducing Zara – Their Vision and Mission: Zara offers the latest trends in international fashion in an environment of though-out design. Itsstores are located in the main commercial areas of cities across Europe, America, and Asia, offeringfashion inspired in the tastes, wishes and lifestyles of today’s men, women of all ages, and children. Zarahas 650 stores in 72 countries. All of them have been designed to create a special atmosphere that willallow the client to feel the pleasure of buying fashion. In Zara, design is conceived as a process closelyrelated to the client –from the stores to the creative teams, the concerns and demands of consumersare at the core of business related decisions. Thus, this avant-garde organization works in the fashionindustry with a very clear vision of what it wants to offer today and in the future. Its mission is to offercontinually to its customer a product that corresponds to their needs, at the right time, with the latestfashion trend. One of its most important challenges is to always meet the satisfaction of its customerswhile offering them the right balance of fashion, quality, and price, so that the style and image stayunique. In order to reach their goals, Zara encourages initiative and constant innovation. Zara strives tobe in sync with today’s ever-changing trends and taste. Hence its success among people, cultures andgenerations that, in spite of their differences, share a special relationship with fashion and therefore,with Zara. Zara belongs to Inditex, one of the largest fashion retail distributors worldwide. Inditex hasover 1,900 outlets in 60 countries in Europe, the Americas, Asia and Africa. In addition to Zara, thelargest of its commercial chains, it also has seven other chains as well as a hundred companiesassociated with the different activities related to textile design, production and distribution. Inditex’sunique management methods, based on innovation and flexibility, and its vision of fashion creativity andquality design together with a rapid response to market demands have allowed for fast internationalexpansion and success.Store History – A Look at the Zara Business Model: Located on a central street in A Coruña, Spain, the first Zara store opened its doors in 1975 byfounder Amanico Ortega, the head of Inditex. It featured low-priced look-a-like products of popular, 4|Page
  • 5. higher-end clothing and fashions. The store proved to be a success, and by the early 1980’s, more Zarastores were beginning to open up throughout North-Eastern Spain. At the same time, Ortega had begunformulating a new type of design and distribution model. The clothing industry followed design andproduction processes that required long lead times, often up to six months, between the initial design ofa garment and its delivery to retailers. This model effectively limited manufacturers and distributors tojust two or three collections per year. Predicting consumer tastes ahead of time presented difficulties,and producers and distributors faced the constant risk of becoming burdened with unsold inventory.Ortega sought a means of breaking the model by creating what he called “instant fashions” that allowedhim to respond quickly to shifts in consumer tastes and to newly emerging trends. Together withcomputer expert José Marie Castellano, they developed a distribution model that revolutionized theglobal clothing industry. Under Castellano’s computerized system, the company reduced its design-to-distributionprocess to just 10 to 15 days. Rather than depending on a single designer, the company developed itsown in-house team of designers, consisting of over 200 professionals, who began creating clothes basedon popular fashions, while at the same time producing the company’s own designs. In this way, theteam was able to respond almost immediately to emerging consumer trends as well as to the demandsof the company’s own customers; for instance, by adding new colors or patters to existing designs.Therefore, their business model is characterized by a high degree of vertical integration compared toother models developed by international competitors. A flexible structure with a strong customer focusshapes each phase of the process: design, production, logistics and distribution to their own stores. Inaddition, state-of-the-art production and warehousing procedures, as well as the installation ofcomputerized inventory systems linking stores to the company’s growing number of factories, enabledZara to avoid taking on the risk and capital expense of developing and maintaining a large inventory. The company’s instant fashion model, which completely rotated its retail stock every two weeks,motivated customers to return often to its stores. The knowledge that clothing would not be availablefor very long also encouraged shoppers to make their purchases more quickly. The key to this model isto be capable of adapting the merchandise to the customers’ wishes as quickly as possible. Verticalintegration allows them to shorten turnaround times and achieve greater flexibility, by reducing stock toa minimum and diminishing fashion risk to the greatest possible extent. 5|Page
  • 6. The success of the Zara model in Spain led Inditex to the international market, having storesopening up in new markets such as Eastern Europe, the United Kingdom, the United States, and Canadaamong other foreign market entries in countries like Mexico, Japan, Israel, Greece, Belgium, andNorway. In fact, the Zara expansion into Canada is very recent. Zara Canada Inc. started their activities infall 1999 with the first Canadian store located in the heart of downtown Montreal. Zara has continued toexpand with a total of 14 stores across the country: 1 in Calgary, Edmonton, and Quebec, 2 inVancouver, 5 in Montreal, 4 currently in Toronto along with one more store opening in Fairview Mallthis Fall 2009. Strategic AnalysisProduct Offerings: Zara is a high-fashion concept store offering apparel, footwear and accessories for women, menand children, from newborns to adults aged 45. Zara stores have two basic product lines: mens clothing(approximately 22% of sales) and womens clothing (about 58%). Each of these clothing lines consists of5 sub-categories. Such categories include: Lower Garment, Upper Garment, Shoes, Cosmetics andComplements. In addition, Zaras catalogue also includes a children’s clothing line, accounting for anadditional 20% of sales.Pricing Strategy: Zara offers unique, high quality clothing and products at affordable prices compared to designerstores, thereby, implementing a low price strategy. It can do this because they use a lower cost 6|Page
  • 7. structure than their competitors through the manufacture of their own merchandise in-house anddramatically cutting inventory costs. Therefore, it strives for a cost leadership strategy, as low costsenable them to give lower prices. Most importantly, Zara has quite a different pricing strategy compared to many others in itsbusiness, which set prices equal to cost plus a target margin. Instead of using this typical cost orientedmethod, Zara’s prices are based on comparables within the target market. For example, a coat in Spaincould be priced at 90 Euros, and the same coat in France could be priced at 118 Euros. Therefore, theyuse a demand oriented method for setting prices based on region, taking advantage of what customersare willing to pay. Previously, Zara use to print price tags for multiple jurisdictions showing on one singletag all of its different prices by country. This simplified the tagging procedure and also permitted goodsto be moved from store to store and shipped between country to country without retagging. Zara hasnow switched to a system of local price marking in the stores, using a device that reads the bar code andprints the appropriate local price. (Refer to Exhibit 1 below). EXHIBIT 1: Examples of Typical Zara Price TagsDistribution Strategy: State-of-the-art distribution facility functions with minimal human intervention. Approximately200 kilometres of underground tracks move merchandise from Zara’s manufacturing plants to chutesthat ensure each order reaches its right destination. The merchandise does not waste any time waitingfor human sorting. Optical reading devices sort out and distribute more than 60,000 items of clothing an 7|Page
  • 8. hour based on its bar code. Zara has a centralized distribution system which operates out of two primarywarehouses located in Spain. About 2.5 million garments could move through the distribution centereach week. This location periodically receives shipments of finished clothes from suppliers and shipsreplenishment inventory directly to every Zara store in the world twice a week. These shipments aremade by truck to Europe and by airfreight to stores outside of Europe, so that stores received goodswithin 24-36 hours of shipment in Europe and within 1-2 days outside of Europe. No inventory was heldcentrally, and there was almost no inventory at the stores that was not on the selling floor. Exhibit 2: An example of Zara’s Business Model in terms of Distribution.Promotion Strategy: Zara’s unique approach to advertising and marketing is an additional factor that adds to theirsuccess. Zara spends 0.3% of total revenues on advertising and marketing. This is significantly less thantheir competitors who on average spend 3-4% of their total revenues on promotional activities. Hence,Zara maintains a cost advantage to their competitors in marketing activities. In order to effectivelycompete with their peers Zara mostly relies on word-of-mouth advertising to attract customers anduses location, store layout, and product life cycles to act as their marketing tool to consumers. For 8|Page
  • 9. instance, Zara strategically locates all of their stores in prime retail districts for visibility marketing. Forexample, a couple of their locations in Toronto include Yorkdale Shopping Center and the Eaton’sShopping Center downtown (More on this topic can be found further on in this report under the heading“Location Strategy”). Additionally, because of the rapid product turnover mentioned earlier, customers are trained tovisit Zara stores often because new items are presented weekly and are often not restocked. This feelingof scarcity encourages customers to come to the stores and buy frequently. In fact, Zara customers visiton average 17 times a year; that number being only 3 or 4 times a year for their major competitors.Lastly, in order to keep the stores looking fresh and trendy; Zara invests heavily in their store layouts.They have a testing facility nearby their headquarters in Spain where different types of store layouts aretested. Each Zara store is remodelled every 5 years in order to keep up with current trends. Zara doesnot invest heavily in direct marketing, though their efforts in image/brand marketing do a great deal toattract a loyal customer base. Their cost advantage and ability to maintain brand recognition andcustomer loyalty are essential elements of Zara’s promotional strategy. Zara’s website is purely for promotional purposes, as purchases cannot be made online, enticingcustomers to visit the store in person. For more information, please visit: www.zara.com. 9|Page
  • 10. Zara’s Sustainable Competitive Advantage: Normally the retail industry takes about three to five months to come up with a new seasonalcollection. Experts need to guess on the fashion trends people want, and failure means markdowns,write offs, and most importantly, low revenues. Zara takes a counter-intuitive approach made possibleby their speed. Instead of guessing on the fashion they ask and monitor what the customer wants and isable to distribute the product within 2 weeks to the consumers. It follows trends that are successfulwith other retailers and delivers similar styles. In order to accomplish this effectively, every Zaraemployee has a PDA which is used to gather customer opinions about its products and what they wantto see in the store. This kind of data is extensively gathered on a daily basis and sent directly toheadquarters. Then recent graduates from fashion schools are employed to design the clothes that theconsumers suggest. These designs are manufactured and shipped out to the retail stores in as little asten days. All of this takes place in Spain, with no outsourced manufacturing. By avoiding outsourcing,the manufacturing time is reduced by a significant amount. A Point of Sales (POS) system is also used by every Zara store. The point of sales system allowsthe cash register to monitor what is selling and what is not, allowing for more popular items to appear inthe store during the season in which its sales are high. This system means that only those productswhich are in the highest demand will be available in stores, therefore there is more revenue. These twomethods cause most of the apparel to sell out within a week by keeping inventory low. What is truly astonishing is how Zara completely maximizes the use of their P.O.S. system. On adaily basis, reports are printed from the cash register every hour and a runner is sent to the stock roomto replenish what has just been sold. With this method, Zara ensures to keep a high majority of theirinventory on the floor always ready to be purchased. Within one regional store, Zara has the typical delegations for each employee: Store Manager,Assistant Manager, Merchandiser, and so on. A sustainable competitive advantage that Zara has is thatthey break down the duties even further. They hire employees, and along with their daily tasks, theseemployees are appointed to “manage” or be “responsible” for a specific category within the store. (Forexample; shoes, accessories, t-shirts, jackets, etc.) These employees are given the title “Responsibles”.Twice a week (2-3 days before receiving the current week’s inventory shipment) the Responsibles wouldgo around the store with a PDA and place orders for their categories. They would first download a 10 | P a g e
  • 11. report directly from Spain, and within this report, it would give detail of what items are best sellers, slowmovers, sales of their store vs. the other local branches, as well their own sales vs. themselves from theprevious year. They would also receive a menu of the latest designs and creations, and the Responsibleswould order the merchandise they feel would best sell within their location. Zara receives shipment twice a week, which they call “truck days” and the workers would cometo their branches 3 hours before store opening to receive inventory and have the shipment immediatelydisplayed on the floor to be sold. Another advantage that Zara exhibits is the vertical integration within the company. Instead ofhaving suppliers around the world, they do almost everything in Spain, allowing for delivery to go out tostores twice a week. They design, manufacture, produce and ship right from Spain, saving time. In fact,Gap, the leading clothing retailer in the world, is twelve times slower when it comes to making a newitem of clothing compared to Zara. Zara uses its own fabric and its own dyes allowing them to respondto color demands as well. They even save money on advertising since they spend less than a third of apercent of their revenue on advertising and focus on placing their stores in high traffic and premierlocations. Clothes are tagged at the production site, which allows the employees in stores to bemoreefficient in other areas of the store. Zara knows far too well that high inventory means death in the world of retail,so they have verylow inventory for each item which means it lasts for a very limited amount of time at the store. It is saidthat one never sees the same product twice at Zara. This means more revenue because mark downsare virtually non-existent. Another advantage of low inventory is that Zara does not risk substantiallosses if one product line fails since they have hundreds more in the pipeline ready to be shipped out oncommand. Evidently, Zara’s business model that relies on speed and continuous product innovation is atthe core of their sustainable competitive advantage and unmatched success in the fashion industry. 11 | P a g e
  • 12. Store FormatType, Variety, and Assortment of Merchandise: Zara stores consist of product lines for men, women, children, as well as home décor. (Thisreport will solely focus on their clothing line, and to be more specific – women’s clothing.) Zara’s clothing for women are broken up into 3 different pricing categories: Zara Women ($49.90+ Up) Zara Basic ($29.90 -$49.90, not including outerwear) Zara TRF ($4.90 - $29.90, not including outerwear) The line “Zara Women” mainly target the white collar working woman aged 25+. The style has amore avant garde/ haute couture appeal and consist of many business and workplace related piecesthat complement each other and can be worn as formal suits. Zara’s “Basic” line is more self explanatory. The pieces found here are very versatile and can beworn by any Zara female customer aged 17+. The consists of selling casual everyday t-shirts, eveningparty gowns, to business attire, at very affordable prices. It is the largest of the three sections found inZara’s women’s clothing. The “Zara TRF” line focuses more on the urban appeal for the Zara customers aged 13-25.Trendy denim as well as graphic t-shirts can be found in this section at such great deals. The line isextremely casual, so there’s always something for everyone, no matter what age. Each of these clothing lines consists of 5 sub-categories. Such categories include: LowerGarment, Upper Garment, Shoes, Cosmetics and Complements. In addition, Zaras catalogue alsoincludes a children’s clothing line. 12 | P a g e
  • 13. Level of Customer Service and Customer Convenience: In addition to very knowledgeable and well-trained sales staff and employees, Zara provides awide variety of customer service options, including: 1. Alterations: They make simple alternations from the season’s collection upon request, for a charge. The price list is available in stores. 2. Dry Cleaning: Because the merchandise moves very quickly, there are often times where the customer finds the exact product with it being the last one in the store. To ensure customer satisfaction, Zara will send the merchandise after the customer has purchased it to the dry cleaners free of charge. 3. Exchanges & Returns:By presenting a receipt, the customer can exchange or return an article purchased at any Zara store in the same country, up to a month after purchasing it. 4. Reservations: Customers may reserve articles in the shop itself for a period of time indicated in that store. 5. Methods of Payment:Payment in cash or with main debit and credit cards is available in all Zara stores. 6. Affinity Cards:In Spain, Greece, and Mexico, the Inditex group has its own card to finance customer purchases. 7. Gift Cards:Available in values of $50, $75, and $100 in Zara stores across Canada. 8. Gift receipt:At the customer’s request, Zara will issue a special receipt that does not show the price and which is normally used for exchanging or returning gifts.Location Strategy: Zara stores offer a compelling blend of fashion, quality and price offered in attractive stores inprime locations on premier commercial streets and in upscale shopping centers. The following mapdisplays the locations of Zara stores located in the GTA. 13 | P a g e
  • 14. A) Stand alone store located at 50 Bloor Street West. B) Yorkdale Shopping Center located at 3401 Dufferin Street. C) Stand alone store located at 341 Queens Street West. E) Eaton’s Shopping Center located at 220 Young Street. For the sake of this report, only one store from the GTA will be looked at in depth, which will be theZara store located inside the Eaton’s Shopping Center. Even within the mall, Zara’s location isstrategically positioned to align with its image of high quality and stylish fashions.On the following pageis the floor map of the Eaton’s Shopping Center, with the Zara store highlighted in blue. 14 | P a g e
  • 15. As you can see, the Zara store is located on the third level of the mall, which is the main level whenentering from the street entrances, namely the Young St. Entrance and Trinity Way Entrance. Thus, Zarahas positioned itself in a high traffic area since people must walk by the store as they enter the mall viathese entrances. Being located directly in front of a big department store like Sears is also a greatadvantage. The most important aspect to note is the way the Eaton’s Shopping Center is structured: Concourse:The lowest level where the food court is located. Level 1:Least expensive clothing options are found on this level. For example, The Gap and American Outfitters. The image associated with these stores is more casual and targeted towards a more youth oriented audience. Level 2:Located on this level are stores such as Le Chateau and Mexx, selling slightly more mature, and inexpensive styles to a young market. Level 3:Not necessarily the most expensive clothing options, but most certainly the more high- end of the clothing selections. For instance, Lacoste, Club Monaco, and of course Zara, which are targeted towards a more sophisticated shopper. Zara has specifically chosen this spot to coincide with the image of high fashion they want to portray and keep consistent with their overall retail strategy. The advantage of being located within the Eaton’s Shopping Center is that it is in very populatedtrade area, where mid-high income customers are the majority of shoppers since they either, live or 15 | P a g e
  • 16. work in the downtown core.The mall is also accessible by transit, both by subway and street car,increasing the mall’s reach of potential customers from other areas on Toronto, such as Scarborough.This, in turn, would increase the size of Zara’s target market.The greatest benefit of Zara being located inthis mall is that it is located near other stores that appeal to similar target markets, such as those storesalso residing on the third level of the complex. In essence, customers want to shop where they’ll find agood assortment of merchandise. This is based on the principle of cumulative attraction in which acluster of similar and complementary retailing activities will generally have greater drawing power thanisolated stores that engage in the same retailing activities. To be put simply, more shoppers come to amall for convenience rather than visiting several stand alone stores, and thus, it is more likely that moreof the target market will be drawn to this mall because of the type of stores that satisfy their similarfashion-based needs. However, this can also be a hindrance as the number of stores increasescompetition between retailers within the mall itself. That is why it is very crucial that Zara hasdifferentiated itself from other retailers with the speed and frequency in which they offer trend-settingfashions.Store Layout and Design Strategy: The display window at the front of the Zara store has a few main functions, including helpingattract and draw shoppers inside and allowing them to see the type of merchandise offered in additionto sending a visual message of the store image. Once inside it is obvious that Zara uses the typical Free-Form (or Boutique) Layout, making the customer feel more at home and the browsing experienceeasier. There are free standing fixtures and mannequins within the store, which are designed to grabthe attention of shoppers and help guide them through the store. 16 | P a g e
  • 17. Zara uses a combination of atmospherics to give customers a real shopping experience. Theyplay music that is tuned in to a specific Zara satellite radio channel, so all of the stores are in sync forthat particular season all over the world. The songs being played are a variety of the current up-beat hitsingles in Europe as well as a few songs recognized here in North America. Bright lighting is used in Zara stores to highlight all the vivid colours, fabrics, and designs usedon the merchandise. Zara strategically places pot lights aiming at the walls because the wall is one of themost valuable areas at Zara. The right side wall is usually considered the highest sales area as customershave a tendency to turn to the right when entering the store. Knowing this, Zara places its best sellingmerchandise, which is Zara Women, within that area. Another tactic Zara combines to maximize the use of the wall is that they illuminate the entiresection to draw customers to that particular area. The merchandise usually displayed in this featuredarea are; the season’s hottest trends, or an entire shelf to highlight shoes. (See picture below.) 17 | P a g e
  • 18. Zara’s interior layout strategy presents the Zara Women section to the right of the entrance,followed by the Zara Basic section to the left continuing on to the middle of the store, and then theZara TRF section located in the back as well as the fitting rooms. This presentation with the Zara Womensection in view gives off a very poised image for the company as you walk by the store. Throughout thestore, various fixtures fill and entice customers such as; tables, accessory columns, mixed displays anddonkeys. The company’s merchandising strategy heavily relies on colour presentation. It helps both thecustomers and the workers locate articles very efficiently. When the customers are trying to puttogether a specific outfit or have a particular image in mind, the attractive colour presentation gives 18 | P a g e
  • 19. them a better perspective to reassure their desires. If the customers are simply browsing, the colourschemes draw them to pick up more than item, because they pieces complement each other nicely. Onthe other hand, the workers are constantly replenishing the floor (as explained in their sustainablecompetitive advantage), whether it be runners refilling the stock every hour, or simply returning theitems discarded in the dressing rooms. With so many different SKU’s and the layouts drasticallychanging every two weeks, their colour blocking strategy is great assistance to find particularmerchandise locations. Another unique strategy Zara uses to appeal to its customers is the use of the idea-orientedpresentation method. Customers are able to get entire outfit ideas from the fully dressed mannequinsand more inspiration from the way that the merchandise is displayed. They specifically use frontalpresentation on one side of the display to present an entire outfit along with shoes, and then maximizethe space beside it by using a straight rack to keep all the available sizes of each article. Zara sets the mood, and keeps a certain image by using only wooden hangers for all of theirclothing as well as placing mirrors everywhere possible that reach from ceiling to floor. They also displaymixed fixtures and rounders right by the check-out counters to “guide” the lines and attract interestfrom customers during the final purchase. 19 | P a g e
  • 20. Point-of-Sale areas are located near the purchase counter at the back of the store. These areasare where small accessories such as earrings, necklaces, bracelets, sunglasses, etc., can be found. Theyare placed there intentionally to stimulate impulse buying while customers wait in line for transactionsto be completed.The interior design and layout of a typical Zara store. Please notice all of the design elements previously discussed. 20 | P a g e
  • 21. Retailing Mix Summary: Retail Mix Description Zara offer well-trained and knowledgeable sales staff and employees Customer Service to assist their customer and to ensure their needs are fulfilled. Zara is present in 72 countries across the world and its stores are Location situated in prime locations of the major cities. Zara stores have two basic product lines: mens clothing and womens clothing. Each of these clothing lines consists of 5 sub-categories. Merchandise, Such categories include: Lower Garment, Upper Garment, Shoes, Assortments, & Retail Cosmetics and Complements. In addition, Zaras catalogue also includes a children’s clothing line. The price mix adopted by Zara, and which has been deployed in US and Canadian market has been found to be double than its domestic regions in Spain due to the higher operational and labour cost in Pricing place. Moreover, clothing industry is labour intensive and so by adopting a human resource management strategy which has been a key for Zara in effectively controlling the cost and in turn following a competitive pricing in the market. To reflect its European trend, Zara stores are designed with clear lighting, white walls, ceiling and style related decorations, such as Store Design/display photographs, are positioned in order to create an elegant atmosphere emphasising a brand image. Zara has created marketing communicating objectives in order Communication Mix develop a strong customer base and improved sales through increasing both new and existing customers via personal store visits. SWOT AnalysisInternal Environmental Scan of Zara’sStrengths: The biggest strength of Zara is probably how hard it is to replicate their business model. To remaincompetitive in a business, one must always have an advantage over the competitors and having a modelthat is impossible to replicate makes this advantage possible. Zara is the only clothing retailer with oneproduction site, and the only one that follows consumer trends instead of creating them. As mentionedearlier, the speed in which Zara can design and produce merchandise and have it ready for sale in stores 21 | P a g e
  • 22. is their greatest strength and plays a major role in their success. The fast delivery of new products,designs and trends is only possible through their efficient distribution system aided by the use ofadvanced information technology. In addition, low inventory and lower prices give Zara a greatadvantage over competitors.Internal Environmental Scan of Zara’s Weaknesses: The one weakness that Zara has is that it only has one manufacturing and distribution center in theworld. It is both a gift and a curse. Even though it helps them follow the fast-fashion approach toapparel, there are huge risks associated with just one center. If there is a power shortage, strike or evena natural disaster in the area it will be sure to affect Zara dramatically, since the whole business relies onone geographic region. If a natural disaster affects Zara in any way, revenues could tank almostovernight.External Environmental Scan of Zara’s Opportunities: Zara currently is still in the process of infiltrating the North American market. Currently, themajority of their sales come from Europe and having greater global market penetration in NorthAmerica could add to their success. Since they have only penetrated one region of the world fully,possibility of growth is without bounds. This can be done by opening up distribution centers in Canadaand the United States in order to be more efficient than shipping all merchandise from Spain, andallowing for purchases to be made online through their website in order to attract more customers.External Environmental Scan of Zara’s Threats: The biggest threat that Zara has is the intense competition in the fashion industry as it is saturatedby countless numbers of clothing retailers, their biggest competition being from retail giants The Gapand H&M. The SWOT Summary Chart below summarizes additional threats as well as the other factorspreviously discussed. 22 | P a g e
  • 23. Table 1.1: SWOT SUMMARY CHART INTERNAL STRENGTHS WEAKNESSES Fast delivery of new products, designs The issue of cannibalization involves try to Products and trends. sell the identical exact merchandise in all the multiple Zara stores in same cities. Strong Research and development Higher Research and development cost R&D allows Zara to assess what the due to recurrent introduction of new customers want on a daily basis. products. Cost leadership strategy Operational strategy of Zara has been Pricing challenged by the competitive pricing from the competitors from developing countries. Differentiation strategy (customization, Zara and itsIT partners have been using IT unique competencies)& excellent use DOS as their operating system for all of of Information Technology their applications, But DOS is considered to be an outdated system. Due to the lack of IT investment their competitive edge may be at risk. Efficient distribution center Centralized distribution may be a Distribution hindrance in the future. EXTERNAL OPPORTUNITIES THREATS Zara target market includes young Inability to penetrate in American apparelSocial/Cultural/ generation that love fashion and are market since, American taste differ from Demographics sensitive to fashion trends. European preferences. Zara has been able to achieve strong The Euro currency which has been financial status due to its core stronger than its American counterpart Economic competencies that provide the chain may eventually become a threat due to with the competitive advantage over increase in the production costs. This its rivals. would result in decrease sales due to higher apparel prices. Establishing Distribution centers in Zara direct competition may be the largest Competitive Canada and the US. threat, especially when expanding into a new geographic territory. Their main rivals include GAP and H&M Allowing customers to use the website The website design is not an user friendly Technological as a means of purchasing items. interface. Zara entered the South American due There is growing market for Zara in ChinaRegulatory/Legal to the low trade barriers. although legal and commercial barriers in place make it difficult to launch. 23 | P a g e
  • 24. Conclusion With yearly sales grossing anapproximate 10 million dollars and new Zara stores opening upevery year, it is evidentZara is having tremendous success, which can be greatly attributed to theirexcellent retailing strategy of speed and innovation.Offering the latest fashion trendsin boomingindustry that changes almost on a daily basis, Zara consistently encourages initiative and innovation tostay ahead of the competition. Within the clothing industry, most manufacturers and retailers follow a trend based on forecastsof future consumer preferences on fashion, thus limiting many retailers to hold only a few collectivedesigns for the year. This, in fact, iswhere Zara shines and differentiates itself in the market. Zara’smodel of “instant fashion” basically allows clothes to be created just as trends are emerging, which leadsto increased sales and high turnover of stock, making Zara one of the premier companies in the markettoday. One major competitive advantage they have, which is difficult to replicate by competition, ishaving only one production site in the world. The cost is at the minimal because of the fact that thecompany does not have to go through so many chains of manufacturing and distribution channels,keeping the company at an advantage. The only downfall to this would be if the manufacturing anddistribution center were to go down in any way, the company would suffer with no alternative. In conclusion, Zara has a growing market share in the world expanding in North Americaincluding 14 stores in Canada, making them a very competitive company in such a difficult industry. Thesuccess and failure of a company rely on what their competitive advantage is, and Zara has shown withtheir innovative business model and unique retailing strategy that they can be a key player in this highlycompetitive industry. 24 | P a g e
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