1.1-Executive SummaryDress the World’ is ZARA. Fashion is more than clothing; it’s a part of our live. We live in Fashion.ZARA is a member of the INDITEX group, a Spanish group. ZARA have established its stores all overthe world, Europe, America, the Middle East, Asia Pacific and among its 5000+ stores (from theINDITEX group), Hong Kong shares 8 ZARA stores from the whole wide world. Zara offers the latest trends in international fashion in an environment of thought-out design.Its stores located in the main commercial areas of cities across the Europe, America and Asia, offerfashion inspired in the tastes, wishes and lifestyles of todays men and women. Zara’s clothing hasidentified a significant underserved segment within it. Zara’s clothing is uniquely positioned to servethis segment of the market because of its fast paced fashion ideas, its latest technology, its efficientbusiness strategies and its affordable prices.Due to the growing of the clothing industry and the enormous unmet need in the clothing marketwe see the long-term expansion and potential of Zara throughout the world. We are visionaries whosee Zara as an extreme financial launch. By achieving its sales targets, Zara will position itself forexceptional profitability and self-funded growth.ZARA’s Plan is to maintain and develop its position in the market by giving well in time response tochanging trends in consumer tastes through creating new designs that are suitable for all customersat an affordable price.“Zara constantly updates its range”. The company takes its inspiration from the catwalks, targetingthe fickle, fashionable young, one of the riskiest parts of the clothing market. Unusually for a clothesretailer, Zara designs all its own clothes, makes most of them in Spain and distributes all of themitself. And many observers attribute Zaras success to this control of the business from factory toshop floor.It means that it takes just three weeks to move from notepad sketch to the clothes hanger in a shop.Not bad considering the industry average is nine months."They are producing the fashionable clothes themselves, which are the clothes where you take thebiggest risk if you outsource it to people," Anne-Catherine Delaye, European fund manager atRothschilds said. And because they make and design it themselves, colour and design can be easilytweaked to what the customer wants.2.1-ZARA Culture At Zara, the employees work as a team to get the job done successfully. When they are consideringa new product, it gets designed, made and critiqued in a matter of a few hours. All the employeeshave to work together to finish this process. The article states that Zara “Requires employees whoare humble enough to accept feedback from colleagues, share credit with their team for winningideas”. Having these standards has really helped Zara grow as a company and create a strongorganizational culture. When employees go on a business trip, they fly coach. This company has a
built in safety net to keep group work effective. Team members are switched around to create freshideas, there is competition among the teams, and continuous feedback.Having this structure helps keep the workplace unpretentious and respectful. Zara has found theperfect recipe for success!(“Fast Fashion Lessons” by Donald Sull and Stefano Turconi)2.2-ZARA Technology Zara is careful about the way it deploys the latest information technology tools to facilitate theseinformal exchanges. Customized handheld computers support the connection between the retailstores and La CoruÃ±a. These PDAs augment regular (often weekly) phone conversations betweenthe store managers and the market specialists assigned to them. Through the PDAs and telephoneconversations, stores transmit all kinds of information to La CoruÃ±a—such hard data as orders andsales trends and such soft data as customer reactions and the "buzz" around a new style. While anycompany can use PDAs to communicate, Zaras flat organization ensures that importantconversations dont fall through the bureaucratic cracks.Once the team selects a prototype for production, the designers refine colors and textures on acomputer-aided design system. If the item is to be made in one of Zaras factories, they transmit thespecs directly to the relevant cutting machines and other systems in that factory. Bar codes track thecut pieces as they are converted into garments through the various steps involved in production(including sewing operations usually done by subcontractors), distribution, and delivery to thestores, where the communication cycle began.The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supplychains (and all open-loop information systems) to amplify small disturbances. A small change inretail orders, for example, can result in wide fluctuations in factory orders after its transmittedthrough wholesalers and distributors. In an industry that traditionally allows retailers to change amaximum of 20 percent of their orders once the season has started, Zara lets them adjust 40percent to 50 percent. In this way, Zara avoids costly overproduction and the subsequent sales anddiscounting prevalent in the industry.“Harvard Business Review, Vol. 82, No.11, November 2004.2.3-ZARA Legal IssuesA group of labour rights organisations has accused leading US and European clothing retailers andbrands of failing to push for improved safety conditions in factories in Bangladesh, following thelatest in a series of fatal fires at factories in the country.Jonathan Birchall, Financial Times 15 Dec 2010Eighteen months ago, we highlighted the appalling conditions in one of *Windy Group’s+ city centrefactories, Windy Apparels…Two of *its workers+ said they were making clothes for Zara…In Businessalerted Inditex, the owner of Zara, and their Director of Corporate Social Responsibility, JavierChercoles, flew to Bangladesh. [He said] "Conditions were bad… no evacuation stairs, too many
people." Javier Chercoles gave the factory owner… an ultimatum: close this factory and improveconditions…if you want Inditex…to remain a customer…Neil Kearney, General Secretary of theInternational Textile, Garment and Leather Workers Federation…*said+ "Its what every factoryshould be moving towards… if the buyer makes the demand, the industry has to respond..."…*alsorefers to Elaine Garments]Caroline Bayley, BBC Radio 4 In Business Programme 20 Jan 2010British woman Samantha Morshed...represents a growing number of businesses pushing to channelBangladeshs cheap labour into ethical, fair trade labels. She now employs more than 3,500 womenin rural areas who make 30,000 items a month that are exported to developed countries andfashionable shops, including London-based retailers JoJo Maman Bebe and TopShop [part ofArcadia]. [Article also refers to Metro Group, Zara (part of Inditex)Fashion firm Zara has forced the closure of a suppliers factory after workers told the BBC they hadsuffered harsh treatment there...BBC 23 Jun 2008ZARA Economical AnalysisInditex, the fashion group that owns Zara, Bershka and Massimo Dutti, saw its sales and profits risesignificantly in the first quarter of its 2011 financial year.Sales across the group increased 11pc to €2.96bn in the three months to end-April 2011, while grossprofits rose by 9pc to €1.74bn.The group operates a mammoth 5,154 stores across 78 countries after opening 110 new stores in 29countries during the quarter. The new stores include the first Zara shop in Australia. Today, thegroup opened its second Australian store in Melbourne, while more firsts are being prepared inSouth Africa, Taiwan and Peru.Inditex plans to launch online collections from September in selected European markets. Zara alsoplans to begin e-commerce sales in the US from September 7, according to the parent firm.Inditex’s net income came in at €332m for the three-month period, about 10pc more than in the firstquarter of 2010.Its share price rose some 26%, adding to the excitement already generated by Spains biggest sharesale in 2001 and 2007. The shares sold internationally were more than 53 times oversubscribed.Many investors have been attracted by the companys growth, with the firm reportedly opening anew shop on average every three days.(news.bbc.co.uk/business)Zara links customer demand to manufacturing, and liking manufacturing to distribution. Zara hasbeen running their business in fashion industry which is susceptible to seasons and quick changingcustomer tastes. Zara has been approached to and considered their business as a perishablecommodity business just like a fresh baked cake or bread to be consumed quickly
ZARA Segmentation and targeting:Customer Profiles A typical Zara customer as identified by the company is a person who is up to date with the latestdevelopments in the fashion industry and wants fashionable, trendy and unique outfits at affordableprices. The customer can be a man, a woman, a teenager or even a child who is interested in beingup-to-date. As Zara has its origins in Spanish fashion and is primarily and European fashion brand,the customers of Zara also are also heavily influenced and moved by European fashion. Aside fromthis a typical Zara customer can belong to any social strata and demographic segment as Zara catersto a wide range of tastes.Segmentation StrategyThe segmentation strategy employed by the fashion retailer Zara is based one the typicaldemographics of the customers like gender, age and psychographics. However aside from this thecompany also targets customer is based on their sense of fashion and style e.g., contemporary,trendy, classic, grunge, Latino etc. (Safe, 2007) The ethnicity of the brand as well as its target marketis blended by Zara in its product offering which match a variety of tastes and settings.Targeting StrategyInditex with its brand Zara has targeted a wide gap in the retail market. The company targetscustomers that are interested in high fashion want to be up to speed with the latest fashion trendsbut are not able to afford clothes and accessories from the couture and high end boutiques. In orderto target the market, Zara strategy launches its outlets in high profile locations and providescustomers with a turnover time of 4-5 weeks for its new collections made available at a fraction ofthe couture cost. This, along with the brand persona, the collection of the clothes and accessoriesand the marketing campaigns pulls the target markets to the Zara stores.Positioning StrategyThe main objective for positioning the Zara brand in a market as mentioned by the company is to‘democratize fashion’. The company aims to provide its customers with trendy and high fashionproducts at lower prices to accommodate their requirements. As a result the marketing strategy thatis employed by Inditex for Zara is to open stores and outlets that provide the Zara experience at highprofile locations to set the image of the brand as being trendy, hip, high fashion and accessible.ZARA BrandingWherever you go shopping in the world— Paris Avenue des Champs-Elysees, New York Fifth Avenue,London Oxford Street, or Tokyo Ginza— you will always come across a Zara store. The retailer’s CEOPablo Isla Álvarez de Tejera feels the stores themselves are the best way to communicate Zara’sbrand image. Zara has chosen to locate the stores in the most luxurious spots of the biggest capitals
in the world and to invest less money on advertising. Zara believes its shop windows are all theadvertising it needs.The Zara clothing chain is developing rapidly, with double-digit growth even at a time of financialcrisis. Zara has officially overtaken the US giant Gap ? the first fashion retailer in the world. In thecompetitive clothing industry, Zara has successfully built a worldwide famous brand thanks to theirpremium locations as well as a unique management system of design, production and supply chains.Unlike other fashion brands, it takes Zara only 10 to 14 days from the time they design new clothinguntil it arrives in stores. This “fast fashion” concept and operation allow Zara to always provide themost fashionable clothes to their customers, and the ever-renewed collections definitely help buildbrand loyalty.Although many international fashion companies are perfectly aware of Zara’s effective brandingmethods, no one has been able to catch up. Zara has built a powerful clothing brand which shouldcontinue to thrive in years to come.Competitor Analysis “H&M Hennes & Mauritz AB (H&M, a Sweden-based Company active in the retail clothingindustry. The Company, like Zara, is engaged in product design, manufacturing and retailing ofclothing and as well as accessories. The company’s products range from various clothing, whichincluding underwear and sportswear, for men, women, children and teenagers, and cosmeticproducts and accessories. The Company has 20 production offices around the world, buying goodsfrom approximately 700 independent suppliers in and around Asia and in Europe. H&M operates1,345 retail outlets in 24 countries with its largest markets in Germany, Sweden and the UnitedKingdom. During 2006, H&M opened 168 new stores, primarily in the United States, Spain, Germany,France and Canada, and launched of online sales outside the Nordic region. The Companys headoffice is placed in Stockholm, Sweden. Competition in the fashion industry has always been tough. H&M Hennes & Mauritz , hasalways been Zara competitor in this industry. H&M has been in business since 1947, while Zarastarted business in 1975. Experience can play a big role in business, but strategy has been the edgeof Zara to gain competitive advantage in the business. Zara has gone against the conventionalstrategy where other company dare not pursue. The strategy of Zara is unconventional, othercompanies in fashion retail uses a different strategy. Zara’s strategy works in making the products ofthe company more anticipated by the customers. The strategy also gives the company the fullresponsibility in managing all the business processes; form designing, to production, to shipment,etc. This allows the company to focus on each process, making each process vital. "Investment banks used to say that this model (vertical market strategy) did not work, but wehave shown that it gives us more flexibility in production, sales and stock management," said Inditexchief executive Early this year, Zara’s market performance is inclining in a steady phase. This shows thatZara’s market performance against their competitor is doing well. The tables below shows both Zaraand H&M marketing performance in the start of this year alone:
Quarterly(Jan 10) Annual(2009) Annual(TTM)Net Profit Margin 14.66% 12.32% 12.32%Operating Margin 19.05% 16.56% 16.56%EBITD Margin - 21.84% 21.84%Return on Average Assets 26.39% 18.46% 18.46%Return on Average Equity 45.06% 31.57% 31.57%Employees 69,240 - -Table1: Key Stats & Ratios (ZARA) Quarterly(Feb 10) Annual(2008) Annual(TTM)Net Profit Margin 13.72% 15.79% 16.11%Operating Margin 19.22% 22.36% 22.75%EBITD Margin - 24.74% 25.15%Return on Average Assets 25.05% 31.41% 31.20%Return on Average Equity 31.74% 40.21% 38.91%Employees 40,368 - -Table2: Key Stats & Ratios (H&M) The table shows that as of the start this year Zara has been very productive in terms of return ofaverage assets and equity as well, against its competitor H&M. This shows that the company’sstarting performance is at a good start. And it will likely continue to be productive in the long run.
DrawbacksAlthough Zara has a successful business model that differs from that of traditionalretailers, it also has disadvantages that can affect its sustainable growth. Due its model, Zara’sweaknesses also differ from the traditional retailer. Zara holds around 86% of Inditex’s totalinternational sales-a significantly high number for an organization that has 7 other chains. With that,Inditex is putting all of their eggs into one basket by sinking a greatdeal of capital into Zara. Inditex has contributed their extensive international sales to Zara andsaid “Zara was the principal reason Inditex’s sales were increasingly international” . If Zarafails in the future, Inditex will have to totally re-formulate their firm’s strategies and may possiblyface an internal meltdown.Zara also has an inability to penetrate the American apparel market. This may be due toAmerican tastes that differ from European preferences. More importantly, however, Zara has notbeen able to develop a strong supply chain strategy in the U.S. like they have in Europe. TheirEuropean strategy includes, having a strong production and distribution facility in their homecountry in order to have short production and lead times. Zara has not invested in distributionfacilities in the Americas, which is a threat to their U.S. selling abilities since the U.S. makes up29% of the total apparel market. This may make them “subject to diseconomies of scale”,which means that though are aware of how to quickly supply 1,000 stores, they may not be ableto supply more retail locations due to their “centralized logistics model”.Zara’s strategy also creates some weaknesses. Their vertical integration has moreadvantages than drawbacks but it is important to recognize its limitations. Verticalintegration often leads to the inability to acquire economies of scale, which means theycannot gain the advantages of producing large quantities of goods for a discounted rate.Higher costs are then incurred for the Inditex Corporation. Inditex also has to supporttheir own high capital investments for their chains and be able to financially back their
“technology and skills beyond those currently available within the organization”. Zara’s speedy andrecurrent introduction of new products incurs increased costs aswell. They have higher research and development costs. They also have elevated costsdue to the constant changeover of production techniques to create their different apparellines. That also means that employees must be trained in order to use the newmanufacturing techniques, which again leads to increased costs. Traditional retailers donot experience higher costs in all of these areas.ThreatsLike traditional retailers, Zara has a threat of failure that can harm its sustainable growth.The European switchover to the common currency called the euro has created the potential threatfor the Spanish Zara chain. In July 2002 the euro was the only currency accepted for alltransactions in member countries of the European Union (“Euro”). If the euro becomes strongeragainst the American dollar, than production costs will increase for European producers. Theeuro switchover will increase Zara’s cost of production. That cost increase will be carried over tothe consumer with higher prices. This threat of the euro may also create a threat of decreasedsales because apparel prices will be too high for the traditional Zara shopper. Another threat lieswith the quota elimination under the World Trade Organization agreement on textiles andclothing expiring in 2005. Traditional retailers who outsource goods can benefit from greateraccess to less expensive manufacturing. Zara will suffer from a high euro and the threat of itscompetition offering more inexpensive products.Zara’s direct competition may be their largest threat, especially when expanding into newgeographic territory. Almost any retailer can be a threat to Zara due to their wide range ofmerchandise categories. Zara offers clothing and accessories for men, women, maternity,children, and baby. Many other retailers also offer goods to one or all of those merchandisegroupings. The Gap is one of these competitors because they are also international and sell thesame range of merchandise with a less trendy style. H&M (Hennes and Mauritz) is probably
Zara’s most similar and threatening competitor. They too have been quick to “internationalize”,which allows them to gain sales in countries outside their native Sweden.Channel AnalysisThe constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supplychains (and all open-loop information systems) to amplify small disturbances. A small change inretail orders, for example, can result in wide fluctuations in factory orders after its transmittedthrough wholesalers and distributors. In an industry that traditionally allows retailers to change amaximum of 20 percent of their orders once the season has started, Zara lets them adjust 40percent to 50 percent. In this way, Zara avoids costly overproduction and the subsequent sales anddiscounting prevalent in the industry.Ansoff matrix analyze ZARAMarket penetration strategyHow does ZARA use intensive growth strategies to increase its sales? The first step is market –penetration strategy.ZARA encouraged its current customers to buy more. This work when ZARA noticed majorweaknesses in competitors’ product or marketing programs.For example, compared with Swedish retailer Hennes& Mauritz (H&M), ZARA moves fast. With an in-house design team based in La Coruña, Spain, and a tightly controlled factory and distributionnetwork, the company says it can take a design from drawing board to store shelf in just two weeks.That lets ZARA introduce new items every week, which keeps customers coming back again andagain to check out the latest styles.In contrast to ZARA, H&M uses a slightly different strategy. Around one quarter of its stock is madeup of fast-fashion items that are designed in-house and farmed out to independent factories. As atZARA, these items move quickly through the stores and are replaced often by fresh designs. ButH&M also keeps a large inventory of basic, everyday items sourced from cheap Asian factories.
ZARAs success is because at least half its factories are in Europe, where wages are many timeshigher than in Asia and Africa. But to maintain its quick inventory turnover, the company mustreduce shipping time to a minimum. The fast-fashion approach also helps ZARA reduce its exposureto fashion faux pas.Philip Kotler discussed that, the secret to ZARA’s success is its control over almost every aspect ofthe supply chain, from design and production to its own worldwide distribution network. ZARAmakes 40 percent of its own fabrics and produces more than half of its own clothes, rather thanrelying on a hodgepodge of slow –moving suppliers. New styles take shape in ZARA’s own designcenters, supported by real-time sales data. New designs feed into ZARA manufacturing centers,which ship finished products directly to 450 ZARA stores in 30 countries, saving time, eliminating theneed for warehouses, and keeping inventories low. Effective vertical integration makes ZARA faster,more flexible, and more efficient than international competitors such as Gap, Benetton, and H&M.ZARA can make a new line from start to finish in just three weeks, so a look seen on MTV can be inZARA stores within a month, versus an industry average of nine months.Market development strategyHow does ZARA use a market development strategy?First, it identified potential users groups in the current sales areas.For example, some customers believe that Gap is for highschoolers and college students. ZARA istimeless, classic and unique. In fact, it is a good idea to anaylze student’s opinion on fashion. It isreally a big market.Second, ZARA consider selling in new locations in new market.ZARA’s parent company, Inditex, got fastest growing clothing manufacturer in the world. ZARA,Inditex’s fastest growing division, turns its inventory twice as fast as major competitors, with aninventory-to-sales of 7% compared to an industry average of 14%. Their profitability in Europeanoperations (15%) is fifty percent higher than that of its major competitors. From the Inditex’ annualreport, the researcher that ZARA focus on the developed fashion market (or country). For example, ithas 20 shops in Belgium, 48 shops in Portugal, 98 shops in France. Compared with 7 shops in China, 3shops in Thailand.Product development strategyManagement should also consider new- product possibilities. ZARA develop new features quicklybecause it has a fast development from concept to point of sale. On average, this takes 6 weeks.ZARA’s “affordable fashion” positioning clearly denotes that it’s not a luxury brand, its targetcustomers are a great number of people that are eager to purchase fashion while quite sensitive toprices. They want to be different, unique. The relentless introduction of new products in smallquantities at fast speed and at affordable prices seems to be the answer to the large scalecustomization requirements of the target customers.ZARA also has super business teams which constantly monitor external developments – consumerson catwalks, at airports, shopping areas, sport events, movies and other events. It seems that ZARA
has some 200 of such teams travelling the world with the aim of discovering new fashion behaviourand trends. This helps explain why ZARA’s team, which consists of passionate and able designers,experienced market specialists and procurement and production planners, is able to annually createapproximately 40,000 new designs from which about 10, 000 are so quickly selected for and put intoproduction.Most important thing is, instead of more quantities per style, ZARA produces more styles, roughly12,000 a year. Thus, even if a style sells out very quickly, there are new styles already waiting to takeup the space.Diversification strategyDiversification growth makes sense when good opportunities can be found outside the presentbusiness. A good opportunity is one in which the industry is highly attractive and the company hasthe mix of business strengths to be successful.ZARA could seek new products that have technological or marketing synergies with existing productline, even though the new products themselves may appeal to a different group of customers. Itmight start a computer – tape or information technology aided manufacturing operation. Forexample, once the team selects a prototype for production, the designers refine colours andtextures on a computer-aided design system. If the item is to be made in one of ZARAs factories,they transmit the specs directly to the relevant cutting machines and other systems in that factory.The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supplychains (and all open-loop information systems) to amplify small disturbances. A small change inretail orders, for example, can result in wide fluctuations in factory orders after its transmittedthrough wholesalers and distributors. In an industry that traditionally allows retailers to change amaximum of 20 percent of their orders once the season has started, ZARA lets them adjust 40percent to 50 percent. In this way, ZARA avoids costly overproduction and the subsequent sales anddiscounting prevalent in the industry.ReferencesJones, Gareth. (2007). Introduction to Business: How Companies Create Value for People. Marketingand Product Development (pp. 331-332). New York, NY: McGraw-Hill Irwin.Jones, Gareth. (2007). Introduction to Business: How Companies Create Value for People.Information Technology and E-Commerce (pp. 295). New York, NY: McGraw-Hill Irwin.Jones, Gareth. (2007). Introduction to Business: How Companies Create Value for People. Finance(pp. 494) New York, NY: McGraw-Hill Irwin.Jones, Gareth. (2007). Introduction to Business: How Companies Create Value for People. HumanResource Management (pp. 426-427) New York, NY: McGraw-Hill Irwin.
Ferdows, K., M.A. Lewis, J.A.D. Machuca. (2004). Rapid-fire fulfillment. Harvard Business Review,82(11)Retrieved March 21, 2009, from http://www.Zara.comhttp://news.bbc.co.uk/1/hi/business/1346473.stmnews.bbc.co.uk/1/hi/business