This document provides an overview of the Spanish fashion retailer Zara. It discusses Zara's business model, which involves designing clothing in-house and manufacturing most products in Spain. This allows Zara to get new designs from concept to stores in just 3 weeks, much faster than competitors. Zara is able to quickly respond to the latest fashion trends and customer demands. The document also notes Zara's culture of teamwork and technology use to facilitate communication between stores and headquarters. Some legal issues regarding factory conditions that Zara has faced are also summarized.

1. 1.1-Executive Summary
Dress 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 over
the world, Europe, America, the Middle East, Asia Pacific and among its 5000+ stores (from the
INDITEX 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, offer
fashion inspired in the tastes, wishes and lifestyles of today's men and women. Zara’s clothing has
identified a significant underserved segment within it. Zara’s clothing is uniquely positioned to serve
this segment of the market because of its fast paced fashion ideas, its latest technology, its efficient
business strategies and its affordable prices.
Due to the growing of the clothing industry and the enormous unmet need in the clothing market
we see the long-term expansion and potential of Zara throughout the world. We are visionaries who
see Zara as an extreme financial launch. By achieving its sales targets, Zara will position itself for
exceptional profitability and self-funded growth.
ZARA’s Plan is to maintain and develop its position in the market by giving well in time response to
changing trends in consumer tastes through creating new designs that are suitable for all customers
at an affordable price.
“Zara constantly updates its range”. The company takes its inspiration from the catwalks, targeting
the fickle, fashionable young, one of the riskiest parts of the clothing market. Unusually for a clothes
retailer, Zara designs all its own clothes, makes most of them in Spain and distributes all of them
itself. And many observers attribute Zara's success to this control of the business from factory to
shop 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 the
biggest risk if you outsource it to people," Anne-Catherine Delaye, European fund manager at
Rothschilds said. And because they make and design it themselves, colour and design can be easily
tweaked 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 considering
a new product, it gets designed, made and critiqued in a matter of a few hours. All the employees
have to work together to finish this process. The article states that Zara “Requires employees who
are humble enough to accept feedback from colleagues, share credit with their team for winning
ideas”. Having these standards has really helped Zara grow as a company and create a strong
organizational culture. When employees go on a business trip, they fly coach. This company has a

2. built in safety net to keep group work effective. Team members are switched around to create fresh
ideas, there is competition among the teams, and continuous feedback.
Having this structure helps keep the workplace unpretentious and respectful. Zara has found the
perfect 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 these
informal exchanges. Customized handheld computers support the connection between the retail
stores and La Coruña. These PDAs augment regular (often weekly) phone conversations between
the store managers and the market specialists assigned to them. Through the PDAs and telephone
conversations, stores transmit all kinds of information to La Coruña—such hard data as orders and
sales trends and such soft data as customer reactions and the "buzz" around a new style. While any
company can use PDAs to communicate, Zara's flat organization ensures that important
conversations don't fall through the bureaucratic cracks.
Once the team selects a prototype for production, the designers refine colors and textures on a
computer-aided design system. If the item is to be made in one of Zara's factories, they transmit the
specs directly to the relevant cutting machines and other systems in that factory. Bar codes track the
cut 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 the
stores, where the communication cycle began.
The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supply
chains (and all open-loop information systems) to amplify small disturbances. A small change in
retail orders, for example, can result in wide fluctuations in factory orders after it's transmitted
through wholesalers and distributors. In an industry that traditionally allows retailers to change a
maximum of 20 percent of their orders once the season has started, Zara lets them adjust 40
percent to 50 percent. In this way, Zara avoids costly overproduction and the subsequent sales and
discounting prevalent in the industry.
“Harvard Business Review, Vol. 82, No.11, November 2004.
2.3-ZARA Legal Issues
A group of labour rights organisations has accused leading US and European clothing retailers and
brands of failing to push for improved safety conditions in factories in Bangladesh, following the
latest in a series of fatal fires at factories in the country.
Jonathan Birchall, Financial Times 15 Dec 2010
Eighteen months ago, we highlighted the appalling conditions in one of *Windy Group’s+ city centre
factories, Windy Apparels…Two of *its workers+ said they were making clothes for Zara…In Business
alerted Inditex, the owner of Zara, and their Director of Corporate Social Responsibility, Javier
Chercoles, flew to Bangladesh. [He said] "Conditions were bad… no evacuation stairs, too many

3. people." Javier Chercoles gave the factory owner… an ultimatum: close this factory and improve
conditions…if you want Inditex…to remain a customer…Neil Kearney, General Secretary of the
International Textile, Garment and Leather Workers Federation…*said+ "It's what every factory
should be moving towards… if the buyer makes the demand, the industry has to respond..."…*also
refers to Elaine Garments]
Caroline Bayley, BBC Radio 4 In Business Programme 20 Jan 2010
British woman Samantha Morshed...represents a growing number of businesses pushing to channel
Bangladesh's cheap labour into ethical, fair trade labels. She now employs more than 3,500 women
in rural areas who make 30,000 items a month that are exported to developed countries and
fashionable shops, including London-based retailers JoJo Maman Bebe and TopShop [part of
Arcadia]. [Article also refers to Metro Group, Zara (part of Inditex)
Fashion firm Zara has forced the closure of a supplier's factory after workers told the BBC they had
suffered harsh treatment there...
BBC 23 Jun 2008
ZARA Economical Analysis
Inditex, the fashion group that owns Zara, Bershka and Massimo Dutti, saw its sales and profits rise
significantly 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 gross
profits rose by 9pc to €1.74bn.
The group operates a mammoth 5,154 stores across 78 countries after opening 110 new stores in 29
countries during the quarter. The new stores include the first Zara shop in Australia. Today, the
group opened its second Australian store in Melbourne, while more firsts are being prepared in
South Africa, Taiwan and Peru.
Inditex plans to launch online collections from September in selected European markets. Zara also
plans 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 first
quarter of 2010.
Its share price rose some 26%, adding to the excitement already generated by Spain's biggest share
sale in 2001 and 2007. The shares sold internationally were more than 53 times oversubscribed.
Many investors have been attracted by the company's growth, with the firm reportedly opening a
new shop on average every three days.(news.bbc.co.uk/business)
Zara links customer demand to manufacturing, and liking manufacturing to distribution. Zara has
been running their business in fashion industry which is susceptible to seasons and quick changing
customer tastes. Zara has been approached to and considered their business as a perishable
commodity business just like a fresh baked cake or bread to be consumed quickly

4. 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 latest
developments in the fashion industry and wants fashionable, trendy and unique outfits at affordable
prices. The customer can be a man, a woman, a teenager or even a child who is interested in being
up-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 from
this a typical Zara customer can belong to any social strata and demographic segment as Zara caters
to a wide range of tastes.
Segmentation Strategy
The segmentation strategy employed by the fashion retailer Zara is based one the typical
demographics of the customers like gender, age and psychographics. However aside from this the
company 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 market
is blended by Zara in its product offering which match a variety of tastes and settings.
Targeting Strategy
Inditex with its brand Zara has targeted a wide gap in the retail market. The company targets
customers that are interested in high fashion want to be up to speed with the latest fashion trends
but are not able to afford clothes and accessories from the couture and high end boutiques. In order
to target the market, Zara strategy launches its outlets in high profile locations and provides
customers with a turnover time of 4-5 weeks for its new collections made available at a fraction of
the couture cost. This, along with the brand persona, the collection of the clothes and accessories
and the marketing campaigns pulls the target markets to the Zara stores.
Positioning Strategy
The 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 fashion
products at lower prices to accommodate their requirements. As a result the marketing strategy that
is employed by Inditex for Zara is to open stores and outlets that provide the Zara experience at high
profile locations to set the image of the brand as being trendy, hip, high fashion and accessible.
ZARA Branding
Wherever 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 CEO
Pablo Isla Álvarez de Tejera feels the stores themselves are the best way to communicate Zara’s
brand image. Zara has chosen to locate the stores in the most luxurious spots of the biggest capitals

5. in the world and to invest less money on advertising. Zara believes its shop windows are all the
advertising it needs.
The Zara clothing chain is developing rapidly, with double-digit growth even at a time of financial
crisis. Zara has officially overtaken the US giant Gap ? the first fashion retailer in the world. In the
competitive clothing industry, Zara has successfully built a worldwide famous brand thanks to their
premium 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 clothing
until it arrives in stores. This “fast fashion” concept and operation allow Zara to always provide the
most fashionable clothes to their customers, and the ever-renewed collections definitely help build
brand loyalty.
Although many international fashion companies are perfectly aware of Zara’s effective branding
methods, no one has been able to catch up. Zara has built a powerful clothing brand which should
continue to thrive in years to come.
Competitor Analysis
“H&M Hennes & Mauritz AB (H&M, a Sweden-based Company active in the retail clothing
industry. The Company, like Zara, is engaged in product design, manufacturing and retailing of
clothing and as well as accessories. The company’s products range from various clothing, which
including underwear and sportswear, for men, women, children and teenagers, and cosmetic
products and accessories. The Company has 20 production offices around the world, buying goods
from approximately 700 independent suppliers in and around Asia and in Europe. H&M operates
1,345 retail outlets in 24 countries with its largest markets in Germany, Sweden and the United
Kingdom. 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 Company's head
office is placed in Stockholm, Sweden.
Competition in the fashion industry has always been tough. H&M Hennes & Mauritz , has
always been Zara competitor in this industry. H&M has been in business since 1947, while Zara
started business in 1975. Experience can play a big role in business, but strategy has been the edge
of Zara to gain competitive advantage in the business. Zara has gone against the conventional
strategy where other company dare not pursue. The strategy of Zara is unconventional, other
companies in fashion retail uses a different strategy. Zara’s strategy works in making the products of
the company more anticipated by the customers. The strategy also gives the company the full
responsibility 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 we
have shown that it gives us more flexibility in production, sales and stock management," said Inditex
chief executive
Early this year, Zara’s market performance is inclining in a steady phase. This shows that
Zara’s market performance against their competitor is doing well. The tables below shows both Zara
and H&M marketing performance in the start of this year alone:

6. 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 of
average assets and equity as well, against its competitor H&M. This shows that the company’s
starting performance is at a good start. And it will likely continue to be productive in the long run.

7. Drawbacks
Although Zara has a successful business model that differs from that of traditional
retailers, it also has disadvantages that can affect its sustainable growth. Due its model, Zara’s
weaknesses also differ from the traditional retailer. Zara holds around 86% of Inditex’s total
international 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 great
deal of capital into Zara. Inditex has contributed their extensive international sales to Zara and
said “Zara was the principal reason Inditex’s sales were increasingly international” . If Zara
fails in the future, Inditex will have to totally re-formulate their firm’s strategies and may possibly
face an internal meltdown.
Zara also has an inability to penetrate the American apparel market. This may be due to
American tastes that differ from European preferences. More importantly, however, Zara has not
been able to develop a strong supply chain strategy in the U.S. like they have in Europe. Their
European strategy includes, having a strong production and distribution facility in their home
country in order to have short production and lead times. Zara has not invested in distribution
facilities in the Americas, which is a threat to their U.S. selling abilities since the U.S. makes up
29% 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 able
to supply more retail locations due to their “centralized logistics model”.
Zara’s strategy also creates some weaknesses. Their vertical integration has more
advantages than drawbacks but it is important to recognize its limitations. Vertical
integration often leads to the inability to acquire economies of scale, which means they
cannot 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 support
their own high capital investments for their chains and be able to financially back their

8. “technology and skills beyond those currently available within the organization”. Zara’s speedy and
recurrent introduction of new products incurs increased costs as
well. They have higher research and development costs. They also have elevated costs
due to the constant changeover of production techniques to create their different apparel
lines. That also means that employees must be trained in order to use the new
manufacturing techniques, which again leads to increased costs. Traditional retailers do
not experience higher costs in all of these areas.
Threats
Like 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 threat
for the Spanish Zara chain. In July 2002 the euro was the only currency accepted for all
transactions in member countries of the European Union (“Euro”). If the euro becomes stronger
against the American dollar, than production costs will increase for European producers. The
euro switchover will increase Zara’s cost of production. That cost increase will be carried over to
the consumer with higher prices. This threat of the euro may also create a threat of decreased
sales because apparel prices will be too high for the traditional Zara shopper. Another threat lies
with the quota elimination under the World Trade Organization agreement on textiles and
clothing expiring in 2005. Traditional retailers who outsource goods can benefit from greater
access to less expensive manufacturing. Zara will suffer from a high euro and the threat of its
competition offering more inexpensive products.
Zara’s direct competition may be their largest threat, especially when expanding into new
geographic territory. Almost any retailer can be a threat to Zara due to their wide range of
merchandise 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 merchandise
groupings. The Gap is one of these competitors because they are also international and sell the
same range of merchandise with a less trendy style. H&M (Hennes and Mauritz) is probably

9. 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 Analysis
The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supply
chains (and all open-loop information systems) to amplify small disturbances. A small change in
retail orders, for example, can result in wide fluctuations in factory orders after it's transmitted
through wholesalers and distributors. In an industry that traditionally allows retailers to change a
maximum of 20 percent of their orders once the season has started, Zara lets them adjust 40
percent to 50 percent. In this way, Zara avoids costly overproduction and the subsequent sales and
discounting prevalent in the industry.
Ansoff matrix analyze ZARA
Market penetration strategy
How 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 major
weaknesses 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 distribution
network, 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 and
again to check out the latest styles.
In contrast to ZARA, H&M uses a slightly different strategy. Around one quarter of its stock is made
up of fast-fashion items that are designed in-house and farmed out to independent factories. As at
ZARA, these items move quickly through the stores and are replaced often by fresh designs. But
H&M also keeps a large inventory of basic, everyday items sourced from cheap Asian factories.

10. ZARA's success is because at least half its factories are in Europe, where wages are many times
higher than in Asia and Africa. But to maintain its quick inventory turnover, the company must
reduce shipping time to a minimum. The fast-fashion approach also helps ZARA reduce its exposure
to fashion faux pas.
Philip Kotler discussed that, the secret to ZARA’s success is its control over almost every aspect of
the supply chain, from design and production to its own worldwide distribution network. ZARA
makes 40 percent of its own fabrics and produces more than half of its own clothes, rather than
relying on a hodgepodge of slow –moving suppliers. New styles take shape in ZARA’s own design
centers, 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 the
need 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 in
ZARA stores within a month, versus an industry average of nine months.
Market development strategy
How 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 is
timeless, classic and unique. In fact, it is a good idea to anaylze student’s opinion on fashion. It is
really 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 an
inventory-to-sales of 7% compared to an industry average of 14%. Their profitability in European
operations (15%) is fifty percent higher than that of its major competitors. From the Inditex’ annual
report, the researcher that ZARA focus on the developed fashion market (or country). For example, it
has 20 shops in Belgium, 48 shops in Portugal, 98 shops in France. Compared with 7 shops in China, 3
shops in Thailand.
Product development strategy
Management should also consider new- product possibilities. ZARA develop new features quickly
because 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 target
customers are a great number of people that are eager to purchase fashion while quite sensitive to
prices. They want to be different, unique. The relentless introduction of new products in small
quantities at fast speed and at affordable prices seems to be the answer to the large scale
customization requirements of the target customers.
ZARA also has super business teams which constantly monitor external developments – consumers
on catwalks, at airports, shopping areas, sport events, movies and other events. It seems that ZARA

11. has some 200 of such teams travelling the world with the aim of discovering new fashion behaviour
and 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 create
approximately 40,000 new designs from which about 10, 000 are so quickly selected for and put into
production.
Most important thing is, instead of more quantities per style, ZARA produces more styles, roughly
12,000 a year. Thus, even if a style sells out very quickly, there are new styles already waiting to take
up the space.
Diversification strategy
Diversification growth makes sense when good opportunities can be found outside the present
business. A good opportunity is one in which the industry is highly attractive and the company has
the mix of business strengths to be successful.
ZARA could seek new products that have technological or marketing synergies with existing product
line, even though the new products themselves may appeal to a different group of customers. It
might start a computer – tape or information technology aided manufacturing operation. For
example, once the team selects a prototype for production, the designers refine colours and
textures on a computer-aided design system. If the item is to be made in one of ZARA's 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 supply
chains (and all open-loop information systems) to amplify small disturbances. A small change in
retail orders, for example, can result in wide fluctuations in factory orders after it's transmitted
through wholesalers and distributors. In an industry that traditionally allows retailers to change a
maximum of 20 percent of their orders once the season has started, ZARA lets them adjust 40
percent to 50 percent. In this way, ZARA avoids costly overproduction and the subsequent sales and
discounting prevalent in the industry.
References
Jones, Gareth. (2007). Introduction to Business: How Companies Create Value for People. Marketing
and 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. Human
Resource Management (pp. 426-427) New York, NY: McGraw-Hill Irwin.

12. Ferdows, K., M.A. Lewis, J.A.D. Machuca. (2004). Rapid-fire fulfillment. Harvard Business Review,
82(11)
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