zara's fast-fashion edge
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Zara:The Largest Spanish Clothing Company Owned by Inditex
Prepared by: Shaheen Sardar
SCM Lab. Department of Industrial and Management
Engineering, Hanyang University, South Korea.
Zara, global fast-fashion retailer and largest chain in Inditex group
ZARA “Vision”
“ZARA is committed to
satisfying the desires of its customers.
As a result we promise
to continuously innovate our business
and
to provide new designs made from quality materials that are affordable.”
ZARA “Mission Statement”
“Through its business model,
Zara aims
to contribute to the sustainable development
of society and that of the environment with which we interact.”
What we know about Zara and its
history?
• Zara’s founder is the first richest person in
Spain and the third richest person in the
world (2013). This person is Amancio
Ortega (Born: March 28, 1936).
His doughter:
Marta Ortega
Inditex founder
What we know about Amancio Ortega?
Amancio began working as a tailor's assistant in his hometown
In 1963 he decided to start a business and
he thougt the clothing company Goa. This
business began to progress and that in
addition to selling began to distribute.
Amancio Ortega was born in La Coruna.
THE CHAIN’S NAME:
In 1975, the first Zara store was founded
in La Coruna.
In 1988 Zara’s company
opened the first store
outside Spain.
In 2010 Zara’s company opened
his first online shop.
p
o
r
t
u
g
a
l
Perceptual Map
Fashion Value
Pri
ce
Everyday Low quality
X
X
prices
Zara
Armani
Hilfiger
Design
Feedback
Cut
Production
Sale
Promotion
Display
Shipment
Outsource
None
Outsource
Outsource
Outsource
Promotion
Outsource
Outsource
Design
Outsource
Outsource
Outsource
Sale
Outsource
Display
Co-OP
CONTROL
Head Office &
Design lab.
Manufacturing
Logistics
Europe Production Asian Production
Cost: $$$$$$$$$$
Fashion Value: ZZZZZZZZZZ
Cost: $$
Fashion Value: ZZZZZ
High fashion suits & skirts Commoditized eyewear and plain shirts
Competitors Copying Zara Management
H&M Once a week shipments
Target Limited supply designers
Benetton Mid-season lineup adjustments
Patagonia Increased seasonal shipments
0
5
10
15
2003 2004 2005 2006 2007
Zara
Gap
H&M
Benetton
Sales in Billions of $
Profit in millions
0
1000
2000
2003 2004 2005 2006 2007
Zara
Gap
More about Zara
Zara’s company is owned by Inditex group.
Inditex group contains Zara and more
different brands.
Zara clothing offers quality trend to an audience:
female
male
adolescent
child.
From Zara derive other shops
like:
Zara home
Zara shoes
Zara accesories
This chain of Spanish fashion stores has more
than 200 designers and a higher number of
models.
Zara’s collections are small and sell out
quickly.
Zara has no advertising, the only trade
exhibition is based on trucks
,storefronts,catalog and in the zara bag.
ZARA STORES:
In Zara:
customer
first
ZARA
• In Spain Zara’s company has:
452 stores and 131 of them with Zara kids
(2013)
Zara Global expansion:
ZARA “Production Facilities”
60%
Spain
20%
Europe 20%
Asia
ZARA “Summary”
Owned by Inditex
• Based in La Coruna, Spain• 1947 stores in 87 countries• Fast fashion strategy• 30,000 designs per year• 40% of designs produce in-house• Stock updated twice a week• Vertical Model – limited outsourcing• Zero advertisement
Where are Zara stores in 2013?
• 1947 stores in 87 countries.
• 77% of stores are outside Spain.
• 166 Kiddy's Class stores out of 1947 stores.
Where are Zara stores in 2013?
Where are Zara stores in 2013?
Where are Zara stores in 2013?
• Zara’s consumers are young, highly sensitive to latest fashion trends .
• Zara sells apparel, footwear and accessories for women, men and children .
• Zara offers fashion at affordable price by following the most up to date fashion trends .
Zara Target & price
Inditex
• Founder: Amancio Ortega Gaona
• He Thought:
Consumer would regard clothes
as a perishable commodity just like yoghurt,
bread or fish to be consumed quickly,
rather than
stored in cupboards, and he has gone about building a retail business that provides “Freshly
Baked Clothes.”
Inditex CompaniesNumber of
Stores (2013)
Year of
Creation
1. Zara 1781 1975
2. Pull and Bear 825 1991
3. Massimo Dutti 634 1995
4. Bershka 910 1998
5. Stradivarius 816 1999
6. Oysho 533 2001
7. Zara Kids (Kiddy's Class) 166 2001
8. Zara Home 363 2003
9. Uterque 87 2008
Total Stores (2013) 6115
INDITEX
2012
Revenue 13.79 billion
Operating income 2.522 billion
Profit 1.932 billion
Total Assets 10.95 billion
Total equity 7.455 billion
Employees 120,000
INDITEX “Growth”
Fiscal Year 2012 2011 12/11
Net sales (millions of euros) 15,946 13,793 16%
Net profit (millions of euros) 2,361 1,932 22%
No of stores 6,009 5,527 482
No of markets 86 82 4
Employees 120,314 109,512 10,802
Total Stores (2013) 6115
Fiscal Year 2013 2012 13/12
Net sales (millions of euros) 7,655 7,239 6%
Gross profit (millions of euros) 4,486 4,313 4%
Net income (millions of euros) 951 944 1%
INDITEX “Gross margin and Operating expenses”
% on sales 2013 2012 2011
Gross margin 58.6% 59.6% 58.4%
Gross profit growth of 4% or € 4.5 billion
Millions of euros 2013 2012 13/12
Operating expenses 2,861 2,690 6%
INDITEX “Strong Growth”
INDITEX “Strong Growth”(millions of euros)
INDITEX “Net profit”(millions of euros)
INDITEX “Sales by geographical area”(%age)
INDITEX “Employees by Geographical area 2011-12”
Employees 2012
INDITEX “Employees by Gender 2011-12”
INDITEX “Employees by Gender 2012”
Waste Management
Garments released on the market VS total industrial waste
INDITEX “Number of Employees”
INDITEX “Results”(millions of euros)
INDITEX “Stores”
INDITEX “Markets”
INDITEX “Sales by Concept”
Concept Name 2013 13/12CAGR
(2 year)
1. Zara 5,004 4% 11%
2. Pull & Bear 530 13% 13%
3. Massimo Dutti 575 17% 12%
4. Bershka 702 5% 8%
5. Stradivarius 463 2% 8%
6. Oysho 152 6% 4%
7. Zara Home 196 30% 21%
8. Uterque 33 - 3%
CAGR = Compound Annual Growth Rate
INDITEX “Global Sales Platform”
Store sales (%) 2013 2012
Europe excluding-Spain 45% 44%
Asia & RoW (Rest of World) 22% 20%
Spain 19% 22%
Americas 14% 14%
INDITEX “Zara Sales”
INDITEX “Global Online Sales”
• Europe
• US
• China
• Japan
• Russian Federation
• Canada
INDITEX “Supply Chain Management”
Clusters of suppliers
Morocco
Spain
Portugal
Argentina
Brazil
Turkey
Bangladesh
China
India
87% of Inditex's total production
INDITEX “Supply Chain Management”
“Geographical Distribution of Suppliers to the Inditex Group” 2012
Inditex's Supply Chain in 2012-13
INDITEX “Principal Indicators”
Principal indicators
in 2012ZARA
Pull &
Bear
Massimo
DuttiBershka Stradivarius Oysho
Zara
HomeUterque
Net sales
(in millions of euros)10,541 1,086 1,134 1,485 961 314 350 74
Number of stores 1,925 816 630 885 780 524 357 92
Net openings 120 69 57 74 96 41 47 3
Markets 86 59 60 62 52 35 35 18
New markets in 2012 5 11 10 6 7 4 5 1
ZARA “Sales”
• Zara sales increased by 18% in 2012, up to€10,541 million
INDITEX (Business Structure)
• Name: Industria de Diseno Textil, S.A.(Inditex)
• Inditex Group: Inditex and its subsidiaries
• Centralized management: Applying policiesand strategies at group level
INDITEX (Business Structure)
Head office: La Coruna (Spain)
• Sets Inditex strategy
• Co-ordinates brands
• Provides centralized IT, HR, Logistics, designand real estate functions
Textile Sourcing
Comditel S.A (La Coruna)
Tempe S.A. (Alicante)
Nikole S.A (La Coruna)
Zara Asia Ltd (Hong Kong)
ITX Trading S.A (Freiburg,
CH)
Uterque S.A (La Coruna)
Lefties Espana (La Coruna)
E-commerce
ITX Fashions Ltd
100% (Ireland)
Manufacturing
Internal
Choolet SA,
Confecciones Fios,
Gonfecciones Goa,
Denlio, Hampston,
Jema Creacione
Infantiles, Samlor,
Stear, Trisko, Zintura,
Glencare, Indipunt
(all based in La
Coruna)
External
Inditex works with
around 1,500 external
suppliers around the
world.
Logistics (Zara)
Zara Logistica SA (La
Coruna, Spain) - 50%
of Zara women and
menswear, serving
Iberia, Americas and
Middle East
Plataforma Europa SA
(Zaragoza, Spain) -
50% of Zara women
and menswear, serving
non-Iberian Europe,
Russia and Asia
Plataforma Logistica
Leon SA (Leon, Spain)
Zara Home and Zara
distribution
Plataforma Logistica
Meco SA (Madrid,
Spain) manages Zara
childrenswear
Tempe, Inditex’s
footwear company is
only 50% consolidated
at corporate level, but is
solely responsible for
sourcing,
manufacturing and
distributing footwear
for the group.
Brand Divisions
Zara
Oysho
Stradivarius
Pull & Bear
Bershka
Massimo Dutti
Zara Home
Uterque
Each Inditex brand is
managed
independently with
its own logistics and
production facilities.
INDITEX (Business Structure)
Traditional model
Design
Sourcing
Store
Customer
Inditex model Opposite of traditional clothing
cycles
Pull type production process
Quick response
Real-time sales information from
its stores
Small batch quantities allow the
retailer to see what items are
working with shopper
A central distribution centre in
Arteixo, with strong IT systems
developed by Inditex and third
parties, supports its supply chain
model
All items are shipped back to
Spain where they are then shipped
out to stores around the worldSourcing
Design
Store
Customer
INDITEX (Business Structure)
INDITEX'S “Waste Management”ZNormativa: Set of rulesand regulations common to all suppliers to optimize
• Packaging process
• Waste management
• Distribution and logistics
Good Waste Management Practices:Methodology of work used to manage waste to• Reduce content of packaging material• Improve waste separation and storage • Facilitate recycling
ZARA “Business Model”
1. Develop system that requires short leadtimes
2. Decrease quantities produced to decreaseinventory risk
3. Increase the number of available stylesand/or choice
ZARA “Competitive Advantage”
Cost Leadership
Fashionable (quality) at reasonable price
1. Based on Product Positioning:“ZARA is cheaper price than Benetton and GAP, and still being fashionable”
Fast Production
1. Ability to Design and get finish goods in stores within 4 to 5 weeks
2. Very quick to get designer-influenced products into their stores
Product Variation
1. Ability of ZARA to launch new trends, design and variation of product
2. Low Level of Inventory
3. Efficient Distribution System
4. Turnover of Product is High
ZARA “Objectives”
Maximize Profit:
• Maintain an ability to go further fashionable (quality) at reasonable price ZARA positioning
ZARA fashion
Price
Fashion
ZARA(New)
-
+
--
+-
BeforeTransform
Objective/Expectation
+Price
+
ZARA “Objectives”
Analysis map of ZaraAdapted from the Survey.
ZARA “Objectives”• Continuous design, production and distribution
Creative Departments:
Staff = 200+
Sewing: Cut fabric is
shipped to workshops
to be stitched
Samples: Prototypes
made in-house and
by suppliers
Spreading: Material
for garments laid out
in layers and marked
Cutting: A machine
cuts the fabric according
to the patterns
Finishing: Garments
are pressed, dressed
and quality checked
Shipping: From
Logistics centres to
stores, road and air
Delivery: Garments
arrive in store within
48 hours of orderingDesign, Product
and market Cycle;
1. Final design : 1 day
2. Manufacture : 3-8 days
3. Transport : 1 day
4. Selling : 17-20 days
TOTAL : 22-30 days
ZARA “Strategies”
Objectives
MIS
Marketing
Design
Production &
distribution
ZARA “Strategies”
Production & distribution
• Maintain quality
• Cost leadership
• High bargaining power to suppliers
• Fast distribution system
Design
• Coordinate with R & D and stores to get the new trends
• Ability to produce new trends
ZARA “Strategies”
MIS
• Product distribution system
• Improving inventory system
• Order information flow stores ordering system
Marketing
• R & D
• Market penetration
• Market , location of stores , consumer behavior analysis
ZARA “Value Chain”
Production :Factory & distributor
Store Store
Store Store
Store
Marketing :Market Research
and Analysis
Design
Inventory
Check the
Material availability
then deciding
How much this
product will be
Produce
MIS
MIS
MIS
Close watch
On trend and
Buying Behaviors
MIS
Commercial Team
& designer
Strengths
• Ability to recreate fashion• Owned 1947 stores and Active use of stores
• Cost leadership strategy• Differentiated in high price fast fashion
industry
• Dedicated supply chain process• Vertical systematization of production process• Efficient distribution and High turnover.
Weaknesses
• Centralized distribution system
• Doesn't spend much money on advertising
• Lack of online stores in many countries
• Repeated sales of out-of-stocks
• Low quality
Opportunities
• Growth of fashion market
• Diverse cultural area
• Constant use of social media marketingstrategy
• Online marketing strategy
• Global market penetration
• Distribution center in US
• Expanding into potential new market e.g. China, Australia
Threats
• Emerging new comers
• Local and Global competitors
• Cheaper alternatives may be available in
economic downturn
• Zara based in Spain and has a great no of
stores in Europe will dent in revenues
• Limitation of design copies
• Product Cannibalism
ZARA “International Strategy”
• Combined Strategy:
1. Cost Leadership is usualy captured in mass production (mass product, less differentiation) Standardization
2. Differentiation Strategy is ussualy captured to produce goods that are more value added fashionable, fast delivery customization
• Good Consideration:
1. Market selection
2. Marketing approach
3. Market entry
ZARA “International Strategy”
Market Selection
Marketing
Approach
Market
EntryInternational
Strategy
Market Selection:
ZARA “International Strategy”
Market Selection:
ZARA “International Strategy”
Market Selection:• Consideration
• Characteristic or behavior of Consumers
ZARA “International Strategy”
Country Character of Consumers
French More Fashionable (Quality Oriented)
German Price Sensitive
Italian More Fashionable
USA Less Trend
Japan More Trendy
British Stores Based on Social Affinity
Market Entry:
ZARA “International Strategy”
Barriers Factors
Market EntryConsideration
Economics Factor
Market Entry Government
Market Entry:
• Consideration• Economics
• Macroeconomics Factor :• tax, political condition, export tariff
• Microeconomics Factor :• Local Competitors• Demand • Location of Store
• Government• Regulation from Government
• Barriers• Local producers protection issues
ZARA “International Strategy”
ZARA “International Strategy”
Marketing Approach:
• Consideration• 4 P consideration Product, Price, Promotion
and Placement. Each Country has different marketing approach.
• Product local preferences, design, trends• Price different pricing strategy for each
country. For example: Italy and Paris has no problem for price but quality-oriented, but German has sensitive price.
• Promotion different promotion strategy for each country
• Placement efficient distribution, location of stores
ZARA “Financial Position as Compared with Competitors”
GAP H & M Benetton Inditex
Net Margin -0.06% 9.60% 7.05% 10.46%
Asset Turnover 1.82 1.96 0.74 1.25
ROA -0.11% 18.78% 5.25% 13.05%
ROE -0.27% 24.85% 11.93% 22.88%
ZARA “Inventory Management”
• Focus on reducingresponse time
• Approximately11,000 new itemsper year, comparedwith 2,000-4,000 forH&M and Gap.
ZARA “Inventory Management”
• Stock outs: Common
• Short shelf life: More customers
• Inventory holding:
• ZARA: 6 days
• H&M: 52 days
• Cortefiel (Spain): 94 days
ZARA “Forecasting”• Extensive market research
• Quick input and output response
• Frequent new styles
• Near-term forecasts
• Customer feedback
• Short product life cycles Reduce errors Improve current products
ZARA “Procurement”
• In-house production: Half
• Each clothing line: Separate staff
• Basic textiles: Global suppliers
• Simple items: Outsourced to China.
• Difficult items: Zara factories and domestic outsourcing
• Most suppliers: Close to distribution centers
ZARA “Production Planning”
• Design & Production Centre: Centralized
• Supply chain: Constant data flow
• Retailers: Have authority to change 40%-50% orders
• Factories: Single-shift
Change quickly according to demands
ZARA “Warehousing”• High-velocity shipping: Rapid
information flows
• Stores: Electronically connected to headquarters
• Logistics system: Speed and flexibility
• Products: Selected Sorted Routed Delivered Local distribution centers Retail store stockrooms
ZARA “Transportation”
• Distribution: 2 weeks
• Supply chain: Quick response
• Transportation network:Effective and efficient
• Zara Promotes: Service quality
• Zara Coordinates: All aspects of logistics
Production Commitment and Markdown
6-month
Pre-season Start of season In-season
Sales%
Not at full
price
Traditional
Industry
Model
45-60% 80-100% 0-20% 30-40%
Advertisement
Advertisement
+
Markdowns
Zara 15-25% 50-60% 40-50% 15-20%
Fresh items
Recommendations to ZARA
KEY PROBLEMS:Emphasize on high efficiency and fast
production processes
Demotivation of workers
Quality drops
Lack of inventory tracking
Inability to check inventory within stores
Real time counts and scan must be done.
Recommendations to ZARA
• ZARA SEEMS TO:Go in the right directionGrow at a remarkable rate Show no signs of slowing down
• ZARA SHOULD: Expand in each district/region
Expand into North American and Asian markets Continue growth throughout Europe
Increase its production and reduce costs by outsourcing to Asian countries
Recommendations to ZARA
• CHANGE THE SYSTEM
CentralizedTransformDecentralized
Build decentralized distribution & Production in each region (Asia, Europe & America, more is better) to
Penetrate new market & trend
Decrease the complexity of process
Recommendations to ZARA
INCREASE ADVERTISEMENT• Part of marketing• Bridge between customers and companies
INCREASE NETWORKING CAPABILITIES:Ineffective communication between its stores
and the home office. Currently used POS terminals are not connected
to other store POS terminals or to corporateheadquarters.
Recommendations to ZARA
Improve IT Infrastructure
• Efficient for past operations
• Insufficient to deal with modern technology
• Ineffective in future as company continues togrow and expand internationally
References
1. Bureau of Labor Statistics (2011). Internationalcomparisons of hourly compensation costs inmanufacturing, 2010.http://www.bls.gov/news.release/pdf/ichcc.pdf
2. Werner International management consultants (2012).Comparison of the hourly labor cost in the primary textileindustry winter 2011.
3. Verlina N. Whatley (2011). Case Analysis of Zara: IT forFast Fashion http://www2.uhv.edu/luj/MGT6352/Samples/Student%20Sample%202.pdf
4. http://en.wikipedia.org/wiki/Zara_(retailer)5. http://en.wikipedia.org/wiki/Inditex6. http://www.inditex.com
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