zara presentation

ZARA: Fast fashioncase study

MIS 석사 3 학기 정효경

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Contents

ZARA overview ZARA’s business system Comparing Zara with competitors International Growth Strategy Summary

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1. ZARA overview

Inditex Founded in 1963 in Galicia, SpainUmbrella group of ZARA and 7 other apparel chains

ZARAThe most profitable brand Owned by Inditex The first ZARA store was opened in 1975 in La Coruna, SpainTill 2014, over 2,000 stores located across 88

countries in Europe, the Americans, Asia and Africa.Position: “medium quality fashion clothing at

affordable prices”Main global competitions: the GAP, H&M, Benetton

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ZARA’s business system was particularly distinctive in that ZARA manufactured its most fashion-sensitive products internally. Production took place in small batches, with vertical integration

into the manufacture of the most time-sensitive items. Vertical integration helped reduce the “bullwhip effect”. Design-finished goods(4-5weeks); redesign (2weeks)

ZARA produces and presents very limited volumes of new items in certain key stores. They are produced in a larger scale only if consumer reactions were unambiguously positive. Thus, failure rates on new products were very low compares to competitors.

Quick-response(QR) was critical to ZARA’s superior performance, the connection between the two was not automatic

1. ZARA’s business system

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Design

Each of ZARA’s three product lines(foe women, men, and children) had a creative team. Work on products for current season by creating constant variation Continue in-season development Select the fabrics and product mix for the following season and year

The process of adapting to trends and differences across markets was more evolutionary, placed greater reliance on high-frequency information. Frequent conversations with store managers

The ZARA’s design teams continuously track consumer preferences and use this information about sales potential based on a consumption information system to transmit repeat orders and new designs to internal and external suppliers.

The ZARA’s design teams transcended design, are bridged merchandising and the back end of the production process.


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Sourcing & Manufacturing

ZARA sourced fabric, other inputs, and finished products from external suppliers with the help of purchasing offices in Barcelona and Hong Kong, as well as the sourcing personnel at headquarters.

About one-half of the fabric purchased was “gray” (undyed) to facilitate in-season updating with maximum flexibility, and of the remainder, approximately two-third in Europe and North Africa, and one-third form Asia.

Further down the value chain, about 40% of finished garments were manufactures internally. Focused on the capital-intensive parts of production process-pattern design,

cutting, finishing, and inspection. Vertical integration into manufacturing

Cut garments were sent out to about 450 workshops with small operations specialized by product type.


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own distribution center in Arteixo

satellite center in Argentina, Brazil and Mexico

center works on a dual-shift basis

equipped with mobile tracking system

delivery upon Europe takes about 24-36 hours, outside Europe 24-48 hours

scheduled shipments by time zones

establishment of a second distribution center at Zaragoza in 2003

Distribution

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Retailing:

Consists of merchandising and store operations

Stores placed in premier shopping streets and centers

Very low advertising expenditures, no fashion shows

Set high value on presentation of store window shows

Main retailing-tactic: create a sense of scarcity

Aim: reduce inventories at marketed-down prices


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INDITEX MANAGEMENT /

DESIGNERS

Determine apparel designs and

manufacturing locations

IN-HOUSE (40%)

High QRHigh Cost

EUROPE / N. AFRICA

(40%)

High QRHigh cost

ASIA(20%)

Low QRLow Cost

DISTRIBUTION CEN-TER

Increased shipment fre-quency increases QR

Small batch production lowers cost of demand un-

certainty

STORES

Decentralized store management supplements

QR

Managers determine products to sell and return

IT SYSTEMS

Provides accurate demand information to

determine manufacturing locations

and production levels

Manufacturing

DesignSaleDistribution

System is designed for short productioncycles, quick response (QR) to demand,

and reduced number of markdowns

Returns from stores either rerouted or disposed of in local stores near dist. center


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3. Comparing ZARA with GAP & H&M

H&M outsourced all of its production while ZARA’s retained many production activities in house and kept all internal and external activities under its strict control

H&M’s competitive strategy different Lower prices, much higher spending on advertising, less upscale

stores.

Both GAP and H&M relied on a traditional “push” approach, developing substantial resources to advertising. ZARA used “pull” approach, attracting shoppers with small collections and new weekly offerings in reaction to customers.

At GAP, design preceded manufacturing and commercial activity, while ZARA’s business model configures the same activities simultaneously by talking a team approach to design manufacturing-commercialization activities.

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Market Selection

4. International Growth Strategy

Market Selection Process: Countries which are similar to ZARA’s home marketMacro AnalysisMicro Analysis

Preconditions for entering: Minimum level of economic developmentLow entry barriers

Oil-Stain entry pattern

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Market Entry

4. International Growth Strategy

Company-owned stores(subsidiaries) Most used method Applicable in profitable and no risk markets Lots of management resources needed

Franchising Applicable in risky and small markets with high entry barriers Preferable in countries with many cultural differences Normally contracts for 5 years Fee is between 5& and 10% of sales

Joint venture Applicable in markets which cannot be approached directly because

of market entry barriers Interest were split 50:50

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Selling “ state-of-the-art” fashion through being a fashion follower

Integration upstream to create competitive advantages downstream Relation between distribution and production development Evolutionary product development and sourcing Product development and distribution instead of promotion underlies

brand development

Rethink the entire supply chain Reduction in mark-down can more than mark-up for increase in labor cost Planned shortages cam induce more future demand Good store location, layout and product display can substitute advertising Faster response eliminates inventory risks

5. Summary

Key take away form ZARA case

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On which way can the fact that ZARA has s single distribution center be an advantage ? Centralized control avoid misunderstanding or conflict Manageable time scheduling, focused on one rather than

managing several different time schedules.

On which way can this be an disadvantage? Dis-economic of scale: in long term, the costs is getting higher

and higher. Because of managing distribution on their own, designing and

production process might not be in its optimum level.

Need culturally diverse management team alone with ZARA’s international expansion

5. Summary

Discussion and questions

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