zara's fast-fashion edge

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

http://www.zara.com/webapp/wcs/stores/servlet/category/es/es/zara-sales/16508/








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?

• 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


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.


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'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


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


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


Market Selection

Marketing

Approach

Market

EntryInternational

Strategy

Market Selection:


Market Selection:• Consideration

• Characteristic or behavior of Consumers


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:


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



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.


• 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


• 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


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.


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

ANY QUESTION?

zara's fast-fashion edge

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