Seda Çelebi, 15.04.2015

ZARA AT A GLANCE

«Possibly the most innovative and devastating retailer in the world." -

Daniel Piette, by Louis Vuitton Fashion Director

Zara is a Spanish clothing and accessories retailer based in Arteixo, Galicia, and founded in 1975 by Amancio Ortega and Rosalía Mera. It is the flagship chain store of the Inditex group, the world's largest apparel retailer. The fashion group also owns brands such as Massimo Dutti, Pull and Bear, Uterqüe, Stradivarius, Oysho and Bershka.

MISSION & VISION STATEMENTS

VISION MISSIONZARA 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

Through its business model, Zara aims to contribute to the sustainable development of society and that of the environment with which we interact

HIGHLIGHTS & FIGURES

Fast Fashion > 2 to 4 weeks to develop a new product and get it to stores (industry average is 6 months)

Launches around 12,000 new designs each year

Democratization of fashion – Customers have direct input into what shop sells

%50 manufacturing in Spain, %26 rest of Europe, %24 in Asia – Africa

Up to 50 percent of its clothes are designed and manufactured in the middle of the season

2,000+ stores world wide, with a reported 10.804 billion € revenue in 2013

HISTORY

1963 - Inditex goes into business

as a dressmaker

1975 - Zara opens its first store in the center of La

Coruña, Spain

1989 – First Zara store in

New York

1990 - Inditex

arrives to France

1997 - Geographic

footprint reaches

Norway and Israel

2003 - First Zara Home

stores, Group's seventh

brand. Store openings in

Slovenia, Slovakia,

Russia and Malaysia

2007 - Launch of

zarahome.com. Four new

markets: Croatia,

Colombia, Guatemala and Oman.

2013 – Going live in new

markets such as Canada

and Russia.

BUSINESS MODELConventional Business

Model Zara’s Business Model

Supply Chain Reliant on outsourcing production.

Highly responsive, vertically integrated supply chain

Time to market High due to outsourcing. Industry avg. is 6 months.

Lead times and time for new product launches are less. 2-4 weeks.

Marketing Ads primarily for publicizing the assortment

Ads only for yearly sales & to announce new stores.

Design Teams Design conceptualized by small elite team common for all segments

Dedicated teams for different segments.

Product Life Span Average new items per year 2000-4000 Classic collections

Short life span but more product launches. Avg. 11K yearly

Sales Forecast It is done. Not done due to flexible factories IT Spending 2% of revenue as IT

applications are outsourced to vendors.

0.5% of revenue due to in-house applications developed

PRODUCT LIFE CYCLE

Generally, a typical Product Life Cycle Curve looks like as above where Sales decreases as the product moves over the time line.But as Zara is in a high fashion industry and its product offering are the latest trends and designs with a life of maximum 5-6 weeks so its Product Life Cycle Curve becomes like the one given in following diagram.

KEY FACTORS OF SUCCESSLower Quantities

• 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

• The added benefit of lower quantities is that if a style does not work well, there is not much to be disposed during the season-end sale. The result of this is that Zara discounts only about 18 percent of its production, roughly half the levels of competitors.

KEY FACTORS OF SUCCESSMore Styles

Instead of more quantities, 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. Zara can offer more choices in more current fashions than many of its competitors. It delivers merchandise to its stores twice a week, and the stores look fresh every 3-4 days.

UNIQUE STRATEGIES

Link customer demand to manufacturing, link manufacturing to distribution

Rapid response to market demands will yield profitable results

Product variety - Introduces 12,000 new items in comparison to 2000-4000 of its competitors

Vertically integrated supply chain is dedicated to customer responsiveness

Differentiation strategy, where it focuses on young, fashion-conscious city dweller

• Consumer Driven Production Process

Consumer

• Investment into high-tech equipment and extra capacity

Investment• Commitment

to continuous feedback and improvement

Improvement

PRODUCT STRATEGIES

Design and merchandising are interconnected with back end production process

Design Teams:

• 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• Have great reliance on high-frequency

information with store managers

MARKETING STRATEGIES

4P 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

IMAGE DIFFERENTIATION

Offer high quality goods to a low price

Clothes are not mass-produced and products that do not sell well are taken away from store

The collection is changed every second week

The image of Zara is to be available for women everywhere, regardless to their income

SWOT ANALYSISSTRENGTHS• 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.

WEAKNESS• 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 marketing strategy• Online marketing strategy• Global market penetration • Distribution center in US • Expanding into potential new market e.g. China, AustraliaTHREATS• 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

INTERNATIONALIZATIONPush factors Inhibitors Facilitators Pull factors

SaturationLow growth opportunitiesChanges in consumer behavior

Administrative barriersGeographic distanceLow economic developmentDifferent seasonalityCultural distanceLack of experienceRisk perception

International statusLearning processSpreading cost and risk

Spain joined the EUEconomies of scaleGlobalizationAbolition of economic barriersGrowth chancesCultural affinitiesInformation technologies

MARKET ENTRY MODELOIL STAIN STRATEGY

While Zara owns a majority of its stores in Spain, the international expansion has adopted three different entry modes: Own subsidiariesThis direct investment strategy is the most expensive mode of entry and involves high levels of control and risk in case the firm exits the market. Zara has adopted this strategy for most European and South American countries that were perceived to have high growth potential and low business risk ,

Joint VenturesThis is a co-operative strategy in which the manufacturing facilities and know-how of the local company are combined with the expertise of the foreign firm in the market, especially in large, competitive markets where it is difficult to acquire property to set up retail outlets or where there are other kinds of obstacles that require co-operation with a local company (Camuñas, 2003). In 1999 Zara entered into a joint venture with the German firm Otto Versand and benefited from the latter’s experience in the distribution sector and knowledge of one of the largest markets in Europe. FranchisingThis strategy is chosen for high-risk countries which are culturally distant or have small markets with low sales forecast like Saudi Arabia, Kuwait, Andorra or Malaysia. Zara’s franchisees follow the same business model as their own subsidiaries regarding the product, store location, interior design, logistic and human resources.

COMPETITORS ANALYSISZARA H&MVertical Integration Production OutsourcedShort Lead Times Long Lead TimesEngage many designers 60% fewer designersOriginate design in a few weeksOne distribution center

Distribution center in each country

Better surver over inventory Low costs High costsExpand very fast Expand very slowStores as a “face to world” No focus on store makeups

H&M and Zara have very different strategies when it comes to the weighting of their offering. The bulk of H&M’s offering is womenswear and this focus is communicated in their advertising. Menswear at H&M takes a backseat. These weightings suggest that Zara and H&M are competing for and pitching at different consumer types. The Zara customer could be more mature, and shop across the breadth of the retailer’s offering for his or her partner and children, while the predominant H&M consumer is shopping for womenswear. Strategically, Zara are splitting their focus across all three channels.

CONCLUSION

Unconventional approach to supply chain strategies has been Zara’s key competitive advantage

Responsive supply and logistics, vertical integration, communication, & fast inventory turnover are some of Zara’s most unique and effective strategies

Having a centralized distribution and JIT Production schedule creates a more efficient process

High investment into technology enables Zara to operate the way they do.