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zara fast fashion case study
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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.
1. ZARA’s business system
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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.
2. ZARA’s business system
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2. ZARA’s business system
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
2. ZARA’s business system
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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
2. ZARA’s business system
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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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