zara case analysis

zara case analysis

TRENDS OF TEXTILE AND CLOTHING MARKET

INTRODUCTION ABOUT ZARA

Kiddy’s Class (children’s fashion)

Pull and Bear (youth casual clothes)

Massimo Dutti (quality and conventional fashion)

Bershka (avant-garde clothing)

Stradivarius (trendy garments for young women)

Oysho (undergarment chain)

Zara Home (household textiles).

THE ZARA CONCEPT

• delivery and sales

• low inventory rule

• quick response policy

• advanced IT provides quick response to customer’s changing demands

INTERNATIONALISATION OF ZARA

The internationalisation of Zara seems to follow the classic “stage model” Reluctance and trial

Between 1975 and 1988 Zara focused its expansion in the domestic market. The maturity of the Spanish market led Zara to search for international opportunities in 1988.

During this stage Zara expanded into markets geographically and/or psychologically proximate and with a minimum level of socio-economic development, adding one or two countries per year to its market portfolio.

The experience gained in the international environment made Zara more determined and intent on a rapid global expansion regardless of cultural or geographical proximity.

While Zara owns a majority of its stores in Spain, the.

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Focused on manufacturing affordable yet high fashion concept apparels for women, men and child, Zara is one of the most popular fashion brands in the world now. It is also one of my most frequently visited boutiques. The success of Zara is not a miracle; it is the result of successful operation management. First of all, Zara has a special planning and design cycle. Zara hires 200 designers and make 11,000 styles of apparels every year, which is about 5 times as many as comparable retailers produce each year.

Zara’s production is based on small batches, and this reduces the throughput time. Zara’s timeline began one year in advance of the start of the corresponding year, which means designers start working on the initial ideas for 2013 Spring/Summer collection since 2012. After finishing the initial design collection, the company produced only 50-60% of in-season apparels in advance, with the rest being manufactured on a continuous basis after they are available to the public.

Competitors like H&M and Gap, on the other hand, has 80% of its apparels produced in advance, which lead to great amount of inventory in warehouse and high probability of leftovers. This will hurt the companies’ bottom line as the leftovers are usually heavily marked down at the end of the season. Because of its continuous manufacturing method, Zara does not have high amount of inventory and has significantly less leftovers that need to be discounted and would result in loss.

Zara can focus on manufacturing only popular collections and thus maximize its profit. However, this does not mean that Zara will satisfy all consumer needs on popular apparels and Zara actually does this on purpose. I think many of us have the experience of being disappointed because we cannot get some amazingly designed Zara apparels as it is sold out and it is never available again. Zara actually does this to make its customers think that they should get it now before it’s gone forever.

The believe of no second chance makes customers buy what they like immediately without second thought. Also, as Zara launch new collection of clothes every two weeks, customers tend to go back to the shop frequently to check out for new collections. This will increase their revenue as well as the more customers come, the more they spent. Last but not least, its distribution is effective. All finished apparels are gathered in a distribution center in Arteixo, this distribution center is carefully selected, as it is nearest to ll manufacturing plants.

Besides shipping cost, Zara also saves inventory cost by doing frequent shipment (two times a week). In order to make the sorting process more efficient, Zara made uniform price tag that includes prices in all currency for apparels shipped to different destination, so that shipping staffs will not need to sort the products when they ship. In conclusion, Zara’s success is one of the best examples of successful supply chain management and it is worth study by everyone who is interested in business.

The market is thus lowly concentrated, if observed as a whole; but one could argue that given the diversity in business models, products sold, targeted customers and business strategies, the clothe retailing Industry should rather be analyzed as segmented different Industries -? which we will not do here. Internal rivalry is quite intense, opposing very different types of players. Interestingly – and counter-intuitively-, we state that threats of entry are high. As new opportunities arose with the latest technological developments, the last decade has been Industry-shifting, seeing the emergence of many TV and online retail impasses.

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However, we can assume that this trend will be progressively decreasing, most major actors responding to the threat by developing their own online retail channel. Moreover, important manufacturing economies of scale, slow learning curves and high labor costs In developed regions tend to prevent companies with minor Investments and unclear strategies to successfully enter the market (the 80% failure statistic previously mentioned highlights how a lot of new entrants are trying to find their place, but are having a hard time to sustain their business on the long run).

The threat of substitutes Is on the other hand high If we keep looking at the Industry as one: It Is Indeed difficult Imagining people substituting their clothes with another type of good (unless they have very particular and peculiar lifestyles). The clothing retail industry has one major advantage: its potential customers are every one of us. Nevertheless, as a subset of the retail industry, apparel retailers are competing with all other types of retailers (wholesales, convenience stores… ), and some of the biggest clothe retailers are general retailers (Wall-Mart).

Clothing retailers eave to ensure that customers want to spend their extra money on clothes rather than any other type of good. The drawback of this assertion Is that customers bargaining power Is very high. As the industry Is heavily dependent on Individuals’ spending, competitors have to provide them with the services, quality and prices which will optimize their will to buy clothes. The market being drastically segmented (by age, sex, location, income, season … ), most competitors can’t target more than two or three groups.

A direct consequence of that Is that each target group Is accounting or a very large part of each retailer’ total sales, giving the customers an Interesting bargaining power. Moreover, economic downfalls tend to reinforce this bargaining 1 OFF clothing. Finally, suppliers’ bargaining power is moderate: if retailers critically depend on them to ensure quick and quality delivering (to follow the ever-changing fashion trends), they also have a large number of low-cost suppliers from emerging countries at their disposal, giving retailers the edge when it comes to negotiating partnerships.

Overall, the industry appears moderately profitable, with an interesting pool of attention customers, but requiring a clearly defined and differentiated strategy to resist the expected retaliation from industry leaders. In this context, Sara’s competitive advantage comes from several elements. First and most important is its capacity to articulate its whole operational system around its quick -response strategy. From its core competencies to its end products, everything is made not only to follow fashion trends, but even to impose new fashion cycles and create an atmosphere of scarcity around its products.

Its vertically integrated business model gathering specific design, Just-in-time manufacturing, centralized striation channels and low marketing provides it with more flexibility than its rivals. Second, Ezra did not focus Just on operational effectiveness (I. E. Doing what the others already do, but better); it also searched for a different strategic positioning. In doing so, Ezra shifted the industry strategy by becoming much more capital intensive, but also flexible than others, and by increasing the buying frequency of its customers. Why hasn’t any competitor reacted to this incredibly successful strategy by following it?

The quick-response system is very demanding: the whole structure of the many has to be oriented towards a simple idea: being time-consistent and following the market’s trends. This implies technologies, operational organization, a strong commitment from all the value chain activities and a special mindset of the management teams. Not only are these elements very hard to replicate if not initially integrated in a business model, but they are also very hard to understand and spot in a competitor’s strategy, as they don’t necessarily reflect on the final product.

This can explain why Sara’s competitors don’t have implemented this strategy before, nor after Sara’s development in the industry. But we bet this won’t be the situation for long. To successfully compete in the apparel business, Ezra implemented proceeds which together made an original answer to the В« Quick response В» solution. Most of these proceeds are listed on the following graph. More fluctuating consumers’ aspirations. So they adapted the four main phases of product cycle to make perpetual evolutions possible.

In the design phase, Ezra renounced to pay expensive maestros to guess or inspire future fashion standards. They preferred to constitute “flat” teams with some designers and product placement managers to create quite fashioned products at the beginning of each season and make these products evolve. Moreover, Ezra design teams work both on two seasons, perpetually modifying the current collection and choosing products which will base the future one. In the sourcing and manufacturing phase, Ezra keeps a strong regard on production.

Regarding to the sector standards, a large part of it is internalized by Ezra, and, most often, Ezra or a direct Galilean subsidiary dye outsourced products and put garments on it. Long-run relationships with furnishers evolve. The distribution phase is based on the really performing Artesia centralized distribution facility, near the headquarters. This place in which managers Just want to “make the products moving”, every outsourced and domestic production is receipted, and redirected to retailers. No clothe spends more than three days in the warehouse.

The retailing phase is maybe the most important one. Without allowing much money to media advertising, Ezra created an ambiance by installing a “climate of scarcity and opportunity’ in its stores. We could talk about “instantaneous fashion”, customers know that a product may not stay more than two or three weeks on the shelves, and that if he/she likes it, it is necessary to buy it immediately. To conclude, we see that Ezra created and maintained a competitive advantage by building an entire system to follow fashion evolutions, and to make its products quickly evolve, without any extra cost.

The combination of permanent design, sophisticated production proceeds, really efficient distribution systems, and fast-changing retailing allows Ezra to remain permanently fashion, and guarantees customers’ interest. Growth and geographical expansion have created new working conditions for Ezra and involve several risks threatening its successful business model. First, as it is said in the case, the opening of new stores worldwide poses an issue to Sara’s centralized logistics’ and distribution system, composed of two warehouses situated in Spain.

Indeed the stock capacity and automated products’ distribution, that have to maintain operational rapidity to back Sara’s competitive advantage, risk not to match the firm’s expansion and turnover, ultimately basis to discomposes of call as it grows. Distribution facilities, a crucial element of Sara’s value chain, are not able to meet retailers’ requirements, creating additional costs and lowering margins. As Ezra enters international markets, it is submitted to new costs for shipment, logistics, tariff….

The centralized system has to be transformed to adapt its new working conditions and not lose its competitive cost advantage: manufacturing and distribution activities should be moved to international important market positions. Second, there is a risk in the method chosen by Ezra to enter new markets: ended, going with franchising or Joint-ventures could damage Sara’s image. The firm will have a smaller role in managing the local stores. If it is done badly or the store doesn’t fit Sara’s specific strategy and marketing positioning for that country, it could be dangerous for the brand.

Another risk Ezra faces in pursuing international expansion is associated to the important capital investments this implantation requires: indeed Ezra has to use its resources to train the management to lead their facilities according to Sara’s peculiar business model, and to build the IT and logistics accessory to transfer information and data to the headquarters, as knowledge seems to be one of the most important element of the production’s chain. Increased costs are likely to be passed on to the consumer, and we know Sara’s competitive positioning goes with low to medium prices.

Thus it is the margins that will be threatened of shrinking. Additional risks are proper to the geographical locations Ezra is considering. For example, Asian and US market are highly competitive and entry is difficult. The Americans are not as fashion oriented as the Europeans; implantation of Ezra and make the firm lose a lot of money. Nevertheless, Ezra can keep on sustaining its growth thanks to its current competitive advantage, and thus avoid these reefs. Indeed, as previously mentioned, its core competencies are not easily replicable, which gives Ezra a relative margin to benefit from them for some time.

The company keeps its operating income high, has a strong and unique business model, as well as various opportunities for expansion in the retail industry. After a comparison of the financial statements of Ezra and its major challengers, we come to the conclusion that Ezra has a stronger financial Truckee than its competitors. Its profit margins are higher, therefore it will have more money to invest and cover expenses than other retailers. The competitors of Ezra, like H, lower their costs by outsourcing the production.

Ezra manufactures 60% of its own products. It is outsourcing less and produces the most fashionable items that tend to be the riskiest internally. It will be very difficult, time- and money- consuming for other major players to shift their manufacturing process from an outsourced one to a fully integrated one. Vertical integration, a distinction of Sara’s equines model, has allowed the company to successfully develop its strategy. It led Ezra to implement a climate of scarcity and opportunity.

By owning its production, Ezra is able to be flexible in the variety and the quantity. The other competitors lack this flexibility, and remedy this situation would take a profound change of business model. Sara’s target market is sensitive to fashion. Fashion has become more globally standardized and Ezra uses this to its advantage. 80- 85% of the products that Ezra offers globally are relatively standardized fashionable products. However, Ezra also as difficulty to penetrate the American market.

This is due to American tastes that differ from European preferences, but also maybe because of its European strategy that does not match with the American apparel market. In order for Ezra implement its differentiated strategy in the US, and to offer specialized products according to North American tastes, a good idea would be to create a second distribution centre in the US. This would enable Ezra to supply its shops more efficiently and focus more easily on its American strategy. To sum up, Sara’s competitive advantages are sustainable compared to the other detail competitors.

Its core competencies are mainly the high turnover rate of products, good stock management, efficient distribution channel, quick adaptability to market needs, internal production, vertical integration, and quick response system. Other apparel retailers found it difficult to imitate Sara’s business model as it would need them to change their entire model and strategy. Ezra chose a quick-response system which is not easy to implement and doesn’t guarantee the viability of the retail company, but proved to be one of the most successful in the industry.

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expected to show high resistance in response to it. Even though Zara has a decentralized decision making process, the retailer’s IS department exercises absolute autonomy on the IT infrastructure and design. The fact that “only one person had left the department” in the past 10 years further confirms that the retailer is suffering from cognitive and action inertia, and thus creating a huge barrier for such upgrade. Nevertheless, Zara should still perform such upgrade in the long run. Q1b. Should…

Autor: goula16 • April 25, 2016 • Case Study • 1,332 Words (6 Pages) • 210 Views

Founded in 1975 by Armancio Ortega, Zara is a very successful Spanish clothing and accessory realtor and the business that started the Inditex Group empire. Zara started in a small Galician city known as La Coruna in Spain and has grown to be a retailer powerhouse with over 6,000 stores in 85 different countries. The number of stores and locations is constantly changing since Zara is known to open more than a store a day in past years. Zara has become the giant they are today because of their differentiated business model, this system has not been copied by any competitors which gives Zara a great competitive advantage.

Zara’s business and operating model is focused on speed and the need for fast fashion, targeting young fashions, price conscious people and is built on a vertically integrated system focused on supply and demand. Zara is constantly updates its design and production based on customer buying habits and the latest trends to deliver exactly what the client wants. They are very close to their customers and gives them what they want.

The integrated IT system is crucial to Zara because it allows it to have such short and precise product cycles. Store managers can report directly to the production centers and designers in Spain while also being able to check on the latest clothes designs and place their orders with the buying trends observed in-store in mind. This makes the whole process for Zara more streamlined. The production centers in Spain work on-demand and deliver the product in unbeatable market times. By reducing the quantity of each style produced there are more styles but only for a limited time, so buyers purchase more often since they realize that what they like might not be there next week. Buyers also come to the store much more often than other retailers since the collection is constantly changing. The location of their shops in prime locations and having a minimal advertising budget is another key aspect of their business model.

Zara's goal is to reduce any waste and to produce on-demand where and when the client needs it. Each part of their process is essential in providing this. It also puts the decision-making in the hands of the store manager who is closest to the clients. This in turn optimizes sales and reduces wasted time and unwanted products. This system is also absolutely unique to Zara. Many other retailers are now trying to be copycats. The only problem for competitors is that it requires a fully vertically integrated supply chain system full of designers, manufacturers, transporters, well trained store managers, and fully integrated IT systems. The production structure of Zara puts it in a vulnerable position. This is because every part of the value chain is vital for the effectiveness and value creation for the company and if executed correctly it adds value.

Zara and H&M are huge competitors and H&M does things differently than Zara. H&M's value chain is made to mass produce and does not need to rely heavily on short lead times. They uniform the brand and marketing to focus on products that are suitable for an international market instead of focusing on the smaller batches like Zara does. H&M also should be able to keep costs to a minimum due to it mass-producing with larger lead times. There are of course many disadvantages too. H&M cannot play on newer trends and produce goods only bound to be best sellers. They also have the disadvantage of clients visiting their stores three to four times a year instead of every three to four weeks as in the case for Zara.

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