zara case study
A lot of people like Zara clothes, regardless of sex and well-being. Such brands as Zara, Bershka, Stradivarius, and Pull & Bear are part of the Inditex group, which today is one of the largest and most widely distributed clothing companies in the world. Brands provide an opportunity to purchase fashionable, but rather cheap clothes to hundreds of thousands of consumers. The creator of all this, businessman Amancio Ortega, made a world corporation from a small family atelier. A case study of Zara can show that the history of the world brand began, as it often happens, from the desire of one poor person, gifted with will power, patience, organizational skills, to get ahead and offer the world something new.
Zara revolutionized the fashion world and the textile industry, giving birth to the very notion of “instant fashion.” Zara case study solution allows analyzing the uniqueness of this business-scheme.
In most textile companies, the cycle of dressing takes about 8 months. This term includes the development of design, the search for fabric, painting fabrics, sewing models, and the collection of goods to the store. In Zara, this process takes place in just 2 weeks. Inditex has its own team of designers, numbering about 400 professionals. They in a very short time create a design of inexpensive clothing based on the latest trends of high fashion. Such a system allows the company to quickly update the entire range of stores, quickly remove unpopular models from production and refine the design in conformity with consumers’ requests.
Thus, Zara always keeps an eye on the pulse of fashion, one of the first reacting to new trends and customer wishes. Buyers are looking forward to the days of new supplies to stores. It happens that the clothes from the shelves are swept away in a few hours, and the updated collection is sold completely.
Zara’s target audience, accounting for 78% of the total earnings, was middle-class women. The founder understood that this was not enough to meet the needs of all consumers. In 1991 he decided to create a brand of youth clothing for every day – Pull & Bear. Five years after the acquisition of part of the brand Massimo Dutti, he became its owner. This brand was designed for people with higher incomes, regardless of gender. After it became clear that it is also necessary to capture the audience of the teenage subculture of party people and party lovers, in 1998 the brand Bershka was registered, designed for young girls who like fashion. In order to gain full power in the clothing market for adolescents, Zara purchases Stradivarius after a year, and the two major teenage brands became a part of this corporation. A case study Zara can be researched from the perspective of searching for the target audience, determining the necessities of the customers and following trends.
The entire world’s retailers dream of such an annual attendance, as in Zara. For example, the average store in Spain, located on one of the central streets of the city, expects to see one customer 3 times a year, and for Zara, this figure is 17 times a year. Inditex is one of the few companies that have resisted the temptation to withdraw all clothing production to countries with cheap labor. Less than a quarter of products are produced in China, Morocco, Bangladesh, and Turkey. The rest of the products are produced in the north of Spain and Portugal. But, wherever a thing is produced, each position of the Inditex product range passes through Spain. Designers and experts in the company’s main studio in the city of Arteixo (Galicia) first check the quality of the products, and only then send goods throughout the retail network, including China. The supply chain Zara case study can be researched on this basis.
The secret of the success of Inditex is in quick response and smooth communication between designers, factories, and store managers. A store manager sends reports to the main office of Inditex twice a week, based on sales and customer surveys, and he is a key figure in a successful business scheme. That is why Inditex managers receive a much higher salary than competitors, as well as large bonuses at the end of the month. Thus, a case study on Zara can also be made from the perspective of the unique system of interaction between all participants of the business process, as well as motivation and encouragement of staff.
Zara stores have not needed advertising for a long time, so money saved on promotion is invested in opening new outlets and in developing projects and brands. While the main competitor H&M conducts expensive advertising campaigns, Zara prefers to invest in high-quality and expensive showcases of shops that can be compared even with showcases of such luxury brands as Dior and Prada. This approach can form the basis of Zara marketing case study.
Read the case study regarding capacity planning that is available on Moodle. Your answers should refer to: Relevant concepts and theories regarding the role of capacity planning in organizations and demonstrate your ability to utilize relevant information from the case. Case Study 1 – Capacity Planning (1,250 words, due date: 25/11/2013) Identify the key characteristics of fast fashion and discuss how these affect company approaches to capacity planning. How do fast fashion companies ensure that they can meet their demand? How does this approach contribute to Zara’s success?
Introduction Over the past few years the fashion industry has changed rapidly with every New Year came newer fashion. Competition has been fiercer than ever in terms of costs, quality, dependability and innovation. In this case study you’ll find a clear discussion and logical explanation about Zara’s day to day operations, why and how have they become as successful as they are today. What makes them different from other companies and how they meet there and their customers demands in such a demanding and competitive industry.
Zara is a Spanish owned fashion label and fashion chain stores established in 1975 by the group known as Inditex owned by Amancio Ortega, it sells up to the minute fashion products in men women and kids wear at affordable prices in stores that are clearly focused on one particular market. What is Fast Fashion? Fast fashion is a contemporary term used to affiliate with clothing that is based on most recent fashion trends. It is also a way of saying that designs move from catwalk quickly in order to capture current fashion trends.
It emerges in the context of that the fashion cycle is moving faster than ever before and at least 10 times faster than it has been 10 years ago. Identify the key characteristics of fast fashion and discuss how these affect company approaches to capacity planning? + How does this approach contribute to Zara’s success? How do all these factors contribute Zara’s success is the main question. Firstly Zara have taken speed and responsiveness into account they have changed the way they operate in there industry where designing, distribution and delivery requires no longer than six months.
This proves that Zara can get the latest trends into their store within 6 weeks, which exceeds the capabilities of its competitors as H&M and Benetton and many other fashion companies take longer. This capability allows Zara to achieve their strategy of expedited response to consumer demand and keep up with the latest fashion. The advantage of this process is the quicker Zara can get a new design into their store the higher they will sell the product depending on the demand which will lead to more supply initially allowing company to boost profits and recognitions of their demanding products.
Zara’s unique characteristics are very accurate. Instead of them predicting the demand Zara observes the trend and identifies what is selling, for example there designers continuously track customer’s preferences allowing them to get new designs and styles into the store shelves in under 2 weeks because they have observed the trend before hand and already ahead of their competitors such as H&M. There vertical integration allows small batches of produce to be distributed and tested out allow them to save more money and cut inventory backlogs.
Zara maintains a low cost by avoiding outsourcing (where possible) and producing all its merchandise and produce in home soil in Spain. Also Zara own many fabric dying, cutting and processing equipment that provided Zara added control and flexibility to adopt new trends on demand. Effectively Zara is able to design and manufacture products as well as deliver them in less than two weeks in contrast to competitors such as Benetton and H&M which require at least between five weeks and 4 months lead time to fill orders from its retail operations.
One major unique characteristic was that Zara own its in house production which gives Zara the flexibility of quantity, variety, and the frequency of the designs they produce. Another way there strategy contributors to their success is that they have the capability to keep a significant amount of product in home soil in there won factories and reserve approximately 85% of their capacity for seasonal adjustments this way they will be able to rapidly respond to unexpected trends in the industry.
Additionally they use foreign factories as many other companies do as cost is much cheaper which allows production to increase and distrusted accordingly, however for fast fashion items Zara produces in the factories in Spain as it could lead to shorter time scales to be distributed and on the stores in less than 2 weeks of production. Today Zara can replenish existing stock in little as two weeks. The company spends very little on advertising and use those funds to support higher cost of producing in Spain as its more costly effective to produce than Asia.
This ensures the company they avoid inventory backlogs, allowing the company to product what the customers want and allowing themselves to being able to respond quickly to any market need. Lower inventory cost is key for Zara because as it enables Zara to manufacture and sell its products at cheaper prices. One of Zara’s distinctive success contributors is there valuable and planned logistics and supply chain managements it operates which allows them to develop and deliver competitive marketing mix.
Where customers expect to find latest trends which are still in fashion Zara for an example the ultimate company of how to make it possible because it usually could take up to six months in the textile industry for an idea to be transformed into a product and reach the stores. However if you were reduce the lead times through channel management Zara has developed a vertical integrated business model which allows them as said before lets them change some parts of their inventory in only a couple of weeks. This strategy they use is known as the quick response.
As part of its vertical integration, Zara maintains a very high control of its supply networks as a strategy in achieving fast response. It supplies products to its 650 retail stores twice per week (Rice & Hoppe, 2001) in strictly limited quantities of stock. This ensures Zara’s brand promise to customers of exclusivity and design freshness, thereby minimising inventory of old stock in any part of its supply chain from raw materials to end user. How do fast fashion companies ensure that they can meet their demand?
Without customers businesses cannot exist. The clothing manufacture and clothing distribution industry has witnessed dramatic changes in recent years for example consumers have higher expectations today then before, they often look for quality and unique fashion at affordable prices. Hence why companies like Zara, H&M and Benetton manufacture and distribute their garments in other Asia countries. Zara communicate with numerous manufactures around the world to provide consumers with what they want.
For example like H&M Zara a primarily a European retailer, produce most of their garments in costly Asian factories which allows them to save on cost rather than outsourcing to less expensive European and continuously monitors inventory levels in stores this way they can effectively match the supply and demand of the customers. Fast fashion combines with quick response production with enhanced design compatibilities to both design the latest garments as well as capture the latest trends.
Also exploit minimal production lead times to match the supply with uncertain demand. This is why there are only a very few established fashion companies todaydominating the fast fashion market. Zara ensure they meet there demand and there consumers demand by keeping up to date with the latest fashion trends. They ensure that that if there isn’t a product selling of their shelf within a week then this product would be likely to get replaced with a new existing product.
Another example, if body warmers become the season hottest trends and Zara’s competitors are selling well in this product then Zara reacts quickly, designs new styles, and gets them into stores while the trend is still peaking. This is one of the way Zara meets the customers demand as well as for the business as a whole. Another component is done by studying and monitoring the consumers and the fashion industries unexpected tastes for fashion which allows Zara to reduce design lead times.
For example, Benetton another global fashion brand, based in Treviso, Italy employs a network of people known as ‘Trends spotters’ and designers throughout Europe and Asia who pay close attention to seasonal fashion and give feedback to the Benetton design team to help bring out newer garments that consumers like to wear. From an operational perspective quick response strategies have been relatively well studied, and are known to yield significant value to firms by better matching supply and demand and by influencing consumer purchasing behaviour.
Zara has a 100% reputation for keeping their customers happy and always meeting their demand. The company is vertically integrated and controls most of the process in its supply chain. On average, 50% of Zara’s products are manufactured in home soil – Spain, and the rest are equally produced in Europe and Asia. Having said that this shows that Zara can bring in a blazer in less than two weeks from Zara’s design team in Spain to a Zara stores in any part of the globe, as much as 12 times faster than the competition.
And with shorter lead times, Zara can ship fewer pieces, in a greater variety of styles, more often and they can more easily cancel lines that don’t sell as well, avoiding inventory backlogs. Recommendations/ Conclusion Zara’s operational strategies today defy conventional wisdom about how operation chains should be ran. The key to their success is because of their fast distribution channels, they mainly focus of their customer segment and their awareness for fashion; because of Zara’s fast distribution network they are able to satisfy the rapid change in demand of consumer behaviour.
Zara is enjoying competition in fast fashion today as they are dominating in all areas. Over the last few years Zara have been a customer magnet, there fast distribution network of Zara is able to satisfy millions of customers with the rapid change in fast fashion and demand. In coming years Zara will need to be even more innovative as fashion is changing and competitors are always looking to improve therefore it is essential Zara stay on top of their game to ensure they are on top of their game.
Zara’s core competence is recognizing and assimilating the continuous changes in fashion. They’re very good at this because there’s a very good communication within the company. Store managers send information about the customer demands and new fashion trends to the headquarters on a daily basis. So if there’s a new trend, Zara is able to adapt their products or design new articles immediately. If a design doesn’t sell within a week, it’s withdrawn from the shops, further orders are cancelled and a new design is developed. This is only possible because of a good communication between stores and headquarters.
All stores receive goods twice a week and each shipment contains new articles, in this way they avoid having large inventories so less stock costs.
Another core competence is their flexible business model. They’re able to adapt to changes during a season, reacting to them by bringing new products to the stores in a very short time. It only takes Zara 2 weeks to develop a new product and distribute in which is enormously fast in comparison to other clothing companies.
Their key to global competitiveness is their ability to adapt the offer quickly and precisely to the customers desires. Zara first wanted to grow in their own market by opening stores in each city in Spain with more than 100,000 inhabitants. After this they expanded to Portugal. After their expansion to Portugal Zara realised that they had to adjust their business model to suit the new international markets. They kept expanding to markets with minimal cultural differences from the Spanish market like South-America and almost the rest of Europe.
They kept expanding to different markets. After deciding which country they are going to enter, Zara follows a pattern of expansion strategy known as ‘oil-stain’. Oil-stain strategy is basically to dominate strongly in one place, then spread across the surface of the country. Zara does this by opening a strategic store, called the flagship store. This store is located in a strategic area with the purpose of getting information about the market and acquiring expertise. This will guide them in later expansion.
The company has been able to shorten the PLC, which means greater success in meeting customer preferences. Every four weeks almost the whole product line is changed. Because of this, customers are more likely to visit the stores more often.
VALUE CHAIN: Zara controls most of the steps in the supply chain, designs and produces and distributes itself. Their clothing is manufactured for 50% in Spain, 26% in the rest of Europe, 24% in Africa and Asia. The outsourced activities are outsourced to fast producing low-cost countries.
Their logistics system is based on software produced by the company’s own team. It’s very efficient which means that the time between between receiving and ordering (only in Spain) only takes 24hrs. So if one store experiences a lot of success on one product, they can easily order a whole new stock of the successful product and it will be there in 24 hours which is very efficient. People often call it ‘fast fashion’: because of the very efficient communication system, Zara can respond to different customer demands very quickly.
THE MARKETING MIX APPLIED TO ZARA
Product: Zara provides high quality, fashionable clothing to each men, women and children.
Price: They provide their clothes against a reasonable price
Place: Zara has 5,500 stores in 82 countries. They’re the leaders in providing high quality, fashionable clothing against a relatively low price.
Promotion: They invest almost nothing in advertising.
Zara is one of the largest fashion companies and operates in 82 countries with approximately 5,500 stores. It’s the most successful and popular SBU of the Inditex group. Zara provides the Inditex group with approximately 82% of the total net income. Their headquarter is located in La Coruna, Spain. From there it almost operates all the steps of the supply chain.
As a multinational company, Zara is mainly influenced by ECONOMIC factors such as the economic recession. It suffers under the instability of the EURO as well as several countries suffering from instability. Spain, where their headquarters are located, is part of the PIGS (Portugal, Ireland, Greece and Spain) which is a collection of countries with a high debt and high unemployment rate. This is a rather bad situation, but still Zara remains very strong.
When it comes to SOCIO-CULTURAL, Zara is very strong. They offer adapted products to each country where they distribute their product. This is often called the ‘glocalised approach’ a combination of globalisation and localisation which means that they distribute in a lot of different countries and everywhere they adapt themselves to the local customer needs.
TECHNOLOGICAL factors: Zara is becoming better and better in E-commerce, which is a crucial factor to global clothing companies. They also have a very efficient communication system between local store managers and headquarters, because of this system there’s a very fast communication so they can quickly react to new customer demands and trends.
POLITICAL factors: because Zara outsources certain activities to low-cost developing countries they are often accused of child-labour and ‘slavery’.
SWOT ANALYSIS, after analysing Zara’s internal and external factors, we can start creating a SWOT analysis.
Zara’s biggest strength is that they almost control their entire value chain. Because of this they can respond to customer demands very quickly and efficiently. They can develop and distribute new articles in only 2 weeks time while most of the companies need a lot of time for this.
Because of the strong internal value chain, Zara isn’t able to respond quickly and efficiently to external factors. Also the costs of the centralized value chain are very high.
Zara is very dependent on their use of technological infrastructure (the almost perfect communication system etc…). These days, technology is developing more and more which can lead to even more efficient systems for Zara.
Of course there are several large competitors such as H&M and Gap. Inc. One of the largest threats, but this is for most of the companies, is the current economic recession. Because of the unemployment, inflation etc… people are starting to cut in their spending in buying clothing.
Autor: anton • December 24, 2010 • 906 Words (4 Pages) • 3,416 Views
Zara is the flagship brand of the Spanish retail group, Inditex SA, one of the super-heated performers in a soft retail market in recent years. When Indtiex offered a 23 percent stake to the public in 2001, the issue was over-subscribed 26 times raising Euro2.1 billion for the company.
Zara is unique model in business world today it has its own principles which may varies from its competitors in the same industry starting from production strategy ending with supply chain management strategy, these strategies has to be examined carefully to analyze the this leading example.
At the end of 2001, Zara operated 507 stores around the world, including Spain (40% of the total number of Inditex), with 488.400 square meters of selling area (74% of the total) and employing 1050 million euro of the company's capital (72% of total), of which the store network accounted for about 80%.
Zara, which contributes around 80% of group sales, concentrates on three winning formulae to bake its fresh fashion that are short lead time makes more fashionable clothes, lower quantities makes scarce supply and more styles that equals more choices and more chances of hitting it right.
Zara main competitors' are three according to the near analysis of the market that are Gap, H&M and Benetton. They are having their own characteristics for example they completely outsource their production to factories around the world ,many of them in low cost Asian countries which is not in considerations of Zara who produce in Europe although the high labor cost but it's the business game and each one has his roles.
To dig deep down in Zara case we have to answer many questions each one will lead us to know how is this unique model act and success in leading the fashion industry.
With which of the international competitors listed in the case is it most interesting to compare Inditex's financial results? Why? What do comparisons indicate about Inditex relative operating economics? Its relative capital efficiency?
H&m is the closest competitors from financial point of view. According to the operating results and financial position, it is close to Zara but there are many key different in strategies in production, distribution, marketing and management as well. In addition to the number of employees, stores in country and outside country.
Let us make some key analysis to discover some facts about them:
1- Total assets turnover=sales/total assets
That gives us the indication that H&M is efficient than Zara but that may be return to Zara's strategy of owning the stores and plants which is not the strategy of H&M whose depend on out sourcing as shown in the next item.
2- Property, plant and equipment=
Zara is about doubled H&M (1228:661) million. The ratio here is 2:1
In my point of view Zara is more efficient here, because it invest more in owning its store which getting the value of discount its depreciation of these fixed assets from tax. Also the expenses of these stores and plant of their net income and tax. In the same time these assets value increased every day because they buy in competitive areas so also I think Zara is more competitive in using its capital.
3- Gross profit margin= gross profit / sales
Zara has higher and this ratio express how much remaining from each sales dollar after firm has paid for its good.
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Zara keeps her total control strategy of the business
Strong human resource team
Offers the Latest Fashion
How could this small firm become internationally present?
The big step up arrived in the 90’s, when Zara started an important foreign expansion in Europe, America and Asia
Zara is the largest division of Inditex with 76% of total retail sales with 507 stores worldwide: 31 of them were franchised and 12 were joint ventures
Flexibility and reactivity
All products passed through Zara’s major distribution centre in La Coruna
Stores order and receive shipments twice per week
In 2001 Zara was opening new stores at an average rate of one per week.
Total control of the supply chain
Flexibility in the decisions
Increase the overall profitability of the business
Interactions with governmental policy for intervention in the economy and legal aspects in decision making processes
Different duties and levels of tariffs in different countries and this can cause the prices of products to vary in different countries
Regarding the social media trend development it’s a must for Zara to establish a social media relationship to satisfy customer’s demands due to change in generation choices.
Zara has invested in technology and it has to keep improvising because if they don’t then their competitors will get a head start on them
ZARA follows a strategy like Benetton
Strategy that involves less risk
due to the stock and to the things that not sell
so the risk of this belongs to the franchisers,
Atraction of new consumers due the effective response of their needs
Loss of interest in the store due the lack of turnover
Doesn't pressure the buyer on his buying decision
Comparing Zara and Benetton
Create the capacity to respond to a high flow of demand (4)
Benetton is the most global of all high street fashion brand (4)
High technological capacity (3)
Excellent quality (5)
Market oriented strategy (4)
Total control of the supply chain (5)
Environmental and animal welfare policies (2)
Alternative 1 is the most indicated one
Week stock turnover (5)
The client waits too much time for the promotional campaigns (3)
Decline in sales (5)
Loss of costumers to competitors (5)
Limited stocks (3)
Inditex overdependence on Zara (3)
More cutting edge design, more risk (4)
Benetton following some international regulations like “ Regulation for Markets Organised and Managed by Borsa Italiana SpA” and is also listed on the Frankfurt Stock Exchange where obeys a general regulation.
With the actual economic recession the consumers have less capacity to purchase Benetton products and so prefer the products of their competitors.
This is one of the most important force, the communication of Benetton is very controversial and many times some marketing campaigns are controversial and in some countries Benetton is required to remove these campaigns
Benetton renewed all the systems and equipments every five years to stay ever in the top of the innovation.
Catarina Chloé Hortense João Ricardo
Continuous and consistent representation of company