A case study on ZARA fashion

ZARA FASHION Supervised by Mansura akter Lecturer, Dept. of international business

University of Dhaka

PREPARED BY Md. Monir Hosen Roll-16 Dept. of International Business University of Dhaka

Summary on ZARA Fashion: Zara is one of the largest international fashion brands of Inditex. The company first opened in La Coruna in 1975, still lives by the simple idea of Amancio Ortega to link customer demand to manufacturing, and link manufacturing to distribution. The customer is at the heart of the business model. In 1985, Inditex became the holding company atop Zara and other retail chains, and Jose Maria Castellano Rios joined the company. Castellano and Ortega shared the same beliefs that quick response to customers, use of computers, and disintegrated decision-making were important to build the business. Zara has built an information and distribution system that allows it to put the latest runway fashions in its stores in a matter of weeks at a fraction of what the big-name designers charge.

In addition to fast, Zara is prolific. In a typical year, Zara launches about 11,000 new items. Compare that to the 2,000 to 4,000 items introduced by both H&M and Gap. Zara stores receive new merchandise two to three times each week,

compared to four to six times per year for most clothing retailers. A more and smaller batch of items translates into fashion exclusivity. This in turn results in fewer mark-downs and higher profits.

Zara controls a true vertical marketing system. A good portion of the channel participants are centralized geographically around its corporate headquarters in a remote corner of Northeast Spain, rather than spread out around the globe. This and its IT system are what allow it to achieve the speed and responsiveness that it does.

Current market situation: ZARA is a retailing chain with several stores situated worldwide. Its marketing strategy is based more on expansion rather than advertising or traditional methods of promotion. ZARA originated in Spain and with over 500 of its stores currently located there, the market has become rather saturated. Hence it has expanded to 70 countries. ZARA produce apparel for women, man, and kids.

Target Marketing: Zara’s target customers are paying attention in high trends and want to have the latest fashion trends but cannot afford dresses from the haute couture boutiques. In consideration of the market, Zara provides the customers with a turnover period of 4 and 5 weeks for its “New Arrivals” collections.

Costumer profiles: We know that ZARA produce menswear, womenswear, and Kids wear. The target group consists mainly of women aged between 18 – 40 who are either working in big cities or pursuing higher education. The main visitors of ZARA.com are from Spain (11.2%), USA (10.6%), UK (8.1%), France (7.7%) and etc.

ZARA marketing Mix:

Product: Zara manufactures and sells products such as clothes, shoes, cosmetics and accessories for men, children and woman. Furthermore, Zara extended its collection with additional sizes.

Price: The pricing strategy is to produce clothes that are typically inexpensive and affordable by those who cannot spend much on fashionable clothing but want to have appealing and comfortable outfits as well as wealthy consumers who like

good quality and style. We know that Zara believes in offering high fashion at a low cost. Prices range from $79.90 to $539.00 for both Womenswear and Menswear while the Kids segment has coats starting from $65.00 and these prices can start from $30 during a sale.

Kids wear

Menswear

womenswear

Place Zara is present in about 30 countries at private locations. There are 600 commercial stores and Zara is selling its service trough out the world. High frequency in the flagship stores with high valuable interior designs; new openings in prestige locations (Pitt Street, Sydney; Burke Street, Melbourne; Taipei 101 building; Taiwan and in EU: Rathenauplatz, Frankfurt; George Street London, Van Baerlestraat, Amsterdam) are Zara’s target strategy.

Promotion Zara focuses less on advertisement based marketing, but more on internet online marketing opportunities as Ecommerce strategy, social media and online shops. From the original focus on central European market, Zara expended its multichannel strategy of stores and expansion in new markets such as Japan and the United States and extended online sales to Denmark, Norway, and Sweden, Monaco and Switzerland.

Online shopping service: In 2010 ZARA open its online shopping system. Zara Online-Shops presents a moderate choice of fashion for women, mean and kids. The user can select his search criteria by quality, characteristics, colour, size and prize.

Current Market Strategy Zara is considering setting up loyalty programs to create a link with its customers and increase the number of people that visit the stores. Also the company is heavily concentrated on improving its logistics system which is very important to the company in having success in the clothing industry. Zara markets towards the Euro-chic crowd who wants more fashionable clothes with a shorter lead time. Zara produces lower quantities of clothing, therefore the supply of their items are very scarce. Zara relies more on location of a retail establishment rather than advertising to attract customers. Only .3 percent of sales are spent on advertising for the company compared to that of its competitors who spend around 3.5 percent. Zara is more concerned with finding the exact retail site that best suits the company rather than spending the extra money on luring customers into the store.

Major competitors: At early stage ZARA Fashion had indigenous competitors. But now ZARA Fashion is a well-known company in the world. Now its competitor is worldwide. Gap, H&M and Benetton are considered Inditex's three closest

comparable international competitors. All three had narrower vertical scope than Zara, which owned much of its production and most of its stores. The Gap and H&M, which were the two largest specialist apparel retailers in the world, ahead of Inditex, owned most of their stores but outsourced all production. Benetton, in contrast, had invested relatively heavily in production, but licensees ran its stores. The three competitors were also positioned differently in product space from Inditex’s chains. Price+

Benetton

Gap

Massimo Dutti

Fashion-

Fashion+ ZARA H&M Bershka

Price-

Figure: A Product Market Positioning Map Price-

The Gap The Gap, based in San Francisco, had been founded in 1969 and had achieved stellar growth and profitability through the 1980s and much of the 1990s with what was described as an “unpretentious real clothes stance,” comprising extensive collections of T-shirts and jeans as well as “smart casual” work clothes. The Gap’s production was internationalized—more than 90% of it was

outsourced from outside the United States—but its store operations were U.S.centric.

Hennes and Mauritz Hennes and Mauritz (H&M), founded as Hennes (hers) in Sweden in 1947, was another high performing apparel retailer. While it was considered Inditex’s closest competitor, there were a number of key differences. Unlike Inditex, H&M operated a single format, although it marketed its clothes under numerous labels or concepts to different customer segments. H&M also tended to have slightly lower price than ZARA.

Question for Discussion 1. As completely as possible, sketch the supply chain for Zara from raw materials to consume purchase. 2. Discuss the concepts of horizontal and vertical conflict as they relate to Zara. 3. Which type of vertical marketing system dose Zara employ? list all the benefits that Zara receives by having adopted this system. 4. Dose Zara experience Disadvantages from its fast fashion distribute system? Are these disadvantages offset by the advantages? 5. How dose Zara add value for the consumer through major logistic function.

Discussion of Questions

1. As completely as possible, sketch the supply chain for Zara from raw materials to consumer purchase.

As the case points out, finding the starting point of a product concept is hard to nail down with Zara. But the following is an attempt to do this: Design: The starting point is a collaborative phase that includes teams of creative professionals who carry out the design process and store managers who spot trends and feed data to corporate.

Materials: Zara makes 40 percent of its own fabric. It is not clear from the case where the other 60 percent comes from, but given the information on the rest of the process, it is likely purchased more on a local basis than on a global basis.

Cutting: Zara produces more than half of its own clothing. It cuts all fabric inhouse at its complex in Spain.

Sewing: Cut fabric and designs are sent to one of several hundred local cooperatives.

Ironing: Ironing is performed in-house by workers trained for a specific task (lapels, shoulders, etc.).

Final preparation: Clothing is wrapped in plastic and transported on conveyors to local Zara-owned warehouses. The automated warehouses sort, pack, label, and allocate clothing items to specific regions and stores.

Delivery: Stores within a 24-hour drive receive deliveries by truck. All other stores receive their goods via air parcel.

Sale: All stores are company owned.

2. Discuss the concepts of horizontal and vertical conflict as they relate to Zara.

There is little information given in the case regarding channel conflict. But one could easily speculate as to the outcomes. Because Zara owns much of its own supply chain and exhibits an extreme amount of control over the elements that it does not own, conflict is likely minimal. With respect to horizontal conflict, the only members of the supply chain on a horizontal level would be the hundreds of local sewing co-operatives. It is difficult to imagine the type of complaints that such co-operatives might wage against each other that would affect Zara. However, horizontal issues might result in vertical conflict. Zara owns much of the supply chain. Thus, any conflict would be internal and could be handled in a much different manner than if the entities were independent. But the cooperatives are not company owned. Because there are so many of them, however, conflict should be minimized as Zara has plenty of options.

3. Which type of vertical marketing system does Zara exhibit? List all the benefits that Zara receives by having adopted this system.

While Zara does not own all of the stages of the vertical marketing system, it seems to have a strong control over those that it does not own. Zara’s system fits the description of a corporate VMS better than it fits the contractual or administered systems. The text provides an outtake example of Zara in the section on corporate VMS that illustrates the benefits that Zara achieves through this structure. These include control over almost every aspect of the supply chain, more items produced, faster design-to-shelf times, lower inventories, and more frequent shipments. In short, Zara is faster, more flexible, and more efficient than other fashion houses and chains because of its corporate VMS.

4. Does Zara incur disadvantages from its “fast-fashion” distribution system? Are these disadvantages offset by the advantages?

One disadvantage that Zara incurs is possibly a higher cost on materials and labor by not sourcing globally to the cheapest source. This, however, is offset by the cost savings of not having items shipped all over the world. It is also offset by dramatically faster response time between each stage. Because Zara’s competitive advantage is the “fast” part of the fashion, this is much more important than the minimal amount that Zara could save by sourcing globally.

5. How does Zara add value for the customer through major logistics functions?

Warehousing: The only warehousing done in this system is local and brief for the component parts and the finished items. This adds value by cutting down on costs associated with warehousing and by decreasing the time-to-shelf.

Inventory Management: The IT system and the VMS in general both contribute to Zara’s ability to offer a just-in-time system. This results in lower inventories, cut costs, and faster throughput.

Transportation: Zara’s shipping system is certainly quick. That is the big advantage. Shipping by air freight to individual stores is not the cheapest way to go. But again, Zara’s competitive advantage is speed.

Reference: 1. 2. 3. 4. 5. 6. 7. 8.

www.zara .com www.inditex.com www.gallaugher.com www.flatworldknowledge.com. Capell K,“Fashion Conquistador”, BusinessWeek, Sept. 4, 2006 “Zara, a Spanish success story”, June 15, 2001 Helft, M., "Fashion Fast Forward," Business 2.0, May 2002 Perez, S., “Inidtex Profit Jumps 30%, But Sales Concerns Hit Shares”, The Wall Street Journal, Dec. 13, 2007. 9. Murphy, R., “Expansion Boosts Inditex Net”, Women’s Wear Daily, April 1, 2008.

10.

The Economist, “The Future of Fast Fashion”, June 18, 2005.