Assignment Cover Sheet

Subject Code: TBS933

Subject Name: Procurement Management
Submission Type: Report
Assignment Title: Zara Fast Fashion
Student Name: Muhammad Ali Danish, Roven Fernandes, Robin Menezes, Nidhin Damodaran
Student Number: 4464333, 3048858, 4651273, 4682336
Student Phone/Mobile No. 0561013092, 0558824656, 0501437296, 0503846441
Mad756@uowmail.edu.au, robinmenezes@live.com, sancho2988@gmail.com,
Student E-mail:
nidhindamodaran@yahoo.com
Lecturer Name: Dr. Wafa AbuSnaineh
Due Date: Monday, 24 November 2014
Date Submitted: Monday, 24 November 2014

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Subject: TBS933 Assignment Title: Zara Fast Fashion
Student Name: Muhammad Ali Danish Student Number: 4464333
Due Date: Monday, 24 November 2014 Date Submitted: Monday, 24 November 2014
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Subject: TBS933 Assignment Title: Zara Fast Fashion
Student Name: Muhammad Ali Danish Student Number: 4464333
Due Date: Monday, 24 November 2014 Date Submitted: Monday, 24 November 2014
Signature of Lecturer

 TBS 933

Procurement Management
Autumn 2014

ZARA



Submitted by

Roven Fernandes (3048858)

Robin Menezes (4651273)
Nidhin Damodaran (4682336)
Muhammad Danish (4464333)

 Contents

1. INTRODUCTION.....................................................................................................................................1
2. SITUATIONANALYSIS............................................................................................................................2
2.1. SWOTANALYSIS............................................................................................................................3
2.2. PORTER'S5FORCES.......................................................................................................................9
3. VERTICALINTEGRATION......................................................................................................................10
3.1. ProcurementofRawMaterials...................................................................................................11
3.2. Designing.....................................................................................................................................11
3.3. Production...................................................................................................................................11
3.4. RetailStores................................................................................................................................11
3.5. InformationInfrastructure..........................................................................................................12
3.6. IssuesandProblems....................................................................................................................12
4. CURRENTSOURCINGSTRATEGY.........................................................................................................13
4.1. Issues...........................................................................................................................................14
5. PRIMARYRECOMMENDATION...........................................................................................................15
5.1. Distribution.................................................................................................................................15
5.2. TheProblem&Recommendation..............................................................................................16
6. OTHERRECOMMENDATION&SOLUTIONS........................................................................................17
6.1. Strategicdecision........................................................................................................................17
6.2. Tacticaldecision..........................................................................................................................17
6.3. Operationaldecisions.................................................................................................................17
6.4. Informationneededfordecisionmaking...................................................................................18
6.5. Competitorsintelligence............................................................................................................18
7. BIBLIOGRAPHY....................................................................................................................................19

1. INTRODUCTION

DanielPiette,thefashiondirectorofoneoftheworldsleadingfashionhousesLouisVuitton,
whichisaFrenchfashionhousethatwasfoundedin1854,describedZaraaspossiblythemost
innovative and devastating retailer in the world. Zara has also been described by CNN as a
Spanishsuccessstory.Butwhyisthisso?Therearethousandsofcorporationsestablishedin
thefashionindustry,whatmakesZarastandout?

TheNPDGroup,Inc,formerlyknownasNationalPurchaseDiary,isaUSbasedmarketresearch
company,withofficessituatedacrosstheUnitedStates,Asia,theUnitedKingdom,theEuropean
Union,andinAustraliaandarerankedconsistentlyamongthe25marketresearchcompaniesin
the independent Honomichl Top 50 report. Which the media and research industry
acknowledgeasacrediblesourceofinformationinthemarketresearch.IndustrydefinesThe
fashionindustrytobeamultibilliondollarglobalenterprisedevotedtothebusinessofmaking
andsellingclothes.

Thefashionretailerscanbedividedintotwocategories.Thefirstcategoryisthoseretailersin
that operate in the true sense of the word and only cater to the customers directly. These
retailersdonothaveanymanufacturingcompetenciesoftheirown.Someofthewellknown
brandsthatfallunderthiscategoryaretheSwedishorganization,Hennes&Mauritz,(H&M),the
USbased organization, Gap and the Spanish organization, Mango. These organizations rely
mainly on outsourcing which is one of the factors that help facilitate globalization (Gereffi,
2005a).Theseretailersoutsourcetheirmanufacturinginbulktopartiallyindustrializedcountries,
wherelaborissignificantlycheaper.Ontheotherhand,withthesecondcategoryofretailers,
you have fashion retailers who have their own factories like Benetton and Zara, with their
manufacturing facilities in Italy and Spain, respectively considered market flexibility and lean
inventoriesastheirstrategiesratherthanscoutingforcheaplabor.

Let'stakealookatH&Mforexample.H&MisSwedishmultinationalretailclothing,whoisknown
for its fashion trends of clothing for men, women, teenagers and children. They established
themselves in 1947, currently exist in 53 countries and are ranked the second largest global
clothingretailer,trailingbehindtheSpanishbasedInditex,whoseparentcompanyisZara.

H&Mrunstronglyontheirbrandicon,Madonna,afamousAmericanentertainerwhodoesnot
directlyaffiliateswithH&MbuthasproducedfourfashionbrandswhichissoldundertheH&M
umbrella.IfMadonna,wasdirectlyassociatedwithH&M,herbrandimagewouldhavesentthe

pricesskyrocketing,disruptingtheirbusinessconceptofofferingfashion&qualityatthebest
price.

Othertheotherhand,incontrastZara,aSpanishbasedclothingandaccessoriesretailerwhich
wasfoundedin1975andisthelargestretailersintheworld.Theyhaveover2,000storeslocated
across88countries.TheyhavestoresthatoperateasLefties,whichasthetermstatesrefersto
leftovers,likeInditex(mentionedabove)thatsellsZaraproductsforlowcostfashion.

Zara does not have any brand ambassador affiliated with them & yet until recently, they are
consideredasamajorinternationalclothingretailerandpioneeroffastfashion.InfactZarahas
apolicyofzeroadvertisingwhichisoneofthemostunusualstrategies.Formostorganizations
advertising is one of the key functions in order to reach their target market segment (TMS),
howeverZararelieslargelyontheirbrandimageandtheyprefertoinvestadecentpercentage
oftheirrevenuesinopeningnewstoresinstead.ThishasincreasedtheideaofZaraasa"fashion
imitator"companywithlowcostproducts.

Unlikeanyotherorganizationinthefashionindustry,Zarahasmanagedtoproduce&distribute
new designs into the market within two weeks where as their competition takes six to eight
weekstodothesame.ThecompetitiveadvantageZarahasisitsverticalintegrationwhereinthey
have the entire primary, secondary & tertiary sector all under one umbrella making its
distributionflowmucheasier.Theirvaluechaininitialswiththeirresearchwhichiscollectedon
thedesignswantedbythecustomers,whichisthenpassedontothedesignstudio,wherefabrics
&dyearedecided.Oncetheyhaveallthebasicsinplace,theinformationispassedontothe
manufacturingworkshopswhereinthefinalproductisproduced&madereadyfordistribution.
OncethefinalproductisreadyZarausesitsdistributionwarehousingtobedispatchedtotheir
retailerslocatedworldwide.

2. SITUATIONANALYSIS

Zaraisoneofthemostpowerful&influentialbrandwhenitcomestothefashionindustry.One
of the key success factors Zara has in this highly competitive market, is that they are able to
designnewproductsandmakethemavailableintheirstorestomeetconsumerpreferencesin
justtwoweekswhereastheircompetitionmanagethesameinsixtoeightweeks.Zarahasa
brandimageofbeingatrendfollower.Unlikemajorityoftheircompetitiontheydonotmass
producenordotheycatertoseasonaldemand.Theystandtallwhenitcomestotheirpolicies
andensurethereareabidedby.Thusasaresulttheydonotrelyheavilytomanufacturetheir
productsincountrieslikeChina,orIndiawherelaborischeap.Organizationsthatlooktomass

 producegoodsonlylooksatproducinggoodsintheAsianContinent.Zaraspolicyandcompany
strategyismainlyfocusedonleanproduction&consideringthefactthattheyareknowntobe
trend setters, they will need a much fast & much more technological advanced countries to
produce their products. This is mainly because that the fashion industry is a very unreliable
marketastrends/demandchangesareunpredictable.KeepingthisinmindZararelieshighlyon
SpainandPortugaltoproducetheirmorefashionableitems.Infactalmost50%oftheirproducts
areproducedinSpain&Portugalastheyaremoreadaptabletochange.Yesthecostsmaybe
relativelyhigherascomparedtothefirmswhotendtooutsourcetheirproductiontoAsiabut
Zarabenefitsfromthisbecausetheirsupplychainisshortandthustheycanquicklyreacttonew
trends.

Inaddition,unlikemajorityoftheorganizationsintheinfashionindustrywholooktocatertoall
thetargetmarketsegments(TMS)inthemarket,Zaralookstosatisfyonlyaparticularsegment
areensuretheymeettheirneedstotheirbestwhichregardstolatesttrends.Letstakeanin
depthtoZarassituationalanalysis.

2.1. SWOTANALYSIS

STRENGTHS WEAKNESSES

VerticalIntegration
GlobalOutreach LackofMarketing
Store/BrandImage LimitedStocks/LowInventory
IT(InHouse)Infrastructure IT/ECommerce
Locations CentralDistribution
FastFashion/RapidSupplyChain Product
ResponsiveEmployees LimitedCustomerBase
ManagementStyle&
Communication


OPPORTUNITY THREATS

Advertising FierceCompetition(New&Current)
OnlineMarkets/Applications NoAdvertisingCampaigns

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 Costs Labor/FinalProduct/Raw
GrowingAsiaMarket Material
PenetrationoftheUSMarket Production
NewMarketsDeveloping
countries ChangeinCustomerPreferences

Strengths
TheveryfactthatZaradoesitsownmanufacturingisabonusbyitself.Theyconducttheirown
marketresearch,developsthedesignoftheirownproductfordistributionattheirownstores
ratherthanrelyingofvendors.Theyareabletoacquirearapidsupplychainastheyhavetheir
ownproductionplants&theirownlogisticsystemsinplace.Theyarerecognizedgloballyand
havestorescurrentlylocatedinover80countries.TheyhavetheirownfactorieslocatedinSpain,
Portugal, China, India, Turkey Morocco and Vietnam with 50% of their fashionable products
comingfromSpain.Zarafocusesonconsumertastesinadistinctivemannerprovidingshortlead
andquickturnaroundtimesforalldesignswhileutilizingauniquemarketingapproach.These
strategies allow Zara to differentiate itself while sustaining a competitive advantage over its
majorcompetitorsH&M,BenettonandGap.

Zaraisaclientorientedorganizationastheytargetpeoplewhoare&wanttokeepfashionably
trendy.Zarahasnewproductsthatareshippedtwiceaweekallowingconstantchangesinstyle
selection.Theyhaveafocusedtargetmarketsegment(TMS)whichprimarytargetsuppermiddle
class,trendywomenagedbetween1635,whoenjoyexquisite&uniquedesigns.Withalmosta
0%advertisingpolicy,anycompanymayfindithardtosurvive,howeverZarahasmanagedto
createabrandimagewiththeirapproachtosatisfyingconsumerneeds/demand.Infactthey
havemanagedtosustaintheirbrandimagewithoutafashioncelebritysnameattachedtoit.
TheirmainmarketingstrategyistopromoteaconceptknownasFastFashionandthustheir
storesarecreatedinawaythatisattractivetocustomers.Incontrasttotheircompetitors,Zara
tendstorecreatetheirstoresalmostevery34yearstoadheretodemandandmaintaincustomer
interest.Inaddition,majorityoftheirdisplaymerchandiseischangedevery34weeks.Thisis
donetocapturetheinterestofZarasclientsastheirinhouseresearchshowedthatonaverage,
existingshoppersvisitedthestoresabout17timesayear.

Zaraconsidersandtreateachstoreasitsownbusinessandthusthereareveryspecificreporting
requirementsandtargetssetforeachstore.Byrequiringeachstoretomonitortrends,store
managerstakeanactiveroleindeterminingwhichmerchandisetorestockordiscontinueaswell
asprovideinsightaboutdemandfornewproducts.Inordertodothiseachstorehasitrespective

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customerfeedbacksystemwhichhelpsthestoremanagertoidentifycustomersatisfactionlevel
onparticularsectionsaswellasdeterminethecurrentneed/demandfornewproducts.

The advantage of having a flatter hierarchy is that it helps drive open communication. Most
organizationshavemuchbureaucracyassociatedwiththewayvaluableinformationabouttrends
and behaviors are transmitted however Zara believes in a fast solution in which the lines of
communication are wide open. The organization, its operational procedures, performance
measuresalongwithitsofficelayoutarealldesignedtomaketheflowofinformationeasy.

ZarahasanadvancedJustintime(JIT)ManufacturingSystem,whichconnectstheheadquarter,
supply chain, production with their stores located globally. As mentioned above they have a
highlydevelopedinhousesystemtofacilitatethetrackingofcustomerpreferences,company
trendsandfashionfads.

Weaknesses
Twoofthemainfactorsthatanyorganizationsneedtokeepinmindisthatdemandinuncertain
(&varies)&economicfactors.ConsideringthefactthatZaraisagloballyrecognizedorganization,
theywillrequiretounderstandthis&keepitinmindwhenplanningtheirstrategies.Although
their TMS may be the trend upper middle class, demand will definitely differ from one
geographical location to another. Take for example the leather & winter clothing that Zara
producesintheUnitedKingdom.TheseproductsmaybeinhighdemandintheUKduetotheir
climate conditions which is relatively cold as compared to say a country like the United Arab
Emirates(UAE).Thosesameleatherclothing,whichalthoughconsumersmayfindattractive,but
willnotsellastheclimatehereintheUAEwillnotpermityouto.Thetastearedefinitelygoing
todifferandasmentionedinthecasehanddowntous,ZarasustainingaCentralizedProduction
/Distributionwillhaveanegativeimpactonitsentity&thuswilldamageitsbrandimage.We
willdwellonthetypeofproductionorganizationZaraisalittlelaterinthisreport.

AnotherweaknessinZarascurrentoperatingsystemisthattheirwebsitenotyetintegratedin
tomobileapplicationsasitonlyshowsthesameviewasanycustomerwouldgetwhenvisiting
thewebsiteontheirdesktop.Intodaysworldwhereeverythingistechnologicallyadvancedit
would be good for Zaras brand image to keep us with time. They have a very simple yet
interactivewebsitethatiseasyontheeyehowevertheylackinformationonthedescriptionof
items.

Zaracouldincreasetheirsalestoacertainpercentageiftheyrevisetheirpolicyonadvertising.
Advertisingisoneofthebest&fastwaytoreachouttothepublic.AlthoughthefactthatZaras
strategyofopeningnewstoresratherthanspendonadvertisingcouldbeastrengthaswellasa

weakness.TVcommercials&adsinthepapernormallychargebytheday,week,month,6month
orayearandthepricesdifferfromthepeakrateascomparedtotheoffpeakandthepage&
size its advertised in, which taking Zaras products into consideration, may not help. This is
becausethatZarahasacontinuousflowofgoodseverytwoweek&thereisnopointadvertising
fordiscontinueditems.Butnevertheless,advertswhetheronTVintheformofcommercialsor
newspaperadvertsdohaveawayofcreatingawantintheconsumerseye.Zarawillneedto
lookatpromotingtheirbrandnameratherthantheirproductswhicharecontinuouslychanging.
Theircurrentstrategyofconsumerexperienceand/orwordofmouthiseffectivebutadvertising
mayjusthelpboastsaletocertainpercentage.

Zarasmayneedtoreducethenumberofstoretheyhavecurrentlylocatedinandaroundthe
Europeanregion.Yesitdoeshelpisreachingouttotheconsumers,howeverZarawillneedto
lookateitherexpandingtheirhorizons,lookingintoexpandingintonewermarkets,setupstores
indevelopingcountriesorinitialastrategythathelpthemtopenetratetheUSMarket.Wewill
comebacktotheUScriteriaalittlelaterinthereport.

Asfarasinventoryisconcerned,Zaratendstohaveverylowstock.Thisagaincanbeastrength
aswellasadrawback.Consideringthefactthatthefashionindustryisahighlyunpredictable
marketandthattrendschangeveryfast,havingaleanerinventoryisbeneficial&italsoallows
Zaratousethesamerawmaterialsinproducingnewerproductstomeetthedemand.However
atthesametimetheymayloseoutonsales.Takeforexampleaproductishit&becomesafast
seller,becauseZarahasaleaninventorytheymaynotbeabletomeettherisingdemandofthat
particularproductintime.

AnotherweaknessofZaramaybetheirproductitself.YesZaratendstotargettheuppermiddle
class but majority of Zaras clothes are fairly simple but because the product may have been
manufacturedinSpainorPortugal,thepricemaybealittlehigh.Whereinyoumaygetasimilar
clothingatH&Mformuchcheaper.Withregardstotheir(Zara)competition,Zarascaterstoa
limitedcustomerbase.TakeforexampleACEhardware&Carrefour/CityCenterhereinDubai,
unlessapersonisspecificallygoingshoppingfortoolswouldhe/shedrivedowntoACEhardware
inFestivalcity.Theotherpersonwhoneedstocontinuehishouseholdchores(groceryshopping,
etc)&simultaneouslyhavealookatthehardwareequipment,wouldrathergotoCityCentre.
Yes Zara is currently located in major shopping malls in Dubai, but look at it at a global
prospective.TheUSsectorwillalsoplayapartherewhichwewillgointoabitlater.Nevertheless
comingbacktothepointZaratargetsonlyaparticularTMS,whereasthecompetitorontheother
handtargetsallgenreofsizes&agegroups.Weliveinasocietywherewearealltimebound&

 ifyoutakeanexampleofafamilywithdifferentagesgroupsand/orsizes,theywouldrather
walkintoaH&MstoreratherthanaZaraoutlet.Itisafoodforthought.

Opportunities
AdvertisinghasnotbeencorestrengthofZara,theyinsteadreinvesttheiradvertisingrevenues
infavorofplacingtheirstoresinprimelocations,therebymakingtheirbrandvisibletofashion
conscious buyers. By investing in advertising they can tap into the vast majority of potential
buyerswhoarenotbrandloyalorfashionsavvyandtherebyincreasetheirmarketshare.This
alsoprovidesZaraanopportunitytostudypreviouslyunnoticeablesegmentsofbuyerssuchas
Working Executives and create a new pool of designs to choose from thereby increasing the
branddiversity.

Onlinemarkets(ecommerce)isanareawhereZaraismakingalotofinvestment,theyareable
to assess likes and dislikes of loyal as well as casual buyers for their products by producing
upcoming attires/brands on their website/page. By looking into the fashion that is currently
beingdisplayedandclickeduponbyfollowerstheyareabletoforecastthedemandandproduce
quantitiesthatavoidoverstockorunderstockaswellasprovideaccurateallocationofDemand
tostoreswheredemandislikelytobeconsumedinhigherquantities.

Growing Asia Market and increasing purchasing power available in growing economies is an
opportunityforZaratoplacetheirfootprintinthefashionsegment.Zaraisprimarilyfocusedin
Europebutwiththedeclineinthefinancialstabilityaswellasunemploymentissuesfacedinthe
2majoreconomiesofSpainandPortugalwhichistheircoretargetmarketraisethequestionof
redirectingtheireffortsincountriesthatenjoyhigherfinancialsecurity.Manycountriesgrowing
economiesenjoyhigh/midincomeearnersthathavedisposableincomestopurchaseclothing
frombrandslikeZara.Focusingonthesamewilldefinitelyprovideanadditionalaswellasvalue
addedstreamofincomethatwillallowZaratoreapmorebenefitsbytargetingalargeraudience
ofinterestedbuyers.
PenetrationoftheUSMarketasUSisabigNetworkthathas bothtrendsfollowingaswellas
potential interested customers that have not been tapped by Zara. To add to that there is a
greaterinfluxofvariouscultural,EthnicgroupsthatmoveintotheUSforworkandotherreasons,
theseindividualsdonothaveaccesstopurchasefashionproductsbackhomeandforthisreason
itselftherepossessagroupofshoppersthatmaybeapproachedwithoffers/productsthatcan
be purchased in higher quantities to be taken back home. Apart from that with the tough
restrictions(Customs/ Local Infrastructure) aswell asregulations to invite Big label brands in
LatinspeakingcountriesmaketheUSanattractiveregionforZARAtostudyandinvestinto.

Threats
FierceCompetition(New&Current) Fashionisafiercelycompetitivesectorasvalueofgoods
are based on the existing trends and buyers come from a background of having disposable
incomestopurchasetheseproducts.Sincethissegmentisnotanecessitybutaluxuryassuch
thereismuchemphasisonprovidinghighvalueclothingatareasonableprice.Alsowithaquick
turnaroundoftrendsthereisaneedtoprovideavarietyofdesignstoensurethecustomersare
satisfiedandkeepreturningformore.Inthecaseoffashiontheparticularemphasisisreliedon
a loyal fashion following crowd. Therefore Brands like Zara, GAP and H&M rely heavily on
retainingtheirexistingclientsaswellasattractingclientsfromotherwellknownbrandstowards
their offering. Every opportunity missed or passed on is likely to ensure that a competitor is
inching towards monetizing clients interests and preferences. Therefore there must be an
evaluationofhighpotentialspendingeconomywherethereislikelyopportunityforgrowthand
profitability,ifrequiredactionisnottakenontimeitisveryunlikelyandevencostliertoattract
customersfromamarketsaturatedwithcompetitionwithbetterproducts.

NoAdvertisingCampaignshasitssetofadvantagesisretainingprimelocationsforplacingtheir
storesbutitsdisadvantagesarealsoworthconsideringasthereisalackofawarenessaboutgood
qualityclothingatreasonablepricesamongthemasses.Thislackofinvestmentinadvertising
leadstoan opportunityforcompetitorsto get byeasilywithlesscompetitionaround.Lower
qualitybrandsarealsoabletocapitalizewithlackofinterestbymorequalifiedfashionbrands
investing lesser into advertising. The ability to realize the compounding effects of good
advertisinghasanimmenseimpactonthebottomlineandprofitabilityofZara.

CostsLabor/FinalProduct/RawMaterial ZarasourcesmuchofitsproductsfromwithinSpain
inlargerquantitiesthanfromtheFareast.Thetaxstructureaswellashighemploymentratefor
manpower is much higher than what can be achieved overseas. The benefits include faster
logistics but impacts on the overall profit margin as the odds are much higher due to basic
politicalandgeographicreasons.Tocombatthesecompetitorsaresourcingandproducingtheir
goodsinlargerquantitiesatlowercosts(IntermsofLabor,FinalProductaswellasRawMaterial)
overseasachievingeconomiesofscaletherebygainingmoreperunitoftheirproductsold.Zaras
businessmodelhoweveristhatofreplenishinglowerquantitiesoffast,perishablefashiontrends
andmonetizingonnewtrendsatmaximumprofitbeforecompetitorsdeveloptheirproducts.A
hybridsourcingstrategytosourceundyedfabricfromoverseasmaybeprovideafirststepin
minimizingproductdevelopmentcostsforastart.

ProductionhasplayedahugeimpactontheBrandImageofZaraasseenbythecommunity.
RecentlytheyhavebeenfacingmanychargesofusingSlaveLaboraswellasChildLaborattheir
facilitiesinBrazil&Argentina.ItisveryunacceptabletoprofitonthebacksoflittleChildrenand

helplessindividualsbythemillionsofdollarsbyprovidingthemamenialamounttobarelysurvive
which may lead to customers feeling violated of wearing luxury brands at a cost of human
violation. Human causes and groups would totally boycott products and services from such
brandsthathaverepeatedlyviolatedhumanconductatthecostofprofiting.Thishasatarnishing
effectontheBrandZaraandtheymustconsiderHumanconductmoreimportantthanprofitfirst
towinthelikelihoodofbeingappreciatedbytheircustomersandemployees.

2.2. PORTER'S5FORCES

Zaras mission is to hold a big market share among the young and fashion conscious urban
dwellers in every continent by responding quickly to consumers demand. The company was
foundedin1975andhasgrownbyexpandingitstoresandoperationsworldwide.Thebusiness
modelisbasedonproducinggreatchoicesofstyleandclothes,shortleadtimes&leaninventory.
Porters 5 forces analysis will help to evaluate the factors that determine the industry
competition.

SupplierPower: BuyerPower:

Suppliers Product

RawMaterials Innovation

ExistingCompetition:

HighPriceTransparency
LargeIndustry

NewEntrants:
Substitutes:
Onlinecompetition
Freelancers
Cost

ExistingCompetition/Rivalry
As of today, there are not many organizations like Zara in the fast fashion industry. This
uniquenesshelpsZaratobeaheadoftheircompetitionasitallowsthemtocapturemajorityof
the trend TMS without having to spend large amount on advertising in order to gain market
share.MajorcompetitorsthatoffersimilarproductsincludeTheGap,H&Mtonameafew.


ExistingCompetition/Rivalry
Uniqueness & profitability often attracts organizations to enter the market & gain the same
economies of scale as Zara. However this would be difficult to achieve as Zara have already
createdakindofmonopolywhenitcomestofastfashion.Ifoneasksaconsumerofwhatthey
thinkorwhatcomesintotheirmindwhenaskedaboutfastfashion,Zaraisthisfirstnamethat
comestomind.

Substitutes
Thefashionindustryisveryunpredictablewithmanycompetitorsallwantingtoprojectthenext
bigtrend.ThoughZarastilldistinctfromothersbytheconstantinnovativeandcreativedesigns
of most uptodate fashion. However today alot more individuals have decided to freelance.
Housewivesamongafewhavestartedtostitchclothes,accessories,etcanddisplayedthemat
exhibitionsorrespectivestallsinandaroundplacessuitableforpeopletoview&purchasethe
same. The costs are also much less as there are homemade items and because these are
handmadepricescouldbeinthesamerangeasZarasfashionableproducts.

BuyerPower
The reaction of the buyer leads Zaras business model. Buyers practices change production
quantitiesandschedules.Howevercustomerscannotultimatelyaffectthepriceoftheproduct.
ThebuyersaretheendusersoftheproductandZaradoesitsbesttomeettheexpectationsof
itsconsumers.

SupplierPower
Zarahastheirownsuppliersthattheynormallybuyfrom.Consideringthefactthatdemandin
thefashionindustryisveryunreliableZaramaintainsagoodrelationshipinordertoholdalong
termrelationshipwiththeirsuppliersastheyareoneofthekeysectorsthathelpmeetZaras
strategyofbeingfashionabletrendyorfastfashion.

3. VERTICALINTEGRATION

VerticalintegrationstrategyisaprominentfeatureofZarasbusinessmodelwhichcontributes
towardsitsfastfashionleaderstatus.Asopposedtootherfastfashionretailers,Zarahasitsown
factorieswheretheycarryoutthedesigning,production,sourcingandthendelivertheapparel
totheretailstores.ThishelpsZarainthefollowing

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 Controlpriceofitsapparel
Reacttomarketchangesintermsoffashiondesignsandconsumertrends
Strongcontroloverthequalityaspectofrawmaterialsandsubsequentfinalproducts

3.1. ProcurementofRawMaterials
Everycompanymakepurchaseswhetheritisintheformofmaterial,equipment,sparesetc.Zara
procureitsrawmaterialfromtwosources;Comditel,afirmownedbyInditexandothersuppliers
in Spain, Portugal, Greece, India, Turkey, Bangladesh and China. Around 40% of the fabric is
obtainedfromComditelandbalancefromothercountries.Thedeliverytimesforsomeofthese
suppliersareaslowas5days.SincemostofthesourcingisbasedinEurope,thepreferredmode
oftransportationisland.

3.2. Designing
DesigningiscarriedoutinHQinLaCarunawhereComputerAidedDesignsoftwareisusedto
sketchthepatterninthepresenceofmarketspecialistsandbuyers.Marketspecialistsclosely
followthemarkettrendsandsaleswhereasbuyersobtainthematerialandwellasgiveinputin
planning.Approximately30,000newdesignsaresuggestedeveryyearoutofwhich11,000are
sentforproduction.

3.3. Production
Initially, half of the production was done in Spain and Portugal because of low labor rates
howeverrecentlytheproductionhasbeenexpandedtocountrieslikeTurkey,Morocco,Indiaas
wellasFarEastduetotheirlowlaborcostsalthough,stillthecompanyisheavilydependenton
themanufacturingfacilitiesandtheirsubsidiaryinLaCaruna.

Around50%oftheproductsaremanufacturedinhouseinwhiletheremainingisprocuredfrom
some400suppliersinEuropeandAsia.

AnothercharacteristicthatsetsZaraapartfromitscompetitorsisthatitonlycommits15to30%
ofproductionbeforethestartofaseasonasopposedtoindustryaverageofover60%.Thisnot
onlyresultsinlowerinventorymanagement,obviously,butalsoifincaseadesignendsupa
failureinthemarketitcanbequicklydumpedwithoutincurringanysignificantlosses.

3.4. RetailStores
Oncethetextileproductsareready,theyareshippedto1700plusZarastoresthroughoutthe
world.Storesnotonlyactasthesalespointbutalsoeffectthedesigningandproductionphases.
ItwillnotbewrongtosaythatretailstoresarethestartingandfinishingpointofZarasbusiness.

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Zarahasitsretailstorespresentallovertheworld.Howeverthereispresenceofcannibalization
toacertaindegreeinSpain.Theyhaveopenedupexcessstoresinparticularregionswhichare
eating up the sales of their own products. Hence, the opening of new stores especially in its
dominantareasmustgothroughanefficientstrategicplanningtoavoidthiseffect.

3.5. InformationInfrastructure
To ensure the continuous success and effectiveness of vertical integration strategy Zara use
sophisticatedtechnologicalsystemsfortheflowofinformationfromheadquartersuptothesales
points incorporating the entire value chain. For example, a store manager is equipped with
handhelddevicetosendthecustomerfeedbacktothedesigners.Designers,uponreceivingthe
information, establish new patterns and designs followed by the fabric selection, sewing and
dying processes. Additionally, the information flow is smooth as there is no concept of
bureaucracywhichoftenprovideshindranceinthecommunicationflowamongdepartmentsand
italsoreducesthepossiblebullwhipeffect.

3.6. IssuesandProblems
AlthoughverticalintegrationisthebasearoundwhichtheentirestrategyofZaraisbased,ithas
itsissuesandproblemswhichcanadverselyaffectthebusiness.

InformationinfrastructureBreakdown
Sinceitisaclosedloopbusinessmodel,flowofinformationisofcriticalimportance.Atechnical
breakdowninanyofthesoftwareusedforthispurposecanprovetobecostly.Thisinfact,has
beenexperiencedbyZarawhenlogisticssoftwareencounteredproblemsatanewlyconstructed
distributioncenter.

RawMaterialSupplyBreakdown
Although Zara has a variety of countries from which it gets its raw material, they still should
monitortheconditionsofthesecountrieswithregardtogovernmentstructure,innerpolitical
situations, weather, economic growth etc to make sure the supply of raw material is not
disrupted.Additionally,theyshouldalsotryfornewplacesfromwherethepresenceofcottonis
inabundantsupplyasitisthebasicelementofallgarmentsandfabrics.

EconomiesofScale
Zarahaspositioneditselfinthemarketinsuchawaythatitcannotutilizethebenefitsoflarge
scalequantitiesofitsproductsinmarket.Althoughthepolicyoflowinventoryandsubsequent
shorterleadtimeshasbroughtZaragreatsuccess,itisdestinedtoloseandhasbeenlosingon
theprofitsthatcanbepotentiallymadefortheproductsthathaveandareturningouttobehit
inthemarket.SinceZaramakeonlylimitedquantityofaparticulardesignwiththecustomer

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findingitselfinnoworneversituation,itcannotprovidecustomersanyparticulardiscounts
onitsproducts.

4. CURRENTSOURCINGSTRATEGY

Sourcing of fabrics, other inputs and finished goods by Zara are carried out from external
supplierswiththehelpoftheirpurchasingofficesinBarcelonaandHongKongandthesourcing
teamatheadquarters.EventhoughEuropehasdominatedZarassourcingpattern,theopening
ofthreecompaniesinHongKongforthepurposeofpurchasingandtrendspottinghasledto
substantialincreaseofsourcingactivitiesfromtheeast,mainlyfromChina.
Approximatelyonehalfoftheclothespurchasedisundyedtofacilitateintimeofyearchange
withmaximumflexibility.OverMuchofthisvolumeisfunneledthroughComditel,a100%owned
subsidiaryofInditex,thatdealtwithmorethan200suppliersoffabricandotherrawmaterials.
They managed several processes for fabrics such as dying, patterning etc. The remaining
purchasesaredonefromexternalsuppliers,mainlyfromEuropeandlightlyfromAsiaandCentral
America.

Thewholeprocessissuchefficientthatittakesonlyabouttwoweekstodealwiththefabrics.
ThefactoryinLaCorunaissaidtobeastateoftheartinfrastructurethatitishighlyautomated.
Around 23 hitech robots are installed in the factory in order to deal with cutting and dying
processoffabrics.

AsZarahasgotanefficientverticalintegration,itmakesaround40percentoffabricsofitsown
andapproachesitssubsidiariesforthepurchaseofdyes.Outofthetotalclothescollectedhalf
ofitarrivesundyedsothatthecompanycouldreactquicklytothemidseasonfashionshifts.

Thecuttinganddyingprocessisfollowedbystitchingactivities.Itisdonethroughalocalnetwork
ofcooperativesthathaveworkedwithInditexforquitealongtime.Toproducestapleitemsthat
havegotlongershelflives,suchasbasictshirts,jeansetc.,theyprefercontractmanufacturers
from Turkey and Asia where the labor costs are comparatively low. But these products
manufactured outside Europe contributes only a fraction of volume compared to the total
volumeofitemsthatZarasells.50percentoftheproductsthatZarasellsaremanufacturedin
Spain, 26 percent in the rest of Europe and only the remaining is send to Asian and African
countries for manufacturing. The most fashionable items are manufactured in Europe and it
enablesthecompanytobeflexiblewithtrend,variety,quantitytobeproducedetcetera.Zaras
competitorslackthisflexibilityandtheyhavetomaketheirproductionorderstomanufacturers
abroadatleastsixmonthsbeforetheseasonbegins.

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Themostfashionableproductsaresaidtobemorediceyonesandthereforearetheonesthat
areproducedinsmallquantityinternallyorundercontractbysuppliersatthecloserlocations,
andreorderediftheysoldwell.TheotherbasicitemsareoutsourcedtoAsiaastheproduction
costiscomparativelylow.

Morethan65percentofexternalpurchasesbyZaraiscarriedoutmainlyfromtwentysuppliers
andithadlongtermrelationshipwithmanyofthesesuppliers,itreducesthesupplierrelated
risks for Zara and lowered the contract based commitments. Due to the small and frequent
shipmentscarriedoutbyZara,theyareabletomaintainalowlevelinventory.Thisfreshand
scarce inventory level maintained by Zara compels customers to frequently visit the store in
searchofthefresharrivals.Loyalcustomersknowthatnewproductswouldbeputupeverytwo
weeks and most probably would not be available for the next day. This leads to high flow of
customerstothestoreandreducestheneedforZaratospendtheirincomeonAdvertisements,
andspendsverylesscomparedtotheircompetitors.

Zara prefers the use of materials obtained from more viable and prominent sources that are
concernedwithissuessuchasuseofscarceresource,reducinglandandwatercontamination.
TheirrawmaterialcollectionswouldbecloselyconnectedwithZarasBiodiversity,waterand
EnergyManagementStrategies.InditexprovidesrawmaterialtrainingforkeysuppliersinSpain,
Turkey,Portugal,Bangladesh,IndiaandChina.Inthesessionthesuppliersreceivetrainingonthe
rawmaterialsthatthecompanypreferstouse andtheirenvironmental,socialandeconomic
status. The company also encourages them to use more sustainable fibers currently being
implementedbythecompany.

4.1. Issues

DiseconomyofScale
AsZaraishavingacentralizedproductionanddistributioncenters,thepurchasedrawmaterials
hastobetransportedtoitscentralizedproductioncenters.Inthelongrunastheirbusinessgets
expanded,thecostofthisprocesswouldalsoincreasehighly.

ComplicationinchainofDeliveries
Asglobalsourcingexpands,thesupplychainactivityincludedalsogetsmorecomplicated.As
Zaracollectsfabricsandotherrawmaterialsfromdifferentpartoftheworldandsendsittothe
centralizedmanufacturingunitsinSpainortootherEuropeancountries,thechancesofvarious
riskfactorsinthetransferprocessaremore.Thecomplicationofdeliveriesrisesasthecompany
hastogiveequalfocusonquality,quantityandtheavailabilityoption.
14

5. PRIMARYRECOMMENDATION

FocusonnewMarkets
ShiftingmoremanufacturingprocessintoAsiancountrieslikeChinaandIndiawouldhelpZarato
bemorecompetitiveandwouldbeablehavemorecontroloncosts.Andthiswouldhelpthem
toincreasethepurchaseofqualityrawmaterialsfromthesemarkets.

5.1. Distribution

Majorityoftheorganizationsoperatinginthefashionindustryrelymainlyonmassproduction
andcatertoallmarketsegments:thatisintermsofgender(bothmale&female),agegroups
(young&old)andofallsizes.Theyconcentrateonthedifferentseasonsandaccordinglyensure
theirconsumershavealargepurchasingvolumetopickfrom.

Zara on the other hand is known to be a trendsetter. Now in order to be a trendsetter mass
production would not be the best option as they would require to adapt almost instantly to
demandorthecurrenttrendsinthemarket.Neverthelessasstatedinthecasestudyprovided,
behind the unusually quick rate of delivery was Zaras centralized distribution center, where
productswereinspectedandimmediatelyshippedinaccordancewithtimezonesusingalogistic
systemwhosesoftwarewasdesignedbythecompanysownteams.

MajorityofZarasgoodsareairfreightedtwiceaweekandalthoughmovinganythingviaairis
costly (especially with the increased fuel & service charges) Zara still considered global
responsiveness more important than efficiency. Apart from moving goods to the Asian &
Americanstoresviaairfreight,ZaraalsomovedalotofhalfemptytrucksacrossEurope.They
established time driven standards which on average had a 24 hour delivery service within
Europeanshopsandamaximumof48hoursdeliveryservicetostoreslocatedoutsideEurope.In
ordertoensuretherewerenodelaysindisplayingtheirfinishedproductstotheirconsumers,
majorityoftheirproductsthatwereshippedwerehungonrackssothatstoremanagerscould
putthemimmediatelyondisplaythemomenttheywerethedeliverywasmade.

Zara implemented the JustInTime (JIT) strategy which ensured lean inventory, meaning that
Zarastoresdidnotrequirestorageroom/spacetostockgoodsandthusalsocreatedaclimate
of scarcity which promoted a message being that if you dont buy it now, you will lose your
opportunity,therebyallowingZaratosellmostitemsatfullprice.Theirstrategyworkedsowell,
thatsomeconsumersmemorizedthedeliverypattern&scheduleoftheirproductsandensured
theywerethefirstonesatthestoretopurchasethefresh&originalstock.

15


5.2. TheProblem&Recommendation

Zarascurrentstrategyisworkingforthemandhasensuredthattheyareamongtheleadersin
thefashionindustrywhenitcomestorapidlychangingfashiontrends.Howeverthereisalotof
wastageintermsoftimeandmoney.Zara'sfactoriesarenotonlylocatedinEurope,theyare
locatedacrossanumberofcountries.HoweverZara'squalitycheckteamareconfinedtoEurope
andthereforeifgoodsaretobetransportedfromAsia&AmericatoEuropetobecheckedfor
quality&thenagaindispatchedtoitsrespectivedestinations,wouldbeanadditionalexpense
thatisincurred.

Zarahasbeenoperatingforover20yearsandhavebecometheleadingfashionoutletasfaras
fashiontrendsareconcerned.Theirpolicyistohavealeansystem&thustheynowneedtoadopt
a Keizan approach which means continuous improvement. Whilst their current approach has
beenbeneficialtothematbeingresponsive,lookingatalternativestominimizecostswouldbe
morebeneficialtothemandwouldasaresultincreasetheirprofits.

Theprocessofhavingtotransportgoodsthatarealreadyrackedoccupiesmorespaceandthus
wouldincreasecostswhenmovinggoodsviaairfreightasthevolume,weight&dimensionsof
thecargoaretakenintoconsiderationforpricing.However,thesamegoodsifpalletizedwould
occupylessspace&costZaramuchlesstotransport.Thesamewouldapplytomovinggoodvia
roadwithinEurope.Movinghalfemptytrucksisagainwastedspaceandcostly.

Anotherissuenoticedwithregardstothecaseprovidedisthefactthatglobaltrends&consumer
demandsdiffer.Asstatedearlier,productssuchasleatherwear&thickcoatsmayhavehighsales
ratesintheEuropeanregionastheweatherinthecountrypermitsthis.However,comparedto
othercountriesliketheUAEforexamplethesameproductalthoughlovedbyconsumershere,
maynotendupbeingboughtasgiventheweatherconditions,theopportunitydoesnotarise.
Thusinsuchascenario,Zaraprovesthemselvestobeahybrid.

Zarahasaveryproactivecommunicationsystemthathelpsthemtransferinformationfromall
theirstorestotheirheadquarterswhichhasproventohavebeenverysuccessfulforthemover
theyearshoweverifZaramovesfromaCentralizeddistributionorganizationtoaHybridsystem,
thiswouldprovetobemuchmorelenient,efficient&profitableinthelongrun.

TheHybriddistributioncouldhelpZaratopenetratetheUStoo.Hybridissimplyacombination
of a centralized and a decentralized system. Zara already treats its stores as a separate unit
allowing their respective store managers the authority to decide what products should be

16

continued & the ones that are to be discontinued. A little more responsibility would actually
provebeneficialbothtothecompanyaswellasemployeesasindividuals.IfZaraweretosource
factoriesineachcountrywheretherearelocated,itwouldmakeitmuchsimplertodistribute
theirgoodsespeciallyintheUS.Inorderforthisdistributionnetworktosucceed,Zarawouldalso
needtoopenaqualitycontroldivisionineachofthesedistributioncenterswhichwouldhelp
saveoncostsastheywouldthennothavetoairfreightalltheiritems.

TheUSissuchamassivecountry,somuchsothatwithinthecountrytherearedifferenttime
zones.NowinorderforZaratoopenastoreintheUS,theywouldberequiredtosetupanoutlet
locatedontheoutskirtsofthecity.Howeverthismaymakeitdifficultforthemtoreachoutto
consumers&thusnowtheycouldlookintomarketingtheirbrandinordertoreachouttothe
public.

6. OTHERRECOMMENDATION&SOLUTIONS

6.1. Strategicdecision
Zaraproducesaround1000newstyleseveryyear,thedesignanddevelopmentoftheseare
managedbyateamofaround200expertsinthisfield.Inthissense,singlememberoftheteam
producesanaverageof60stylesayear.Hencetheircustomersalwayshavethechoiceofnew
andlatestproductsinthestoreandthisprovestobecomeanefficientstrategicdecisiontogain
competitiveadvantageandhigherprofit.

6.2. Tacticaldecision
Zarasuniqueapproachtoadvertisingandmarketingissaidtobeanexampleofgoodtactical
decision.Ascomparedtotheircompetitors34percentZaraspendsonly0.3%oftheirtotal
revenueonadvertisingandmarketing.Insteadoffocusingonadvertisementstheyprefer
investinginotherareaslikeopeningtheirstoresinprimemarketlocations,improvingstore
layoutsandimprovinglifecycleoftheirproducts.Astheproductwouldbeinstoreforashort
timetherewouldalwaysbehightrafficofcustomerstothestorefrequently.Hencethey
believethattheneedforthemtospendonadvertisementisverylow.

6.3. Operationaldecisions
ZarasCentralizedLogisticsandDistributionhavemaintainedacontrolandhaveoptimizedtheir
supplychainveryeffectivelyatmanydifferentlevels.Theiroperationaldecisionsaresuch
efficientthatthecompanyssupplychainprocesshasgotsmoothflow.Thewholeprocessis
wellorganized,inawaythatthereisaparticulartimeforthetruckstoleaveandtheshipments

17

toarriveatthestores.Activitieslikepricingandlabelingarealsodoneinadvanceevenifthose
aresetbyair.Thissystematicapproachleadstoahighlyefficientsupplychainprocessand
hencethecustomershavegotaclearcutideaofwhentovisitthestoresforpurchases.The
wholeprocessforthecompetitorsittakes6months,Zaramakesitinjust2weeks.

6.4. Informationneededfordecisionmaking
InformationtechnologieslikePDAdevicesareusedforthetransferofinformationfromZaras
distributioncentersorwarehousestotheirstores.Customerfeedbacksarecollectedand
orderingneedsaresenttotheinhousedesignersbythestoremanagersatdifferentstores
withthehelpofahandhelddevice.Thishelpsthecompanytoidentifythetrendchangeand
customerdesirefortheparticulartypeofproducts.
Informationfromthedistributioncentersandproductionunitsareflowntodifferentstore
managersregardingtheavailabilitygarmentsandthishelpsthestoremanagersinorder
adjustmentsandinprovidingrequiredinformationtothecustomers.Thisisbeingdoneasa
supportfortheoperationaldecisions.

6.5. Competitorsintelligence
Itistheprocessofstudyingtheactivitiesofrivalsinmarket.Ithelpstoknowabout
competitorsplansandreviewtheownstrategiesfortakingsuccessfuldecisions.

ZarasprimecompetitorslikeH&MandGAPOpensitsdistributioncentersintheregionithas
itsstoresinordertocutdowntheleadtimeandtransportationcost.Theyalsopreferinvesting
heavilyonadvertisementactivitiestodrawtheattentionofcustomersworldwide.

Zarahasadoptedadifferentstrategyfromthatoftheircompetitors.Thestoresdoesnothave
fullfreedomindecidingtheitemsfordisplayorsaleasitisplannedandshippedbasedonthe
forecastsandthespeedindevelopmentoftheproductbyZaraisfarbetterthanits
competitors.

TakingthecaseofstrategicpartnershipsandmanufacturingcostZarascompetitorsarehaving
costadvantageasmanyofthemoutsourcesproductiontocheapAsiancountries.Zaradoesnot
prefer100percentoutsourcingoftheirproduction,80percentofZarasproductsarebeing
manufacturedwithinEuropeandtherestareonlyoutsourced.

Zaraspendslessthan0.5%ofitstotalrevenueonITandCommunicationandjust0.5%ofits
totalworkforce.Whereastheircompetitorsconcentratemoreinthissector,thatisaround2%
oftotalincomeand2.5%ofworkforce.ITandothercommunicationsystemsinthiseramake
thebusinessmuchfasterandefficient,henceitwouldadvisethatZaracouldspendmoreon
thispurpose.
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