ZARA: FAST FASHION

(CASE STUDY)

Group 5 (Section B) Anurag Nigam Pankaj Gurbani L R Krishnan 12P072 12P079 12P083

M Gireesh Babu
Saumil Parekh Zain Zafar Khan

12P084
12P091 12P120

INDITEX: TIMELINE OF EVENTS

1963-1974 Amancio Ortega Gaona founded Inditex 1975 The first Zara store Opens in Spain 1976-1984 Expansion of Zara stores in Spain 1985 Zara starts to enter the overseas market (in Portugal) 1989 Enters New York City, USA 1990 Enters Paris, France, Introduction of JIT 1991-2004 Acquisition of Massimo Dutti & Stradivarious, Launch of Pull & Bear, Bershka and Oysho 2007 Enters R.O.Korea in 30, April at COEX Mall and Lottte Young Plaza

ZARA: BACKGROUND
Established in Galicia, Spain in 1975 A key subsidiary of its Spain-based parent company Inditex Most popular brand, contributes to 85% of total EBIT and 76% of total sales The brand provides an alternative outlook to the fashion retail business model by:

Rejecting media advertising and blow-out sales Maintaining the bulk of its production process in-house reducing the cycle times.

It has become one of the leading fashion retailers in the world

INDUSTRY ANALYSIS
Bargaining Power of Consumers Consumers decide whether a fashion is hit or a miss Consumer preferences vital and determined if a design is retained or scrapped Pricing power rests with the company due to perceived brand image of high fashion Bargaining Power of Suppliers Suppliers highly fragmented Apparel chains had multiple sources for cheap labour Suppliers had no independent existence Zara sole/majority buyer from suppliers hence enjoyed greater bargaining power

INDUSTRY ANALYSIS (CONTD)

Rivalry Benetton: large international presence GAP: significant presence in US H&M: Inditexs closest competitor Inditex enjoyed greater stability than its competitors Had lower lead times (6 weeks) and higher operating margins 22% than competitors

ZARA: BUSINESS MODEL

Design Teams used information systems to track customer preferences and sales Zaras store managers lead the intelligence gathering effort that determines what ends up on each stores racks Digital assistants (PDAs) used to gather customer input, staff regularly chat up customers to gain customer feedback The goal - to improve the frequency and quality of information system allows for the best design trends. Sourcing and Manufacturing About 40% of finished garments were manufactured internally Of the remainder, two-thirds of the items were sourced from Europe and North Africa and one-third from Asia Most fashionable items tended to be the riskiest and were produced in small lots JIT implemented allowed low inventory levels, shorter lead times and improved quality

ZARA: BUSINESS MODEL

Distribution Centralized distribution system in Arteixo, Spain Sources of Information Centralized Distribution System Mobile Tracking Systems Zara known for its innovative supply chain in retail Believed in frequent shipment of small lots Shipment made by 3PL twice a week Products delivered within 24 48 hours JIT applied to reduce costs and Bullwhip effect Retailing About 3/4th of the merchandise on display changed every three to four weeks Average Zara shopper visited the chain 17 times a year, compared with an average figure of 3-4 times a year for competing chains Aggregated demand is ascertained and the supply is allocated according to past performance of the various garments at the stores

PROS AND CONS OF ZARAS MODEL

Most significant advantage: reduced cycle time due to the implementation of the quick response system Different product pre-commitment Design: Store managers gather information directly at point of sale Design department organized in flat structure Zara has more staff employed although it is smaller than H&M- higher labour costs, but lower risk of fashion miss (as H&M) Continuous tracking of customer preferences, numerous variations of items Presentation of items in key stores Reduced failure rates

EXPANSION: KEY DECISIONS

Market Selection

Managem ent

Expansion

Market Entry

Marketing

HOW TO EXPAND : MARKET SELECTION AND

ENTRY

Market Selection

Open more stores in Spain and adjoining areas where Zara is largely successful Go for countries that are similar to Spain in terms of costs like salaries, legal cost and also demand/supply Target the Asian countries as they offer a huge potential

Market Entry

Focus on more company owned stores compared to franchising. High investment required in terms of capital and human exp. Currently have 225 stores in Spain, 231 in 18 other countries. Franchising in countries that have legal and administrative issues. Good for expansion. Currently have 31 stores in 12 countries Joint Ventures. Existing JV in Germany with Otto Versand and in Japan with Bigi. JV with Benetton had failed though

HOW TO EXPAND : MARKETING

Product Price Place Promotion

Central Design team in La Caruna 90% range of products same in all stores

Higher distance from distribution centres leads to higher prices Decide price based on disposable income of the population

Establish stronghold in Spain and all of Europe Move towards Asian countries for expansion

Each new collection i.e Winter and Spring collections are advertised End of season sales marketed heavily

FUTURE STRATEGY
Zara should target the neighboring European countries

Italy
Fashion Capital of the world Apparel Industry is a big industry Apparel sales are high due to high number of visits and high spending Competition is stiff due to large number of existing and wellestablished players

Germany
Huge potential as a successful market in the coming years High growth rate of 142%

FUTURE STRATEGY
South-East Asia, China and MiddleEast Increasing disposable incomes Market is huge in terms of absolute numbers Highly fragmented and not a lot of competition, need to take first mover advantage People becoming increasing fashion-conscious

Distribution Centres
Open more centres in Asia, close to south-east Asian countries and middle-east Inditex to open 2nd distribution centre

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