Known for its fast, affordable fashion, retail chain Zara has built up a multi-billion dollar brand through

listening and reacting quickly to its customers

Presented to: Professor Dr. Nabila Abass Presented by: Roula Jannoun
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y What does Zara make? y Where do they make it? y Where do they sell? y How does Zara s unique global

organization make it more competitive? y What does Zara offer customers that is different from other stores?
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Conceived To Make What We Sell Vs. Sell What We Make The Concept of the Right Product, in the Right Place, at the Right Time, for the Right Price Pioneered New Style of Quick, Custom-Made RetailingCheap Chic or Retail at the Speed of Fashion Cutting Edge Design; Multiple Inputs Live Collections designed, sourced, manufactured, distributed, sold in 2 weeks State of the Art Factory and Logistics Store Fronts and Location are Medium Geographic Price Policy Speed, Customization, Information Technology Continuous Exchange of Data from stores to multilingual design, mfg, operations staff Key to Growth: Finding the Right People with Right Mindset

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Growth
y The firm tripled in size between 1996 and 2000 y Its earnings skyrocketed from $2.43 billion in 2001 to

$13.6 billion in 2007. y By August 2008, sales edged ahead of Gap, making Inditex the world s largest fashion retailer y While the firm supports eight brands, Zara is unquestionably the firm s crown jewel and growth engine, accounting for roughly two-thirds of sales.

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Zara s Popularity
y Zara s duds look like high fashion but are

comparatively inexpensive (average item price is $27, although prices vary by country).
y A Goldman analyst has described the chain as Armani

at moderate prices,
y Legions of fans eagerly await Z-day, the twice-weekly

inventory delivery to each Zara location that brings in the latest clothing lines for women, men, and children.
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Zara's five-point marketing approach to reach its customers

1. Store location: The company always tries to find the perfect location and ensure its brand is visible to as many people as possible 2. Store window: The first meeting point with the customer and the place where Zara advertises the next season's look 3. Interior design and store image: Has to be right every time. Zara renews this image every six to eight months in all of its stores 4. Goods display: A dedicated team of co-ordinators display the collections by showing off the best trends, fabrics and colours 5. Customer service: Something Zara believes it's excellent at. The aim is to have as much personal contact with the customer as possible.
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Stores
1. Spain: 504 stores 25. Sweden: 10 stores 2. France: 118 stores 26. Switzerland: 10 stores 3. Italy: 90 stores 27. Ireland: 9 stores 4. Portugal: 82 stores 28. Romania: 9 stores 5. United Kingdom: 65 stores 29. Argentina: 8 stores 6. Germany: 65 stores 30. Indonesia: 8 stores 7. Japan: 48 stores 31. United Arab Emirates: 8 8. Mexico: 48 stores stores 9. Greece: 47 stores 10. United States: 46 stores 32. Chile: 7 stores 11. China: 35 stores 33. Singapore: 7 stores 12. Russia: 32 stores 34. Czech Republic: 6 stores 13. Belgium: 26 stores 35. Philippines: 6 stores 14. Brazil: 26 stores 36. Hungary: 5 stores 15. Poland: 26 stores 37. Kuwait: 5 stores 16. Turkey: 26 stores 17. Saudi Arabia: 21 stores 38. Malaysia: 5 stores 18. Israel: 19 stores 39. Thailand: 5 stores 19. Canada: 18 stores 40. Cyprus: 4 stores 20. Netherlands: 15 stores 41. Finland: 4 stores 21. South Korea: 15 stores 42. Latvia: 4 stores 22. Colombia: 12 stores 43. Lebanon: 4 stores 23. Austria: 11 stores 44. Lithuania: 4 stores 24. Venezuela: 11 stores

45. Morocco: 4 stores 46. Norway: 4 stores 47. Serbia: 4 stores 48. Slovenia: 4 stores 49. Ukraine: 4 stores 50. Denmark: 3 stores 51. Egypt: 3 stores 52. Bahrain: 2 stores

66. Syria: 2 Stores 67. Tunisia: 2 stores 68. Uruguay: 2 stores 69. Uzbekistan: 2 stores 70. Andorra: 1 store 71. Bulgaria: 1 store 72. Dominican Republic: 1 store

53. Costa Rica: 2 stores 73. Kazakhstan: 1 store 54. Croatia: 2 stores 74. Malta: 1 store 55. El Salvador: 2 stores 75. Monaco: 1 store 56. Estonia: 2 stores 76. Montenegro: 1 store 57. Guatemala: 2 stores 77. Oman: 1 store 58. Honduras: 2 stores 78. Pakistan: 1 store 59. Iceland: 2 stores 79. Puerto Rico: 1 store 60. India: 2 stores 61. Jordan: 2 stores 62. Luxembourg: 2 stores 63. Panama: 2 stores 64. Qatar: 2 stores 65. Slovakia: 2 stores
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How Does Zara coordinate it s value chain?

y Designed in Europe, near

fashion other designers. y Centrally located manufacturing in Latin America and distribution. y Used basic fabric that can be changed quickly and easily for rapid production.

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Examples
y The Spanish manufacturer Zara has a simple

business model that provides a significant strategic advantage. y Their system links demand to manufacturing and manufacturing to distribution. y Customers visit up to 17 times per year to check on new items that may have arrived. y Since products are limited customers will immediately purchase products they like. y Loyal and satisfied customer base.
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y Zara aligns its information system strategy with its

business strategy. y The POS system sends daily updates to Zara s headquarters. y Managers report to designers what sold and what customers wanted but couldn t find. y The information is used to determine what to keep and what to discontinue or change. y New designs can be ordered twice a week. y The entire process is automated so that new designs and products can be created quickly.
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Zara and consumer behaviour

y Products are a means to an end but what ends do we

choose product specific goals based on personality, self image, beliefs, attitudes y Hot fashions reflecting consumers self image undersupplied to add exclusivity and urgency to shop y Sold in fashionable, prestigious, regularly refurbished locations to retain contemporary appeal and reinforce responsiveness y Informed by cool hunters who feedback, lifestyle and directional fashion trend information

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Pricing to market
At the Zara stores, price tags stated in many currencies and for multiple countries so customer feel equality .

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How Does Zara Do It Store Staff

y Zara s store managers lead the intelligence-gathering

effort that ultimately determines what ends up on each store s racks.

y Armed with personal digital assistants (PDAs) to gather

customer input, staff regularly chat up customers to gain feedback on what they d like to see more of.
y

A Zara manager might casually ask, What if this skirt were in a longer length? Would you like it in a different color? What if this V-neck blouse were available in a round neck? Managers are motivated because as much as 70 percent of salaries can come from commissions.

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The Store Staff

y As soon as the doors close, the staff turns into a sort of investigation unit in the forensics of trend spotting, looking for evidence in the piles of unsold items that customers tried on but didn t buy. Are there any preferences in cloth, color, or styles offered among the products in stock? y PDAs are also linked to the store s point-of-sale (POS) system that captures customer purchase information. y In less than an hour, managers can send updates that combine the hard data captured at the cash register with insights on what customers would like to see. y All of this valuable data allows the firm to plan styles and issue rebuy orders based on feedback rather than hunches and guesswork. The goal is to improve the frequency and quality of decisions made by the design and planning teams.
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The Designers
y Data on what sells and what customers want to see

goes directly to The Cube (central command of the Inditex Corporation outside La Corua0), where teams of some three hundred designers crank out an astonishing thirty thousand items a year versus two to four thousand items offered up at big chains like H&M (the world s third largest fashion retailer) and Mango,
y Individual bonuses are tied to the success of the team,

and teams are regularly rotated to cross-pollinate experience and encourage innovation.

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Quick Turnaround
y In the world of fashion, even seemingly well-targeted designs

could go out of favor in the months it takes to get plans to contract manufacturers, tool up production, then ship items to warehouses and eventually to retail locations. y Zara excels in getting locally targeted designs quickly onto store shelves
y When Madonna played a set of concerts in Spain, teenage girls y y y y y

arrived to the final show sporting a Zara knock-off of the outfit she wore during her first performance. The average time for a Zara concept to go from idea to appearance in store is fifteen days versus their rivals who receive new styles once or twice a season. Smaller tweaks arrive even faster. Zara is twelve times faster than Gap despite offering roughly ten times more unique products! At H&M, it takes three to five months to go from creation to delivery and they re considered one of the best. Other retailers need an average of six months to design a new collection and then another three months to manufacture it. At Zara, most of the products you see in stores didn t exist three weeks earlier, not even as sketches.

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Quick Turnaround
y The firm is able to be so responsive through a

competitor-crushing combination of vertical integration and technology-orchestrated coordination of suppliers, just-in-time manufacturing, and finely tuned logistics.
y Vertical integration is when a single firm owns several

layers in its value chain y A value chain is the set of activities through which a product or service is created and delivered to customers.

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Quick Turnaround
y While H&M has nine hundred suppliers and no

factories, nearly 60 percent of Zara s merchandise is produced in-house, with an eye on leveraging technology in those areas that speed up complex tasks, lower cycle time, and reduce error.
y Profits from this clothing retailer come from blending

math with a data-driven fashion sense.

y

Inventory optimization models help the firm determine how many of which items in which sizes should be delivered to each specific store during twice-weekly shipments, ensuring that each store is stocked with just what it needs.

y Outside the distribution center in La Corua, fabric is

cut and dyed by robots in twenty-three highly automated factories.

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Quick Turnaround
y Zara makes 40 percent of its own fabric and

purchases most of its dyes from its own subsidiary.

y

Roughly half of the cloth arrives undyed so the firm can respond as any midseason fashion shifts occur. After cutting and dying, many items are stitched together through a network of local cooperatives that have worked with Inditex so long they don t even operate with written contracts.

y The firm does leverage contract manufacturers

(mostly in Turkey and Asia) to produce staple items with longer shelf lives, such as t-shirts and jeans, but such goods account for only about one-eighth of dollar volume.
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Shipping
y Trucks serve destinations that can be reached overnight, while chartered cargo flights serve farther destinations within forty-eight hours. y The firm recently tweaked its shipping models through Air France KLM Cargo and Emirates Air so flights can coordinate outbound shipment of all Inditex brands with return legs loaded with raw materials and half-finished clothes items from locations outside of Spain. y Zara is also a pioneer in going green. In fall 2007, the firm s CEO unveiled an environmental strategy that includes the use of renewable energy systems at logistics centers including the introduction of biodiesel for the firm s trucking fleet.
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Limited Production
y Limited runs encourage customers to buy right away

and at full price.

y Savvy Zara shoppers know the newest items arrive on

black plastic hangers, with store staff transferring items to wooden ones later on. y Within three weeks, either an item has been sold or moved out to make room for something new. y A study by consulting firm Bain & Company estimated that the industry average markdown ratio is approximately 50 percent, while Zara books some 85 percent of its products at full price.

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Limited Production
y The constant parade of new, limited-run items also encourages customers to visit often. y The average Zara customer visits the store seventeen times per year, compared with only three annual visits made to competitors. y Even more impressive Zara puts up these numbers with almost no advertising. y The firm s founder has referred to advertising as a pointless distraction. The assertion carries particular weight when you consider that during Gap s collapse(american), the firm increased advertising spending but sales dropped. y Fashion retailers spend an average of 3.5 percent of revenue promoting their products, while ad spending at Inditex is just 0.3 percent.
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Limited Production
y Limited production runs allows the firm to, as Zara s

CEO once put it reduce to a minimum the risk of making a mistake, and we do make mistakes with our collections. y Failed product introductions are reported to be just 1%, compared with the industry average of 10%.

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Headquarters
y While stores provide valuable front-line data,

headquarters plays a major role in directing in-store operations.

y Software is used to schedule staff based on each store s

forecasted sales volume, with locations staffing up at peak times such as lunch or early evening. y The firm claims these more flexible schedules have shaved staff work hours by 2 percent. This constant refinement of operations throughout the firm s value chain has helped reverse a prior trend of costs rising faster than sales.

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Headquarters
y Even the store displays are directed from The Cube,

where a basement staging area known as Fashion Street houses a Potemkin village of bogus storefronts meant to mimic some of the chain s most exclusive locations throughout the world.
y It s here that workers test and fine-tune the chain s

award-winning window displays, merchandise layout, even determine the in-store soundtrack. Every two weeks, new store layout marching orders are forwarded to managers at each location.

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Challenges
y Limitations of Zara s Spain-centric, just-in-time

manufacturing model.
y By moving all of the firm s deliveries through just two

locations, both in Spain, the firm remains hostage to anything that could create a disruption in the region. y Firms often hedge risks that could shut down operations think weather, natural disaster, terrorism, labor strife, or political unrest by spreading facilities throughout the globe. If problems occur in northern Spain, Zara has no such fall back.

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Challenges
y The firm is potentially more susceptible to financial vulnerabilities as the Euro has strengthened relative to the dollar. y Zara s Spain-centric costs rise at higher rates compared to competitors, presenting a challenge in keeping profit margins in check. y Rising transportation costs are another concern. If fuel costs rise, the model of twice-weekly deliveries that has been key to defining the Zara experience becomes more expensive to maintain. y Zara is able to make up for some cost increases by raising prices overseas y In the United States, Zara items can cost 40 percent or more than they do in Spain. Zara reports that all North American stores are profitable, and that it can continue to grow its presence, serving forty to fifty stores with just two U.S. jet flights a week.
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Zara's competitiveness comes from

y Innovation: not to stop but always producing new things based on y y

y y y

customer desires and changes in market. Segmentation: the company took advantage of unserved segment, a segment where some one might offer good quality fashion at a reasonable price and managed to insert themselves in. Simple strategy: the company is looking for a target without analyzing ages or lifestyles, which simplifies things a lot. It targets buyers who like fashion and that is not limited by international borders. Selection of personnel: having motivated and dedicated personnel, people who think about the company 24 hours a day, people who understood this type of work from the outset. Quick response time that led to significant compression of cycle times enabled by improvements in information technology and encouraged by shorter fashion cycles and deeper markdowns. Experience regarding real estate, personnel costs, hiring and other contract negotiating.
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Broader Economic Conditions

y When the economy falters, consumers simply buy less

and may move a greater share of their wallet to lessstylish and lower-cost offerings from deep discounters like Wal-Mart. y Zara is particularly susceptible to conditions in Spain, since the market accounts for nearly 40 percent of Inditex sales, as well as to broader West European conditions (which with Spain make up 79 percent of sales). y Global expansion will provide the firm with a mix of locations that may be better able to endure downturns in any single region.
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The Importance of MIS & IT

y Zara s winning formula can only exist through management s savvy understanding of how information systems can enable winning strategies y Many tech initiatives were led by Jos Maria Castellano, a technophile business professor who became Ortega s righthand man in the 1980s). y It is technology that helps Zara identify and manufacture the clothes customers want, get those products to market quickly, and eliminate costs related to advertising, inventory missteps, and markdowns. y A strategist must always scan the state of the market as well as the state of the art in technology, looking for new opportunities and remaining aware of impending threats.
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Differentiation or added value strategies

y Provide unique or different products/services in terms

of features/benefits valued by buyers y Better products or services at the same price y Unique, improved performance, design expertise y Marketing based branding Vision Express higher perceived value Zara consumer insight y Competence based service delivery John Lewis Zara, supply chain agility

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Differentiation strategies depend on

y Knowing who the customer is y Knowing what the customer values y Knowing who the competitors are and what they offer y Knowing how customer needs change y Knowing imitability of competitive advantage AND

continually redefining value proposition

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ZARA Business Concept

Integrated fashion delivery:

Fashion at low cost!!!

Low Cost
Get it approximately right Reduce creative design Define a fast-response process incl design Finalize design knowing material supply constraint Optimize the process Manage follow-up (next batch) and customer flows
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Fashion
Store experience Copy fashion Involve the customers and his group / cohort Create a network / brand

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ZARA Customer Offer: Lean and Focused

Fresh / Fast Quality Cost

Fast copying of leading styles Fast delivery in own stores Limited editions

Raw material: medium Knit: poor Look: grand! Customer satisfaction: fashion at low price!

Low monetary cost Low time cost: the Zara experience

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ZARA Customer Offer: Lean and Focused

Flexibility: - / +
 Limited customer variety: only what is on display and in limited choices  But every customer is participating in the process: help determine the next batch
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Zara Retailing strategy summary

y To be successful an organisation must have a clear competitive strategy y Distinctive competences based on critical success factors in the value chain are the source of competitive advantage y Each element of the value chain can serve to increase value; y A clear understanding of customer needs, motives and patronage decisions is fundamental to retail strategy y In increasingly competitive markets new ways of hearing, understanding and responding to customer needs are of vital importance

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Conclusion
All types of innovation Technology innovators Business model innovators Process innovators

ZARA is an innovative company

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