March 15, 2014
Case Study #1 - Zara
Zara is known for its stylish designs, many with a resemblance to the offerings of famous Italian fashion houses and all moderately priced. Despite this very recent popularity, the novel business model of Zara has gone virtually unnoticed for over 30 years, allowing Zara’s parent company, Inditex, to grow from zero to almost $20B in revenues. Zara was founded in 1975 and its parent company, the Inditex group went public in 2001. Within the first 5 years of its founding, Amancio Ortega, the founder of Zara figured out the responsiveness and speed were key to dominance in apparel retail as opposed to costs. Zara produced in expensive locations and used expensive shipping modes to react to trends faster. Zara stores number 450 in 29 countries (220 in Spain). With new stores typically 1,200 square meters in size, the Zara stores sell 10,000 men’s, women’s and children’s apparel models created every year under Ortega’s watchful eye at Inditex at Arteixo-La Coruña. Zara is a vertically integrated retailer. Unlike similar apparel retailers, Zara controls most of the steps on the supply-chain, designing, manufacturing, and distributing its products. Zara set up its own factory in La Coruña (a city known for its textile industry) in 1980, and upgraded to reverse milk-run-type production and distribution facilities in 1990. In order to draw masses of fashion conscious repeat customers, in prime locations, in sophisticated stores for relatively low prices, fresh assortments of cosmetics, toiletries, designer-style accessories, and garments are offered by Zara. In terms of the upstream operations, by building up significant forward order books, in compare to achieve manufacturing efficiencies, to be a very quick fashion follower, the use of backward vertical integration is emphasized by Zara, despite its tapered integration into manufacturing. Reasonable but not excessive physical quality, relatively high fashion content, rapidly changing and broad product lines are emphasized by the product merchandising policies of Zara. In terms of the age targets, fashion content and prices, three sets of offerings were considered by the further segmentation of the line of women and the product lines were segmented into children’s, men’s and women’s. For comparable products in significant markets of Zara, in compare to competitors, prices were supposed to be lower and centrally determined. Because of significant reductions in markdown and advertising requirements and the vertically integrated and shortened supply chain associated with direct efficiencies, the percentage margins were expected to hold up. The horizontal communication model is used by Zara. It is easy to implement and due to the workforce of the company that every year grows exponentially. The elasticity of the company is affected by diluting responsibilities. Similar to a small to medium sized business of about hundred employees, a business unit is the responsibility of every store manager. To avoid falling into obsolescence, the constant re-inventing by the group is required by the focus on the product and the client. Because of this, communication is necessary to be facilitated and for the window and zone designers maintaining a direct line of communication between other points of contact, like, a sales person, the design team and the store manager. In order to create an elegant atmosphere emphasizing a brand image, the stores of Zara are designed with style and ceiling related decorations, like, display/store design photographs, white walls and clear lighting. Through both existing and new customers by means of personal store visits, Zara has improved its sales and developed a strong customer mass in accordance to its marketing communicating objectives. Heavy investments are done by Zara for their store layouts, in order to keep the stores looking trendy and fresh. The different types of store layouts are tested by...
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