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ZARA - Fast Fashion

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Mohammad Kassab

on 9 December 2013

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Transcript of ZARA - Fast Fashion

Decision !
Open new Distribution Centers in Locations different than Europe, such as East Asia and North America which would decrease more lead times and take advantage of cheap labor cost.
History
Zara, a leader in the fashion industry, was started by Amancio Ortega in 1975 in La Coruna, Spain
In 1985, a holding company named, Inditex (Industria de Diseño Textil) bought Zara and was the first company of its long chain
By 1985 Zara reached the Spanish capital Madrid
Zara opened its first store outside Spain in Oporto, Portugal in 1988
First store in the US in 1989 and in France in 1990
Currently, Zara operates in 86 countries with 1770 stores worldwide

Current Strategy
Zara differentiates itself from its main competitors by possessing most of their own production and stores facilities and operating multiple formats of business in the market.

Zara produces the most important items, fashion sensitive items, in house to ensure quality and to ensure quick response, which is their core competency. Quick response helps Zara reach customers wherever they are in the world within a maximum of 2-3 weeks.

Zara has a centralized corporate distribution center, which is seen as a place to move merchandise rather than a place to store them, demonstrating their strategy of minimizing inventory and maximizing quick response.

Zara offers and obliges its designers to attend a lot of conferences, presentations, and shows regarding anything related to fashion.
PEST Analysis
Porter’s Five Forces
ZARA - Fast Fashion
Mission and Vision
ZARA is devoted to achieve consistent improvement in the system of providing products & services to the customers through On Time Delivery & Enhancing Customers Satisfaction by means of Quality and Value
Political
Government is the major and silent factor in a business

Zara has options to expand its business in countries that are safe and predicable economic circumstances. Asia currently has mixed political situations. West and South Asia countries like Afghanistan, India, Pakistan, Iraq and Syria have fragile political situations

South East Asia and East Asia such as China, Singapore and Malaysia are the best potential countries for the company to expand
To attain market leadership through unmatched quality, a diverse and unique product mix, empowered employees, world-class systems, and the highest ethical and professional standards
Competitors
THE GAP
H & M
BENETTON
Started in 1969 in San Francisco
The Gap had narrower vertical scope, as they own owned most of their stores
Founded in Sweden in 1947
Quicker to penetrate international markets than ZARA
H&M provided clothes with lower prices compared to ZARA, hired less designers, and focused on advertising more than ZARA
Established in Italy in 1965
Outsourced its labor intensive activities to sub-contractors
Zara also held a well established relationship with abroad factories in different countries such as Portugal that sustain labor and scale intensive activities like sewing. It flourishes the relation by providing support to the production center, financially, practically and technically. Finally to complete this cycle, the garments are inspected and bagged as soon as they arrive at Zara’s main complex and eventually taking care of by its centralized distributed center.
Economic
The economical conditions of overall world have been fluctuating in last few years but Zara is successful in getting market share and has not been affected by the recession. The main reason behind was that Zara is not currently dealing in dollars and is using a relatively safer currency for its dealings
Another factor that affects the economy is interest rates. Accordingly, in countries that have low interest rate we find economic success and Zara could have potential growth there.
Socio-Cultural
Each region has its own lifestyle and traditions. However, due to globalization, the lifestyles around the world are becoming similar day after day creating a “Global Lifestyle”.
This is a great opportunity to grasp on for the apparel industry. Zara would have to work according to the trends in lifestyle and satisfy customer demands due to change based on generation choice.
Technological
Zara’s IT strategy has to consider the complexity and requirements regarding of the organic growth strategy to reduce costs and improve quality.
Furthermore, Zara should establish a wider E-Commerce strategy to expand not only in existing online markets, moreover on new markets with online shopping opportunities.
Barriers to Entry (High)
• New entrants will have to deal with high and large fixed cost because Zara was able through its operations to deliver new fashion at a low cost.

• For a new brand’s equity to be built, a lot of time and investment is needed. These new entrants will be a step behind because Zara has already established a well known and cornered brand image.

• New entrants will face an enormous advertising costs in-store and outdoor.

• Zara as part of the Spanish Inditex Group can benefit from the micro-economic concept of the Economies of Scale. Hence it gains cost advantages as production (scale) increases

• Inditex’s superior supply chain management has been consistently built over more than a decade. Thus it would be very cost intensive and difficult, for a new entrant to the market to imitate Zara’s operations
Bargaining Power of Suppliers (Low)
• Low Price of Fabric decreases the bargaining power of the suppliers.

• Most local cooperative work without contracts or labor unions for example tailors. So at any point of time Zara can switch easily to another supplier.

• The abundance presence of suppliers makes the competition nearly competitive among suppliers because their products are of low differentiation.

Bargaining Power of Buyers (Medium - High)
• It lies in the hands of consumers of what they like and purchase, regardless of the brand. Costumer Have a very wide range of fashion to choose from at very low switching cost.

However,

• With its constant infusion of new products, buyers are drawn to Zara stores. Zara boasts more than 11,000 new designs each year, whereas competitors typically offer only 2,000 – 4,000.

• Because of the low inventory that the Zara stores stock, the regulars buy products they like when they see them because they are likely to be gone the next time they visit the store.

• More recently Zara has employed laser technology to measure 10,000 women volunteers so that it can add the measurements of ‘real’ customers into its information repositories. This means that the new products will be more likely to fit Zara customers.

Threat of Substitutes (Low)
• Substitutes are basically not found for clothes! People can’t substitute clothes for anything, so given this point the threat of substitutes is low.
Threat of Rivalry (High)
• Buyer propensity to substitute is high with several competitors to choose from such as: H&M, GAP

• Copying of styles quite prevalent in the industry can attract the consumer who does not mind lower quality but similar looking apparel.

SWOT Analysis
Strength
1. It decreases the inventory costs because no inventory costs would be charged, it would also decrease transportation costs and decrease the time for the products to reach the customers and thus make response times much shorter which is Zara main core competency.
2. Investments in logistics and IT systems which help them apply the just in time method.
3. Manufacturing process.
4. Information gathering process.
Weaknesses
1. location of its headquarters.
2. Marketing strategy. Zara have spent only 0.3% of its revenues on marketing activities compared to 3%-4% spending from close competitors.
3. High prices in some countries outside Spain. For instance, prices in Japan are 231% higher than prices in Spain, and the prices in the US are 209% higher than those in Spain.
Opportunity
1. Focusing on a niche of this market, Women segment.
2. Outsource all of its apparel production to other facilities and thus not bear the cost of producing itself.
3. increasing the number of international stores because Zara generates 61% of its profits from international stores.
Threats
1. Increased production costs.
2. franchising when entering new markets.
Four alternatives:
1. Zara could open more distribution centers in other parts of the world rather than having only one distribution center in Spain.


2. Zara could take advantage of its improved IT system and start selling
merchandise through the internet. (E-commerce)


3. Focus just on a niche of the whole market, which is the women apparel since it is its main strength point.


4. Expand to other places in the world where it has not expanded before and ensure presence and revenues from rising markets.

Factor Rating Method
1. Effect on lead times
2. Growth of Industry
3. Profitability
4. Cost
5. Exposure
Full transcript