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ZARA GU Strategy Presentation
Transcript of ZARA GU Strategy Presentation
Possible threats of
ZARA - Competitive Advantages
Benetton: example of failed vertical integration, stagnation and decline in recent sales, not enough investment in downstream strategies.
The Gap: long supply chains, lack of clear fashion positioning
H&M: most dangerous competitor, best benchmark
International Markets Expansion
Porters 5 Forces
1963 Amancio Ortega Gaona founds Confecciones Goa
1975 Opening of the first Zara store in La Coruña
1979 6 stores in Galician cities
1985 Holding company Inditex created
1985 Jose Maria Castellano now Deputy Chairman of board of Directors
1989 International rollout begins
Early 1990s Addition of other retail chains to Inditex portfolio
2001 Initial Public Offering of 26% of Inditex Shares
Amancio Ortega Gaona
Jose Maria Castellano
Operating 1,284 stores worldwide in end of 2001
Capital employed in 2001:
other six chains -weight average of 19%
Zara stores account for only 1/3 of all Inditex branches, but its sales account for about 70% of total sales.
Quick response is critical to Zara's superior performance
Emphasis on design
Zara bridge the merchandising and back end of production process, something that is generally organized under separate management teams at other apparel retailers.
Flat design organization with creative teams interpreting catwalks at fashion shows in NY, Paris, London, Milan.
Reliance on High frequency information in adapting to trends: communication with store managers and use of Zara's IT system (sales data)
Results: 1% product launch failure (10% industry avg.)
Sourcing and manufacturing
‘...a place to move merchandise rather than to store it’
-Operating Ratio(Operating Expenses/Sales Revenue):
-Property, plant etc. comparison
-Market value change (nearly
Centralised distribution system in Spain (other smaller satellite centres in SA).
Technological innovation integrated into the distribution line.
Temporary workers hired at the start of the selling seasons
Transporting options: truck (75%) and the remaining (25%) by air
Porter’s Five Forces Model
Barriers to entry:
High fixed costs
Long preparation time
Dependent on consumer behaviour in industry
Unpredictable fashion trends
Several competitors that are selling similar products
Counterfeiting in Asian countries
Regular customers would not shop lower quality products
‘Loyalty’ factor involved
Low prices of fabric and manufacturing
Uniqueness of Zara in fast fashion though
New stores were first opened in cities in the region of Galicia (Vigo, Lugo, Santiago, Ourense).
The continued success allowed Zara to open stores beyond the region of Galicia.
By the late 1980s Zara operated stores in all Spanish cities with more than a 100,000 inhabitants.
Low growth opportunities
Changes in consumer behavior
Spain joins the EU
Abolition of trade restrictions
Store as source of information
Sense of scarcity - driving sales
Price : high-fashion at affordable prices
Business model as whole
• Clothes for fashion-sensitive women
• Advertising budget – 0.3% / revenue
• Freshness of ZARA's offering; climate of scarcity and opportunity
• Customers visit ZARA stores 17 times per year vs industry avg of 3-4 times
• ZARA stores have a dual function
• Prime locations, attractive presentations in-store
• An automated sales tracking system
• Role of store managers -
“the availability of capable store managers – single most important constraint on the rate of store additions”
• Medium-quality, designer-style clothing and accessories at reasonable prices
• Backward vertical integration
• Limited production runs and deliberate undersupply create a sense of scarcity
• Lower prices
• Attractive stores
• Store managers communicate directly with design teams
Photo credit: Inditex Group
Phasing out of Multi-Fibre Agreement by 2005
Greater regionalisation as dominant motif of change in apparel trade
Large cross-border flows of apparel reflect cheap labour and inputs
Cascading labour efficiencies
Production highly labour intensive
Retail spending $900 Billion in 2004
Western Europe 34%
United States 29%
Inter- and Intra-regional variation in consumer attributes and preferences
Legitimacy of sweatshop trade being questioned
Quicker reactions to global and local trends
Improvements in IT enabling QR
Richer communication links
282 stores worldwide (55% of the international total for Inditex; 56% of Zara’s stores are international)
Sales €1506m (86% of the Inditex’s international sale; 61% of Zara’s sales)
“Oil Stain” Expansion
Macro and Micro analyses
Focused on market price in forecasting product’s price
The most internationalised company in 2001
3 types of venturing in overseas markets
for high growth and low risk markets
for competitive markets that require local know-how
for high risk and culturally diverse markets.
Fabric, other inputs and finished products sourced from external suppliers as well as personnel
1/2 of fabric was gray for in-season updating and supplied by both internal and external suppliers to later have dyeing & patterning.
- fashionable items
- manufactured small lots
- 3 steps for manufacturing:
pattern design and cutting in-house
sewing in about 450 small-size workshops
final finishing in-house
- 1/3 in Asia, 2/3 in Europe and North Africa
- Basic items
- Long-term ties with supplier
A Financial Comparison with H&M
The Zara Business Model
Diseconomies of Scale
• Concerned with as Zara grows
• Must scale up the distribution system (setup the second distribution centre) to increase the sustainable capacity
With expansion in Asia, set distribution centre in China as already sourcing from there
• Increased capacity can support Zara’s plan of expansion worldwide
Minimal marketing only at new store opening. (0.3% of revenue)
Visibility Marketing through standardization of window displays
Response to aggressive marketing in U.S market.
Continue low cost strategy through digital media campaigns:
Use Social media as advertising the launching of new lines.
Imitation of the
Zara realized that fast response and speed were key to dominance in fashion retail.
This business model innovation remained relatively hidden for over 20 years but in recent years, the Zara model has attracted its fair share of imitators and followers.
There is evidence, that retailers are seeking to move production away from Asia and closer to home.
“I would love to organise our business like Inditex, but I would have to knock the company down and rebuild it from scratch.”
The complexity of implementing changes to their existing business system and the lack of experience in operating a Zara-like model is still a significant barrier for the competition in the short run.
"Even if you're on the right track, you'll get run over if you just sit there."
Decrease in market share
Fierce competition can affect Zara's market share.
Gain New Customers
Would be able to sell to new customers where there are no Zara stores
Could be used as a platform for international expansion
Automation of checkout, billing payments, inventory management, and other operational processes lowers the number of employees required to run an e-commerce setup
An e-commerce merchant does not need a prominent physical location
Remains Open All the Time
E-commerce websites can run all the time
Increases the numbers of orders received
An 'always open' store is more convenient for customers
Provides various housewares
(E.g. Textiles, glassware, dishware)
-Opportunity for Zara to obtain market share and expand their customer base, while continuing to keep their brand imagine and general positioning.
Italy (largest EU apparel market) - entry joint venture
UK, Germany, France - other major markets needing expansion through own subsidiaries.
Central Eastern Europe and Nordic Countries = growing economies
-Close distance from Spain (keep turnaround times)
-Fierce European fashion brands competition
-Opportunity to learn from GAP,
-Slow expansion in high risk market
-Use fashion hubs (NYC, LA) to fuel brand awareness & international prestige
- Large profitable market & high price for shirt (2x Spain)
-Hard to enter mass market (plus sizes & consumer preference) so target high street retailer.
China & other Asiatic Countries
-Greatest focus of growth strategies
-Ability to sell same clothing without changing sizes or fashion
-High growth markets (12% annum)
-Price of T-shirt high & lower labor force costs
-Different strategic positioning
-Competitive advantage with small retailers that are inexperienced
-First move advantage
International expansion is the objective that cannot be delayed and will allow us to enrich our culture and vision of the markets
The Economist (2010)