CASE ANALYSIS

BYSHWETA GABAMA FMGPEARL ACADEMY of FASHION

CONTENTSASSESTS & REVENUES

PRODUCTION

COMPETITORS

MARKETING STRATEGY

ADVERTISING

CRITICAL FACTORS

RECOMMENDATIONS

Zara is the flagship chain store of Inditex Group owned by Spanish company tycoon Amancio Ortega, who also owns brands such as Massimo Dutti, Pull and Bear, Oysho, Uterqüe, Stradivarius and Bershka. The group is headquartered in A Coruña, Galicia, Spain, where the first Zara store opened in 1975.

ASSESTS & REVENUES

507 stores across the globe- 40% OF THE TOTAL FOR INDITEX

488,400 square meters of selling area- 74% OF THE TOTAL

Employs 72% of the company’s capital- 1050 MILLION EUROs

Reported EBIT* of 441 million euro on the sales of 2,477 million euro

*EBIT- Earning Before Interest & Taxes A 2001 fiscal year data

PRODUCTION

The distribution center is centrally located among fourteen manufacturing plants.

About 2.5 million garments could move through the distribution center each week. Zara’s merchandise does not waste time waiting for human sorting. In Zara’s strategy, however, the speedy shipments are part of the core strategy.

Zara’s high tech distribution system makes sure that no style sits around for long. The garments are quickly cleared through the distribution center and shipped to stores arriving within 48 hours.

Half of its production is in owned or closely-controlled facilities.

Zara can move from identifying a trend to having clothes in its stores within 30 days.

In comparison, most retailers of comparable size or even smaller, work on timelines that stretch into 4-12 months. (e.g. Zara is twelve times faster than Gap , for H&M it takes three to five months to go from creation to delivery).

Unlike other retailers, Zara's machinery can react to the report immediately and produce a response in terms of a new style or a modification within 2-4 weeks.

The Zara supply chain reacts faster by working with more precise forecasts and more reliable market information.

COMPETITORS

GAP, Hennes and Mauritz & Benetton are the chief International competitors.

MARKETING STRATEGY

ZARAMarketingStrategy

DesigningPricing

Retailing

DESIGNING

ZARA manufactures men, women & children apparels. The designs are very exclusive. Zara’s designers attend trade fairs and ready-to-wear fashion shows in London, New York, Paris & Milan and design their sketches accordingly 9 months before the season and further sourcing of fabric is done. This gives them ample amount of time for production and to meet up with the flaws.

PRICING

40% higher in Northern European countries than Spain, 10% higher in other European countries, 70% higher in Americas, and 100% higher in Japan.

RETAILINGZARA places more emphasis on using backward vertical integration to be a very quick fashion follower than to achieve manufacturing efficiencies by building up significant forward order books for the upstream operations.

MERCHANDISING- Emphasized broad rapidly changing product lines, relatively high fashion contents and reasonable but not excessive physical quantity.

STORE OPERATION- Work as company’s front office and information centers. The stores are located in highly visible locations where the chances of getting foot falls are maximum (e.g. Fifth Avenue in New York). Zara invests more heavily and more frequently in refurbishing its stores as compared to its competitors. Over 80% of the INDITEX’s employees are into retail.

ADVERTISINGZARA is passive towards advertising

Zara spends around 0.3 % of sales on advertising compared to an average 3.5% of competitors, choosing highly visible locations for its stores renders advertising unnecessary (and chooses to invest a percentage of revenues in opening new stores instead)

Zara has a communication policy for advertising based on WOM communication

The only advertising campaign: biannual one-page publication with sales and ZARA fashion centers.

Zara justifies the absence of advertising campaigns by stating that there is no need for the group to:

• Arise stores’ sales and visits• Increase the reputation of the chain/ brand Zara• Improve the chain’s image and identity

Zara occupies the second place in Spain in terms of spontaneous notoriety and only in Spain 50million potential customers visit Zara stores annually

CRITICAL FACTORS

May no one try to do what ZARA does, because the source of our competitive advantage is distinctive and inimitable” (Jose Maria Gonzalez)

Zara’s ability to adapt its products to customer demand in the shortest time possible, offers a significant advantage over competitors.

However, This 15th day manufacturing cycle of ZARA could be imitable for other

competitors , but in practice there are many obstacles , hard to overcome, concerning costs and flexibility.

For ZARA , time is the main factor to be considered, above and beyond production cost. On the contrary, because of the today economy, the intense competitiveness, the lack of coordination, man power and specialization , it’s difficult for other competitors who are not industry leaders(as ZARA) to gain such a competitive advantage .

Major consequences of loosing this advantage Since other competitive companies follow effectively such a

strategy, the 15th day manufacturing cycle will no longer consist a competitive advantage for ZARA.

Possible Consequences :1. ZARA will have reduction in profits2. The competitiveness will be more intense3. The company will experience great pressure4. Smaller market share5. ZARA should strengthen its innovativeness in order to

find a new competitive advantage which will be difficult for other competitors to imitate.

RECOMMENDATIONS

For Zara, its very important to cope up with the customer’s demand for better and exclusive designs. It should sustain its tie up with outsourcers like China and South Africa which contribute to 70% of its production.

Expanding business in countries with high potential like India. Zara still has to capture a large area of market here in India as the customers are willing to pay larger amount for quality products.

Zara is still lagging behind the famous “Organic Clothing” campaign. Working on an organic clothing concept can enhance the sale of the apparels to incredible amounts specially in European countries and Americas.

A larger portion of the company’s income should be utilized into production. Currently Zara is focusing more on expansion of its stores.

THANKS & REGARDS

SHWETA GABA