“Managing Retailing, Wholesaling & Logistics”Anne Stam, Febrini Wulandari & Irwan Arfandi B.

Master of Management – Gadjah Mada University

Brief Summary

Why Zara? Marketing Strategy Focus Zara Vertical Integration Production ? Store Location All Around The World Advantages from Using Single Distribution

Centre ?

COMPANY PROFILES• Zara is the flagship chain store of Inditex

Group owned by Spanish 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, Spain, where the first Zara store opened in 1975.

• Zara has resisted the industry-wide trend towards transferring fast fashion production to low-cost countries. Perhaps its most unusual strategy was its policy of zero advertising; the company preferred to invest a percentage of revenues in opening new stores instead

Main Issues

The elements supporting Zara’s business structure and strategy are also greatly interlinked and interdependent. The following three factors stand out: Extensive market research providing a constant stream of inputs into the

product development process, rather than in batches or discrete seasons. Locating various business function in close proximity of the headquarters,

and tight control, allows the various functions to coordinate and take joint-decision very quickly. Control also refers to early investment in raw material, and direct or indirect “ownership” of processing and production capacities. These provide the capability to respond very quickly to the market research-influenced decions.

Communication and information Technology are absolutely vital to managing the constant interface of various and management of the huge variety of product information.

And also...“How Zara manage the strategy of distribution

and vertical integration ?”

Problem Statement

On which way can vertical integration of zara be an advantage for the company?

Cutting cost because they do not outsource any channel.

Cutting time, more faster, effective, and efficient.

Avoid conflicts emerge from different channels.

What to do before

• Target marketZara’s target market is people from teens to adults, men and women.

• Product assortmentZara is broadly and deeply assorted.

• ProcurementEstablishing merchandise sources, policies and practices.

• PricesZara product price is affordable

• ServicesPrepurchase service, postpurchase service, ancilary service.

• Store atmosphere Zara store’s athmosphere is high end but classy, high lighting, no pictures on the wall.

• Store activities and experiences Stay update through the website. • Communications No advertising, but free press is good advertising.

• Location decision Zara locates themselves in central business districts with as many outlets as possible.

Overall about Zara’s Vertical Integration

Zara manufactures and distributes products in small batches. Instead of relying on outside partners, the company manages all design, warehousing, distribution, and logistics functions itself

Strategic Advantages

Zara has been able to achieve excellent financial status due to its core competencies that provide the chain with a competitive advantage over traditional retailers in the industry

Zara is an apparel chain that works differently from traditional retailers. Generally, a traditional retailer outsources all of its production while focusing on distributing and retailing those goods. This is due to the fact that the global apparel industry is “highly-labor intensive” rather than capital intensive

Zara is a chain that has developed a successful diverse method of doing business in the fashion industry. Zara by working through the whole value chain is very vertically integrated and highly capital intensive

Vertical Integration

a distinctive feature of Zara’s business model, has allowed the company to successfully develop a strong merchandising strategy. This strategy has led Zara to create a climate of scarcity and opportunity as well as a fast-fashion system. Zara manufactures 60% of its own products. By owning its in-house production, Zara is able to be flexible in the variety, amount, and frequency of the new styles they produce

Zara’s in-house production purposely creates a rapid product turnover since its “runs are limited and inventories are strictly controlled”. This rapid product turnover creates a climate of scarcity and opportunity in Zara’s retail stores

Human Resource goes Better

Zara’s unique quick response system, composed of human resources as well as information technology, allows Zara to respond to the demand of its consumer better than the competition. Zara, who focuses on the ultimate consumer, places “more emphasis on using backward vertical integration to be a very quick fashion follower than to achieve manufacturing efficiencies”

Zara has human resource teams in the retail and manufacturing environment that work exclusively toward this goal. In the manufacturing environment, Zara’s product development teams are responsible for attending high-fashion fairs and exhibitions to translate the latest trends of the season into their designs.

In The Retail Environment

Zara’s managers and sales associates are in charge of transmitting the sales analysis, the product life cycles, and the store trends to the designers. This allows the designers in Spain to develop the right products within the season to meet consumer demand

Others Zara’s Environment

• Accelerated IT software to transfer spesific communication and design

• Zara Centralized distribution facility, Zara’s internally or externally produced merchandise goes to the distribution center

• Targeting a broad market to international advantages over its competitors

Extended information : Specific Zara’s Target Market

• Zara’s target market is very broad because they do not define their target by segmenting ages and lifestyles as traditional retailers do

• Zara’s target market is a young, educated one that likes fashion and is sensitive to fashion

Others Question for Zara’s ?

On which way can the fact that zara has a single distribution centre be an advantage?

Centralized control, avoid misunderstanding or conflicts.

Manageable time scheduling, focused on one rather than managing several different time schedules.

On which way can this be an disadvantage?

Diseconomic of scale – in long term, the costs is getting higher and higher.

Because of managing distributions on their own, designing and production process might not be in its optimum level.

Recommendation

DesignCooperate with vary range of designers so Zara can maintain its competitive advantage to be “the fast fashion” but remain more and more creative.

ProductionCooperate with any channel of production all over the world so new improvements in operation technology can be applied into Zara instead of keep using the old ones.

DistributionMaking more distribution centres so they will enable Zara to be more faster, effective, and efficient in distributing their products to the retailers.

AdvertisingAdvertising might be important in the future when competitors are becoming more competitive and demands are declining.