Term 3 – Supply Chain Management – Group 6
Case Analysis of
ZARA: Fast Fashion
This report is submitted to Prof. Devanath Tirupati in partial fulfilment of the course requirements of Supply Chain Management at Indian Institute of Management Bangalore
5th March 2014
Disclaimer: Unless otherwise stated, any views or opinions expressed in this report are solely those of the authors.
Inditex, founded by Amancio Ortega, operates six different chains: Zara, Massimo Dutti, Pull&Bear, Bershka, Stradivarius, and Oysho. Zara is a leading apparel chain with major dominance in Spain. Zara being responsible for around 80% of Inditex’s gross profits is critical for Inditex’s growth. Currently, Zara is facing a convoluted problem of growth expansion both within and outside Spain. Within Spain, growth options for Zara seem limited owing to the already saturated market. Zara however has placed its foot in the Italian market (which it finds particularly lucrative owing to the fashion-forward Italian market) through a joint venture with Percassi and plans to add around 70 stores in the next decade. Other options for entry could be USA, Asia and other parts of Europe.
The analyses focus on Zara’s business model and competitive advantages and depicts how it impact’s Zara’s growth. Vertical integration, delayed production, just-in-time manufacturing, and proactive design teams are some of the key features in Zara’s business model which makes Zara a competitive brand. With such peculiarities in its business model Zara has been able to maintain low failure rates as well as manage high operating efficiencies as compared to some of its competitors in Spain. Harnessing the Quick Response (QR) technique quite remarkably, Zara has drastically reduced its cycle times with minimal bullwhip effects. As a global apparel firm, Inditex’s main development strategy for international expansion is to become the sole or majority shareholder. However, for small or culturally different markets, it extended franchising agreements to leading local retail companies. For countries with large barriers to entry and an appealing customer base, Inditex created joint ventures with the possibility of later buying out its partner. Despite the different approaches used to enter into the international market, Zara has shown that there is no impediment to sharing a single fashion culture. It can be concluded that, with such valuable set of resources and capabilities which Zara possesses, it makes sense to grow into markets in which Zara can exploit its capabilities to the fullest. The move into the Italian market fits perfectly into Zara’s paradigm of effective Quick Response and is a laudable one. Also, entry into United States of America should rather be avoided at this stage as the American market is relatively backward as compared to fashion and Zara won’t be able to do justice to its capabilities as they could be rendered useless. Thus in order to undergo a sustainable growth, Zara should focus on partnering in geographies where its capabilities are complemented.
In general, fashion apparel has highly volatile demand with high margins for the ‘in demand’ fashion products and heavy markdowns for ‘out of demand’ (outdated) products. Life cycles are short and unpredictable. It is a very tough job to predict what will be in trend and its demand. On the scale of functional-innovation products, fashion apparel is clearly on innovation end of spectrum. For an innovative product like fashion clothing, it is very important to provide the correct product variety not in terms of the number of options but more so in terms of the correct fashion. The efficiency considerations of the physical function are secondary to the above. Suppliers need to be chosen for their speed and flexibility and not just costs. It is important to decide where to position inventory in the...
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