Zara Case Analysis

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Albert Sedaghatpour
Individual Case Analysis-Zara
7/24/09

Introduction
Zara is the flagship chain store of Inditex Group owned by Spanish tycoon Amancio Ortega. The group is located in Spain, where the first Zara store was opened. Zara has opposed the industry-wide trend towards turning fast fashion production to low-cost countries. Possibly its most atypical strategy is its policy of zero advertising; the firm opted to invest a portion of revenues in opening new stores instead. At the end of 2001, it ran 507 stores around the world. While its share of the group’s total sales were anticipated to fall by two or three percentage points each year, it would proceed to be the primary driver of the group’s growth for some time to come, and to play the lead role in increasing the share of Inditex’s revenues. Problem Statement

The primary problem with Zara is its future geographic focus, and how it would expand and grow in other countries. The growth options for the company within its domestic market of Spain seem somewhat limited. SWOT Analysis

Strengths: Ordinarily the retail industry takes approximately three to five months to come up with a new seasonal collection. Zara takes a counter-intuitive tactic made achievable by their speed. As opposed to guessing on the fashion they ask and observe what the consumer desires and is capable of allocating the product within two weeks to the customers. It pursues trends that are thriving with other retailers and provides an imitation. All of the Zara employees have a PDA which is utilized to collect consumer thoughts regarding its products and what they desire to see in the store. This type of information is extensively collected everyday and sent straight to headquarters. Then recent graduates from fashion institutions are hired to design the clothes that the customers want. These designs are produced and shipped out to the retail stores in as little as ten days. All of this occurs in Spain, with no outsourced manufacturing. By ignoring outsourcing, the manufacturing time is lowered by a great amount. A Point of Sales system is also utilized by all Zara stores. The point of sales system permits the cash register to confirm what is selling and what is not, letting better known products to appear in the store during the season in which its revenues are up. This system means that solely those items which are in great demand will appear in stores, so there are more sales. These two techniques lead to most of the clothing to sell out within a week by maintaining low inventory. Another benefit Zara displays is the vertical integration within the firm. Rather than having suppliers around the world, they do nearly everything in Spain, permitting delivery to go out to stores twice a week. They design, manufacture, produce, and ship right from Spain, saving time. Zara saves money on promoting because they spend less than a third of a percent of their sales on promoting and focus on locating their stores in high traffic premier locations. Clothes are tagged at the manufacturing site, which permits the employees in stores to be five percent more efficient in other areas of the store. Zara also takes advantage of the rarity in their clothing, which translates to more sales because differentiability interprets to more bargaining power for Zara. They have very low inventory for each product which suggests it lasts for a small period of time at the store. It is said, that one never sees the same product twice at Zara. This implies more sales since write offs and mark downs are absent. Another benefit of low inventory is that Zara does not risk significant losses if one product line fails because they have hundreds more in the pipeline currently to be shipped out on command. The most significant advantage is probably how difficult it is to imitate their business model. To stay competitive in a business, one must at all times have an advantage over the rivals and having a model that is...
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