Zara works differently from its traditional retailers in the industry. Zara’s business model is vertically integrated. Where most retailers outsource all of its production to developing countries to control production cost, Zara’s manufactures 60% of its products in-house. The firm makes 40% of its fabrics. By owning its in-house production, Zara gets the advantage of controlling quality of its produce, flexibility in variety and quantity, and frequency of the new styles to meet the frequently changing fashion market. All the Zara’s fabrics arrive as grey dyed, and all the dying and patterning is done in-house as per the demand and style of the time. Not having pre-dyed fabrics is a wise way of reducing inventory liability for Zara.
Inditex owned factories are used for Zara’s internal manufacture. These factories apply just in time (JIT) manufacturing model, thus helping reduce average time for a Zara concept to go from idea to appearance in store to 15 days. This gives Zara further competitive edge. By playing both the roles of the manufacturer and the role of the retailer, Zara definitely has an advantage over its competitors in terms of quality, speed of delivery and cost.
Zara targets a broader market. Its customers are fashion savvy, young and educated people who like fashion and are fashion sensitive. With media playing a great role in standardizing fashion globally, Zara’s fashionable apparel appeal to the people across the globe.
Zara’s IT expenditure is less than one fourth the fashion industry averages. In today’s world when most of the retailers have online shopping, Zara is going to start, for the first time, online shopping in USA on September 7, 2011. It uses personal digital assistants (PDA) to gather customer feedback, which is collected at “The Cube” and intensely used in finalizing a new Zara concepts and styles. Zara’s fabrics are cut and dyed by “robots” in their 23 highly automated factories. Zara does not use IT systems intensely, but strategically in its value chain model.
2 How sustainable is the business model? Where might Zara fail? Contrast Zara with the problems Gap experienced.
Zara’s first store opened in 1975 and since then it has its operations in 73 countries across globe. Though Zara’s business model is quite diverse from its other competitors, it has been able to sustain over years. The reason being, Zara is a fashion imitator. Fashion changes happen frequently. Zara’s business model gives it more control on production thus supporting it to manufacture new styles and concepts more frequently as compared to its competitors who outsource its product manufacturing. An example speedy turnover is - “When Madonna gave a series of concerts in Spain, teenage girls were able to sport at her last concert the outfit she wore for her first concert”. These were Zara outfits. Zara could manufacture a new style and deliver it to its retailer in such a fast pace; thanks to its vertically integrated business model.
Vertically integrated business model provides better integration and data sharing from end to end (from Inbound Logistics to Service) in the Value chain model. Zara designs are influenced by facts and not guess work. Data is collected at each retail stores by store managers, with the help of PDA, based on what is left behind in store racks after store hours. This information goes to “The Cube” near La Coruna, where a team of highly skilled designers use this information to create 30,000 Zara design’s per year as compared to 3000 to 4000 designs per year by its competitors H&M and Gap.
Zara has a centralized distribution system located at Spain. Zara’s most of the manufacturing is done outside the five-million square foot...