Case Study: Zara-Fast Fashion
Inditex is the parent company of six different apparel retailing chains that includes Massimo Dutti, Pull and Bear, Bershka, Stradivarius, Oysho, and, most importantly, Zara. Zara has historically been the most profitable of the chains, operating 282 stores in 32 countries at the end of 2001 (Ghemawat & Nueno, 2006). The other five chains that are operated by Inditex have not matched the growth capabilities or revenue of Zara.
Zara’s apparel offers a high level of fashion at a reasonable price, effectively appealing to the middle to middle-high class. It has grown into a successful company by providing fresh fashion with short lead times and a sense of scarcity for their products. Zara’s whole business model depends on its ability to have a quick response to almost every aspect of the fashion world. For example, Zara employs many trend seekers who are required to keep their eyes on the fashionable young individuals in order to gain an understanding of the latest fashions. This information is communicated to the design team, who must produce new items as quickly as possible. Zara does most of its manufacturing internally, which allows the designs to come to fruition in a timely manner and make their way to the store shelves before the trend ends. Zara began its global expansion in Portugal in 1988, opening a store on the northern end of the country. Since them, Zara has employed an international strategy that strives to allow Inditex to become the sole or majority owner of its global stores. Zara especially wished to own stores in “key, high-profile countries with high growth prospects and low business risk” (Ghemawat & Nueno, 2006). While this certainly required more commitment and resources, it allowed Zara to keep its best prospects close to the vest.
Zara also employed the use of joint ventures in its international strategy. The company most commonly used joint ventures to enter large markets that held barriers to direct entry and especially those that created difficulty in buying quality retail space in the hub of the city centers. While the idea of split ownership created some complexity, Zara would also form the agreements to include a possible buyout of the partner in the future (Ghemawat & Nueno, 2006).
The last method that Zara used to gain entry in international markets was franchising. The company would primarily use this strategy in countries with small, risky, or held significant barriers to entry. Zara would still freely give its franchisees access to its resources, such as training and logistics, giving these individuals a chance to learn how to succeed in Zara’s approach. Central Problem:
One of the main issues facing Zara was what strategy to incorporate in regards to its non-Zara chains. The other chains had not been performing at the same level as Zara, yet were still taking valuable resources away from Zara. The key question here is, how much are the non-Zara chains taking away from the ever-expanding Zara chain?
Another question facing Inditex’s top management team is in regard to future acquisitions. Would it be profitable for Inditex to start up some new chains in an effort to foster local competition? Would it make more sense to acquire existing chains?
Possibly the most pressing issue facing Inditex is the future of Zara’s international expansion. The company was hoping to open 55 to 65 new stores with the majority of these stores opening outside of Spain’s borders (Ghemawat & Nueno, 2006). The question is, where exactly are these stores going to be located? Spain has neared saturation and some of the best markets are too far away for Zara to effectively use their quick response methods with their current distribution center. Italy appears to be a viable option. The United States was also an interesting option, although it carried risk due to its lagging fashion culture. The company needed to find a way to expand their markets without...
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