Zara's Counter-Intuitive Business Model

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Background
Inditex, founded by Amancio Ortega, operates six different chains: Zara, Massimo Dutti,Pull&Bear, Bershka, Stradivarius, and Oysho. Since 2006 when the case was written, Inditex hasadded Zara Home and Uterque to its collection.

The retail chains were meant to operate asseparate business units within a structure, which included six support areas and nine corporatedepartments. Each chain addressed different segments of the market, but all share the samegoal: to dominate their segment using a flexible business model that could be expanded on aninternational scale. As the parent company, Inditex focused on providing the corporate servicesto its respectable chains so that they could accomplish their goals.As a global apparel fir m, Inditex’s main development strategy for international expansion is to become the sole or majority shareholder. However, for small or culturally different markets, itextended franchising agreements to leading local retail companies. For countries with largebarriers to entry and an appealing customer base, Inditex created joint ventures with thepossibility of later buying out its partner. Despite the different approaches used to enter intothe international market, Zara has shown that there is no impediment to sharing a singlefashion culture.Zara, a key subsidiary of its Spain-based parent company Inditex, was established in Galicia,Spain in 1975. The brand provides an alternative outlook to the fashion retail business model byrejecting media advertising and blow-out sales, and maintaining the bulk of its productionprocess in-house rather than outsourcing to low-cost countries. Despite the seemingly counter-intuitive business model Zara operates, it has become one of the leading fashion retailers in theworld. II. Business Model

As the first retail chain established by Inditex, Zara has become the largest and most expansive.It had three product lines (men, women, and children), each with its own creative team of designers, sourcing specialists, and product development personnel. The creative team reliedon feedback -- from store managers, staff, and fashion-forward young people that populateduniversities and discotheques -- to create the product line and to make adjustments formanufacturing later i n the season. Zara’s clothing line changed continuously throughout the season. Therefore, its design team had to not only create the collection months ahead of timelike other apparel brands, but it must also aggregate information from market feedback using Zara’s IT system to create the proper alterations to the clothes. The design teams bridged the merchandising and back-end production aspect of the retail industry, but these functions arenormally performed by two separate management teams in other companies. By maintaining aflat organizational system with designs originating from multiple sources rather than one keydesigner, Zara was able to make adjustments to their products throughout the season and hada product failure rate of 1% compared to the industry standard of 10%.Although Zara has proven that its success comes from being a quick-response fashion follower,

that is where they draw the line in following fashion norms. In an industry where massivemedia advertising has always had a positively linear relationship with production sales, Zaraspends only a tenth of what other clothing brands spend to advertise their merchandise. There is no identifiable “face” for Zara, and its clothing is first released in its stores rather than the runway.To attract its consumer base, Zara focuses heavily on the brick-and-mortar design and locationof the stores as well and creates the illusion of scarcity for its products. Each store sharedsimilar window displays and interior presentations to highlight the brand image. The location of a Zara store would always be at the center of a fashion district and would either be renovatedor relocated every 3-4 years to maintain high standards. Customers possessed a...
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