Strategy Analysis & Implementation

About ZARA

• Founded in 1975 by Amancio Ortega and Rosalía Mera

• It is the flagship chain store of the Inditex group

• The fashion group also owns brands such as Massimo Dutti, Pull and Bear.

•Total of 1659 stores, majority in Europe

•This Brand has different styles, from daily clothes, to casuals up to formals, thereby providing a complete one stop fashion solution for women, men and children.

Strategy Analysis

ZARA focus uses on the Hybrid Model of Strategy .

The brands product development capabilities results in faster deliveries.

Brands differentiation lies in the fact it delivers products of high quality at relatively low prices.

Strategy Analysis

• ZARA reaps cost reduction benefit from Economies of Scale• NO customization in marketing strategy, spends 0.3% of total revenues• Low Cost & High Quality Strategy on Global Scale • Zara did not follow any localization in the countries where it was present and provided only standardized products.

Pressures for local responsiveness

Pressures for cost

reductions

Low High

Low International Strategy Localization strategy

HighGlobal

standardization strategy

Transnational strategy

Strategy Analysis

• Compete in existing market place

•Beat the competition

•Exploit existing demand

•Created Strategic Differentiation through excellent delivery system and low cost

Strategies Implemented

Low priced lookalike products of more popular, high end fashion brand at affordable prices.

How does ZARA achieve this ??

Fresh fashion: 3 pillars- Short Lead time = More fashionable clothes- Lower quantities= Scarce supply- More styles = more choice, more chances of getting it right

Amancio Gaona, regarded clothes as a perishable commodity, just like vegetables.“Rather than making products that can be stored in Cupboards, I have build a retail business that provides freshly baked clothes!!”

Strategies Implemented

3 pillars supported by certain other values –

•Ownership and Control of Production•Centralized Design and Production Centre•“React rather than predict” Philosophy•Information Technology Excellence

Core Competence: Supply Chain Management

Short Lead Times: Keeping up with fashion

• By focusing on shorter response time the brand ensure that stores have the products that the consumer want as that time• Zara can move from identifying a trend to having clothes in its stores in 30days. • Other take 4 – 12 months and hence they try to forecast trends rather than adopting a trend• A large design team is dedicated towards identifying the prevailing trends and designing styles to match those trends

Trend identification

Market research

Sales reporting• Basis for Competitive advantage• Co ordination between sales managers and design team• Strong MIS system

Reducing Risk: Lower quantities

• Reducing the quantity manufactured in each style• Reduces exposure to any single product and also creates artificial scarcity • With all things fashionable, the less its availability, the more desirable it becomes

More Choice

• 12000 styles a years – once a style sells out, a new style is ready to take up space• Merchandise is delivered to store twice a week – new stock every 3 – 4 days

Ownership and Control of Production

• 80% of Zara’s production is carried out in Europe, much within a smaller radius from its HQ in Spain

• Gives control, however cost around 10 times more than that of Asia

• Inditex is a vertically integrated group, with up to date equipment for fabric dyeing, processing, cutting and garment finishing

• The group has processing capacity available ‘on demand’ to provide the correct fabric for new styles

• Does not own the stitching but controls it through a network of subcontracted workshops in Spain and Portugal

Centralized Design and Production Centre

• The physical and organizational proximity of the three groups increases both the speed and the quality of the design process

•The cross-functional teams can examine prototypes in the hall, choose a design, and commit resources for its production and introduction in a few hours, if necessary

Centralized Design and Production Centre

•Centre at HQ consists of three spacious halls—one each for women's clothing lines, men's, and children‘s

•Zara makes a point of running three parallel, but operationally distinct, product families.

• Accordingly, separate design, sales, and procurement and production-planning staffs are dedicated to each clothing line.

•Though it's more expensive to operate three channels, the information flow for each channel is fast, direct, and unencumbered by problems in other channels—making the overall supply chain more responsive

Supercharged Product Development

• Information from visiting colleges, discos to observe what people are wearing

• Daily feedback from stores and sales report

Market Research

• Designing team based in Spain – 1000 new styles/ month

• Employ 200 people• Each person to

produce 2 styles a week

Designing• Each style would give

200,000 of retail sales (far less than other retailers)

• Cost realized by higher margins

Product Development

React rather than predict

• Built its business around reacting swiftly rather than forecasting •Market research helps it analyze the wants of the customer

• Typically takes one month to make that products

• A traditional models takes around 9 – 12 months to manufacture a new design

• Reduction in lead time is important for the industry since fashion changes very quickly

• Forecasting is done on procuring the raw material, which is a safer bet since it can be used for all kind of clothes

Keeping Costs Down

• None of Assembly workshops owned by company

•Average salary of a seamstress in the workshop less than $ 500 a month

•Zara relies more on having prime location for stores rather than advertising

•Zara spends 0.3% of sales revenue on advertising compared to competitors , spending 3.5 %

•Strategy of low volume per style , & quick changing of products reduces costs

•Two clearly time-limited sales during the year rather than constant mark downs

•Strategy of following designer collections means low spending on product development & design

Quick Bake recipe

• Beginning of Zara is responding to actual need rather than forecasting for a distant future

•Based on store demand , designers conceptualize new garments

•Since fabrics already at Zara warehouses , sampling takes very little time

•Approvals taken quickly as entire team in same place

•Cutting done in high tech automated cutting facilities, assembly in small workshops in northern Portugal, taking no more than a few days

•Garments shipped to stores within 48 hours

Information Technology Excellence

Information Technology Excellence

Information collected and fed into the database

Designers access this information in real time

Advanced IT helps the information to be accessed by all production departments

State of art distribution management functions with minimal human intervention. Optical reading devices sort out and distribute more than 60,000 items in an hour

Products are stored in IT enabled Warehouses

Increasing sales per unit

Inventory Management

• Production centers:

• Each retail center is sourced from the near by production centre, there by reducing the procurement time

• Each center is closely linked with the network of the Inditex group thereby not compromising on the quality of the products

Location Production share

Spain 50%

Rest of Europe 24%

Asia 26%

The Zara Supply Chain

• Shortened conventional supply chain from 5-7 months to 2.5 months•Small and frequent shipments keep inventory fresh & scarce, thus making customers come back again to see what's new•Twice a week deliveries to replenish stock•Lines that are not selling well are quickly removed & popular items replenished •A quick turn around on merchandise helps generate cash, reduces inventories and eliminates the need for significant debt•In house IT simple & effective Vendors and suppliers report that people are accessible and answers can be obtained quickly.

Controlling Bottlenecks :a large investor in a dye and finishing plant—a notorious bottleneck. Its control allows them to oversee the dyeing processMostly uses contractors for sewing process

Global Level Strategy

• Exporting: Zara exported its products to a few markets where opening up a manufacturing facility would not have been profitable

•Franchising: Zara also opens up stores in various locations through franchised deals avoiding development costs

•Wholly Owned Subsidiaries: To take advantage of the controls that it could exercise in those countries.

•Joint Ventures: Over a period of time Zara entered various markets by forming Joint Ventures to take advantage of the partner's knowledge of the foreign country.

Peer Comparison: Customer Perception

-Zara is in tune with customer. Latest trends & tastes-It is perceived as high fashion at affordable rates

-Benetton perceived to be high price & does not deliver on fashion content-Benetton is more known for its controversial ad campaigns than latest designs

Fashion - Fashion +

Price -

Price +

Peer Comparison: Customer Perception

Zara Benetton

Price Lower- Middle Middle- High

Quality Middle – High Middle High

“Fashion” Content High Low

Target Age Group 10- 40 years 15- 40 years

Type of Clothing From Casual to formal Casual

Brand Recognition Under Development High & Global

Production 60% in house, 40 % outsources

In House

Production lead time Low High

Why did it work?

Zara gain competitive advantage by:

Short Lead Time More fashionable & trendy clothes

Lower Quantities - create artificial scarcity - leaves not much to be disposed

at end of year sale

Vertical integration :- Total on all activities from production, sourcing to

distribution to retail stores- Focus on building of brand image & product image

Why did it work?

Information Technology – - Collection of info in consumer needs - Trend info flows daily & designers act accordingly

Distribution management: - distribution facility functions with minimal human

intervention to ensure each order reaches its right destination.

- Optical reading devices sort out and distribute more than 60000 items of clothing an hour.

So What do we learn From ZARA

Zara Strength lies in its Supply Chain Management

dared to move away from the traditional model of apparel brands : Adopt Prevailing trends rather then Create

Brands philosophy helps it to generate revenue from regular prices rather than discount prices

Strong MIS insures swift & effective communication throughout all departments

Recommendations for the Brand

Designer collaborations could help the brand move into newer markets

Different trends in the local markets

Develop its e-commerce site Zara.com further to enhance customer engagement & shopping experience

By leveraging on Social Media platforms

Maintain its hold on the production & distribution system. This is the base that makes Zara as a brand effective & must not be allowed to be diluted by way of increase outsourcing.

Thank You !

Group 7 :

Akshat JainKartikey Bhargava

Mahima WaliaSidhansh Kakkar

Rishi Shah