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ZARA 's Business Strategy
Zara is a leading fast fashion retailer known for its rapid response to consumer demands, boasting over 2,000 stores globally and a unique, short supply chain that emphasizes speed over cost. The company's strategy focuses on delivering trendy clothing at affordable prices, leveraging a just-in-time production model and leveraging customer feedback to inform design. Key recommendations for Zara include expanding into emerging markets and enhancing its online presence to meet growing consumer demand.
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ZARA 's Business Strategy
- 1. ZARA’s Business Strategy The AmericanCollege of Thessaloniki MBA Program, Course: Strategic Management, Instructor: Anestis Anastasiou Group Presentation: Miltos Dellios, Maria Giokarini, Marios Konstantinidis, Giorgos Pavlopoulos March 2016
- 2. Give customers whatthey want, and get it to them faster than anyone else. “ ” photo: ZARA’s ‘Ungendered’ Collection, March 2016
- 3. In a preview ●ZARA’s main characteristics ● The Fast Fashion Industry ● External Analysis ● Internal Analysis ● Financials ● Expansion Performance ● Recommendations
- 4. 1963 Amancio Ortega starteda small company in Spain that manufactured women’s pajamas and lingerie products for garment wholesalers. 19801981 1988-1990 Inditex entered 29 countries in Europe, the Americas and Asia. 11.01.XX Zara launched online stores in the US and Asia. 1990-2000 2011 The first overseas Zara store opened in Porto, Portugal, followed shortly by New York City in 1989 and Paris in 1990. 2016 Inditex is in 88 markets in all five continents, with upwards of 7,000 stores. Today, ZARA counts 2,085 stores in 88 markets and 26 online markets. 1975 The first Zara retail shop in the centre of La Coruña, Spain. 6 more stores until 1979.
- 5. ➢ A brilliant,cheap, short supply chain that delivers similar to luxury brands fashion at a much lower price. ➢ The pioneer in fast fashion industry & the third largest brand in the garment industry. ➢ For Zara speed and responsiveness are more important than cost. ZARA the largest brand of Inditex product lines (Women, Men, Child) 20 b. euro total sales 2015 64% of Inditex total sales 88 markets worlwide 2085 stores 26 online markets 450 mil. items produced every year >10,000 employees 500 Designers 1592 suppliers worldwide 2 deliveries per week to stores Sustainable Management No Advertising Consumer feedback "Now-or-never" choice for Shoppers Main Characteristics
- 6. The Fast Fashion Industry Maincharacteristics The term ‘Fast Fashion’ refers to a phenomenon in the fashion industry whereby production processes are expedited in order to get new trends to the market as quickly and cheaply as possible. • Short Life-Cycles – the product is often short-lived • High Volatility – demand for these products is rarely stable • Low Predictability – difficult to forecast total demand • High Impulse Purchasing – many buying decisions by consumers for these products are made at the point of purchase.
- 7. Consumer Analysis ZARA positionsitself as the designer- boutique alternative for the price-conscious but trendy consumer. Consumer Characteristics: ➢ Full shape body men and women ➢ People aged from 18 to 40 ➢ Low to middle class income ➢ Mainly Fashion followers
- 8. Why we choosethe UK Market?
- 9. The UK apparelmarket • The population is approximately 64 million - Big Market • The consumer consumption is estimated to be 59 Billion for Clothing and Footwear - Big Market • GDP - per capita is approximately 36,600 pounds – Good purchasing power • The UK fashion and textiles sectors as a whole employ an estimated 600 thousand people, making the United Kingdom the third-largest fashion employer in the EU-27 surpassed only by Italy and Germany. Source: UK Office for National Statistics
- 10. Political factors: ∙ UnitedKingdom is a unitary state under a constitutional monarchy. ∙ Conservative Party Governing UK since 2005. ∙ BREXIT ∙ Refugee Crisis Economic factors: ∙ GDP : 3.087 Trillion Euros (as of Feb.2016) ∙ GDP growth Increase +2.2% for year 2015 ∙ Inflation (CPI) Increase 0.2% in 2015 ∙ Average gross salary £2,480 ∙ Unemployment approximately 5.1% Social factors: ∙ Population 64 Million ∙ Age structure 0-14 years: 17.3%, 15-24 years: 12.6%, 25-54 years: 41%, 55-64 years: 11.5%, 65 years and over: 17.5% ∙ Religions: Christian 59.5%, Muslim 4.4%, Hindu 1.3%, other 2%, none 25.7%, unspecified 7.2% ∙ 38 % with College Degree ∙ Cultural Superpower (a political union of four countries with each preserving elements of distinctive traditions, customs and symbolism) Technological factors: ∙ Quality of R&D and innovations ∙ Gross expenditure on R&D, £27.4 billion ∙ Almost 2% of the GDP Legal factors: ∙ Laws that affect the UK’s business environment have been created and amended with the interests of investors in mind. ∙ The majority of multinational corporations based outside Europe prefer to control their European operations from the UK because of the flexible procedures helping businesses. ∙ None to less bureaucracy. Environmental factors: ∙ Supporting the Sustainable Environment policies. ∙ Decide to support and co-fund the Climate Change Decisions. ∙ The country has broadened its environmental objectives because of various international commitments, and partly as a response to its goal of sustainable development PESTEL Analysis
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- 12. Threat of NewEntrants ● The market is considered as an attractive one to invest and despite the fact that Zara, H&M and Benetton are the major players there is still a market share for new entrants. ● Prices of raw material and transportation costs are quite low which is another threatening factor for existent rivalry. ● The technology required to manufacture low cost clothing is there for everyone with enough resources to take advantage. Buyer Power ● Buyers in the fashion retail industry have no switching costs and can easily search for best prices. ● Economic instability lowered purchasing power. ● Zara has created a variety of clothes and accessories providing its customers more options but the price can be a factor determining their options. ● There is a huge pressure for innovation in the market. Supplier Power ● Zara has 1.398 suppliers just for Raw material. ● The Industry has recovered in a sense but this has lowered the competition in it which also lowered the Supplier Power product/service level quality ● Fabric prices reduction enhanced even more Zara’s power over its suppliers. Competitive Rivalry ● Gap , H &M, Uniqlo and Benetton ● The high exit barriers and the inventory costs are considered huge. ● All have the same target group of customers. Threat of Substitutes ● Vintage and handmade clothing is considered to be as substitute clothes but they are characterized by higher pricing. ● Duplication of styles is often observed in the Industry, which can attract the customers who does not mind lower the quality but similar clothing. Porters’ Five Forces MODERATE HIGH HIGH HIGH LOW
- 13. Competitor Analysis H&M hasbeen quick to internationalize allowing the company to gain sales in countries outside its native Sweden, also is more attentive in terms of entering new markets and tends to enter one country at a time, as opposed to Zara who multitasks globally. Builds distribution centers in their international locations in order to cut down lead times and potential logistics costs, H&M outsources production to a network of more than 500 suppliers. Mango is known for its excellent business model and supply chain management, has approximately the same number of stores in the same number of countries worldwide, like Zara. The products of Mango are also similar to Zara’s in style, pricing and quality, However, Mango is very different from Zara in organizational strategy as Mango is based on a franchising system, and in marketing strategy, relying heavily on advertising campaigns. Gap, has a world-wide presence such as Zara. It is known for the American style culture and the majority of its stores are located in the US. Gap is identified as a higher quality but more expensive retailer. It is also based on a franchising system. Gap has introduced web- based stores and it is investing heavily in online sales.
- 14. Competitor Analysis Benetton emphasizedbrightly colored knitwear. It achieved prominence in the 1980s and 1990s for its controversial advertising and as a network organization that outsourced activities that were labor-intensive or scale-insensitive to subcontractors. But Benetton actually invested relatively heavily in controlling other production activities. Uniqlo was originally founded in 1949 in Japan. Its business model is based on that of The Gap. Uniqlo manufactures its clothing within Japan. Uniqlo's distribution channels are concentrated in Japan with over 700 Uniqlo stores. The designs that Uniqlo creates tend to be more simplistic and practical than those sold by Zara and H&M. A UK retailer, focusing on lower class income targeting mainly women’s fashion clothing. Its marketing campaigns focusing on discount offers. Extended use of economies of scale as the strategy is to buy huge quantities.
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- 19. Value Chain Analysis Zaraa vertically integrated retailer. RAW MATERIALS MANUFACTURINGSUPPLIERS DISTRIBUTION STORES CONSUMERS Suppliers are all close to their factories, so Zara can order on a need- basis. Zara buys fabric in only 4 different colours. Designs and cuts taking place in- house. About 50% of their products are manufactured in Spain, 25% comes from Europe, and the remaining fraction is produced in locations in Asia and Africa. The Products are distributed in small batches.Frequent shipments.Trucks leave the orders to the stores at specific times twice a week. Zara’s stores are company-owned, except where local legislation forbids foreigner -owned business. In those cases, zara franchises the stores. Managers communicate customer feedback on what shoppers like, what they dislike, and what they’re looking for. That data is instantly funneled back to Zara’s designers who begin sketching on the spot. WAREHOUSING The whole production is received and warehoused in the logistics centers in Spain. The main categorization is happened in Spain. Materials and fabrics are kept in warehouses without exact colours or prints, due to be able to react quickly to market changes.
- 20. Resources Prime Location- Thestores are always located in prime locations of the city. Attractive Window Displays- Zara rely so much on its physical store-experience Exclusive and Trendy designs- Zara is able to provide designs that their customer love. Sophisticated IT System- Information from stores to headquarters. What the customers like, dislike etc. Trained designers - Zara cooperates with many new designers, they give training to them in order to produce in shorter load- time and also adaptive enough to produce with materials/fabrics that are available. Caring Employees - They train their employees to prove better service (Having a sense of belonging to the store and hard- working) Market-oriented Strategy - The customer is the King. By concentrating on customer’s demand, they make them loyal. Staff-education - Concentration on customer-service. Eco-friendly- Brinks positive response from the society. Production strategy- They design with the available materials/fabrics (reduced lead time & minimize costs) Value chain - Lead time of 2 weeks Physical Human Organizational
- 21. Capabilities Functional Areas Capabilities Distribution- Solid Distribution Network (enables the company to deliver goods within 24 hours) Logistics -Centralized logistics (Zara sticks to a deep, predictable and fast rhythm, based around order fulfillment to stores. Human Resources - Trained staff with concentration on customer-service - Good design teams, who approach to match quick and creative design with information coming in from the sales staff. Management Informations System - Highly vertical-integrated and centralized - PDAs to gather immediate customer input and feedback and directly send it to the headquarters. POS system show how garments rank in sales in different areas-countries. Marketing - A successfully worldwide famous brand. - Direct communication with consumers (No advertising) Management - Synergy between business and operations strategy -Good supply chain management Manufacturing -Just-in-time (JIT) production (reduces the amount of inventory available, lowering Zara‘s storage cost). Research & Developement - Ability to envision the future clothing
- 22. Capabilities that arealmost impossible to copy, they are valuable and unique from a customer’s point of view: Core Competences • Customer insight and feedback • Rapid-response manufacturing • Strong Logistical operations • The ability to design quickly
- 23. Competitive Advantage • Zara’scompetitive advantage is the ability to respond in a fast way to the demands of consumers. • Due to its effective value system, Zara has managed, over time to reduce the manufacturing and transportation costs to minimum, taking advantage of the economies of scale due to its size which ultimately benefited the final consumer by reduced pricing. • The company determines the quantity that should be delivered to every single one of its retail stores. • The stock delivered is limited. This allows Zara to ship more often and in smaller batches and there’s not a ton of unsold inventory to get rid of. • Enables the company to deliver goods to its European stores within 24 hours, and to its American and Asian outlets in less than 40 hours. • Zara can get a product out from concept to store in just 15 days, while the whole fashion industry average standard is 6 months and it is about 10-12 times quicker than its nearest competitor GAP and H & M. Responsiveness Inventory Management Distribution Network
- 24. Outsourcing According to theEconomist, 2012: “...Other fashion firms have their clothes made in China. This is cheap, but managing a long supply chain is hard. By the time a boat has sailed halfway round the world, hemlines may have risen an inch and its cargo will be as popular as geriatric haddock. Inditex, by contrast, sources just over half of its products from Spain, Portugal and Morocco. This costs more. But because its supply chain is short, Inditex can react quickly to new trends. Instead of betting on tomorrow’s hot look, Zara can wait to see what customers are actually buying—and make that. While others are stuck with unwanted stock, Inditex sells at full prices.” The original choice of not outsourcing deprives Zara of low production costs but makes its innovative value proposition possible. Source:“Fashion forward: Zara, Spain’s most successful brand, is trying to go global”, The Economist, Mar 24th 2012
- 25. Financials Source: Inditex andH&M Annual Reports 2011-2015 Source: Inditex and H&M Annual Reports 2011-2015
- 26. Financials cont. Source: Inditex andH&M Annual Reports 2011-2015 Source: Inditex and H&M Annual Reports 2011-2015
- 27. Expansion performance Source: Inditex andH&M Annual Reports 2011-2015 Source: Inditex and H&M Annual Reports 2011-2015
- 28. Recommendations Invest in EmergingCountries and the US market. Strengthen the online presence and boost the internet selling. Localize, to meet cultural demand and domestic purchasing power.
- 29. Thank you foryour attention
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