Zara – a Spain-based high-fashion, low-cost retailer, stunned investors and analysts by revealing that its profits climbed 30% in the first quarter of this year along with an increase in sales of 15%. Yet, 70% of its revenues come from Europe, and it is based in a country where the macro economic situation is quite challenging. Zara is the flagship chain store of the Inditex group and is considered a Spanish success story. How is Zara doing it so well while other eurozone firms have stuggled?
Well, Zara has a unique business model. Innovation in business models does create value, and is generally cheaper than product and technology innovations. Countless companies such as IKEA, Dell and Zipcar are highly successful due to innovative business models.
Questions (2nd individual reflection for my 3810 students but open to all to comment):
- What is unique about Zara’s business model compared to more traditional fashion retailers?
- How does Zara create value to customers?
- What do you consider Zara’s competitive advantages to be?
- What about its online strategy?
Diane A. Isabelle 
What is unique about Zara’s business model compared to more traditional fashion retailers?
• In order for a business to stand above the rest of its competition, it’s important that they develop a strong business model. Without a strong business model, companies fail to gain market share and fall behind. A business model that stands out compared to the rest of the competition will also gain more market share as they are operating differently then the rest of the companies. Zara, as introduced above in Diane’s short article, is one of the largest international fashion companies. It belongs to Inditex, one of the world’s largest distribution groups. (“Company”). Zara’s business model is distinctive compared to more traditional fashion retailers because the company has several strategies that other fashion retailers don’t do. Firstly, Zara stocks clothing in scanty quantities. When a clothing design runs out, it runs out. They don’t order more stock in. “They’ve trained consumers not to wait for it to go on sale,” says Don Huber. (Bryan September 06, 2012). Secondly, Zara’s factories are based in Europe, so new designs can get into stores in as little as two weeks. Other retailers are faced with the disadvantage of having their products shipped from China and facing a lag time of more than two months. Now, I’m going to discuss why these two strategies are an advantage for Zara compared to other fashion retailers. Considering the fact that Zara will not order new merchandise after a line is sold out, it forces customers to purchase the product right away and not wait for discounts. The European fashion is an important aspect of society. Everyone is always dressed fashionably and what they are wearing is important to them. They understand that if they don’t purchase the product when they see it, they may never get the opportunity to again. This also works to the advantage for many customers that want to distinguish themselves from others. With the limited stock, there will not be as many people wearing the product if they only carry a small amount of inventory. This is important for actresses/actors as they try to be different than the rest of society. The next advantage that Zara holds compared to other retailers is having their factories in Europe compared to China. With the distribution center being close to the retailers, the cost of distribution is lower and the merchandise can reach the stores in a lot less time. This will allow Zara to only order what they are going to sell because if they want to put in a new order, they know they will not have to wait two months for new inventory. Other retailers have to order enough inventory to be able to get them through two months. If they can’t sell these items, they have to put them on sale, and this is when the majority of customers purchase the product.
Zara, “Company.” Accessed September 26, 2012. http://www.zara.com/webapp/wcs/stores/servlet/category/ca/en/zara-W2012/11112/Company.
Bryan, Borzykowski. Canadian Business, “Zara escapes economic recession in Spain.” Last modified September 06, 2012. Accessed September 26, 2012. http://citationmachine.net/index2.php?reqstyleid=10&mode=form&reqsrcid=ChicagoWebsite.
How does Zara create value to customers?
• Zara creates value to its customers in a number of ways. A few ways were discussed above in the previous question. The first way that Zara creates value to their customers is by being able to provide them with the newest and most up to date fashions. Zara’s distribution center is out of Europe and therefore the wait time is at most two weeks compared to China’s of two months. The customers of Zara are able to wear the newest fashions as they enter the market. People are always trying to find a way to be the first one representing the newest fashion. With Zara making this possible, they have established a strong customer loyalty to the ones that always want to be the first one wearing a new coat or shirt. Another way that Zara creates value to its customers is by pricing clothes differently depending on the location. The cost of clothing from Zara is cheaper in Europe and more expensive in Asia and North America because the North American and Asian countries are able to afford the latest clothing designs compared to Europe. This allows Zara to accommodate all customers in every country. It doesn’t limit the company to one country. The customer base can range all over the world. The company has also cut costs on advertising and in other areas of the company in order to maintain their high quality and low cost fashion designs. If a company can produce a product at low cots and sell to all potential buyers, they will generate a lot more revenue than a company that produces a product at high cost and is forced to sell the product at a high cost.
What do you consider Zara’s Competitive advantages to be?
• I think Zara’s competitive advantage is the fact that they are “fresh”. They have a fast production and distribution strategy that allows them to offer the latest fashions in less than two weeks. Also, with them being able to produce and distribute new fashions in a short amount of time, it allows Zara to change over 75% of the merchandise on display every 3 or 4 weeks. This increases the frequency of customer visits. (Zara).
SlideShare, “Zara.” Accessed September 26, 2012. http://www.slideshare.net/mericarla/zara1.
What about its online strategy?
• After doing some research, it appears that Zara also has a strong online appearance in the market. They have over six million facebooks friends that describe the company as possibly the most innovative and devastating retailer in the world. Zara’s online strategy is the same as the stores. It’s possibly even better as shoppers can purchase products 24/7. They expect on-line retail to grow $144 billion in Western Europe by 2014. Zara is hoping to see a 10% rise in revenue linked to its online store, they’ve even released an iPad & iPhone apps. (Don 03/09/2010). This demonstrates a great understanding of society’s use in communication and technology devices. Zara is truly the innovator of fashion retailers.
Don, Tercio. AQNB, “Zara bites the internet.” Last modified 03/09/2010. Accessed September 26, 2012. http://www.aqnb.com/2010/09/03/zara-bites-the-internet/.
What is unique about Zara’s business model compared to more traditional fashion retailers?
• In order for a business to stand above the rest of its competition, it’s important that they develop a strong business model. Without a strong business model, companies fail to gain market share and fall behind. A business model that stands out compared to the rest of the competition will also gain more market share as they are operating differently then the rest of the companies. Zara, as introduced above in Diane’s short article, is one of the largest international fashion companies. It belongs to Inditex, one of the world’s largest distribution groups. (“Company”). Zara’s business model is distinctive compared to more traditional fashion retailers because the company has several strategies that other fashion retailers don’t do. Firstly, Zara stocks clothing in scanty quantities. When a clothing design runs out, it runs out. They don’t order more stock in. “They’ve trained consumers not to wait for it to go on sale,” says Don Huber. (Bryan September 06, 2012). Secondly, Zara’s factories are based in Europe, so new designs can get into stores in as little as two weeks. Other retailers are faced with the disadvantage of having their products shipped from China and facing a lag time of more than two months. Now, I’m going to discuss why these two strategies are an advantage for Zara compared to other fashion retailers. Considering the fact that Zara will not order new merchandise after a line is sold out, it forces customers to purchase the product right away and not wait for discounts. The European fashion is an important aspect of society. Everyone is always dressed fashionably and what they are wearing is important to them. They understand that if they don’t purchase the product when they see it, they may never get the opportunity to again. This also works to the advantage for many customers that want to distinguish themselves from others. With the limited stock, there will not be as many people wearing the product if they only carry a small amount of inventory. This is important for actresses/actors as they try to be different than the rest of society. The next advantage that Zara holds compared to other retailers is having their factories in Europe compared to China. With the distribution center being close to the retailers, the cost of distribution is lower and the merchandise can reach the stores in a lot less time. This will allow Zara to only order what they are going to sell because if they want to put in a new order, they know they will not have to wait two months for new inventory. Other retailers have to order enough inventory to be able to get them through two months. If they can’t sell these items, they have to put them on sale, and this is when the majority of customers purchase the product.
Zara, “Company.” Accessed September 26, 2012. http://www.zara.com/webapp/wcs/stores/servlet/category/ca/en/zara-W2012/11112/Company.
Bryan, Borzykowski. Canadian Business, “Zara escapes economic recession in Spain.” Last modified September 06, 2012. Accessed September 26, 2012. http://citationmachine.net/index2.php?reqstyleid=10&mode=form&reqsrcid=ChicagoWebsite.
How does Zara create value to customers?
• Zara creates value to its customers in a number of ways. A few ways were discussed above in the previous question. The first way that Zara creates value to their customers is by being able to provide them with the newest and most up to date fashions. Zara’s distribution center is out of Europe and therefore the wait time is at most two weeks compared to China’s of two months. The customers of Zara are able to wear the newest fashions as they enter the market. People are always trying to find a way to be the first one representing the newest fashion. With Zara making this possible, they have established a strong customer loyalty to the ones that always want to be the first one wearing a new coat or shirt. Another way that Zara creates value to its customers is by pricing clothes differently depending on the location. The cost of clothing from Zara is cheaper in Europe and more expensive in Asia and North America because the North American and Asian countries are able to afford the latest clothing designs compared to Europe. This allows Zara to accommodate all customers in every country. It doesn’t limit the company to one country. The customer base can range all over the world. The company has also cut costs on advertising and in other areas of the company in order to maintain their high quality and low cost fashion designs. If a company can produce a product at low cots and sell to all potential buyers, they will generate a lot more revenue than a company that produces a product at high cost and is forced to sell the product at a high cost.
What do you consider Zara’s Competitive advantages to be?
• I think Zara’s competitive advantage is the fact that they are “fresh”. They have a fast production and distribution strategy that allows them to offer the latest fashions in less than two weeks. Also, with them being able to produce and distribute new fashions in a short amount of time, it allows Zara to change over 75% of the merchandise on display every 3 or 4 weeks. This increases the frequency of customer visits. (Zara).
SlideShare, “Zara.” Accessed September 26, 2012. http://www.slideshare.net/mericarla/zara1.
What about its online strategy?
• After doing some research, it appears that Zara also has a strong online appearance in the market. They have over six million facebooks friends that describe the company as possibly the most innovative and devastating retailer in the world. Zara’s online strategy is the same as the stores. It’s possibly even better as shoppers can purchase products 24/7. They expect on-line retail to grow $144 billion in Western Europe by 2014. Zara is hoping to see a 10% rise in revenue linked to its online store, they’ve even released an iPad & iPhone apps. (Don 03/09/2010). This demonstrates a great understanding of society’s use in communication and technology devices. Zara is truly the innovator of fashion retailers.
Don, Tercio. AQNB, “Zara bites the internet.” Last modified 03/09/2010. Accessed September 26, 2012. http://www.aqnb.com/2010/09/03/zara-bites-the-internet/.
Zara’s business model is focused around maintaining a design, production and distribution process that enables Zara to adjust simultaneously with shifts in consumer demands. By keeping production in-house and only strategically partnering with manufacturers near Zara’s headquarters Zara has ensured fast and efficient delivery. This creates flexibility that is necessary in constantly designing and producing over “12,000 new products every year” (123HelpMe 2012).
One of the main differentiators against Zara’s competitors is that, compared to many low customer cost and high production costs, Zara is able to sell products at a low cost to consumers and still keep production costs low (Borzykowski 2012). Zara’s success in implementing this skill can be seen through the company’s growth in 2012, providing value to stakeholders and making it a high and well preforming company. The company grew from 65-share value to 96.63 in the past year (stock market watch)
Compared to other retailers and fashion, Zara stocks clothing in limited quantity. With its high turnover of styles, customers don’t wait for items to go on sale, rather they purchase when it’s available, ensuring high profit margins (Borzykowski 2012). Since factories are based in Europe, all new styles are available in stores much faster than its competitors, ensuring that Zara is always ahead of the fashion curve. This is compared to company’s manufacturing in China who faces a two-month lag period before designs are seen in stores. This provides maximum customer value.
Included in their business model, and what I personally consider to be Zara’s main competitive edge, is its pricing model. Zara will price its styles based on location. It tends to be more expensive in the America’s and in Asia compared to Europe. In doing so, all markets are being reached. In Europe there is still hard financial times, therefore having access to more affordable and still trendy, good quality and fashionable clothing, Zara’s customers are still being satisfied. In the U.S. market, there is more free income for clothing therefore higher prices are justifiable. According to an analyst at Morningstar “when you can move inventory through like they do, you can react very quickly to what buyers want”, Jaime Katz, adding to their competitive edge (Borzykowski 2012).
Zara produces their clothing to have a short wear span (10 wears) forcing consumers to need to purchase more designs sooner. This ensures a high competitive edge for Zara in product development, strategic partnership and advertising and marketing. In doing so, Zara has become much more efficient and is able to better serve their clientele in providing additional value and profitability to the company (Borzykowski 2012). Having a quick distribution time of 3-4 weeks, a design team of 200 people (compared to competitors who have significantly smaller design teams) there are more options for new clothing lines and more efficient manufacturing times. This also gives more options to store managers, who have more autonomy than their competitors do, in what to stock, what to put on sale as well as store design and layout. This allows managers to better serve customers who are more aware and are listening to customer needs than the CEO and designers in the company who are not always surrounded by customers (123HelpMe 2012).
Zara’s online strategy is lagging behind other fashion retailers (Kenna 2011). In the article found in the Bloomberg Businessweek, it states that Zara’s move to the online retail world was “long over-due”, although it is a great strategy for the company, as it is much more cost effective for the company to launch a web-service as opposed to opening and investing in “50 more malls in the U.S.” (Kenna 2011). According to Jesus Echevarria, a spokesperson for Zara, they will be effectively managing and operating an online presence, however the company is not rushed, as “there is no need to rush expansion”. Zara’s strategic online presence will help in expansion and to “trump rival H&M in the U.S.” market (Kenna, 2011).
References:
123HelpMe.com, 2012. Zara’s Business Model, Information and Communication Technologies, and Competitive Analysis.” [Accessed September 28 2012]
Borzykowski, Bryan, 2012. “Zara Eludes the Pain in Spain.” Canadian Business 85, no.14, p67: (September), http://web.ebscohost.com.proxy.library.carleton.ca/bsi/detail?vid=3&hid=111&sid=4afece85-a31b-48ef-baa1-7ad7eb57d193%40sessionmgr104&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=bth&AN=78584873.
Kenna, Armorel, 2011. “Zara Plays Catch-Up with Online Shoppers.” Bloomberg Businessweek (August), http://www.businessweek.com/magazine/zara-plays-catchup-with-online-shoppers-08252011.html.
“The middle aged mother buys clothes at Zara chain because they are cheap, while her daughter aged in the mid 20s buys Zara clothing because it’s fashionable. Cleary, Zara is riding two of the winning retails ends, being in fashion and low prices which make a very effective combination out of it. (Dutta, Third Eyesight)”.
1. Most retailers outsource production to low cost Asian countries, where as Zara is vertically integrated with the majority of production carried out in owned and controlled facilities in Spain. This allows a lot more flexibility and speed. Zara is able to identify trends and have the clothes in the store within 30 days. Zara will catch fashion while it is hot to attract more sales at full prices and fewer discounts. Most retailers try and forecast what customers might buy in later months while Zara supplies its consumers on demand. Trend identification comes with constant research, that’s why Zara’s machinery can react to the reports of modification within 30 days. Zara can offer more choices in more current fashion than its competitors because it delivers products to its stores twice a week.
2. Zara’s business is all about reducing response time, fashion stock is like food. It goes bad quickly. Zara value proposition is concentrates on three winnings aspects.
-Short lead time= More fashionable clothes
Zara is continuously keeping up with fashion and ensuring consumers get what they want. By keeping open dialogue with purchaser to receive a sense of what they want, along with staying in line with latest trends.
-Lower quantities=Scare supply
Zara reduce quantity manufactured, to create a scare for its product and in fashion the less availability, the more desirable. Also lower quantities create less risk if a style does not work well because less will be exposed to its purchasers.
-More styles= More choice and more chances of getting it right
Zara produces more styles then more quantities per style on the bases that if one sells out there are another style waiting to replace it. Fresh produce that’s moving in step with fashion trend and updated frequently will keep consumers happy.
3. Zara’s competitive advantage is its ability to react to change in a short period of time, rather than concentrating on forecasting for later seasons or trends. The only forecasting efforts Zara implies is towards the kind and amount of fabric it will buy. There is less risk and margins lost on fabrics than finished goods errors. Furthermore, Zara has such flexibility which its production that some fabric are semi-processed or un-coloured for any immediate product needs.
4. Information and communication technology is the heart of Zara’s business. Zara’s success is based on collecting information on consumers needs, trends flows and feeding the information to the database at head office for quick transitions. The online strategy allows the warehouses to receive product information, to prepare quick and accurate designs. Also, the distribution process does not waste time waiting for human sorting, it ensure each orders reaches its right destination immediately.
Click to access ImagesFashion_Zara_Part_I.pdf
http://www.inditex.com/en/who_we_are/concepts/zara
http://www.123helpme.com/view.asp?id=97642
http://www.businessmodelalchemist.com/2005/06/zaras-business-model.html
1) Zara uses short supply chain business strategy that controls the steps on the supply chain from designing, manufacturing, to distributing its products. Zara business model is vertically integrated compared to their competitor’s business models. The company has a flexible structure, strong customer focus in all its business areas, and is able to adapt and offer customer what they want in a short period of time.
The short supply chain business applied by Zara is an innovative strategy that suits businesses with short product cycle that are sensitive to consumer’s preferences when demands change quickly. I believe that one of the things that differentiates Zara business model from other competitors is the company’s ability to identify and bring out their customers needs at a fast pace. Other fashion chains simply cannot keep up with Zara.
2) High Fashion, affordable clothes: Zara keeps up with styles that are “in”, and brings out the latest styles in the stores immediately. Zara identifies a trend and has it ready for sale within 30 days whereas most retailers take 4-12 month and they are able to do this by controlling most of the supply chain from design to retail.
Large choice of styles: new fashion trends reach the Zara stores quickly because Zara produces 11,000-12,000 styles per year compared to a typical retailer that averages about 3000 styles per year.
Prime locations: Zara does not spend much on advertising (0.3% of revenue) compared to traditional retailers (up to 5%), Zara reach’s its target market by locating their stores in busy locations.
3) Besides the fact that Zara is a high fashion affordable company, Zara targets the young audiences, who are sensitive to the latest fashion trends and price. Zara sells three lines of items, for women, men, and children. This company has an advantage over other retailers because they don’t define their target by grouping ages or lifestyle, due to that Zara is able to target a broader market.
Zara tends to meet consumer likings and react to new trends in a quicker way compared to competitors. The company can design a new product and have the finished goods for sell in its stores in less than five weeks. Zara studies its customers demand in the stores and tries to instantly deliver and this is why they are leading the way and leaving their competitors behind.
4) Inditex is relying on e-commerce instead of physically expanding Zara stores, in order to drive US sales and defeat competitors such as H&M. The company is only now beginning to use the online channel to gain the competitive edge. Last September, Inditex launched out a Zara online web for Spain, UK, and Germany. Zara’s move online in the United States was late but now running. As stated on one of the articles the “Web is a great strategy for them. It’s much cheaper with their nationally recognized Zara brand to launch a Web store than to invest in real estate in 50 more malls in the U.S.”
Reference list:
Kale, Neha, 2011. Online Sales Central to Zara’s US Growth Strategy. Power retail.
[Accessed September 28, 2012].
http://www.powerretail.com.au/multichannel/online-sales-central-to-zara’s-us-growth-strategy/
Dishman, Lydia. 2012. The Strategic Retail Genius behind Zara. Forbes.
[Accessed September 28, 2012].
http://www.forbes.com/sites/lydiadishman/2012/03/23/the-strategic-retail-genius-behind-zara/
Harbott, Arif. 2011. Analyzing Zara’s business model. Business thoughts.
[Accessed September 28, 2012]
http://www.harbott.com/2011/03/03/analysing-zaras-business-model/
Burgen, Stephen. 2012. Fashion chain Zara helps Inditex lift first quarter profits by 30%. The guardian.
[Accessed September 28, 2012].
http://www.guardian.co.uk/business/2012/aug/17/zara-inditex-profits
Kenna, Armorel. 2011. Zara plays catch-up with online shoppers. Bloom berg business week magazine.
[Accessed September 29, 2012].
http://www.businessweek.com/magazine/zara-plays-catchup-with-online-shoppers-08252011.html
Zara is considered one of the world’s largest fashion companies, and operated under the multi-national distribution group Inditex. Part of the reason that Zara has become so successful is due to their unique business model, which puts the consumer at the heart of the company in relation to aspects such as deign, production, distribution and sales (Zara, 2012). One of the main factors in the Zara business model is the speed at which they can get the newest fashion to market. Zara operates on a small but frequent shipping system, where a store could receive two separate deliveries in the same week. This results in each store having few, but select choices of items that give the consumer a new and different experience each time they visit a store. Most of the company’s competitors receive a shipment 5 – 7 months after the order has been placed, however Zara has managed to cut that time down to just 2 – 2-½ months. Some other factors that contribute to the uniqueness of Zara’s business model are:
– Only 0.3% sales profits are spent on advertising.
– Zara operate a counterintuitive strategy by sourcing more than half its goods (60%) from its home country as well as neighboring Portugal and Morocco.
– Empowered retail managers inform head office of what their consumers and buying and what items they prefer.
– Zara operate their own dying plants, and do the majority of sewing themselves.
– Collections are designed by young creative teams and not solely by groups of designers.
– Clothing is cheaper than competitor, but in no way poorer quality.
With the unique business model that Zara operate with, it is clear that they have some certain competitive advantages in the marketplace. One of the main points being that they are able to differentiate their product line faster than any other close competitor. As Charles Darwin once said, ‘it is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.’ However, without a doubt Zara’s main competitive advantage is the fact that they have completely fine-tuned their supply chain. The majority of the aspects listed above that add to Zara’s business model are due to the fact that the company uses its supply chain as more than just a strategic tool, but as a fundamental aspect of their company. Zara have shown that in today’s competitive environment, it is essential to do more than simply go for the cheapest options. The supply chain has shown that if managed correctly, then it can provide sustainable competitive differentiation and positioning, whilst also reducing operating expenses and increasing throughput.
In terms of Zara’s online strategy, they only began to sell their products over the Internet in North America in September 2011. For a long time, the website was only used for the promotion of their brand unlike their main competitors who were receiving the main share of online sales. What is interesting about the strategy of Zara is that when implementing the new online store, they sold to markets in Britain, Spain, Portugal, France, Italy and Germany. These are places where the competitor Gap was not shipping or ready to launch yet (Tercio, 2010). Zara also has a large Social media following, and their Facebook page (with 14,738,872 likes as of 01/10/12) is one of the most followed clothing brands online. The Zara brand has created more of an online community, and part of the reason that consumers shop at Zara is for the enjoyment f seeing what clothes they have in stock. If a customer purchases something that they believe not many others have, then it gives them the sense of individuality. It is quite clear that Zara are to continue having their main focus on their key competitive advantages in their retail outlets rather than putting to much emphasis on online sales.
References:
Don Trecio, 2010.
Zara Bites the Internet
http://www.aqnb.com/2010/09/03/zara-bites-the-internet/
Accessed 01/10/12
Lydia Dishman, 2012
The Strategic Retail Genius Behind Zara, Forbes
http://www.forbes.com/sites/lydiadishman/2012/03/23/the-strategic-retail-genius-behind-zara/
Accessed 01/10/12
Andrew Pearson, UBS
The Story Of Zara – The Speeding Bullet
Click to access zarathespeedingbullet.pdf
Accessed 29/09/12
1. What is unique about Zara’s business model compared to more traditional fashion retailers?
Zara’s business model is characterized by a higher degree of vertical integration compare by the other traditional fashion retailers. It covers all the phases of the fashion process cycle, which conations: design, sale, manufacture， and distribution to its own retail store.
The key to this model is the ability to satisfied customer desired in the shortest possible time. Time is the main considering factor in Zara’s business operation. The vertical integration helped them to shorten turnaround time and achieve the greater flexibility, reducing stock risk and get greatest profit.
Zara sells three lines of items, women, men and children. Each of their product lines has its’ own independent creative team who carries out the fashion proposals for each fashion campaigns.
The key parent of Zara fashion Retailer Company will be their team of designers. Zara has more than 200 professional designers, who are continuously assessing the customers ‘preferences. Furthermore, Both in-house manufactured and those purchasing from external suppliers, will shift their garments to hubs Zara in Spain, wherefrom they are dispatched to their worldwide stores.
2. How does Zara create value to customers?
The key valued that Zara created to customers is the ability to adapt the offer to customer desires in the shortest time. Zara’s designer team will continuously assessing the customer’s preference, wishes and demands. They are offering 12000 different models for sale in its store each year.
Zara has three target customers: Women, men and children. Each of them has its own designing line. This is the key reason for why their customers may loyalties to Zara store. And also people can find Zara in most of the major stopping streets of more than 500 cities in the world, which created a high quality fashion proposal into account for the latest trends at a reasonable price. Also Zara has the ability to have the manufacture goods for sale in store worldwide with in 2 weeks of shipping.
3. What do you consider Zara’s competitive advantages to be?
Most of their factories owned by the company, together with a wide range of highly experience external suppliers who have a solid commercial relation with the format, which allow Zara to manufacture a model and to have it for sale in its stores within the average of two weeks.
Zara’s business is characterized by their vertical integration. The vertical integration enables their shorter turnaround times and gains greater flexibility while reducing their stock risk. Time will be their important factor for their decision-making, and this helps them controlled their production costs.
The team of designers will be another advantage for Zara compare with other fashion retailers. The three lines of items help Zara achieve their different target market.
What about its online strategy?
Zara’s online strategy helps them to shorter their turnaround time and increase their flexibility. Also the online store helps Zara to create a high-virtualized sales network. On the other hands, the online store will help them to deliver the new item information to their customer in a shortest time.
Also the online store will enable the communication between Zara and customers including the existing customers and future customer. The online strategy will let people know Zara’s latest news and status, and also people can find the newest fashion item online and purchasing through online. Furthermore, the online store will also help Zara to reduce their stock risk and increasing the freshness of their items.
1.) Zara’s business model is unique to traditional fashion retailers because they do not imitate trends but instead create their own. Uniquely Zara does not market or advertise themselves largely but instead focus on the growth and creation of new stores. Zara truly cares and strives to understand what customers want and then produce and deliver them in unmatched time. Their secret to success is a completely integrated and mostly local supply chain that can have an entirely new collection in stores in little as two weeks. Due to the adaptability and flexibility of the stores merchandise, items are only produced in limited quantities which allow for a much greater selection in the store compared to rivals. These limited quantities also encourage buyers not to wait because the unique item usually only has a shelf life of four weeks before it is gone.
2.) Zara creates value to it’s customers by anticipating and reacting to their ever-changing tastes and preferences. Zara’s staff members are well trained to not only provide great service in shop but also in determining which items are selling and which are not. Items usually have a one week test period which they can then be promptly replaced if need be. By carrying limited quantities of particular designs allows for more unique designs in store compared to competitors. Zara has retail locations in 84 different countries and the company adapts each design collection to suit the regional tastes. This combination produces unique and distinct items all for relatively fair prices.
3.) Zara’s competitive advantage is their extremely flexible and responsive supply chain. In comparison to other retailers, most of Zara’s suppliers are local European establishments. By having 50% of manufacturers in Spain, 25% in Europe and 25% in Asia, the company can have changes in merchandise in unparalleled speed. Another major competitive advantage is in an area with unprecedented financial uncertainty, Zara gains local support based on their local supply of jobs to the community. To enhance this further, prices are different based on the location and Zara has kept Europe prices low in comparison to Asia and North America. Zara refrains from advertising and instead focuses its capital on the creation of new stores. This in turn is almost the best advertising as it places the brand in not just any ordinary mainstream context.
4.) Zara launched the first online boutique on September 6, 2010. I was in some senses late to the game but they wanted to ensure a strong online demand before initializing it. The online service matches the level of service and quality that the real stores posses. The site offers all the same selection as the stores and all at the same prices. Free pick-up from the stores is available and so is paid delivery. Zara also offers the same 30 day return policy as in-store with customer support workers accessible through email and text. However after reading many customer reviews of Zara’s online service it seems to be very unreliable for customer service and delivery times. Zara will have to ensure that their online quality lives up to their world wide respected success.
References
1. Kenna, Amorel. Bloomberg Businessweek, Issue 4342. ‘Zara Plays Catch-Up with Online Shoppers.’ September 29, 2011. Accessed October 1, 2012
http://web.ebscohost.com.proxy.library.carleton.ca/bsi/detail?sid=e94a2867-bcd3-469f-aa6a-415de93a53f7%40sessionmgr112&vid=1&hid=108&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=bth&AN=65076276
2. Speer, Jordan K, Apparel Magazine, Aug2006, Vol. 47, Issue 12. ‘Top 5 Sourcing Strategies.’ Accessed October 1, 2012.
http://web.ebscohost.com.proxy.library.carleton.ca/bsi/detail?sid=c65b5e5e-ac2e-4888-aeaf-9cf9613153ba%40sessionmgr115&vid=1&hid=108&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=bth&AN=22112593
3. BORZYKOWSKI, BRYAN. Canadian Business, October 17,2012, Vol. 85, Issue 14. ‘Zara Eludes the Pain In Spain.’ Accessed October 1, 2012 http://web.ebscohost.com.proxy.library.carleton.ca/bsi/detail?sid=fda2b969-43a3-4c46-9062-3fcbd5b1caca%40sessionmgr114&vid=3&hid=108&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=bth&AN=78584873
Unlike most competitors, Zara’s unique business model is cemented “…in it having total control of every part of the business. It designs, produces and distributes itself (CNN.com).” In a world where sweatshop labor is a constant issue due to mistreatment of employees, Zara is an example of a successful company that has maintained control over their factories and gone away from the cheaper costs of outsourcing. One competitive advantage that results from their control is their ability to adapt effortlessly to style trend shifts. Able to design and manufacture new merchandise in a matter of weeks gives their customers value in knowing they will be able to purchase the newest fashion styles. In comparison, this rapid production process contrasts the usual six-month average of most other retailers.
In addition to the successes of staying away from the common motions towards outsourcing, Zara has also had a zero policy rule in using their revenues towards advertising. In a fashion world where “selling” a style is at the forefront of most retail company strategies, Zara uses this unorthodox approach. Amancio Ortega, Zara’s founder, has harnessed the belief that advertising is useless for the customer. Instead the idea is that what is offered on the shelves and presented in the windows of each store on display are more than sufficient for each customer. One could ask themselves that if a retailer is meeting the customer needs on a timely fashion, what is the use of taking up time on TV advertisements or using space on billboards to promote their products, right? It is clear that if customer demand is met, and the company continues to see success, Ortega’s strategy is hard to argue with.
This company has harnessed a unique and innovative business model. Unlike most competitors, Zara has proved to become a massive brand without the norms of outsourcing their manufacturing sector and using a wide array of advertising. This is an important example in showing how a high-fashion, low-cost retailer can stun investors and analysts by using one simple yet innovative approach, or what is focusing solely on satisfying the market need.
(I used both CNN.com and Wikipedia as my main sources of resource for this blog post)
1. What is unique about Zara’s business model compared to more traditional fashion retailers?
Zara effectively implements a vertical marketing system (VMS), which combines successive stages of production and distribution under single ownership. Its effective integration makes it faster, more flexible and more efficient than most of its competitors. Zara’s success secret resides in its ability to control over almost every aspect of the supply chain and production. It can take a new line from designing and ending by worldwide distribution in less than a month. (Kotler et al., 2011).
2. How does Zara create value to customers?
It provides them with the latest fashion trends, with quality in affordable prices for different age segments and lifestyles. That’s not only for clothing, but for accessories too. Zara’s image is globally perceived as a luxury fashion brand, in which adds an extra value when buying a product from this symbolic retailer. (Willems et al., 2011)
3. What do you consider Zara’s competitive advantages to be?
[1] Logistically, Zara’s ability to design, produce and deliver new product lines to its stores with latest fashion trends in short period of time close to four weeks, versus an industry average of 9 months; that is a huge advantage over its competitors. Also, Zara doesn’t have huge warehouses as other retailers, because most of its factories are domestic and the urge to have huge warehouses is trivial in Zara’s case. On the contrary, other retailers spend a lot of money for operating their warehouses.
[2] Technological advantage through the use of a very effective and artificial information system integrated into its stores. On a daily bases, store managers provide feedbacks to the system about costumers behaviour and wanted styles. Thus, in-house designers have updated information and get down to patterns quickly, those will be sent to the factory and get produced in a short period of time.
[3] As it does not define its target by segmenting ages and lifestyles, it has an advantage over traditional retailers by having a much broader market. It is targeting both genders, adults and children alike; providing them with clothes, accessories and shoes. Even broader, it has home furniture segment, where rugs and home accessories are sold. (Harbott, 2011).
4. What about its online strategy?
As online marketing being “the fastest-growing form of direct marketing.” (Kotler et al., 2011); Zara presence along with other retailers in online marketing is getting bigger and moving fast. Zara offers different online promotions and reaching out to customers in many places directly. Zara has many already established online stores in countries like Spain, UK, Germany, Italy and France. It is also moving toward the U.S., even though it is considered to be overdue. The company is counting on online sales in the U.S. more than store expansion due to the promising potential of online sales there. (Kenna, 2011).
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References:
– Kotler, P., G. Armstrong, P. H. Cunningham, and V. Trifts. Principles of marketing 8th Canadian edition. Toronto, ON: Pearson Education Inc.
– Willems, Kim, Wim Janssens, Gilbert Swinnen, Malaika Brengman,
Sandra Streukens, Mark Vancauteren. “From Armani to Zara: Impression formation based on fashion store patronage.” Journal of Business Research. 65.10 (2011): 1487–1494. Web. 1 Oct. 2012. http://www.sciencedirect.com.proxy.library.carleton.ca/science/article/pii/S0148296311003596#bb0355 .
– Harbott, Arif, 2011. “Analysing Zara’s business model.” [Accessed 29/09 2012]. http://www.harbott.com/2011/03/03/analysing-zaras-business-model/ .
– OSTERWALDER, ALEXANDER, 2005. “ZARA’S BUSINESS MODEL.” [Accessed 01/10 2012]. http://www.businessmodelalchemist.com/2005/06/zaras-business-model.html .
– Kenna, Armorel, 2011. “Zara Plays Catch-Up with Online Shoppers.” [Accessed 30/09 2012]. http://www.businessweek.com/magazine/zara-plays-catchup-with-online-shoppers-08252011.html
– Zara Online Store. http://www.Zara.com
1. The unique business model which Zara follows as compared to more traditional fashion retailer is the vertical integration of design, just in time manufacturing, delivery and sale, flexible structure, low inventory rule, quick response policy and advanced information technology enabling a quick response to customers changing demands. These the are two key factors in Zara’s business model, the time factor and the store as a source of information makes them unique as compared to other fashion retailers.
2. The store acts not only as a point of sale but also influences the design and speed of production. It is the end and starting point of the business system. Zara’s production cycle starts with customer’s judgment on the new designs of clothes and the information collected by staff members who travel to fashion cities, observing people on the streets, browsing publications and visiting the venues that are frequented by their potential customers. Zara gets feedback from the customers at the point of sale about new garments or new products that they are interested in. Store managers report the demands of customers and the sales trends to the headquarters on a daily basis. Keeping up with the daily trends is what makes them create value to its customers.
3. A completely new piece of can be designed, manufactured and delivered in less than four weeks. Changes of an existing garment can be put on display within two weeks, much faster than the competition. Zara internally manufactures its “live collections” the friendliest garments to fashion, which accounts for almost half of its production, and outsources those that are not subject to seasonal variation. Keeping with the fast production and getting customer feedback on a daily basis is one the key competitive advantages of Zara.
4. Zara’s online strategy in the begging focused on the countries where e-commerce sales from its competitors like H&M and GAP weren’t available. The clothes purchased online had an option of home delivery as well as store pick-up. The overall online strategy of Zara focused on reducing the operating cost of the stores, giving customers freedom of shopping and due to high volume e-commerce sale in the industry Zara has been able to keep up with its competitors by offering fast shipping at affordable prices.
Bibliography
Fan, Carmen Lopez and Ying. “Internationalisation of the Spanish fashion brand Zara .” Spanish fashion brand Zara (Brunel Business School, Uxbridge, UK), 01 2009.
Kenna, Armorel. Zara Plays Catch-Up with Online Shoppers. 08 25, 2011. http://www.businessweek.com/magazine/zara-plays-catchup-with-online-shoppers-08252011.html.
Tercio, Don. Zara bites the internet. 09 03, 2010. http://www.aqnb.com/2010/09/03/zara-bites-the-internet/.