Zara Case Analysis

Operations Management
MBM1110
Table of Contents
Executive Summary.....................................................................................................................................3
Introduction.................................................................................................................................................3
Outstanding Operational strategies.........................................................................................................4
Layout......................................................................................................................................................4
Forecasting..............................................................................................................................................5
Product life cycle.....................................................................................................................................5
Product Design and Supply Chain Management......................................................................................5
Marketing................................................................................................................................................5
Just in time..............................................................................................................................................6
Vertical Integration..................................................................................................................................6
Incorporation of Bershka.........................................................................................................................6
Conclusion...................................................................................................................................................7
Bibliography................................................................................................................................................8
Executive Summary
Zara, a flagship chain store of the Inditex group owned by Spanish business tycoon Amancio
Ortega is one of the top names in the mid-priced fashion industry. Zara was established in 1975
in Acoruna, Galicia, Spain and has expanded to 1395 stores all across the globe. It is said that
Zara, unlike any other retail organization in the clothing industry takes just two weeks to design,
develop and get a new product into the stores. However, the retail industry has a six month
average to do so. By using its operational strategies in a very successful manner, Zara is able to
launch 10,000 new products every year. This report will discuss the operational strategies that
Zara uses which works as order winners and order qualifiers. It also discusses the strategies that
they use which makes them one of the top names in the fashion industry.

Introduction
Zara uses very innovative strategies for its business. By doing so, Zara is able to avoid
outsourcing its manufacturing process to low cost and developing countries like most of the other
companies in the industry. Zara does not even spend a lot of money on marketing, hence
increases its profit margin. It however does spend on the layout of its stores. Unlike many of its
competitors, Zara is a vertically integrated retailer since it controls most of the step in it supply
chain by designing, producing and distributing itself. This unique business model has resulted in
the emergence of one of the most successful retailers in the fashion industry.

Terry Hill in 1993 came up with the terms “order qualifiers” and “order winners”, against which
it is believed that manufacturing strategy should be determined (Add Reff. Hill, T. (1993),
Manufacturing Strategy: Text and Cases, 2nd ed., Macmillan Press, London.).
Order Winners are characteristics that serve as a competitive advantage for one firm over others.
Order winners enable the customers to choose a particular firms goods and services over the
competitors. Order winners in this case for Zara are:

 High-end fashion at a reasonable price

Even though Zara’s products are highly fashionable, they comparatively cost way less
compared to other big names in the fashion industry
 Supply Chain Management
 As discussed below in the report, due to Zara’s outstanding SCM, it is able to order order
the latest in fashion every two weeks for a reasonable price. Thus, are able to offer
something to their clients that none of their competitors can.

Order qualifiers are the competitive characteristics that a firm must take advantage of in order to
be a viable competitor in the market place. To provide order qualifiers, companies need only to
be in par with the competitors, however, in order to provide with order winners, companies need
to be way better than its competition. Having said that, order qualifiers are in no way less
important than the order winners, in fact, they both complement each other. In Zara’s case the
order qualifiers are:

 Quality
They offer good quality products at relatively cheaper price compared to the competition.

Outstanding Operational strategies

While Zara maybe a very successful high end retailer, the main facet of Zara that has got academics
buzzing is its completely novel approach to its operations and supply chain for a retailer in high-end
fashion.

Layout
The main intention of a layout strategy is to develop an economically viable layout that will be in
line with the company’s Competitive requirements [ CITATION Ren05 \l 4105 ] . Zara invests a lot in
their store layouts to make sure that their store maintains the fresh and trendy look. They have a
testing facility close to their head office in Spain, where they test different types of store layouts
on a regular basis. Zara remodels each of its stores every five years in order to keep up with the
current trends [ CITATION Zar10 \l 4105 ] . The entire layout, including the furniture and the window
displays are all designed at the testing facility in order to maintain a standardized image globally.
A flying team from the head office usually flies down to a new location to set up the store. Their
motto is that they want the store managers to focus more on sales than anything else. Zara can
afford to do this since they do not spend lot advertising and marketing campaigns.
Forecasting
One of Zara’s major competitive advantage over other retailers is it technique of forecasting.
Unlike, other retailers, Zara has developed its business model around reacting promptly. Zara
focuses heavily on its forecasting effort on the amount and the type of fabric it will purchase.
Zara tends to do this since it’s usually cheaper to rectify mistakes on raw fabric as compared to a
finished product. It also uses the same fabric to produce something else [ CITATION Ren05 \l 4105 ] .
Zara usually buys un-processed fabric and colors it according to the season based on market’s
immediate need. By doing that, and by combining it with a high-speed garment design &
production process, it’s able to the deliver what the market is actually looking for at that time.

Product life cycle

In a typical Product Life Cycle Curve of the fashion retail industry, sales decreases as products
move across the times line. However, Zara’s Product Life Cycle Curve is totally the other way
round since it is in a high fashion industry and it offers products that are of the latest trends and
designs with a life of maximum 5-6 weeks.

Product Design and Supply Chain Management

The entire process of product design is very unique compared to its competitors. Commercial
managers and designers at Zara start working on the design of the fabric, the costs, raw material,
selling price etc as soon as they receive the instructions from the Zara stores. Instructions are
issued to cut appropriate fabric as soon as approvals are received. All the raw materials are
distributed for assembly to a network of small family owned businesses that are mostly in Glacia
and in Northern Portugal. Unlike its competitors, Zara’s high-tech distribution services system
ensures that there is no style lying around at the head office. The finished products are quickly
cleared through the distribution centers and are shipped to the stores within 48 hours. Deliveries’
are received twice a week by each store. This entire process of product design and supply chain
management gives Zara a huge edge over its competitors.

Marketing
Zara has a very unique approach to marketing compared to the other big players in the industry.
Unlike its competition, which spends 3-4 % of total revenues on marketing and advertising
campaigns, Zara spends 0.3%. This is a major competitive advantage over its competitors. Zara
strategically locates all of their stores in prime retail districts for ‘visibility marketing’. As
mentioned earlier about the product development cycles, customers are rendered immune to visit
Zara stores very often since new items are stocked weekly and are often not re-stocked. Zara
creates a feeling of scarcity within the customers, and this makes them come back to the store
frequently and make purchases.

Just in time
Just-in-time (JIT) is a strategy that is used for inventory management in such a way that it helps a
business improve its return on investment by reducing in-process inventory and the associated
carrying costs [ CITATION Shi89 \l 4105 ]. Zara follows a true JIT inventory system. Its inventory
system is influenced by the pull of the customer instead of a push from the designer. This helps
Zara to have a competitive advantage over the competition since it has a very low inventory to
sales ratio.

Vertical Integration
Zara is a very vertically integrated company by working through the whole value chain and is
highly capital intensive. This is a unique model that let the company develop a strong
merchandising strategy that led it to create a unique model of fast fashion system [ CITATION Cra04
\l 4105 ].

Incorporation of Bershka
Most big brands in the world regardless of the industry they are in usually have more than one
brand name. In the fashion retail industry, Gap Inc. Owns few big names as Gap itself, Old
Navy, Club Monaco, etc. It is a strategy used to penetrate different segments of a market and to
increase the market share. It also tries to give consumers an impression that different brand
names have something different about them. Companies also use the is strategy to create a
specific brand for each and every market they try to target.

Inditex has also used the strategy of penetrating different segments of the market by creating a
different brand name for each segment [ CITATION Ind08 \l 2057 ]. Inditex owns different brands
such as Zara, Massimo Dutti, Pull and Bear and Bershka which tends to cater to different
markets. Merging all of these brands or any two brands into one name would not make a lot of
business sense for Bershka. The brand Bershka was launched by Inditex in the year 1998 with
an aim of targeting the young fashion-conscious crowd.
Incorporating Bershka into Zara’s operations would not be a very good strategic move for
Inditex. Bershka currently owns 638 stores in 41 different countries, hence incorporating that in
to Zara’s operations would raise lot of challenges for Inditex. Since Bershka and Zara both have
a very different target market, formulating strategies for both of these firms combined will
definitely effect the operations of the company in whole. Both brand names have established
different clientele for themselves. Bershka currently targets the young and fashionable and Zara
targets the fashionable crowd as well, however it has different demographics for it. Combining
these two brands into one will result in loss of loyal customers and might also impact the
company negatively. There’s no guarantee that Bershka’s existing clientele will shift to Zara, in
fact they might just end up losing majority of that segment. Zara’s market share might increase
by a very small percentage; however Bershka might end up losing a major chunk of its current
clientele, which in turn will not be good for Inditex in whole.

Conclusion
Zara, a big name in the mid-priced fashion retail industry, started as one store and then grew to
1395 stores world-wide is very unique compared to the other names out there in many different
ways. It is the only company that introduces a new line in its stores every two weeks. It uses a
number of different techniques as mentioned above in this report that helps it to do so. By using
those strategies, it is also able to avoid out sourcing to the developing nations as most of the
companies in the industry do. This report has mentioned few strategies that Zara uses in order to
achieve this and to become one of the biggest names in the retail industry.
Bibliography
Andrew, M., Vincent, D., & Anders, S. (2004, 12 17). Zara: IT for fast fashion.

Craig, A., Jones, C., & Nieto, M. (2004, April 2). ZARA: Fashion Follower, Industry Leader. Business of
Fashion Case Study Competition .

Ghemawat, P., & Nueno, J. L. (2003, April 1). Zara: Fast fashion.

(2008). Inditex Annual Report.

Render, B., & Heizer, J. (2005). Operations Management (8th ed.). Pentrice Hall.

Shingo, S. (1989). A study of the Toyota Production Syste. Productivity Press , 187.

Zara’s Business Model. (2010). Retrieved April 17, 2010, from 123helpme:
http://www.123HelpMe.com/view.asp?id=97642