ATW 101 INTRODUCTION TO MANAGEMENT

SEMESTER 1

ACADEMIC SESION 2017/2018

CASE STUDY: CHAPTER 9 CASE APPLICATION 1 FAST FASHION

LECTURE: ASSOCIATE PROFESSOR DR. ANEES JANEE ALI@HAMID

DATE OF SUBMISSION: 8 DECEMBER 2017

NAME MATRIC NUMBER YEAR OF STUDY

BEH CHUI MENG 138304 1

CH’NG JIA LIN 138305 1

CHAI YUAN PING 138307 1

EAU SUE TENG 138315 1

ERIN LAU YING YING 137228 1

When Amancio Ortega, a former Spanish bathrode maker, opened his first Zara
clothing store, his business model was simple: sell high-fashion look-alikes to price-
conscious Europeans. After succeeding in this, he decided to tackle the outdated
clothing industry in which it took is six months from a garment’s design to consumers
being able to purchase it in a store. What Ortega envisioned was “fast fashion” -
getting designs to customers quickly. And that’s exactly what Zara has done!

The company has been described as having more style than Gap, faster growth
than Target, and logistical expertise rivaling Walmart’s. Zara, owned by the Spanish
fashion retail group Inditex SA, recognizes that success in the fashion world is based
on a simple rule- get products to market quickly. Accomplishing this, however, isn’t
so simple. It involves a clear and focused understanding of fashion, technology, and
their market, and the ability to adapt quickly to trends.

Inditex, the world’s largest fashion retailer by sales worldwide, has seven
chains: Zara (including Zara Kids and Zara Home), Pull and Bear, Massimo Dutti,
Stradivarius Bershka, Oysho and Uterqüe. The company has more than 6,340 stores in
87 countries, although Zara pulls in more than 60 percent of the company’s revenues.
Despite its global presence, Zara is not yet a household name in the United States,
with just 45 stores open, including a flagship store in New York City.

What is Zara’s secret to excelling at fast fashion? It takes approximately two

weeks to get a new design from drawing board to store floor. And stores are stocked
with new designs twice a week as clothes are shipped directly to the stores from the
factory. Thus, each aspect of Zara’s business contributes to the fast turnaround. Sales
managers at “the Cube” – what employees call their futuristic-looking headquarters-
sit at a long row of computers and scrutinize sales at every store. They see the hits and
the misses almost instantaneously. They ask the in-house designers, who work in
teams, sketching out new styles and deciding which fabrics will provide the best
combination of style and price, for new designs. Once a design is drawn, it’s sent
electronically to Zara’s factory across the street, where a clothing sample is made. To
minimize waste, computer programs arrange and rearrange clothing patterns on the
massive fabric rolls before a laser-guided machine does the cutting. Zara produces
most of its designs close to home- in Morocco, Portugal, Spain, and Turkey. Finished
garments are returned to the factory within a week. Finishing touches (buttons, trim,
detailing, etc.) are added, and each garment goes through a quality check. Garments
that don’t pass are discarded while those that do pass are individually pressed. Then,
garment labels (indicating to which country garments will be shipped) and security
tags are added. The bundled garments proceed along a moving carousel of hanging
rails via a maze of tunnels to the warehouse, a four-story, 5-millon-square-foot (about
the size of 90 football fields). As the merchandise bundles move along the rails,
electronic bar code tags are read by equipment that send them to the right “staging
area,” where specific merchandise is first sorted by country and then by individual
store, ensuring that each store gets exactly the shipment it’s supposed to. From here,
merchandise for European stores is sent to a loading dock and packed on a truck with
other shipments in order of delivery. Deliveries to other locations go by plane. Some
60,000 items each hour-more than 2.6 million items a week- move through this
ultrasophiscated distribution center. And this takes place with only a handful of
workers, who monitor the entire process. The company’s just-in-time production (an
idea borrowed from the auto industry) gives it a competitive edge in terms of speed
and flexibility.

Despite Zara’s success at fast fashion, its competitors are working to be faster.
But CEO Pablo Isla isn’t standing still. To maintain Zara’s leading advantage, he’s
introducing new methods that enable store managers to order and display merchandise
faster and is adding new cargo routes for shipping goods. Also, the company recently
announced that it’s developing a new logistics hub that will be able to distribute
almost half a million garments daily to its stores on five continents. Zara’s CEO says
that this new facility will lay the groundwork for continued rapid expansion
worldwide. And the company has finally made the jump into online retailing. One
analyst forecasts that the company could quadruple sales, with a majority of that
coming from online sales.
DISCUSSION QUESTIONS

9-14. How is strategic management illustrated by this case story?

9-15. How might SWOT analysis be helpful to Inditex executives? To Zara store
managers?

9-16. What competitive advantage do you think Zara is pursuing? How does it exploit
that competitive advantage?

9-17. Do you think Zara’s success is due to external or internal factors or both?
Explain.

9-18. What strategic implications does Zara’s move into online retailing have? (Hint:
Think in terms of resources and capabilities)
9-14. How is strategic management illustrated by this case story?

Strategic management is what managers do to develop the organization’s

strategies. It’s an important task involving all the basic management functions-
planning, organizing, leading and controlling. Organization’s strategies are the plans
for how the organization will do whatever it’s in business to do, how it will complete
successfully, and how it will attract and satisfy its customers in order to achieve its
goals. A business model is how a company is going to make money. Strategic
management is important for three reasons. First, it makes a different in how well
organizations perform. Second, it’s important for helping managers cope with
continually changing situations. Finally, strategic management helps coordinate and
focus employee efforts on what’s important. There are six steps of strategic
management process. These steps encompass strategy planning, implementation and
evaluation. The steps include identify the current mission, goals, and strategies; do an
external analysis; do an internal analysis; formulate strategies; implement strategies
and evaluate strategies. Strategic management is illustrated in this case story when
Mr. Ortega opened his first Zara clothing store and the business model of the
company was to “sell high-fashion look-alikes to price-conscious Europeans.
Strategic management is illustrated in this case story when Zara clothing store
planned to do “fast fashion” which means getting designs to customers quickly.
Strategic management is when Zara’s employees look at the computers to scrutinize
sales at every store. In this way they can see what is being sold at every store and they
are able to produce more of the popular items. Strategic management was illustrated
by this case when Zara produced most of its clothing close to home where they are
being sold.
9-15. How might SWOT analysis be helpful to Inditex executives? To Zara store
managers?

Zara which owned by the Spanish fashion retail group Inditex SA, recognizes
that success in the fashion world is based on a simple rule which is getting products to
market quickly. It involves a clear and focused understanding of fashion, the ability to
adapt quickly to trends, technology, and their market. SWOT analysis is helpful to all
businesses, Inditex executives, and Zara store managers because it is an analysis of
the company’s strengths, weaknesses, opportunities and treats. By doing a SWOT
analysis, the Inditex executives can study the opportunities for the company to grow
and expand. They can also study about the threats to the company like negative trends
in the external environment. An internal analysis strength of Zara is that stores are
stocked with new designs twice a week which is very quickly because clothes are
shipped directly to the stores from the factor approximately two weeks as they want to
react quickly, designs new styles, and gets them into stores while the trend is still
peaking. Besides, for Zara’s store managers, SWOT analysis might help them to
understand their strength and weaknesses with the opportunities and threats in the
business environment for their company. So that they can evaluate or formulate the
business-level strategies based on those factors to implement the corporate strategic
plan and improve or maintain the competitive advantage in the market. For example,
Zara implements “small quantity production” principle, this is the strength they used
for their company because it can lower the inventories risk and cost and this is the
competitive advantage of Zara compared to others company. After consider this
element, therefore Zara’s store managers keep on going this policy and trying to keep
this advantage in their market.
9-16. What competitive advantage do you think Zara is pursuing? How does it
exploit that competitive advantage?

Zara adopts to just-in-time system which was introduced by Toyota Motor

Corp. This model was designed primarily to decrease and to minimize the flow times
of inventory within the manufacturing system, and reducing the response time from
suppliers and customers. These approaches have increased the efficiency of
production and decreased waste as goods were only received when they are needed in
the production. Consequently, cost of production would have been successfully
reduced and goods could be sold at a cheaper price as a competitive advantage
compared to others similar company, which could not manage to reduce their cost as
their production was associated with higher inventory costs. In addition, the company
would be more capable of allocating more costs in maintain a higher quality of goods
as they had reduced costs by eliminating warehouse storage needs.

Besides, most of the apparel being sold in its outlet stores are designed and
manufactured by itself. Zara implemented the strategy of vertical integration inside
their production. This strategy which focused mainly on centralization of
manufacturing operations around the primary manufacturing facilities like what they
did in Spain. Most of the suppliers and outlets would be located around the
manufacturing factory. This strategy enables the company to undergo the stages of
materials, manufacture, product completion and distribution to stores worldwide with
lower distribution costs. The company could manage to design a new product until a
finished good in its store within four to five weeks, existing items could even be
modified in not less than two weeks, much faster than other competitors who need to
wait for months as they manufacture the products at other countries. The company
would get competitive advantage by having the shortest product life cycle as they
would be more able to meet their consumer preferences. The company would be more
capable to react to change in a short period of time.

Zara business model stood out as this company has different business policies
compared to other competitors and what the traditional fashion retailer would do.
Firstly, Zara clothing are stocked in scanty qualities, which make the products sound
like “limited edition”. Management of the outlet would not order for extra stock even
when running out of stocks. As what Don Huber had said, they’ve trained consumers
not to wait for it to go on sale. Most of the customer would buy the products right
away and not wait for the discounts as they scare they would lose the opportunity.
This policy would constantly attract more regular customers especially who want to
distinguish themselves from others due to the fast moving and limited inventory. The
moment when last piece of a design is sold out, another few pieces of new design is
coming in. With the limited stock, there will not be as many people who wear the
same product if there is only a small amount of similar inventory. Customer would
consequently pay a visit to the outlets to check for any new designs. From time to
time, they become regular customer who contribute to the major part of Zara’s sales.
9-17. Do you think Zara’s success is due to external or internal factors or both?
Explain.

In my opinion, I think that Zara success is due to both internal and external
factors. The internal business environment comprises of factors within the company
which impact the success and approach of operations. Unlike the external
environment, the company has control over these factors. It is important to recognize
potential opportunities and threats outside company operations. However, managing
the strengths of internal operations is the key to business success.

The internal environment basically includes organizational culture, human

resources, organization structure, physical assets, management and lastly profit and
cash flow. The key behind the success of Zara is having a powerful workforce. The
strength of employees is an essential internal business factor. There are sales
managers, in-house designers, computer programmers and other employees that work
as a team with their respective responsibility to bring up the fashion market in this era.
Thus, we can say that Zara is good in managing the organization in conjunction to
meet the Inditex’s objectives.

Besides, Zara success is also mainly due to the external environment that
consists of a variety of factors outside your company doors that you typically do not
have much control over. One of the most critical external business factors is
competition. Zara is said to have more style than Gap, faster growth than Target, and
logistical expertise rivaling Walmart’s. So, Zara recognizes that success in the fashion
world is not that easy. It involves a clear and focused understanding of fashion,
technology and their market and the ability to adapt quickly to trends. Technological
evolution drives the need for companies to adapt and constantly research for
improvements. In short, both internal and external environment do directly affect an
organization in achieving the objectives.
9-18. What strategic implications does Zara’s move into online retailing have?
(Hint: Think in terms of resources and capabilities)
Despite Zara’s success at fast fashion, its competitors are working to be faster.
But CEO Pablo Isla isn’t standing still. To maintain Zara’s leading advantage, he’s
introducing new methods that enable store managers to order and display merchandise
faster and is adding new cargo routes for shipping goods. And the company has
finally made the jump into online retailing. One analyst forecasts that the company
could quadruple sales in United States by 2014, with a majority of that coming from
online sales.