Zara Case Study

Executive Summary:

Zara is an apparel chain owned at operated by the Inditex of Spain. It was founded by Mr. Amancio Ortega Gaona; currently Spain's richest man. Zara specializes in fast fashion. At the end of fiscal year 2001 Zara was operating 1,284 stores world wide and had total revenue of Ð'Ђ3,250 million. Inditex's headquarters and its major assets are located in the Galacia region of Spain. Inditex also operates five other chains: Massimo Dutti, Pull and Bear, Bershka, Stradivarius and Oysho.

Zara owns both its production and retail units which give the upper management a better overall control. They have successfully integrated Information Technology into their business model. They also have great international growth selection criteria. Zara employs creative teams to keep track of customers' tastes and communicate them to store managers, and makes sure that their designs are appealing to the customers. They have developed and maintained a good company culture and experience very low sales manager turnover. Certain hurdles in Zara's path to the future are that growth based on current business model may be difficult for international expansion. Their plans of expansion may lead to complexities in aligning Inditex and Zara's strategy. The centralized logistics model is subject to diseconomies of scale. Zara also faces threats in the form of Protectionism laws in new potential markets, possibility of natural disasters in the Galacia region of Spain and government instability. Zara can improve on these weaknesses and threats by altering the current business model and decentralizing their operations. They should open distribution centers in strategic locations around the globe. Mr. Amancio Ortega and his top management should identify and prepare potential candidates who share the same vision for Zara, to hand over the business after their retirement. They should keep pace with the ever changing fashion trends and acknowledge them in a timely manner.

Introduction:

Zara is an apparel chain specializing in fast fashion. It is owned and operated by the Inditex of Spain. Inditex was founded by Mr. Amancio Ortega Gaona; currently Spain's richest man. It operated 1,284 retail stores around the world (end of fiscal year 2001) and had total revenue of Ð'Ђ3,250 million. 78% of the people employed at Inditex were women and the average age of employees was 26 years. Over 80% of Inditex's employees are involved in retail sales at store level, 8.5% are involved in manufacturing and design, distribution, logistics and head quarters activities account for the remainder. Inditex's headquarters and its major assets are located in the Galacia region of Spain. Zara has displayed a strong and consistent financial performance over the years. It is the largest and most internationalized Inditex chain. Inditex also operates five other chains: Massimo Dutti, Pull and Bear, Bershka, Stradivarius and Oysho. Zara's key international competitors are The GAP, Hennes and Mauritz (H&M), and Benetton.

SWOT Analysis:

In order to better understand Zara's business model and its relevance to global expansion we performed a SWOT analysis.

Strengths:

Zara has displayed a strong and consistent financial performance over the years. They own both their production and retail units giving the upper management a better overall control. They discovered the potential of Information Technology at its early stages and incorporated it into their operations. They focused heavily on Just in Time (JIT) manufacturing process which proved very cost effective and reduced the inventory numbers significantly. They have a very short cycle time of 4 to 5 weeks compared to an industry average of 6 months. Zara has great international growth selection criteria. Economists at Zara's headquarters study their potential markets and analyze them carefully before penetrating into the new market. They take into consideration various aspects such as cultural differences and administrative barriers. Zara's upper management chooses great strategic locations to set up their retail stores. They are very thorough in making sure that their designs are appealing to the customers. They employ creative teams to keep track of customers' tastes and communicate them with store managers. Some employees are sent overseas to observe fashion shows and fashion fairs in major cities like Paris, Milan and London. Zara goes to the extent of hiring people in each country where they own retail stores in order to keep track of new trends among potential customers and relay them to their key suppliers. Zara has developed and maintained a good company culture and experiences very low sales manager turnover.

Weaknesses:

Zara lacks a clear succession to its upper management. This can prove disastrous to its future if the new management team doesn't share the same vision and motivations as the current team. In a competitive market situation there is always a potential for Zara to make fashion mistakes. Growth based on current business model may be difficult for international expansion. Venturing into new markets may require lot of capital according to the current model. Communication with overseas representatives may prove difficult due to language and cultural barriers. Since most fashion sensitive products are manufactured internally in Spain, they may not reflect the current fashion trends from other parts of the world. Zara's plans of expansion may lead to complexities in aligning Inditex and Zara's strategies. Fast fashion doesn't permit Zara to utilize online merchandising tools which makes it difficult for them to compete with chains like GAP