Zara Case Study

Zara – Fast Fashion

Please assume you are a competent consultant of a very famous consulting company, such as Boston Consulting Company (BCG), McKenzie, or Monitor. And you are assigned to diagnose/evaluate the current strategy and to give recommendation(s) for the future growth of ZARA (or Inditex). You should submit your report to your boss on the day of the discussion.

(Each question counts 1 point.)

1. Describe the characteristics of the industry in which ZARA compete.

Zara competes in the industry where it is important to respond to the frequent changes of fashion trend as quickly as possible to satisfy the customer’s needs.

2. What are the value(s) that ZARA?

Freedom, perfectionism, responsibility, to respond quickly, to be flexible, and above all, respect for others and the need to be consistent when acting with this freedom.

3. What are the core features of the ZARA business model? And how do they affect its operating economics (or costs)?

The core features of the Zara business model is to combine distribution with manufacturing. Also, they adheres to the jargon of their business model “no advertisement.” Since they don’t need to have excessive expenditure from media advertisement, they could reduce their operating costs in manufacturing. Additionally, unlike other competitors who undertake the buildings of logistic facilities when they enter a new country, Zara organizes the whole production only in Spain and distributes all the goods from there which leads them to save a lot of costs from not having extraordinary expense from setting up logistics.

4. How might ZARA fail? How sustainable would ZARA with its competitive advantage relative to other apparel retailers?

Zara is well-known throughout Spain and most of Western Europe as an upscale apparel company geared towards middle to upper class consumers. The primary strength of the company is its incredibly fast supply chain management, which is anchored by a large distribution center in Arteixo, where nearly all orders are processed from Zara stores across the globe. Some of these very traits that have made Zara such a successful company, however, may prove to be major barriers to their continued growth. For example, Zara is set apart by the stability in its production organization. Their success has come from cutting costs across the value chain and controlling performance down to the local store level. Thus in order to expand its operations internationally while maintaining its tradition of speedy deliveries and inventory turnover, Zara will have to expand its number of large distribution centers. Otherwise, the company risks facing considerably high shipping costs, slower delivery, and loss of its image as one of the most efficient apparel manufacturers and retailers in the industry. Additionally, its current reliance on internal manufacturing may become too costly to continue and Zara may have no choice but to begin outsourcing their inventory. Furthermore, we can see why Zara might potentially fail by taking a closer look at its competitor’s wrong-doings. The Gap, for example, performed poorly due to supply chains that were too long, market saturation, and lack of a clear fashion positioning. H&M, on the contrary, has been more successful with its slightly lower prices and specific target market. In the past, Zara has positioned itself as a “very quick fashion follower” rather than creating a crystallized image of the ideal “Zara Girl” through generic advertising campaigns. This has given the company greater flexibility within its clothing lines, however, it could make it difficult to find a considerable niche in more trendy, fashionable countries such as Italy, where fashion is at a premium. Zara has also faced difficulty entering into the U.S. market due to retailing overcapacity and a less fashion-forward market in comparison to those in European countries. Zara could potentially fail if it is unable to capitalize on the North American market as some of its competitors, The Gap and H&M, have been able to do so successfully. If they are unable to integrate these success-creating aspects into their market in other countries, especially the United States, Zara could potentially fail. But if they continue to capitalize on their specific competitive advantages, their potential for growth seems to outweigh that of its main competitors. These weaknesses do not necessarily suggest that Zara will not be able to continue international expansion, but do suggest that some of its previous strengths may be weakened as a result of increased internationalization by competitors and lead to less successful operations than the company has experienced thus far.

5. What are the key features of organizational form of ZARA? And what are the key features of the global structure(s) of Inditex?

ZARA is a company where people work hard. Someone who comes from the outside might have the impression that they don't work very hard, but this is not true. It's a good environment, but people work hard. That's why if there is a problem, people can contact anyone 24 hours a day. This is very important.

The other thing that's very important is open communication. In a normal company there is a strong hierarchy, but not in this company.

Inditex’s organization is used to responding quickly to the changes