Zara-IT for Fast Fashion Group7 Sec2 Updated

8/2/2019 Zara-IT for Fast Fashion Group7 Sec2 Updated

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CASE ANALYSIS

ZARA: IT FOR FAST FASHION


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Outline

Introductionto Zara

Business Model

PointsofDifference Financial Comparative Study

TOWS Analysis

Focus Ahead

Options & Suggestions


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Introductionto Zara

Zara- a multinationalfashionclothingretailer and

manufacturer

Founded by Amancio Ortega in 1975

Headquarteredin La Coruna, Spain

Holdingcompany Inditex

Zara chain had 550 storesin 45 countriesin 2003

Zara accountedfor 73.3% ofInditex groupssales


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Business ModelofZARA

Customers Young, fashionconsciouscitydwellers

Needs FashionTastechanges

What Zara Does Market Information Designto Shelf

Value Drivers


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PointsofDifference

Virtually no spending on advertising & marketing (0.3% ofrevenue as compared to 3-4%)

Sells trendy clothes and not classic ones with longer lifespan (shoppers didnt expect durability from Zara; clothes

to be worn 10 times)

Introduces new designs throughout the year (competitorsintroduce the new collection at the start of the fall/winterand spring/summer )

Least time to introduce merchandise (almost 3 weeks shortest in industry)

Efficient Distribution System


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Comparative Study

As of year 2002

Inditex Gap H&M Benetton

Net Margin 11.02% 3.30% 12.49% -0.005%

Market Capitalization

(in mn) 13981 12320 16496 1144

Asset Turnover Ratio 1.32 1.46 1.56 0.75

ROA 14.54% 4.82% 19.50% -0.38%

Inventory Turnover Ratio 10.39 Data Unav. Data Unav. Data Unav.

*Using Exhibit 4 and 5


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TOWS Strategic Alternatives Matrix

External Opportunities (O)1) Geographical Expansion

2) Online Sales

External Threats (T)1) Local and Global Competitors

2) ThreatfromPOS hardwarevendor

3) CompetitorsusingthenewOS

capabilitiestoreducetheircosts & get

realtimeinformation.

Internal Strengths (S)

1) Clearproductcommunication2) Lowesttimetomarketproduct

3) Efficient Distribution System

4) Storeslocatedonthe bestknown

streetinprimeretaildistricts

5) Vertical Integration

SO

Utilize thestrengthstoexpand

thenumberofstoresinother

placeslike Italy(oneofthemost

fashionconsciouspeople)

ST

Responsive supply chain result in lowering

threat of competitors.

Internal Weaknesses (W)1)NosupportofDOS basedOS from

Microsoft

2)Point-ofSalesdesignsover 10 years

old

3)Inability ofreal-timecommunication

within andotherstores

4) Manual Inventory Management eg:

counting

WO

Improve the current supply chain

to handle small orders.

OR

Routing the orders via stores

(chance of additional sales)

WT

By going for new OS and POS


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Focus Ahead

Investin IT.

Introductionofnewfunctionalities.

In-housesoftwaredevelopment.


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OptionsinfrontofZaraContinue with the current

DOS based System and

other processes

New POS + New OS +

Software with porting

New POS + New OS +

Software with

porting + Other

Functionalities

Advantages Established process with

almost no complaints or

disturbances; employeesfamiliar with system;

company growing at

decent pace.

Help in future scaling;

availability of new

features; non-relianceon single vendor; better

inv. management and

pricing; able to match

competitors in IT space

Advantagesof

Option2 +

Interconnectivitybetweenstores; real

timeinformation

availability

Disadvantages No assistance for long

term scalability; nosupport available from

software vendor; no way

to leverage real

information flow among

and between stores; cant

continue with age oldsystem for long

Employees reaction is

uncertain; will requirenew investment; may

disrupt few age old

processes; No inter-

connectivity between

shops

Employees reactionis

uncertain; willrequirenew

investment; may

disruptfew ageold

processes;

Porting: Recoding software to make it compatible with new OS


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Options Continue with the

current DOS basedSystem and other

processes

New POS + New OS +

Software withporting

New POS + New OS +

Software withporting + Other

Functionalities

Financial Position Inditex has high industry

relativenetmargins

(11.02%), ROA isgood

andincreasing

Totalcosts = 8.46

million(totalcosts

reflectinternet,

hardware, software,

licensing and AMC)

Totalcosts = 8.75

million(includes

internet, hardware,

labour, programming,

licensing and AMC)

Option 2 Option 3

No. ofStores 550 550

Costof5 POS terminal 5000 5000

Costofwirelessrouter 180 180

Costof5 ethernet cards 250 250Hi Speed Internet Connection 240 240

Training & Instalation costforfourday 8000 8000

Porting Cost 843750 843750

Unix Lisence 88000 88000

Annual Maintenance(10 yrs) 13750 13750

Other Software Costs 0 281,250

Total Cost for System Upgradation 8,464,000 8,745,250


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In-housesoftwaredevelopment?

Current Software customized to the operational needs ofZara -different from industry

With new OS, new and complex needs might arise infuture

Considering future needs, it can outsource the

development as software becomes complex serving newneeds

Outsourcing can free up resources and also help in gettingcost effective software customization


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Recommendations

New IT Investment Required

Option 2 + LookupsofSame Store Inventory

OutsourcingofSoftwaredevelopment


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THANK YOU

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Zara-IT for Fast Fashion Group7 Sec2 Updated

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