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Presented to: Professor Dr. Nabila Abass

Presented by: Roula Jannoun 1Copyright 2010 - Roula Jannoun- BAU

Known fo r i ts fast, affordable fash ion , retai l chain

Zara has bui l t up a mu lt i -b i l l ion dol lar brand throu gh l is tening and react ing quick ly to i ts customers



What does Zara make?

Where do they make it? Where do they sell?

How does Zara’s unique globalorganization make it morecompetitive?

What does Zara offer customers that isdifferent from other stores?

11-2Copyright 2010 - Roula Jannoun- BAU





Growth

The firm tripled in size between 1996 and 2000

Its earnings skyrocketed from $2.43 billion in 2001 to

$13.6 billion in 2007. By August 2008, sales edged ahead of Gap, making

Inditex the world’s largest fashion retailer

While the firm supports eight brands, Zara is

unquestionably the firm’s crown jewel and growthengine, accounting for roughly two-thirds of sales.

4Copyright 2010 - Roula Jannoun- BAU



Zara’s Popularity Zara’s duds look like high fashion but are

comparatively inexpensive (average item price is $27,although prices vary by country).

A Goldman analyst has described the chain as “Armaniat moderate prices,”

Legions of fans eagerly await “Z-day,” the twice-weekly

inventory delivery to each Zara location that bringsin the latest clothing lines for women, men, andchildren.




Zara's five-point marketing approach to reach its

customers 1. Store location: The company always tries to find the perfect

location and ensure its brand is visible to as many people aspossible

2. Store window: The first meeting point with the customerand the place where Zara advertises the next season's look

3. Interior design and store image: Has to be right every time. Zara renews this image every six to eight months in allof its stores

4. Goods display: A dedicated team of co-ordinators display

the collections by showing off the best trends, fabrics andcolours

5. Customer service: Something Zara believes it's excellent at.The aim is to have as much personal contact with the

customer as possible.Copyright 2010 - Roula Jannoun- BAU 6





How Does Zara coordinate it’s value

chain? Designed in Europe, near

fashion other designers.

Centrally locatedmanufacturing in Latin America and distribution.

Used basic fabric that can be

changed quickly and easily forrapid production.

11-8Copyright 2010 - Roula Jannoun- BAU


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Examples

The Spanish manufacturer Zara has a simplebusiness model that provides a significant strategicadvantage.

Their system links demand to manufacturing and

manufacturing to distribution.

Customers visit up to 17 times per year to check onnew items that may have arrived.

Since products are limited customers willimmediately purchase products they like.

Loyal and satisfied customer base.



Zara aligns its information system strategy with itsbusiness strategy.

The POS system sends daily updates to Zara’sheadquarters.

Managers report to designers what sold and what

customers wanted but couldn’t find. The information is used to determine what to keep

and what to discontinue or change.

New designs can be ordered twice a week.

The entire process is automated so that newdesigns and products can be created quickly.

Copyright 2010 - Roula Jannoun- BAU 10



Zara and consumer behaviour

Products are a means to an end but what ends do wechoose – product specific goals based on personality,self image, beliefs, attitudes

Hot fashions reflecting consumers self image

undersupplied to add exclusivity and urgency to shop Sold in fashionable, prestigious, regularly refurbished

locations to retain contemporary appeal and reinforceresponsiveness

Informed by “cool hunters” who feedback, lifestyle anddirectional fashion trend information




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Pricing to market

At the Zara stores, price tagsstated in many currencies andfor multiple countries so

customer feel equality .

Copyright 2010 - Roula Jannoun- BAU



How Does Zara Do It – Store Staff

Zara’s store managers lead the intelligence-gatheringeffort that ultimately determines what ends up on eachstore’s racks.

Armed with personal digital assistants (PDAs) to gather

customer input, staff regularly chat up customers to gainfeedback on what they’d like to see more of.

A Zara manager might casually ask, What if this skirt were in alonger length? Would you like it in a different color? What if this V-neck blouse were available in a round neck?

Managers are motivated because as much as 70 percent of salaries can come from commissions.






The Designers

Data on what sells and what customers want to seegoes directly to “The Cube” (central command of theInditex Corporation outside La Coruña0), whereteams of some three hundred designers crank out

an astonishing thirty thousand items a year versus twoto four thousand items offered up at big chains likeH&M (the world’s third largest fashion retailer) andMango,

Individual bonuses are tied to the success of the team,and teams are regularly rotated to cross-pollinateexperience and encourage innovation.




Quick Turnaround In the world of fashion, even seemingly well-targeted designs

could go out of favor in the months it takes to get plans to

contract manufacturers, tool up production, then ship items to warehouses and eventually to retail locations. Zara excels in getting locally targeted designs quickly onto store

shelves When Madonna played a set of concerts in Spain, teenage girls

arrived to the final show sporting a Zara knock-off of the outfit she wore during her first performance.

The average time for a Zara concept to go from idea toappearance in store is fifteen days versus their rivals who receivenew styles once or twice a season. Smaller tweaks arrive even faster.

Zara is twelve times faster than Gap despite offering roughly tentimes more unique products!

At H&M, it takes three to five months to go from creation to

delivery —and they’re considered one of the best. Other retailers need an average of six months to design a new

collection and then another three months to manufacture it. At Zara, most of the products you see in stores didn’t exist three

weeks earlier, not even as sketches.




Quick Turnaround The firm is able to be so responsive through a

competitor-crushing combination of verticalintegration and technology-orchestrated coordinationof suppliers, just-in-time manufacturing, and finely

tuned logistics. Vertical integration is when a single firm owns several

layers in its value chain

A value chain is the set of activities through which a

product or service is created and delivered to customers.




Quick Turnaround While H&M has nine hundred suppliers and no

factories, nearly 60 percent of Zara’smerchandise is produced in-house, with an eyeon leveraging technology in those areas that speedup complex tasks, lower cycle time, and reduce error.

Profits from this clothing retailer come from blendingmath with a data-driven fashion sense. Inventory optimization models help the firm determine how

many of which items in which sizes should be delivered toeach specific store during twice-weekly shipments, ensuringthat each store is stocked with just what it needs.

Outside the distribution center in La Coruña, fabric iscut and dyed by robots in twenty-three highly automated factories.




Quick Turnaround Zara makes 40 percent of its own fabric and

purchases most of its dyes from its ownsubsidiary.

Roughly half of the cloth arrives undyed so the firm canrespond as any midseason fashion shifts occur.

After cutting and dying, many items are stitchedtogether through a network of local cooperatives thathave worked with Inditex so long they don’t even operate with written contracts.

The firm does leverage contract manufacturers(mostly in Turkey and Asia) to produce staple items with longer shelf lives, such as t-shirts and jeans,but such goods account for only about one-eighth of dollar volume.




Shipping

Trucks serve destinations that can be reached overnight, while chartered cargo flights serve farther destinations within forty-eight hours.

The firm recently tweaked its shipping models through AirFrance–KLM Cargo and Emirates Air so flights cancoordinate outbound shipment of all Inditex brands withreturn legs loaded with raw materials and half-finishedclothes items from locations outside of Spain.

Zara is also a pioneer in going green. In fall 2007, the firm’s

CEO unveiled an environmental strategy that includes theuse of renewable energy systems at logistics centersincluding the introduction of biodiesel for the firm’strucking fleet.




Limited Production Limited runs encourage customers to buy right away

and at full price. Savvy Zara shoppers know the newest items arrive on

black plastic hangers, with store staff transferring itemsto wooden ones later on.

Within three weeks, either an item has been sold ormoved out to make room for something new.

A study by consulting firm Bain & Company estimatedthat the industry average markdown ratio is

approximately 50 percent, while Zara books some 85percent of its products at full price.




Limited Production

The constant parade of new, limited-run items alsoencourages customers to visit often. The average Zara customer visits the store seventeen times per

year, compared with only three annual visits made tocompetitors.

Even more impressive—Zara puts up these numbers withalmost no advertising. The firm’s founder has referred to advertising as a “pointless

distraction.” The assertion carries particular weight when youconsider that during Gap’s collapse(american), the firm

increased advertising spending but sales dropped. Fashion retailers spend an average of 3.5 percent of revenue

promoting their products, while ad spending at Inditex is just0.3 percent.




Limited Production Limited production runs allows the firm to, as Zara’s

CEO once put it “reduce to a minimum the risk of making a mistake, and we do make mistakes with our

collections.”

Failed product introductions are reported to be just1%, compared with the industry average of 10%.




Headquarters While stores provide valuable front-line data,

headquarters plays a major role in directing in-storeoperations.

Software is used to schedule staff based on each store’sforecasted sales volume, with locations staffing up at

peak times such as lunch or early evening. The firm claims these more flexible schedules have

shaved staff work hours by 2 percent. This constantrefinement of operations throughout the firm’s value

chain has helped reverse a prior trend of costs risingfaster than sales.




Headquarters Even the store displays are directed from “The Cube,”

where a basement staging area known as “FashionStreet” houses a Potemkin village of bogus storefrontsmeant to mimic some of the chain’s most exclusivelocations throughout the world.

It’s here that workers test and fine-tune the chain’saward-winning window displays, merchandise layout,even determine the in-store soundtrack. Every two

weeks, new store layout marching orders are forwardedto managers at each location.




Challenges

Limitations of Zara’s Spain-centric, just-in-timemanufacturing model.

By moving all of the firm’s deliveries through just twolocations, both in Spain, the firm remains hostage toanything that could create a disruption in the region.

Firms often hedge risks that could shut downoperations—think weather, natural disaster, terrorism,labor strife, or political unrest—by spreading facilitiesthroughout the globe. If problems occur in northern

Spain, Zara has no such fall back.




Challenges The firm is potentially more susceptible to financial

vulnerabilities as the Euro has strengthened relative to thedollar.

Zara’s Spain-centric costs rise at higher rates compared tocompetitors, presenting a challenge in keeping profitmargins in check.

Rising transportation costs are another concern. If fuelcosts rise, the model of twice-weekly deliveries that hasbeen key to defining the Zara experience becomes moreexpensive to maintain.

Zara is able to make up for some cost increases by raisingprices overseas In the United States, Zara items can cost 40 percent or more

than they do in Spain. Zara reports that all North Americanstores are profitable, and that it can continue to grow itspresence, serving forty to fifty stores with just two U.S. jetflights a week.




Zara's competitiveness comes from

Innovation: not to stop but always producing new things based oncustomer desires and changes in market.

Segmentation: the company took advantage of unserved segment,a segment where some one might offer good quality fashion at areasonable price and managed to insert themselves in.

Simple strategy: the company is looking for a target withoutanalyzing ages or lifestyles, which simplifies things a lot. It targets

buyers who like fashion and that is not limited by internationalborders. Selection of personnel: having motivated and dedicated personnel,

people who think about the company 24 hours a day, people whounderstood this type of work from the outset.

Quick response time that led to significant compression of cycle

times enabled by improvements in information technology andencouraged by shorter fashion cycles and deeper markdowns.

Experience regarding real estate, personnel costs, hiring and othercontract negotiating.




Broader Economic Conditions

When the economy falters, consumers simply buy lessand may move a greater share of their wallet to less-stylish and lower-cost offerings from deep discounterslike Wal-Mart.

Zara is particularly susceptible to conditions in Spain,since the market accounts for nearly 40 percent of Inditex sales, as well as to broader West Europeanconditions (which with Spain make up 79 percent of

sales). Global expansion will provide the firm with a mix of

locations that may be better able to endure downturnsin any single region.




The Importance of MIS & IT

Zara’s winning formula can only exist throughmanagement’s savvy understanding of how information systems can enable winning strategies

Many tech initiatives were led by José Maria Castellano, a“technophile” business professor who became Ortega’s right-hand man in the 1980s).

It is technology that helps Zara identify and manufacture theclothes customers want, get those products to market quickly,

and eliminate costs related to advertising, inventory missteps,and markdowns.

A strategist must always scan the state of the market as well asthe state of the art in technology, looking for newopportunities and remaining aware of impending threats.




Differentiation or added value strategies Provide unique or different products/services in terms

of features/benefits valued by buyers

Better products or services at the same price

Unique, improved performance, design expertise Marketing based – branding – Vision Express – higher

perceived value – Zara consumer insight

Competence based – service delivery – John Lewis – Zara, supply chain agility




Differentiation strategies depend on Knowing who the customer is

Knowing what the customer values

Knowing who the competitors are and what they offer Knowing how customer needs change

Knowing imitability of competitive advantage ANDcontinually redefining value proposition




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ZARA Business Concept“Integrated” fashion delivery:

Fashion at low cost!!!

Get it approximately rightReduce creative design

Define a fast-response process incl

design

Finalize design knowing materialsupply constraint

Optimize the process

Manage follow-up (next batch) and

customer flows

Store experience

Copy fashion

Involve the customers

and his group / cohort

Create a network / brand

Low Cost Fashion




34

ZARA Customer Offer:Lean and Focused

“Fresh / Fast”

Fast copying ofleading styles

Fast delivery in

own stores

Limited editions

“Quality”

Raw material: medium

Knit: poor

Look: grand!

Customer satisfaction:

fashion at low price!

Cost

Low monetarycost

Low time cost:

“the Zaraexperience”




35

ZARA Customer Offer:Lean and Focused

Flexibility: - / +

Limited customer variety:only what is on display and inlimited choices

But every customer isparticipating in the process:help determine the next batch




Zara Retailing strategy summary

To be successful an organisation must have a clear

competitive strategy Distinctive competences based on critical success factors in

the value chain are the source of competitive advantage

Each element of the value chain can serve to increase value;

A clear understanding of customer needs, motives andpatronage decisions is fundamental to retail strategy

In increasingly competitive markets new ways of hearing,understanding and responding to customer needs are of

vital importance




Conclusion

All types of innovation

＊ Technology innovators

＊

Business model innovators＊ Process innovators

“ZARA is an innovative company”

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