Eng. M.

Yasser
0
5
10
15
2003 2004 2005 2006 2007
Zara
Gap
H&M
Benetton
Sales in Billions of $

0
1000
2000
2003 2004 2005 2006 2007
Zara
Gap
GMROII= GM% x (Sales/Average Value of
Inventory)
GM%= (Selling Price-Cost)/(Selling Price) *
100
GM%
(Assumed)
Inventory
Turnover
GMROII
ZARA 60 14.2 852
MATALAN 60 10 600
H&M 60 8 480
GAP 60 7.14 428.4
M
a
r
k
d
o
w
n

Profit Margin PM
Regular Retail Zaras Model
Fashion is a thing which constantly changes
its value depreciates slowly after the time is
gone
This industry tends to extract as much profit
as possible when the product in fashion then
gives heavy discount.
Inditex
ZARA
-Pull and bear
-Massimo Dutti
-Bershka
-Stradivarious
-Oysho
-Uterqe

Zara achieves more than 75% of Inditexs total sales.
ZARA is the flagship chain store of Inditex
group
The groups headquarters is in A Corua,
Spain
ZARA needs only 2 weeks to develop a
product and get it to stores, compared with 6
months (Industry Average)
ZARA launches ~10,000 new design annually.

1975
The opening of first ZARA store in Spain
1988
The opening of first ZARA store outside Spain
(Portugal)
2003
ZARA had 565 stores in 33 countries
2009
There are more than 1500 ZARA stores all around
the world
2% 50%
8%
13%
2%
25%
Short Lead Time=More Fashionable Clothes
Lower Quantities=Scarce Supply
More Styles= More Choices and More
Chances of Hitting it.
High products turnover
Low level of inventory due to fast supply
chain
Efficient distribution system
Commitment of its employees
Scanning of the fashion and market trends,
and meeting the consumer demand relating
to fashionable clothes
Flexible production system
Low volumes per style and quickly changing
products in stores minimizes discount costs
This strategy closely emulates make to order
environment
This strategy builds up customers
anticipation of the next products to be
released
This strategy creates an artificial scarcity.

Fashion is
Fun
Again ! ! !
Exclusivity on rarity
. . . instead of Price

by Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca
Editor's note: With some 650 stores in 50 countries, Spanish clothing retailer Zara has hit on a formula for supply chain success that works by defying
conventional wisdom. This excerpt from a recent Harvard Business Review profile zeros in on how Zara's supply chain communicates, allowing it to
design, produce, and deliver a garment in fifteen days.
In Zara stores, customers can always find new productsbut they're in limited supply. There is a sense of tantalizing exclusivity, since only a few
items are on display even though stores are spacious (the average size is around 1,000 square meters). A customer thinks, "This green shirt fits me,
and there is one on the rack. If I don't buy it now, I'll lose my chance."
Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Zara's designers create
approximately 40,000 new designs annually, from which 10,000 are selected for production. Some of them resemble the latest couture creations.
But Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower
prices. Since most garments come in five to six colors and five to seven sizes, Zara's system has to deal with something in the realm of 300,000 new
stock-keeping units (SKUs), on average, every year. This "fast fashion" system depends on a constant exchange of information throughout every
part of Zara's supply chainfrom customers to store managers, from store managers to market specialists and designers, from designers to
production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy
that can bog down communication between departments. But Zara's organization, operational procedures, performance measures, and even its
office layouts are all designed to make information transfer easy.
Zara's single, centralized design and production center is attached to Inditex (Zara's parent company) headquarters in La Corua. It consists of
three spacious hallsone for women's clothing lines, one for men's, and one for children's. Unlike most companies, which try to excise redundant
labor to cut costs, Zara makes a point of running three parallel, but operationally distinct, product families. Accordingly, separate design, sales, and
procurement and production-planning staffs are dedicated to each clothing line. A store may receive three different calls from La Corua in one
week from a market specialist in each channel; a factory making shirts may deal simultaneously with two Zara managers, one for men's shirts and
another for children's shirts. Though it's more expensive to operate three channels, the information flow for each channel is fast, direct, and
unencumbered by problems in other channelsmaking the overall supply chain more responsive.
Zara's cadre of 200 designers sits right in the midst of the production process.In each hall, floor to ceiling windows overlooking the Spanish
countryside reinforce a sense of cheery informality and openness. Unlike companies that sequester their design staffs, Zara's cadre of 200
designers sits right in the midst of the production process. Split among the three lines, these mostly twentysomething designershired because of
their enthusiasm and talent, no prima donnas allowedwork next to the market specialists and procurement and production planners. Large
circular tables play host to impromptu meetings. Racks of the latest fashion magazines and catalogs fill the walls. A small prototype shop has been
set up in the corner of each hall, which encourages everyone to comment on new garments as they evolve.
The physical and organizational proximity of the three groups increases both the speed and the quality of the design process. Designers can
Consumers in central London visit the average store four times annually, but Zara's
customers visit its shops an average of 17 times a year. The high traffic in the stores
circumvents the need for advertising
ZARA operates using a vertical supply chain
ZARA has total control of various business
activities of garment supply chain, which
gives the company total business
management.
Design
Purchasing
Production
Distribution
Retailing
Internal Data:
-Daily feedback from stores
-Sales Reports
External Data
-Universities, discos, clubs..etc
-Fashion trade
Outsourcing Sample
Commercial Team Planning and Procurement People
Store Managers Final Quantity of 10,000 items per year
Designers
Market specialists
Buyers

60% Womens section
20% Mens section
20% Childrens section
ZARA obtains 40% of its fabrics supply from
another Inditex owned subsidiary.
50% of the fabrics are produced undyed
60% of the fabrics come from a range of 260
other suppliers
ZARA manufactures 50% of its products in
its own network of 22 Spanish factories
18 of which are located in and around the La
Coruna complex
These factories use 500 sewing sub-
contractors in very close proximity to La
Coruna
The other half of its products are produced
from 400 outside suppliers, 70% are in
Europe.
Europe Production Asian Production
Cost: $$$$$$$$$$
Fashion Value: ZZZZZZZZZZ
Cost: $$
Fashion Value: ZZZZZ
High fashion suits & skirts Commoditized eyeware and plain shirts
Production Facilities
60%
Spain
20%
Europe
20%
Asia
ZARA has a true Just_In_Time system
From to design, production, and fabric
manufacturing
Customers pull not designers push is what
drives the system

ZARA Relies more on having prime retail
location than on advertising for attracting
costumers
ZARA spends 0.3% of its sales on advertising
compared to an average 3.5% of competitors
Only about 18% of ZARA clothing doesnt
work with its costumers and has to be
discounted, thats half of the industrys
average which is 35%.

% of Sales
Benetton 3
Diesel 4
H&M 4
Gap 5.5
Macys 6



Zara 0.3
Reduction in mark-down can more than make
up for the increase in labor cost.
Planned shortages can induce more future
demand
Good store location, layout, and product
display can substitute advertising
Faster response eliminates inventory risks.