606-021-1 ICMR Center for Management Research Zara's Supply Chain Management Practices This case was written by Indu P, under the direction of Gupta V, ICMR Center for Management Research (ICMR). if was compiled from published sources, andis intended to be used as a basis for class discussion rather than fo ilusate either effective or effective handing of a ‘management stuation. © 2006, ICMR Center for Management Research ICMR, Plot # 49, Nagarjuna Hils, Hyderabad 500 082, Indic. Emait info@lemrindaorg, wornwicmrindia.org a uchaed wey Sutaeh Ry on 7208, Ore FAD edge noe tet ou ste ht perttas to eecasce of feroue war ary eter Doe oie he Cae Canis Northen stot wat Seteecareaty hapa Cation centre Surwrnnee Ppnaisest taxman tas ‘houmeteareaeag 4 batons606-021-1 Zara’s Supply Chain Management Practices “Zara has managed to fill a hole and seize an opportunity in Spain. It has done for fashion what IKEA did for furniture, filling the gap between hypermarket and designer clothing in a very desirable way." - Valerie Van den Boffche, Head Wolff Olins, Spain, in 2004, “Zara is nimbler and faster to the market. This will be important as fashion trends globalize. "? - Keith Wills, European Retail Analyst, Goldman Sachs’, in 2000. ‘ZARA’S FAST FASHION STRATEGY In 2004, a famous pop star toured Spain to give a series of concerts. Her outfits attracted instant attention from teenagers and young gicls across Spain. By the time the pop star had reached the last leg of her tour, Spanish girls were sporting outfits similar to the ones she had worn during her first concert. The outfits were designed and distributed by apparel retailer Zara, which quickly gnuged the demand for them and stocked up its stores across Spain in less than two weeks. ‘According to a survey conducted by Interbrand’, Zara was the only Spanish brand to be featured in the list of “The 100 Top Global Brands’ in 2005. It was featured at the 77" position in the list that featured Coca-Cola, Microsoft, and IBM in the first three positions. The survey featured only those brands with a value of more than USS | billion, which derived around 33% of their revenues ‘outside their country of origin and whose financial data was publicly available. Interbrand describing Zara, said, “Cutting-edge Spanish apparel retailer epitomizes cheap chic knocking out ‘mass-produced Copies of eatwalk fashions almost overnight”? Zara introduced about 12,000 designs every year; the shelf life of each design was about four weeks. In January 2006, Zara had 853 stores, located across the world (Refer to Exhibit I for the geographical spread of Zara’s stores). These stores received two deliveries from Zara’s central distribution center every week. The deliveries were customized in accordance with the data sent by them every day. Zara pioneered the concept of customized retailing and was able to conceptualize the gnrment, develop, and deliver it to the stores within two to three weeks. ‘The key to Zara's success was its vertically integrated structure where design, production, distribution, and retailing were integrated. Maria J. Garcia, spokeswoman for Zara, said, “The vertical integration of our production system allows us to place a garment in any store around the world in a period between {wo to three weeks.” (Refer to Table I for the time taken for Zara to make garments) Zara’s Doonar, Joanna, “Branding Espafa to the Rest of the World,” Brand Strategy, March 2004 2 Behikson, William, “The Mark of Zara,” BusinessWeek, May 29, 2000. 5 Goidman Sachs Inc, is one of the world's oldest investment banks founded in 1869. Its a primary dealer in the US treasury securities market. Goldman offers its clients mergers & acquisitions advisory, provides underwriting services, engages in propritary trading, invests in private equity deals and also manages the wealth of affluent individuals and fami. Interbrand Corporation is a leading brand consultancy, serving clients worlwide. Founded in London, Interbrand is headquartered in New York. “Global Brand, The 100 Top Brands,” BusinessWeek, August 01, 2005. Schapiro, Stephan A, “Flying Off the Rack,” Air Cargo World Online, September 2001. 2 i i # af lay 2015, Onder estas ‘eine ana ta oop) er your pert -suansen Rocey 0 Purchased torus ‘Yeu ag permite ovine Seat that you a606-021-1 vertically integrated supply chain received the attention of industry players and analysts According to Richard Hyman of Verdict’, retail consultancy in London, “Vertical integration has ‘gone out of fashion in the consumer economy, Zara isa spectacular exception to the rule.”* Table 1 Zara’s Supply Chain — ‘Time Taken from Start to Finish Process Time Taken Styl idea, quantity ete., conve yed to Head quarters One day Fabric from Stock Bt One day Design 7 ‘Three days Style Approval One day Prototype Development / Fit Sample / Approval ‘Three days ‘Garment Production Ten days Shipment Five days Adapted from Devangshu Dutta, “Brand Watch Zara, Images Fashion Forum,” ww. 3isite.com, February 12, 2004, ABOUT ZARA Zara was founded by Amancio Ortega Gaona (Ortega). Ortega worked as an assistant in an apparel] shop and in 1963 he set up his own fashion retail business named Confecciones Goa, in Arteixo-La Corufia, to manufacture housecoats®. In 1975, when a German retailer cancelled a major order, Ortega started selling the clothes from a small outlet in his factory and called the outlet Zara. Zara went on to become the flagship brand of the holding company, Industria de Disefio Textil, SA. Popularly called Inditex, which was founded in 1979. Ortega was credited with democratizing fashion in Spain; he was responsible for making designer clothing accessible to the masses. Between 1976 and 1984, Zara's presence was extended to major Spanish cities. The first store outside Spain was opened in'1988 in Portugal The next international ventures were New York in 1989 and Paris in 1990. By the end of 1990, Zara bad operations in 82 cities across Spain and three cities internationally. In the late 1990s and early 2000s, Zara continued its global expansion and opened stores in several countries. These included the UK, Japan, Chile and Uruguay (1998), Canada, Germany, Poland, Brazil, UAE, Saudi Arabia, and Bahrain (1999), Australia and Denmark (2000), Holland, Luxembourg, Iceland, and the Czech Republic (2001). In 2002, Zara entered Italy, Switzerland, Finland, Malta, Singapore, the Dominican Republic, and El Salvador, In 2003, the new markets in which the company established its stores were Sweden, Russia, Ireland, Slovenia, Malaysia and Jordan. Zara entered Hungary, Romania, Estonia, Latvia, Lithuania, Hong Kong, Morocco, and Panama in 2004. In 2004, Inditex owned about 100 companies engaged in several activities related to textiles, such as textile purchasing, textile manufacturing, and logistics. Through these companies, Zara was abke integrate its operations. For example, Comditel specialized in procuring undyed fabrics which 7 Verdict Research is one of the leading publishers that carry out analyses ofthe retail industry. Through is reports, it presents forecasts and analyses, which are used by retailers, manufacturers, analysts and medi. “Floating on Air,” Economist, May 19, 2001 ° A woman's garment, usually long and loose, used for informal wear at home. a i patsal ee en 7-ay 2018 1/09 Fay 201, One ref 245060, aca cap sunnasn Rod ral cine sn eae rot the you arent parmited to tarosuce ce esas ae ane RoE nea Purchases ‘You se pried te vew he606-021-1 could be dyed of printed as per the orders obtained. Zara procured 40% of the fabric from Comditel, and finished the processes of dying and printing in about 4 to 5 days. Dyestuff was obtained from another company, Fibracolor. Synthetics were supplied by external suppliers. By 2005, Zara had become the thied largest clothing retailer in the world in terms of re venues. As of January 2006, Zara operated in 57 countries. For the year ending January 2005, the company accounted for 67.4% of Inditex’s turnover with sales of € 3819.6 million. About 65.8% of Zara's revenues came from international markets. ‘According to Inditex, “Zara is a high-fashion concept offering apparel, Footwear, and accessories for women, men, and children, from newborns to adults aged 45. Zara stores offer a compelling blend of fashion, quality, and price offered in attractive stores in prime locations on premier commercial streets and in upscale shopping centers. Our in-house design and production capabilities enable us to offer fresh designs at our Zara stores twice a week throughout the year.” '° Zara always had something new to offer its customers and the supply of these products was limited, By not resorting to mass production, Zara was able to maintain the exclusivity of its products. ‘This also helped in creating a scarcity value -- shoppers were not sure if they could get the same product later and went ahead with buying the product instead of postponing their purchase. Zara abo scored high on offering garments similar to those created by famous fashion houses ata fraction of the price. In order to mainiain a constant flow of new supplies , the garments needed to be created at quick intervals according to the demands of customers and had to be replenished rapidly. Commenting on Zara, Richard Perks, retail analyst with Miniel'', said, “They've got to get the design. They"ve got to engineer it for low-cost production. They've got to take the gray fabric and print #. They've go to get it out (o their outworkers to be made up and they've got to ship it from Galicia right across Europe. That is an unbelievable achievement.” '? SPOTTING TRENDS One of the secrets behind Zara's success was its ability to spot emerging trends and react quickly. Zara had a dedicated design team in Atteixo, A Corufa, in northern Spain. Ideas for new designs or for modifications to be made in existing designs mainly came from Zara's stores. The store managers and sales staff updated the head office every day about the moving stock and about customers’ demands. Across all the stores, Zara’s sak staff was equipped with wireless handsets ‘which provided data to the store mana ger about the pisces sold, ‘The manager consolidated the data and sent it to the company headquarters through the Internet, The staff also provided inputs regarding the new lines, colors, styks, and fabrics that customers were demanding, It was quite ‘common for Zara's sales personnel to inform headquarters about a new styk that a customer had ‘been wearing. This could eventually become part of Zara’s line. ‘The store managers were selected carefully as they had an important roke to play in providing the crucial information which formed the base for new designs. People with retailing experience, who ‘could spot the right trends, and possessed a design sense were selected for the position. The store managers followed the trends in local fashion carefully. According to a store manager in London, | follow trends in London very closely. If Sienna Miller is doing boho, Zara will do boho. We're on top of every new style.” ‘© “offer Document Inditex,” 2001. 1 Mintel provides consumer, media, and market research services. It has several clients across the globe. ‘The company was recognized as a business super brand in the UK for four years. Mintel provides market and conser research reports and interactive reports 5 “zara: A Model Fashion Retailer,” CNN, July 22, 2004. 1 gaini, Angela and Ryle, Sarah, “New Kids on the High Street Cut a Dash with Fast Fashions,” www. observer, guardian.co.uk, June 05, 2005. 8 ese cos olay 2016. ty 2015, Orr et F2493s0, Purcnasac fuse by Subhash Rese on 0 ‘You se pomiiad oven fe naleil ainw sr ita copy fr eu art pani epogise of edu tay oer pupose beso ne606-021-1 Another source for the new designs was the team of designers who traveled across the world looking for new designs and the emerging trends. Zara kept scouting around at fashion shows, discotheques, universities, movies and music videos to spot new trends, DESIGNING Zara had a team of 200 designers, with cach designer chuming out about 60 styles a year on an average. The designers were encouraged to experiment, but within Zara’s defined parameters. ‘They were expected to adapt haute couture styles to the mass market, while not bringing in their own styles or influencing the designs. According to Ken Watson (Watson), Director of a London based Industry forum, who conducted an in-depth study of Zara, “Zara doesn't want any prima donna designers. They want young 26-year-olds who will work within their system." Zara had tree design centers -- one each for men’s, women’s, and children’s apparel. Each line had separate procurement, design, and production planning staff ‘The store managers across Zara’s stores placed orders twice a week, on Wednesdays and Saturdays in Southern Europe and Spain and on Tuesdays and Fridays in the other parts of the world. At the Zara headquarters, the store specialists collected the information obtained from different stores across the globe. This was then fed into a database. Each of the store specialists was responsible for a group of stores. They obtained informal feedback from the store managers and alo visited the stores periodically to assess the trends. Most of the store specialists had worked as store managers and had a deep knowledge about managing stores, Based on the feedback from the stores, the store specialists provided the designers with an outline of the new styles, designs, and fabric as demanded by the stores. The procurement and production managers provided inputs regarding the capacity and manufacturing costs. The designers came out with the design specifications and the technical brief. With all the teams working in tandem, the prototypes were ready within a few hours. Commenting on the fact that several teams worked together, spokeswoman from Zara, Carmen Melon, said, “We have five different teams sharing the same space, s0 design people work together with product people and merchandising, as well as the people who provide the samples and patierns.”"® Once the team came out with a prototype, designers used CAD" to further enhance the color and textures. Sampling did not take much time as the fabric was already available with Zara. The approvals were also obtained in quick time since the whole team was at one place. As soon as the approvals were obtained from the team and the final consent from Ortega, the fabric was sent for cutting. Ortega was involved in the day to day operations of the company. According to Martin Varsavsky, founder of Spain's Jazztel telecom, “He & very hands-on about the designs. Everything creative is passed on by him.”"* Zara also brought out its own collections periodically, one during spring/summer and another during fall/winter. The designers started working on the designs, colors, and fabric about eight ‘months in advance. Several patterns were deliberated upon before the final designs were decided con. Once the designs had been decided upon, fabric procurement and production planning began. "* ‘The term ‘haute couture’ is French. Haute means *high’ ot “elegant.” Counue literally means “sewing,” but hes come to indicate the business of designing, creating, and selling custom-made, high fashion women’s clothes. Thomas, Ryan J, “Uncovering Zara,” Apparel Magazine, January 2006, '® “Zara: A Mode! Fashion Retailer,” CNN, July 22, 2004 Computer-aided design (CAD) is the use of a wide range of computer-based tools that assist engineers, ahitecs, and other design professional in their design activities, "Heller, Richard, “Inditex Index, Inside Zara,” Forbes, May 28, 2001 5 al ear 7.2010, rt F240660 Putcnases torus by Suthesh Resey on O7-hy2018. 0 ite vow te alia ine are eet a coy ft your Pace nok tt you arent sand a feproouce oasis tr ay cher icose Yeu ae pa606-021-1 PRODUCTION Depending on the stykes and sizes to be produced, the fabric was cut at Zara’s own high-tech automated cutting facilities. Several layers of fabric, meant for garments of a particular design, were laid out on cutting tables, vacuum sealed, and cut by machines, based on a computer layout of the sample picces. The layout was prepared so as to minimize wastage. The fabric was then marked for sewing. ‘The pieces cut in Zara were distributed for sewing among 350 small workshops in Galicia and northern Portugal, These workshops, which were not owned by Zara, employed about 11,000 workers and were provided with a set of instructions. The garments were generally ready within a week of two, depending on the number of garments. With the fabric in stock, Zara was ready with the final product, including designing, pattern making, and cutting within 10 days. uc to this flexibility in production processes, when the demand for any design was low, Zara was able t0 stop its production, At the same time, it was able to modify its processes to produce more of the designs in demand. Analysts opined that it was Zara’s abifity to respond quickly that put the ‘company on a different plane as compared to the other fashion retailers. ‘After the stitched garments arrived at the manufacturing centers, they were checked twice for ‘quality, ironed, tagged, and then wrapped in plastic bags and sent to the distribution centers. About 60% of Zara's total production was carried out in Portugal and Spain, The company considered several factors like expertise, cost, and especially time sensitivity before opting for outsourcing, Zara carried out some of the capital intensive manufacturing processes inchiding dyeing and cutting the fabric indigenously while the labor intensive steps like sewing were outsourced Garments that required styling and reflected fashion trends were made by Zara while the basic designs and knitting were outsourced. On the flip side, the people cost that Zara had to incur was higher compared to other retailers who outsourced thei production to Asia (Refer to Exhibit II for Zara’s production process). DISTRIBUTION ‘The distribution of garments was carried out at Zara’s 500,000 square meter distribution center in ‘Arteixo. This center was located centrally among 14 manufacturing plants in La Corufia. Zara bad its own railway track of 21 km through which the goods moved from the manufacturing plans to the distribution center. In 2002, another distribution center was opened at Zaragoza in Spain to complement the existing facility. ‘The merchandise moved through optical reading devices that sorted out more than 60,000 items every hour. The distribution center had two levels and was fully automated. On one level was the section on folded apparel packed into cardboard boxes. The boxes were dropped through a shaft according to their destination. On the other level were garments placed on hangers. These garments were sorted based on their styles. There were two belt systems -- one for folded and one for hung garments. The garments were then routed using automatic routing devices. All the ‘garments were pre-priced and the lots labeled according to their destination. At the loading docks, fleets of trucks took the goods to their destinations. Twice a week, the garments were shipped out of the distribution center. Non-European consignments were sent to the airport at Santiago di Compostela, For stores within Europe, they were sent through trucks, which received the consignments within 24 to 36 hours. The stores located outside Europe received the consignment within two days. ‘The distribution center was used to select, sort, reroute, and resort merchandise between ‘manufacturing units and stores and was not used to store merchandise. About Zara delivering its products twice a week, The New Yorker"? wrote, “Twice-weekly deliveries may be common in the 9 The New Yorker is an American maguzine that publishes reports, criticism, essays, cartoons, poetry, and fiction. The first magazine was published in 1925. Earlier, the magazine was published every week. Later, the formatwas changed to forty weekly magazines and six special issues. 6 8 reer #240860 Purcheced for ue by Suthash Red on 07 sy 201 a 32 a 28 i Hy 3 4 A 28 g a 3. i 3606-021-1 sgyocery business, but in fashion retailing they're unheard of. The curse of the rag trade, afterall, is the enormous lag time between the inital sketches of that new A-line skirt and its arrival in stores. Instead of reacting quickly to what customers want now, most retailers must guess what they’ Il Want six or nine months hence. That's hard enough if you're selling televisions or bieyeles. In the fashion business, it's elose to impossible." Once the trucks reached the stores, the garments could be put on display straight away as they were pre-priced and already ironed, Zara was able to achieve an accuracy level of 98.9% in its shipments. The items sent toa particular store had the items thatthe store managers had asked for and sometimes new items that were proving popular with stores at other nearby locations. With new stock arriving twice a week, the stores always had something new to offer and the customers waited eagerly for the new arrivals. According (o Zara, on an average, customers visited Zara's stores 17 times a year, compared tothe thre to four visits its competitors received STORE OUTLAY Zara was very particular about the location ofits stores. The stores were mostly located in prime locations across the world. For example, Zara outlets were located in 34% Street, Fifth Avenue, Solto in New York; Regent Street in London, and Champs Elysées in Paris. All of Zara’s stores ‘were uniform in outlay, including lighting, fixtures, window display, and arrangement of garments, A typical store had a floor space of 1200 square meters ‘The stores were brightly lit with a mix of halogen and fluorescent lighting. The back walls were fully li and the lights placed around and above the merchandise diffused light from all sides. Color was not used much in the interiors, which were mostly in white, natural pine, mill work, and brushed stainless steel hues. The glass paneled facade was brightly lit with a prominent display of products, mannequins, and posters showing Zara’s clothes, Zara planned its store windows and displays carefully. At the company's headquarters, there were 25 {ull length display windows. These windows had display platforms and variable light, which helped Zaca.in determining how the display unit would look on bright days, on cloudy days, and during the night. team of window designers worked to artive atthe look of the windows at each of their steres ‘The window presentation designs were then sent to the siores and most of Zara's stores across the world sported those designs. On Zara’s store designs, Domenico De Sole, the CEO of Gucci" said, “What always strikes me is the very high quality of thei store presentation.” ‘The disphy of clothes was given prominence inthe stores. When the shipments arrived, there were codes on all the items which conveyed to the staff where exactly the items needed to be placed. In the stores, the clothes were organized by color rather than type of garments. This was done in ‘order to encourage customers to spend more time at the stores and to spot the matching items. According to a sales assistant in one of Zara's stores, “We always have something that looks like What the customer wants. If the flowery dress sells out, there will be a white one of the same design in stock. Customers won't leave the store empty-handed.”?* Allof Zara's stores were located at places where there was constant pedestrian flow and they had huge windows to display the merchandise. This acted as a major pull factor in atracting customers. Zara belicved that these locations themsclves provided the required advertising the company spent very litte (about 0.3% of its total revenues) on advertising or on the launch of new stores. % Surowiecki, James, “The Most Devastating Retailer inthe Worl,” The New Yorker, Novemb 2000. * taly-based Gucei Group NV is one of the world’s leading muki-brand luxury goods companies. The group companies design, produce, and distribute high-quality personal lnxury goods, including ready-to- wear apparel, handbags, luggage, small eather goods, shoes, timepieces, jewellery, ties and scarves, ‘eyewear, perfumes, cosmetics and skincare products ® Heller, Richard, “Inditex Index, Inside Zara,” Forbes, May 28, 2001 % Saini Angela and Ryle, Sarah, “New Kids on the High Street Cut a Dash with Fast Fashions,” www observer. guardian. ce-uk, June 05, 2005, nT ay. 201 unas 2 Surah Rayon 7M 201, ere 28860 a coy fr yous peso vce ot reproduce Or onetne ee a aoe indo view he ales orto Purmasae or use raha You shot peraiaeste ‘you ae Base606-021-1 Zara's huge stores presented the ambience of upscale boutiques, with marble floors and effective lighting. One of the customers visiting Zara in New York commented, “You feel like you're ina classy European boutique.”” Most of the stores were company owned and in some markets partisulrly in Asia, Zara adopted the route of alliances and franchises. Al the franchise operations Wwere controlled by strict quality procedures laid out by Zara. It provided the franchise partners With extensive training in human resources and logistics. Even while entering into agreements with franchisees, Zara retained the right 1o open its own stores in the location and buy out franchised operations in case it experienced any problems with running the stores. REAPING THE BENEFITS Instead of projecting sales for a certain color, fabric, or style and launching such products, Zara reacted swiftly to emerging trends in the fashion industry. The company ensured that its stores Were stocked with the products that the customers wanted at that point of time. In contrast, other retailers took between 8 and 12 months to forecast and arrive at a style and send it for production. Zara’s initial forecast was limited to the kind of fabric and the amount of fabric it would buy. The fabric thus procured was unprocessed and undyed and Zara colored the product only before selling it, based on the need and demand by consumers. Zara sourced undyed fabric from the Far East, Morocco, and India ‘When Zara opened stores in new locations, the shop assistants clearly told the customers that the styles changed every week and that they might not find the same piece in the stores again. Once a product was in the stores, Zara quickly moved on to the next styk. With new styles being introduced every week, consumers were likely 0 visit the store more often. Producing a product in limited quantity had another advantage. Ifthe style did not sell as expected, Zara did not lose: much, as there was not much stock to be discounted. On an average, Zara sold ‘only 18% of the clothes through discount sales twice a year, as against the industry average of 36% and constant markdowns. Analysts opined that Zara’s main advantage was its ability to respond ‘during the season. If any collection was not doing welll during the season, Zara could immediately realign its resources, whereas the other retailers had to resort to discounts and advertising to clear thei stocks Zara used the pull process instead of forecasting to gauge market trends. As soon as a product was sent to the stores, Zara would know if the new design was going to succeed or not, based on immediate feedback from the sales force and store managers. Products that did not sell as expected ‘were immediately discontinued. According to Watson, “The fundamental thing about using small batches and this model i that (you) are continually making decisions based on consumer demand. ‘And if you cut your demand to your supply and are able to do it quite quickly as it begins, you're ‘always on the upward start of the demand curve, which is the highest rate of sales.”*° Defying conventional wisdom, Zara adopted practices that resulted in higher costs. These included three product lines, deliveries twice a week, using planes and trucks to transport its goods instead of cheaper alternatives like trains and ships, and shipping some of the garments on hangers, which ‘cccupied more space, thus increasing freight charges. However, these practices helped Zara maintain a low inventory and higher profit margins. Analysts opined that Zara's supply chain did not minimize costs but worked towards maximizing re venues. ‘When most of the European retailers were moving their production processes to low cost countries like China and India to minimize their costs, Zara made efforts to Keep its costs low, despite manufacturing in Spain and other European countries. ‘The company did not own any of the ‘workshops where the sewing was done. These workshops employed women from villages and small towns. Their average wage was around US$ 500 a month as against the US$ 1,300 per ® Eehikson, William, “The Mark of Zara,” BusinessWeek, May 29, 2000. 25 Thomas, Ryan J, “Uncovering Zara,” Apparel Magazine, January 2006. 8 40860 12016 ery pennl cs unl 7a ere ee Psa toue tis ay soar buaoee sh Reddy on OTA 2016. Ot ing sre sort 20) Purchases for us by Suh ‘Youar pain era606-021-1 month paid to industrial workers. However, these wages were still 5 to 7 times higher than those paid in India or China. Zara was thus able to achieve the flexibility of making and distributing the garment in a few days, something which would have not been possible if the manufacturing was, done in these low cost countries. According to David Bovet of Mercer Management Consultant, “The dominant way of thinking for a whike now has been, find the cheapest country out there and got it t0 produce your stuff, but what Zara has said is that proximity matters. Even if you save a couple of bucks an hour by shipping the stuff off to the Third World, you end up paying more in the end, because it destroys your flexibility.” ™ Zara's use of information technology (IT) was limited. According to Andrew Mcafee, specialist in the corporate use of IT at Harvard Business School, “The company keeps its technology simple ~ even a litte old-fashioned ~ but as a result spends five to ten times less on information technology than its rivals LOOKING AHEAD Industry analysts were of the opinion that Zara could not continue with its supply chain model for too long. With many retailers moving their manufacturing processes to India and China to control costs, Zara would have to follow suit sooner or later in order to remain competitive. However, if the production was to move out to low cost countries, Zara could lose its advantage and might not be able to refurbish its product lines in quick succession, the analysts felt By 2008, the quotas” imposed on the Chinese textile industry by the US and the European Union ‘would be removed. Most of the leading European textile companies were expected to move their ‘manufacturing processes to Asia, particularly to China, due to lower costs. Several luxury apparel brands would also start sourcing from China, According to Nathan Cockeril, analyst w ith Credit Suisse First Boston (CSFB), “The economics of Asian sourcing actually work better for some luxury companies than fast-fashion retails, because the margins on more expensive goods aren't affected as much by the cost of putting them on a plane.”™ Analysts cautioned Zara against aggressive expansion. They pointed out that the farther Zara moved its operations from Spain, further away it would be from its centralized distribution system, which would lead to higher costs. Analysts warned that vertical integration, which was Zara’s strength, could also turn out to be its weakness, if it continued expanding to far off locations in ‘Asia and America. One of the disadvantages of vertical integration was the luck of economies of scale, where Zara was unable to reap the advantage of producing large quantities of products to sell them at competitive prices. Retail experts suggested that Zara should complete its expansion in the European markets before expanding into the Asian markets. In case Zara wanted to expand further, analysts opined that it needed to decentralize its production processes and have a production center for a cluster of countries along with distribution centers % surawiecki, James, “The Most Devastating Retailer in the World,” The New Yorker, November 2000. 2 «The Future of Fast Fashion,” Beonomist, June 18, 2005, 2 In order to protect European manufacturers from Chinese imports, a quota was imposed on 10 categories ‘of clthes from China, Under the terms, the quotas restricted the annual imports of the specified items tll 2008. America also entered into a similar agreement for 34 categories of clothes. After the quotas are removed, the European manufacturers who ure not able to manufacture garments in China would be able ‘to manufacture them and source their products from China, ® CSEB is a New York based investment banking and financial services firm. Its a division of the Credit ‘Suisse group and has started operating under the the name Credit Suisse since January 16, 2006. The firm caters for three different categories of clients — institutional, investment banking and investment ‘management clients. % Foroohar, Rana, “Fabulous Fashion,” Newsweek International, October 17, 2006. 9 ‘a apionucecr eda ris on ne ara pet ay for yourpereonal ue ul 7 ty 2018 Suaagh Redon 07 May 2 crates Purchases fru ‘You ae pers va Piase rae het ou606-021-4 Exhibit 1 ‘Zara ~ Global Presence (January 2006) America Europe Country No. of Stores Country No. of Stores Argentina 6 Andorra 1 Brazil 4 Austria a 8 Canada 14 Belgium 18 a a Cyprus 3 Costa Rica 1 Czech Republic 3 Dominican 1 Denmark 4 Republic ELSalvador 1 Estonia 1 Mexico 39 Finland 4 Panama 1 France 90 Uruguay 2 Germany aL Venezuela 9 Greece 38 USA 19 Hungary 2 Total 12 Ireland Asia Traly 36 Country No. ofStores | Latvia 1 Hong Kong, 4 Lithuania 2 Japan 18 Luxembourg 2 Malaysia 3 Malta 1 Singapore 3 Monaco H Indonesia 2 Netherlands 6 Philippines i Poland i Total 31 Portugal 46 Middle East & Africa Romania 1 Country No. of Stores | Russia 7 UAB, 5 Siovenia 3 Bahrain 1 Spain 259 Israel 4 Sweden 4 Jordan 1 Switzerland 8 ins ands. copy fervour patsoal ue ot T-y-2016 "hen nish! youn ot paren to roprosus tects tis ay eine puree Purchases fo use by Suanasn Rede on 7 May 2015. Orde cf F246660 “you ae permed van fe meters606-021-1 America Europe Country No. of Stores Country No, of Stores Kuwait 4 ‘Turkey 13 Lebanon 2 UK 45 | ‘Morocco I Total 665 Qatar 1 Grand Total 853 ‘Saudi Arabia 16 Total 45 | | Source: www. inditex.com. | | Exhibit If Inditex International Expansion ‘Year | Countries 1988 | Portugal 1989 | USA 1990 | France 1992 | Mexico 1993 | Greece 1994 | Belgium, Sweden 1995 | Malta 1996 | Cyprus, 1997 | Norway, Israel 1998 | Argentina, Japan, UK, Veneaela, UAE, Lebanon, Kuwait, Turkey 1999 | Netherlands, Germany, Poland, Chile, Saudi Arabia, Babrain, Canada, Uruguay 2000] Austria, Denmark, Qatar, Andorra, 2001 | Puerto Rico, Jordan, Ireland, Italy, Iceland, Luxembourg, Czech Republic 2002 | ELSalvador, Finland, Singapore, Dominican Republic, Switzerland 2003 | Russia, Slovakia, Slovenia, Malaysia 2004 | Hong Kong, Morocco, Estonia, Latvia, Romania, Hungary, Lithuania, Panama 2005 | Morocco, Indonesia, Philippines, Costa Rica Source: www.inditex.com. ucpeses cae uae ase ona 018 rat ‘You pais tne te hall insane pea Sony fr you pool coe Tay 20 ‘ea nol that you enn pares to mpocuce ot exaust prpose606-021-1 Exhibit ITT ‘Manufacturing Process of Zara Sales personnel & store Designers travel across the world ‘managers obtain customer ‘scouting for trends, ideas and feedback, monitor local trends designs ‘and update the headquarters daily Data obtained used to decide on price, fabric Undyed fabric supplied from far-east ate Store specialists, designers, procurement and production managers work in tandem to arrive at new designs Sampling and approval Fabric is dyed, cut and sent to workshops for stitehing Stitched garments are checked for quality and sent for distribution | Garments are sorted out and sent to Zara stores across the world ‘Adapted from J. L.W. Lo, B. Rabenasolo and A-M. Jolly-Desodt, “Leveraging Speed as a Competitive ‘Advantage’ A Case Study of an International Fashion Chain and its Competitors,” Fashion Net, International Conference 2004, R a oo) tr your parson vse unl ay 2018 wan gtesace tats te ay ater papers Purchased for use by Sutnagn Red on 07-May-2019. Ore et F246, alr cate nd rt cob) AES not that youre nt por ‘You as pore io aw606-0214 Additional Readings & References: 1. Echikson, William, The Mark of Zara, BusinessWeek, May 29, 2000. Folpe, Jane M, Zara Has a Made-to-Order Plan for Success, Fortune, September (04, 2000. Echikson, William, The Fashion Cycle Hits High Gear, BusinessWeek, Sepeember 18, 2000, Surowiecki, James, The Most Devastating Retailer in the World, The New Yorker, November 2000. Floating on Air, Economist, May 19, 2001 Heller, Richard, Inditex Index ~ Inside Zara, Forbes, May 28, 2001 Zara, a Spanish Success Story, www.cnn.com, June 15, 2001 Zara Tests Market with Brand Launches, Estates Gazette, June 08,2002, Dutta, Devangshu, Retail @ The Speed of Fashion Part I and IL, www.3isite.com, 2002 and 2003, 10. Bainbridge, Jane, High-Speed Retail is Quick to Answer Customers’ Needs, Marketing (UK), April 03, 2003, 11. Spain’s Best Brands, www.brandchanneL.com, February 16, 2004, 12, Doonar, Joanna, Branding Espaiia to the Rest of the World, Brand Strategy, March 2004. 13. Ferdows, Kusra; Lewis, Michael A. and Machuca, Jose AD, Rapid-Kire Fulfillment, Harvard Business Review, Novernber 2004. 14, Pepper, Robert, Loyalty’s Missing Link, Marketing (UK), March 23, 2005. 15, The Future of Fast Fashion, Zeonomist, June 18, 2005 16, Global Brand, The 100 Top Brands, BusinessWeek. August 01, 2005. 17. Murphy, Robert, Strong Sales at Zara Boost Inditex Profit, Women's Wear Daily, September 23, 2005. 18, Foroobar, Rana, Fabulous Fashion, Newsweek International, October 17,2005, 19. Thomas, Ryan J, Uncovering Zara, Apparel Magazine, January 2006, 20. www.inditex.com, 21, www.zara.com, 2018. Sumnasn Rad nine on May 2018, et ee ra pnt oy fr your pesca vse Ta perine fo rapecuse ee ectbuts ory che tao Purchase torus You ae pated ton he Paso not tat you