Department of Science in Business Administration

MAJOR IN OPERATION & SUPPLY CHAIN MANAGEMENT

A Case Study of An ETEEAP Student

Judylyn De Guzman Bo

January 2021

Supervisor: Mark Alfie David

This is ZARA Fashion,

Zara is a Spanish clothes and accessories brand, it is the flagship brand of the Inditex group.  Few
clothing brands keep up with the latest fashion, are of high quality and yet, affordable. It is
probably the amalgamation of all these qualities that made Zara, the Spanish clothing brand
become the go-to fashion brand for all.

It is no surprise that Zara, which started off as a small store in Spain is now the world’s largest
retailer and its founder, Amancio Ortega , the 4th richest man in the world.

History and Founders

It all began when Ortega established a dress-making factory, Inditex, in the year 1963.Ten years
later, he started off a small store that was named as Zorba in La Coruna, Spain with a budget of a
meagre 30 Euros. He then changed the name as Zara with no particular intention. And that’s how
the world’s favourite fashion brand of today was born. Zara slowly expanded its empire from the
town in Spain to the rest of the country and then later to Portugal. By the 1990’s the store had
expanded into the United States, France and most of the Europe. Today, Zara has close to 6500
stores across 88 countries around the world

Current market situation

MARKET ORIENTATION STRATEGY The main interest in this thesis is to know if market orientation
succeeds in getting brand awareness without using advertising. According to articles about one of our
subjects, Zara, this strategy is widely used by the said brand, and the brand owner Inditex proudly
declared that it hardly used advertising to sustain competitive advantage in the fashion industry

ZARA is a retailing chain with several stores situated worldwide. Its marketing strategy is based more on
expansion rather than advertising or traditional methods of promotion. ZARA originated in Spain and
with over 500 of its stores currently located there, the market has become rather saturated. Hence it has
expanded to 70 countries. ZARA produce apparel for women, man, and kids.
Zara has gained attention in business academia for its successful implementation of market orientation.
The market orientation is the strategy of creating customer value by a focusing on the customer
throughout the vertical organization of the company. The whole business model of Inditex is
characterised by a high degree of vertical integration and very short lead times. The company states that
it hardly uses advertising. It just spends 0.3% of its revenues to advertising and marketing. This is
significantly less compared to the industryís average of 3-4%. Instead of spending on advertising, Zara
positions itself in primary locations, invests more on store layouts and shortens its lead time. All its stores
are also located in prime locations in big city districts. The average store size is 1,376 square meters and
make-over of old stores are done every 3-4 years.3

Target Marketing

The target market is composed of men and women, 18-40 years of age, with mid-range incomes. The
target customer is very fashion forward and trend conscious, residing in an urban area. They are either
shopping for themselves or for their children. Zara's customers are definitely sensitive towards having the
most up to date and fashionable clothing and accessories but at an affordable price.

Zara’s target customers are paying attention in high trends and want to have the latest fashion trends but
cannot afford dresses from the haute couture boutiques. In consideration of the market, Zara provides the
customers with a turnover period of 4 and 5 weeks for its “New Arrivals” collections.

Costumer profiles

In order of Alexa audience report on Zara.com on Figures 1) Appendix III) it shows the equal the main
users age from 18-34, in addition, mostly female and half of them have children. The main visitors by
countries of Zara.com on Figures 3) Appendix III) are from Spain (11.2%), United States (10.6%),
United Kingdom (8.1%), France (7.7%), Germany (6.6%), China (4.3%), Italy (4.3%), Poland (3.3%)
and Japan (3.2%), which demonstrates a balanceddemographical mix of customers around the world
ZARA marketing Mix:

Product

Zara manufactures and sells products such as clothes, shoes, cosmetics and accessories for men, children
and woman. Furthermore, Zara extended its collection with additional sizes (petit, tall).

Price

Zara provides for people with lower income so its prices are very reasonable that everybody can afford
that. Cost effectivity influences also the supply chain management, which requires a fast decision making
process.

Place

Zara is present in about 30 countries at private locations. There are 600 commercial stores and Zara is
selling its service trough out the world. High frequency in the flagship stores with high valuable interior
designs; new openings in prestige locations (Pitt Street, Sydney; Burke Street, Melbourne; Taipei 101
building; Taiwan and in EU: Rathenauplatz, Frankfurt; George Street London, Van Baerlestraat,
Amsterdam) are Zara’s target strategy.

Promotion

Zara focuses less on advertisement based marketing, but more on internet online marketing opportunities
as ECommerce strategy, social media and online shops. From the original focus on central European
market, Zara expended its multi-channel strategy of stores and expansion in new markets such as Japan
and the United States and extended online sales to Denmark, Norway, and Sweden, Monaco and
Switzerland.

Current Market Strategy

Zara is considering setting up loyalty programs to create a link with its customers and
increase the number of people that visit the stores. Also the company is heavily concentrated on
improving its logistics system which is very important to the company in having success in the
clothing industry. Zara markets towards the Euro-chic crowd who wants more fashionable clothes
with a shorter lead time. Zara produces lower quantities of clothing, therefore the supply of their
items are very scarce. Zara relies more on location of a retail establishment rather than advertising
to attract customers. Only .3 percent of sales are spent on advertising for the company compared
to that of its competitors who spend around 3.5 percent. Zara is more concerned with finding the
exact retail site that best suits the company rather than spending the extra money on luring
customers into thestore.

Major competitors

H&M Online-Shop presents a multifunctional choice of fashion for women, mean and kids. The
user can select his search criteria by quality, characteristics, colour, size and prize, furthermore H&M
provide a dress room function under Figure 6) Appendix V) where you can create your own outfit and by
selecting the model under figure 7) Appendix V). H&M clearly represents the ethical fairness of
customers around the world. Beside of this H&M focuses close attention on details (coat open / close;
colour selection) by additional outfit presentation Figure 8) Appendix V). The User can even create out
of an autumn a winter outfit or adding additional articles such as sunglass. The item list which provides a
clear overview of the total costs is present at all time on the left side of the page. Under Figure 10) - 16)
Appendix V), it’s all about excitement and styles. Current campaigns can be easily tried in the dress
room, moreover the background can be changed by fancy colours, last but not least, the shipment costs of
USD 6 (GBP 3.90) and the delivery time of 4-6 working days provide a customer-friendly service.

GAP Online-Shop presents a multifunctional choice of fashion for women, mean, kids, maternity,
babies and more, Figure 17), 21), 22), 23) and 24) Appendix V). The user can expend his search criteria
by additional functions. GAP provides an outfit search under Figures 18), 19) Appendix V), which can be
easily selected for purchase, Figure 20) Appendix V), compared to H&M where it’s only a dress room
and not a purchase sector. The shipment costs of USD 7 and the delivery time of 2-5 working days
appear customer-friendly as well, furthermore, by selecting 7-8 working days there would be no extra
charge for delivery and by express delivery of only one working day the costs of USD 22 are acceptable.
Zalando Online-Shop presents as well a multifunctional choice and outfit selection for women, mean,
kids, babies and more, Figure 25), 26), and 27) Appendix V). There are no shipment costs under Figure
28) Appendix V), regardless of the purchase volume. For returned goods no shipment costs are charged.
Compared with the other competitors a standard delivery time by Zalando of only one working day can
be rated as first-class customer service

Figure: A Product Market Positioning Map

 Price+

Benetton

Gap Massimo Dutti

Fashion- Fashion+

ZARA

H&M

Bershka

Price-

PEST Analysis

Political Analysis

Zara as one of the best retail brands worldwide has various interactions with governmental policy for
intervention in the economy and legal aspects in decision making processes. There are restrictions in
different countries, which have to be considered before forcing a market entry. In addition the trade
policy requires specific adjustments as for example in China there is a currency policy which causes
imports to the countries to be significantly above market price or India who requires productions in the
country.

Economic Analysis

Global growth increased to 3.6 percent in the first quarter of 2012 and Global trade rebounds in parallels
with industrial production in the first quarter 2012, which, in turn, benefited trade-oriented economies,
notably Germany and those in Asia. (World Economic Outlook Update, July 2012) Zara’s expansion
strategy in Asia correspond with the GDP accumulated growth Figure 2) Appendix I), however Zara
should be aware of GST, Duties and Tariffs. They are based on the classification code of the goods,
valuation and country of origin. The worldwide distribution audience channel under Figure 1), Appendix
I) present a % composition of regional visitors to selected retail and auction sites. Amazon Sites attracted
35.4% of its audience from North America, while Europe contributed 31.8% of visitors and Asia Pacific
accounted for 24.1%, on contrary where Wal-Mart attracted 83.4% of its audience from North America
and with only contributed 8.9% from Europe and Otto Gruppe attracted 92.3% of its audience from
Europe.

Social Analysis

Regarding the social media trend development it’s a must for Zara to establish a social media relationship
to satisfy customer’s demands due to change in generation choices. It’s one of Zara’s strength to provide
direct social contact to the customers as per Newsletter, Facebook, Twitter, Pinterest, Youtube, Flickr,
Web mobile or a customer account. Furthermore, Zara social engagement for

Technological Analysis

Zara’s IT strategy has to consider the complexity and requirements regarding of the organic growth
strategy to reduce costs and improve quality. The consumers can benefit from these developments as well
as the organisation itself by providing the efficient source of technology service. Furthermore, Zara
should establish an E-Commerce strategy to expand not only on existing markets, moreover on new
markets with online shopping opportunities.

SWOT Analysis
Conclusion

Even tough Zara is focussing on new opening flagship stores at prestige locations around the world and
providing high-fashionable new products every 4-5 weeks Zara should consider that there are potential
new customers worldwide who do not visit Zara locally, because of time-efficiency Zara is not the first
choice (other priorities in free time as local shopping), location wise not possible (too fare away from a
local store) or because organizational wise to complicate, like a young mother, who has to handle her
career, children and family in the same time. Even though Zara’s online shops feature all major functions
it does not correspond with Zara’s local presentation (prestige image), even more a bit disappointing,
especially compared with H&M’s creative way to convey fashion online with the dress room function,
moreover, by saving outfits or share on facebook, twitter, send a link or e-mail.

Recommendation

Due to the fact that of online expenditure in sales not only increases the economical profit, it boosts the
online ranking worldwide and creates an added value on the brand. It’s highly recommended to build a
customer friendly online shopping opportunity based on Appendix II) Customer Experience. By taking
into account of customer friendly shop presentation among creative features, fair delivery condition with
an easy return process
Discussion of Questions

1. As completely as possible, sketch the supply chain for Zara from raw materials to
consumer purchase

2. Discuss the concepts of horizontal and vertical conflict as they relate to Zara.

3. Which type of vertical marketing system does Zara exhibit? List all the benefits that Zara
receives by having adopted thissystem.

4. Does Zara incur disadvantages from its “fast-fashion” distribution system? Are these
disadvantages offset by theadvantages?

5. How does Zara add value for the customer through major logistics functions?

REFERENCE

Alexa - The Web Information Company (online analysis)

http://www.alexa.com/siteinfo/zara.com

Best Retail Brands 2012 - http://www.interbrand.com/en/BestRetailBrands/2012-Best-

RetailBrands.aspx

Online Shopping Customer Experience Study

http://www.comscore.com/ger/Press_Events/Presentations_Whitepapers/2012/Online_Shopping
_Cust omer_Experience_Study

SWOT Analyasis. (2010). Strategic Management – Swot Analysis. Retrieved May 20, from
http://www.quickmba.com/strategy/swot/

Wikipedia website Zara http://en.wikipedia.org/wiki/Zara_%28retailer%29

Zara website - https://www.zara.com/ph/

ANSWERS

1. As the case points out, finding the starting point of a product concept is hard to nail down
with Zara. But the following is an attempt to do this:
Design: The starting point is a collaborative phase that includes teams of creative
professionals who carry out the design process and store managers who spot trends and
feed data to corporate.
 Materials: Zara makes 40 percent of its own fabric. It is not clear from the case where the
other 60 percent comes from, but given the information on the rest of the process, it is
likely purchased more on a local basis than on a global basis.

Cutting: Zara produces more than half of its own clothing. It cuts all fabric in- house at its
complex in Spain.

Sewing: Cut fabric and designs are sent to one of several hundred local co- operatives.

Ironing: Ironing is performed in-house by workers trained for a specific task (lapels,
shoulders, etc.).

Final preparation: Clothing is wrapped in plastic and transported on conveyors to local

Zara-owned warehouses. The automated warehouses sort, pack, label, and allocate
clothing items to specific regions andstores.

Delivery: Stores within a 24-hour drive receive deliveries by truck. All other stores
receive their goods via air parcel.

Sale: All stores are company owned.

2. There is little information given in the case regarding channel conflict. But one could
easily speculate as to the outcomes. Because Zara owns much of its own supply chain and
exhibits an extreme amount of control over the elements that it does not own, conflict is
likely minimal. With respect to horizontal conflict, the only members of the supply chain
on a horizontal level would be the hundreds of local sewing co-operatives. It is difficult
to imagine the type of complaints that such co-operatives might wage against each other
that would affect Zara. However, horizontal issues might result in vertical conflict. Zara
owns much of the supply chain. Thus, any conflict would be internal and could be
handled in a much different manner than if the entities were independent. But the co-
operatives are not company owned. Because there are so many of them, however, conflict
should be minimized as Zara has plenty ofoptions.

3. While Zara does not own all of the stages of the vertical marketing system, it seems to
have a strong control over those that it does not own. Zara’s system fits the description of
a corporate VMS better than it fits the contractual or administered systems. The text
provides an outtake example of Zara in the section on corporate VMS that illustrates the
benefits that Zara achieves through this structure. These include control over almost
every aspect of the supply chain, more items produced, faster design-to-shelf times, lower
inventories, and more frequent shipments. In short, Zara is faster, more flexible, and more
efficient than other fashion houses and chains because of its corporateVMS.

4. One disadvantage that Zara incurs is possibly a higher cost on materials and labor by not
sourcing globally to the cheapest source. This, however, is offset by the cost savings of
not having items shipped all over the world. It is also offset by dramatically faster
 response time between each stage. Because Zara’s competitive advantage is the “fast”
part of the fashion, this is much more important than the minimal amount that Zara could
save by sourcingglobally.

5. Warehousing: The only warehousing done in this system is local and brief for the
component parts and the finished items. This adds value by cutting down on costs
associated with warehousing and by decreasing the time-to-shelf.

Inventory Management: The IT system and the VMS in general both contribute to Zara’s
ability to offer a just-in-time system. This results in lower inventories, cut costs, and
faster throughput.

Transportation: Zara’s shipping system is certainly quick. That is the big advantage.
Shipping by air freight to individual stores is not the cheapest way to go. But again,
Zara’s competitive advantage is speed.