Related chapter: Ch 2 Management Learning: Past to Present

Mini Assignment # 2

[Related Chapter: Global Dimensions of Management]

Cases 2 Zara International | Fashion at the Speed of Light

In this world of “hot today, gauche tomorrow,” no company does fast fashion better than Zara
International. Shoppers in a growing number of countries—86 at last count including Canada—are
fans of Zara's knack for bringing the latest styles from sketchbook to clothing rack at lightning speed
and reasonable prices.

Zara's parent company Inditex is known for year-on-year strong sales gains. Low prices and a rapid
response to fashion trends have pushed it into the top ranks of global clothing vendors. The chain
specializes in lightning-quick turnarounds of the latest designer trends at prices tailored to the
young—about $27 an item. Louis Vuitton fashion director Daniel Piette has described Zara as
“possibly the most innovative and devastating retailer in the world.”

Inditex shortens the time from order to arrival using a complex system of just-in-time production
and inventory management that keeps Zara ahead of the competition. Its distribution centres can
have items in European stores within 24 hours of order receipt, and in North American and Asian
stores in under 48 hours. “They're a fantastic case study in terms of how they manage to get product
to their stores so quick,” said Stacey Cartwright, executive vice president and CFO of Burberry
Group PLC. “We are mindful of their techniques.”

The firm carefully controls design, production, distribution, and retail sales to optimize the flow of
goods, without having to share profits with wholesalers or intermediary partners. Customers win
with access to new fashions while they're still fresh off the runway. Twice a week Zara's finished
garments are shipped to physical distribution centres that all simultaneously distribute products to
stores worldwide. These small production batches help the company avoid the risk of oversupply.
Because batches always contain new products, Zara's stores perpetually energize their inventories.
Most clothing lines are not replenished. Instead they are replaced with new designs to create scarcity
value—shoppers cannot be sure that designs in stores one day will be available the next day.

Store managers track sales data with handheld devices. They can reorder hot items in less than an
hour. Zara always knows what's selling and what's not. When a look doesn't pan out, designers
promptly put together new products. New arrivals are rushed to store sales floors still on the black
plastic hangers used in shipping. Shoppers who are in the know recognize these designs as the
newest of the new; soon after, any items left over are rotated to Zara's standard wood hangers.

Inside and out, Zara's stores are designed to strengthen the brand. Inditex considers this to be very
important because that is where shoppers ultimately decide which fashions make the cut. In a faux
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shopping street in the basement of the company's headquarters, stylists craft and photograph eye-
catching layouts that are emailed every two weeks to store managers for replication.

Zara stores sit in some of the glitziest shopping locations—including Queen Street West in Toronto,
Rue Sainte-Catherine in Montreal, Robson Street in Vancouver, and a 2,500-square-metre store in
Toronto's Eaton Centre, near the flagship stores of leading international fashion brands—which
make its reasonable prices stand out. It's all part of the strategy. “Inditex gives people the most up-
to-date fashion at accessible prices, so it is a real alternative to high-end fashion lines,” said Luca
Solca, senior research analyst with Sanford C. Bernstein in London. That is good news for Zara as
many shoppers trade down from higher priced chains.

A Single Fashion Culture

The Inditex group began in 1963 when Amancio Ortega Gaona, chairman and founder of Inditex,
got his start in textile manufacturing. After a period of growth, he assimilated Zara into a new
holding company, Industria de Diseño Textil. Inditex has a tried-and-true strategy for entering new
markets: start with a handful of stores and gain a critical mass of customers. Generally, Zara is the
first Inditex chain to break ground in new countries, paving the way for the group's other brands,
including Pull and Bear, Bershka, and Massimo Dutti—the latter of which continues to expand in
Canada.

Inditex farms out much of its garment production to specialist companies, located on the Iberian
Peninsula, which it supplies with its own fabrics. Although some pieces and fabrics are purchased
in Asia—many of them not dyed or only partly finished—the company manufactures about half of
its clothing in its hometown of La Coruña, Spain. Inditex CEO Pablo Isla believes in cutting
expenses wherever and whenever possible. Zara spends just 0.3 percent of sales on ads, making the
3–4 percent typically spent by rivals seem excessive in comparison. Isla disdains markdowns and
sales as well.

H&M, one of Zara's top competitors, uses a slightly different strategy. Around one-quarter of its
stock is made up of fast-fashion items that are designed in-house and farmed out to independent
factories. As at Zara, these items move quickly through the stores and are replaced often by fresh
designs. But H&M also keeps a large inventory of basic, everyday items sourced from inexpensive
Asian factories.

Fast Fashion on the Move

Inditex launched its Zara online store by offering free two- to three-day shipping and free returns in
the model of uber-successful U.S. e-retailer Zappos. A Zara iPhone app was downloaded by more
than a million prospective clients in the United States in just three months.

Using the information in the case above, please answer the following questions:

1. In what ways are the elements of the classical management approaches evident at
Zara International? [1.25 mark]

2. What elements of the behavioural management approaches are being used by Zara’s
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 management team? [1.25 marks]
3. How can systems concepts and contingency thinking explain some the distinctive
practices underlying Zara’s success? [2.5 marks]

Important points to remember about your submission:

• Double-spaced
• Times New Roman 12pt.
• Do not exceed 2 pages
• Do not include a title page
• The heading on the first page must include your complete name, student number, section
number, group/industry number, name of the assignment and name of professor.
• File format should be either Word .doc or PDF.

• Please see D2L for the submission deadline (D2L, online submission to Dropbox).
Students must submit assignments on time. Failure to do so will result in a
penalty of 20%. Please note that late assignments will be accepted only up to 24
hours after the submission deadline.