PRASTUTI

B-schools case study competition

Theme: Leadership, Governance and Innovation

Case Study
ZARA, Optimizing Demand and Forecasting in
Supply Chain Management Using AI

Abhishek Jain Satya Prakash Arya

BIMTECH, Greater Noida, U.P., India BIMTECH, Greater Noida, U.P., India

abhishek2209me@gmail.com satyaprakasharya755@gmail.com
abhishek.jain_dm23b@bimtech.ac.in satyaprakash.arya_dm23b@bimtech.ac.in

Roll no. DM23B025 Roll no. DM23B017

Introduction

ZARA is a Spanish multi-national retail clothing chain. It specializes in fast fashion, and sells
clothing, accessories, shoes, beauty products and perfumes. It is the largest constituent
company of the Inditex group. Zara was started by Amancio Ortega in 1975. Its first shop was
in central A Coruña, in Galicia, Spain, where the company is still based. It initially called
it Zorba after the classic 1964 film Zorba the Greek, but after learning there was a bar with the
same name two blocks away, so it rearranged the letters to read "Zara". It sold low-priced
lookalike products of popular, higher-end clothing fashions.
Zara is able to provide customers with what they want by constantly innovating its products.
Because it has released new products on a regular basis, it has been able to keep up with the
most recent trends. Customers can also buy items they would not normally be able to find in
stores as a result. Furthermore, Zara donates a percentage of its profits to charities in order to
help people in need.

During the 1980s, it changed the design, manufacturing, and distribution process to reduce lead
times and react more quickly to new trends – what he called "instant fashions" – using
information technology and groups of designers rather than individuals. The first shop outside
Spain was opened in 1985 in Porto, in Portugal. In 1989, the company entered the United
States, and then France in 1990. During the 1990s, Zara expanded to Mexico,
Greece, Belgium, Sweden and Israel. In the early 2000s, Zara opened its first stores in Brazil,
Japan, Singapore, Ireland, Venezuela, Russia, Malaysia, China, Morocco, Estonia, Hungary,
Romania, Philippines, Costa Rica, Indonesia, S Korea, India, Taiwan, S Africa, Australia and
Peru. In September 2010, Zara launched its online boutique. The website began in Jordan. In
November of that same year, Zara Online extended its service to five more countries: Austria,
Ireland, the Netherlands, Belgium and Luxembourg. Online stores began operating in the
United States in 2011, Russia and Canada in 2013, Mexico in 2014, South Korea in
2014, Romania in 2016, India in 2017, Israel and Brazil in 2019, and Peru in 2020. In 2020 it
was launching over twenty new product lines per year.
Fast fashion brand Zara achieved a $254 million second-quarter profit in 2020,
 Zara’s Demographic Segmentation

The Zara target demographic is

young to middle-aged adults, with the
highest proportion of customers in
the 21-to-30-year age bracket

Considering all the facts mentioned above and realising there are number of players, ZARA
realised there are few limitations/shortfalls which must be addressed sooner until it would be
huge delay and the….

LIMITATIONS

There remain three main challenges for the brand:

1. Attracting customers to stores and online shops,
2. Competition and
3. Sustainability.
 1. Attracting customers to stores and online shops.

As Amancio Ortega once said: “The customer has always driven the business model…”
For any organisations the most challenging tasks is to content their customers. The solution
needs to be provided in order to ease the life style of their customers. Challenges for
attracting customers to either stores or online shops are as follows

Quality of products.

Services given to customers.

Fulfilling customer demand

Cost efficiency

Inventory optimization

Rewards and offers

2. Competition:

Undoubtedly ZARA is well established and known in market but not to forget the dynamic
behaviour of market demand and supply. Competitors out there in market which could be the
nightmare. Some of the ZARA’s competitors are as follows:

1. H&M
2. Uniqlo
3. Fast Retailing
4. Forever 21
5. Gucci
7. Gap
The main Zara competitive advantage lies in its approach to new product releases. While
fashion companies typically produce around 2,000 to 4,000 items every year, Zara produces
10,000. This provides customers with a far wider product range to choose from, and ensures
the brand appeals to a much larger target audience.

Comparing Zara to H&M, one of its stronger competitors, the tight battle for market share is
clear. Zara had a value of $13.5 billion in 2021, compared to H&M brand value of just over
$14 billion. This represented the first time that H&M had a higher value than Zara since 2017.

Uniqlo is a Japanese fast-fashion brand, established in 1949. Although it has a global market
share about half that of Zara (5% vs 11%), it is catching up in terms of annual revenue,
estimated at around $11 billion compared to Zara at around $13 billion.

Gap is another prominent competitor to Zara in the North American market. In 2021, Gap
operated just over 2,800 stores worldwide, with the majority in the US and Canada. Even
so, Gap fares similarly to Zara in annual revenue, at over $13 billion.

In Britain, Zara fares especially well among women consumers. Although several UK brands
have more female customers than Zara, such as Primark, H&M and New Look, Zara is still one
of the most popular brands among British female shoppers.

3. Sustainability:

We gathered the insights of first two challenges of ZARA, now even if they are tackled with
delicacy, the next big thing which is very much challenging is to sustain their leadership and
their craze with uniqueness and time to time changes.

Usually what happens if a giant achieves the market monopoly, they become reluctant to any
changes and there thy give the opportunity to small player to grow and disrupt the market with
their nascent but revolutionise practices and implementations.

Over the last few years, it has become a go-to brand for many who looks for new items of
clothing, but a lot of user experience problems have persisted while trying to navigate
throughout the site. In having a poor user experience, it is possible that the website could
have higher bounce rate (the percentage of visitors who enter the site and then leave rather
than continuing to view other pages within the same site), and a lower conversion rate (the
percentage of users that take a desired action, i.e., completing a purchase) compared to the
websites of their competitors.
Zara needs to adapt its customer-centric marketing strategy to the digital market as it operates
in an extremely competitive fashion industry. Further Zara’s owner, the Inditex Group, has been
accused multiple times of greenwashing, exploitation, and environmental distractions.

Accounting for 14% of net sales, e-commerce remains a small portion of Zara’s business. It
pales in comparison to its online native competitors like Boohoo and Fashion Nova. These
digital pureplay retailers deliver designs faster than Zara, thanks to marketing tools. Moreover,
because they exclusively launch celebrity-led collections, they master influence marketing
better. With these new entrants, time-to-market has shrunk while variety has ballooned. Freed
from physical store loans and benefiting from more efficient supply chains, new fast fashion
competitors have large stock inventories and more agile capabilities.
 APPROACH
Use of Technology to Overcome the Shortfalls

Zara has already multiplied technology-powered initiatives. In 2018, the fast fashion
powerhouse teamed up with Jetlore, an AI-powered consumer behaviour prediction
platform, and Spanish big data company, El Arte de Medirn. Furthermore, it partnered
with Intel and Fetch Robotics to measure clothing volume in boxes and improve stock
inventory. Finally, to secure its product inventory and improve its traceability all along the
supply chain, Zara implemented micro-chips from Tyco.

Due to a disruptive time-to-market, quick response policy and just-in-time manufacturing, Zara
applies a lot of pressure on its end-to-end supply chain. There is growing evidence that clients,
concerned with sustainability issues, are beginning to wonder whether they should make fast-
fashion purchases. To answer these concerns, Zara has developed its own sustainable line under
the #joinlife label. Since then, the brand continues to use these features in 2020.

Earlier this year, they started the use of microchips installed in the security tags of its clothing
items. This allows the company to track the location of each item, from production to shipping
to display, providing an accurate view of inventory. Additionally, AI-powered robots are
employed to speed up the picking and packing of items for click and collect services worldwide,
improving product handling efficiency.

Further for optimizing the supply chain Zara utilizes advanced technology, such as RFID
(Radio-Frequency Identification) tagging and real-time data analysis to optimize its supply
chain.
By tagging each item of clothing with an RFID chip, Zara is able to track inventory levels in
real time and quickly respond to changes in demand.
This allows them to
minimize inventory and
reduce waste,
while also ensuring that popular items are always in stock. In addition to RFID, Zara also uses
a sophisticated logistics system to optimize transportation routes and ensure that new
products are delivered to stores quickly.
This allows them to
respond to changes in fashion trends and
consumer preferences more quickly than their competitors.

Finally, Zara's Just In-Telligent system is integrated with its supply management system,
which allows them to closely monitor supplier performance and quickly identify and
address any issues that may arise. This helps them to maintain the continuity of operations,
while also reducing costs and improving efficiency.

JIT Supply Chain System combines the principles of just-in-time (JIT) inventory management
with smart automation and real-time data analysis.
It allows for
real-time monitoring and
forecasting of demand,
which helps to minimize inventory and maximize efficiency.
It can optimize logistics and transportation routes, using data and AI algorithms to make
intelligent decisions. It can also improve supplier management and collaboration, by using data
to identify and mitigate risks and improve supplier performance.
It helps in

reducing lead times,

improving delivery accuracy, and
reducing inventory carrying costs.

It can also help in increasing flexibility and responsiveness to changes in demand or supply. It
can also enhance the ability to predict and respond to disruptions in the supply chain.
Results

AI helped Zara to analyse customer behaviour to map consumer preferences such as size,
colour, fit, and style. With this information, Zara developed and delivered new designs to
stores in as little as one week, a significantly faster turnaround time compared to the industry
average of three to six months.
This comprehensive AI approach has given Zara a competitive edge in terms of agility. The
retailer can swiftly replace designs that are not selling well with new ones, ensuring that it
remains responsive to customer demand. Consequently, Zara enjoys a loyal customer base that
frequently visits its stores.

Artificial intelligence helped Zara to solve the “just-in-time” manufacturing loophole, by

improving demand forecasting. The company focuses on responding to current fashion
needs rather than forecasting fashion trends for a distant future: 85% of its production
is done during the current season. By doing so, Zara can avoid overproduction, an issue
its rival H&M also faces, and become more sustainable.

With it’s Just In-Telligent Supply Chain System, Zara was able to achieve a high level of
operational efficiency and agility, which has helped them to maintain its competitive edge in
the fast-paced fashion industry. The company’s ability to bring new designs to market quickly
and respond to changes in consumer preferences has been a key driver of its success. Zara’s
turnaround time for new designs is as little as one week, far below the industry average of three
to six months. It enjoys a loyal customer base and ranks among the top in global online fashion
sales. The company’s unique approach to using AI for real-time monitoring and forecasting has
also led to reduced lead times, improved delivery accuracy, and minimized inventory carrying
costs.

Furthermore, Zara’s early adoption of ecommerce and its self-contained approach to production
and distribution have positioned the brand as a leader in online fashion sales. Its webstore ranks
among the top in the world, trailing closely behind Zalando, Shein, and H&M in terms of
traffic.
REFERENCES

https://en.wikipedia.org/wiki/Zara_(retailer)

https://www.ukessays.com/essays/marketing/marketing-problems-and-issues-faced-by-zara-
marketing-essay.php

https://www.heuritech.com/company-analysis/zara-leadership-artificial-
intelligence/#:~:text=However%2C%20the%20brand%20has%20recently,jump%20in%20on
line%20sales%20alone.

Zara Target Market: Brand Analysis & Marke ng Strategy | Start.io

Zara’s Organiza onal Structure: The Key To Its Success – Ravin Style

Zara Target Market: Brand Analysis & Marke ng Strategy | Start.io