Zara: Managing Stores for fast

fashion
By:
Ravish Kumar Agarwal 09IT-024
Kartik Satija 09IT-034
Anup Kumar 09IT-003
Apoorv Dhavan 09FT-194
Vaibhav Ratra 09FT-196
Nishant Dubey 09IT-016
 Content
• History, Structure and Code of conduct
• Challenges
• Zara
• Zara Supply Chain
• Zara Store Management
• Zara In-house logistics
 History
In 1975, first store opened in A Caruna, Spain
In 1985, Corporate group, Inditex was formed
In 1990, opened several stores across the world
By 2008, Revenue was 10 billion euro, 4264
stores across the globe and 89112 employees.
Approx. 80% of the employees and 80% of its
management were women
 Structure
• Headquarter in A Coruna
• Sets strategy, co-ordinated the brands, managed shared functions such as HR,
IT, real estate etc
• Country level offices
• Country level supervising, coordinating the operations of various brands,
autonomy as per Inditex code of cunduct
• Brand management team
• Independently manages network of stores, logistics centers and production
facilities
• Design of fashionable clothes, analysis of sales figures of 4o stores were done
by commercials
• Regional network DTs who oversaw operations and performance for 15 store
each
• Bonus is based on sales figure, labor productivity, shrink and team motivation
 Inditex code of conduct
• Activities should be in ethical and responsible
manner
• Every stakeholder will receive fair and honorable
treatment
• Activities should be respectful to the environment
• Managers should be proactive in social issues
Inditex involvement in educational and human right
activities, social audits, rights to visit manufacturers and
supplier factory
 Challenge

To improve the efficiencies in managing the

store network
Various possibilities:
• Outsourcing certain store operations to third parties
• Changing the way store managers are compensated
• Creating formal operating procedure for store ops
 Zara
• Inditex’s oldest and largest brand

• Pioneer of new fashion category called “fast fashion”

• Items manufactured quickly and sold at affordable prices

• Produced new items and delivered them to its store in less

than 3 weeks rather than average 6 months

• Produced 11,000 different items as compared to 2000-4000

items by competitors
 Zara
• Triangle of information: store mangers, DTs and the
commercials

• Commercials received daily sales figures, communicated

to store mangers and DTs to capture and interpret trends

• Store managers asked to change a model, introduce

variations, design new clothes

• Design team designed new items and sent it to all stores

 Zara
Autonomy
– Encourage fast decision making, continuous
improvement and retaining best people
– Small decisions and improvement every day
– Bottom up with entrepreneurial spirit
– Store managers are like store owners and this freedom
helps Zara to retain them
– Zara operates in many locations with different local needs
– Generate ideas for improvement
– “Japanese meeting”: 5 min. meeting before opening time
to discuss day’s objective
 Zara
Corporate Control
– All stores shared common culture
– Brand present in similar way to customers anywhere around
the world
– Regular information exchange between DTs within a country
– Brand meetings to discuss and monitor store performance
and best practices
– Stores had manuals about chain information, HR policies
etc.
– Common ways of doing thongs within each country
– Store driven organization, thus wants its store managers to
be knowledgeable about the products
 Zara’s Supply Chain
• Design teams present the designs 6 months
before the selling season.
• Commit about 30% production to its suppliers
• During the season, goods came from nearby
factories with shorter lead times
• For basic products Zara used cheaper suppliers
with longer lead times
Inditex’s suppliers by Geographical area,2008
Areas No of % production Lead time
suppliers

Proximity(Spain,Portugal,Morocco) 516 49% 17 days on

avg; min 48
hrs

Other Europe(mainly Turkey, also 91 14% 5-6 weeks

Bulgaria and Romania)

Americas(Mexico,Peru) 61 2% 3-8 months

Asia(China,India,Cambodia,Bangladesh) 417 35% 3-8 months

• All products came to logistics centre in Spain before being
sent to stores
• Arteixo logistics center managed 50% of the merchandise
and served Spain, Portugal, the Americas and the Middle
East.
• Zaragoza center served non-Iberian Europe, Russia and
Asia
• Most countries have small warehouses for extra or
returned merchandise
Location 2005 2006 2007 2008
Europe N/A 761 1092 1188
Asia-Pacific N/A 50 65 96
Americas N/A 130 149 173
Middle East & N/A 49 55 63
Africa
Total 852 990 1361 1520
THE ORDERING CYCLE
• Each store receives about 25k units within a 2-
week period
• Upto section managers to order replenishments
• Each section manager receives a morning ‘offer’
twice a week through his PDA
• Offer listed the products that logistics center had
in stock with descriptions, photos and a history of
those products
• Managers used these data alongwith their own
forecasts to order
• IT systems do not provide store inventory data but
managers know this because of their experience
• Time of delivery
– European stores-24 hours
– Asian and American Stores-40 hours
• Common problem-Stores never received what
they had ordered because of limited inventory
at the logistics center
• Hence managers tended to over order
• Ordering was challenging for new products
 RECENT IMPROVEMENTS
• Isla reduced transportation costs by consolidating
transportation across Zara’s different brands
• Opened 100 euro million state-of-the-art logistics
center for children’s merchandise in Madrid,2007
• Shifted time consuming work away from store
employees
• In 2006, introduced automatic replenishment for basic
products
• Developed an algorithm for allocating inventory at
logistics centers to stores
 Zara Store Management
• Average 70 employees, 60% were part-time
• Key positions were three section managers
• Stores located in prime location
• Emphasis on creating attractive interior designs
that conveyed freedom and comfort
• Similar merchandise and shop windows in all Zara
stores which changes in every 3-4 weeks
• Store displays were managed by section managers
 Retaining Store Staff
• Compensation:
– A percent of each store’s monthly sales was divided among
the store’s employees according to the number of hours
each had worked.
• Ninety percent of the store managers had been
promoted from within.
• A part-time employee can become a section manager in
only two years
• To reduce part-time employee turnover in France, Zara
allowed part-timers to work full-time hours but in two
stores.
 Managing Customer Service
• Target customers: Young, fashion-conscious
people interested in buying inexpensive
clothes
• Good customer service at Zara mean:
– Presenting the merchandise well for customer
– Being available when customer need help
– Making sure customers didn’t have to wait long
for a cashier
 Managing In-store Logistics
Consists of:
1. Processing Deliveries
2. Managing Product flow between the
backroom and the selling floor
3. Managing display areas and fitting rooms
4. Conducting Physical audits
 Managing In-store Logistics
• Twice a week, Zara stores receive early-
morning deliveries from third-party logistics
companies.
• Night before a delivery, headquarters sends
each store a list of items it would receive.
• Section managers are responsible for checking
the accuracy of the shipment.
 Managing Backroom Replenishment
• On an average, 30% of the inventory was kept in
the backroom.
• External backrooms are also used in countries
where floor space is expensive. Eg. Japan, France.
• Zara had the policy of not keeping the product on
the selling floor until all the sizes were available.
They would be kept in the backroom instead.
• Zara sales associates also performed the so-called
“24”.
 Physical Audits
• Zara’s Store staff conducts physical audits one to
three times per season.
• Aim is to monitor Shrink in inventory rather than
ensure accuracy of inventory data.
• Takes around two and a half hours per audit
when the whole store works on it.
• Sometimes, audit is also done by model, color
and size.
 Conclusion and The next step
• Labor was the largest operating expense at the
stores.
• Store managers were encouraged to find ways
to improve labor productivity and were given
special bonuses.
• Processing of store deliveries was considered
to be outsourced to third parties as it was
time consuming.
Thank you