ZARA- IT for fast fashion

Meet the full team

Anirban Chatterjee Indranil Ghosh​ Pallav Garg

CGT21003 CGT21006 CGT21014

Dipanjan Sengupta​ Nitesh Maheshwari V. Aditya Mamillapali

CGT21013
CGT21005 CGT21030

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AGENDA

01. Company Overview

02. Zara Business Model

03. Operations

04. Information technology

05. Financial Analysis

06. Challenges and way forwards

Company overview
 Background

• Founded by Amancio Ortega.

• First store - La Coruna in 1975
• One of the largest international fashion companies catering for
Women, Men and Children segments
• Largest and most profitable chain of Inditex.
• Operations many countries with hundred stores located in
Europe, Middle East, Asia-Pacific and the Americans.

20XX CONFERENCE PRESENTATION 5

FAST
FASHION
• Fast fashion is a term used to describe a highly profitable and exploitative business model based on
replicating catwalk trends and high-fashion designs, mass-producing them at low cost.

Main Characteristics:

SHORT LIFE CYCLE

HIGH VOLATALITY AND LOW PREDICTIBILITY

HIGH IMPULSE PURCHASING

 Business model

Speed & Decision Marketing Financials &

Making Growth
Based our research on Believe people need better Minimalist design and easy
market trends and social tools for shopping that cater to use 
media trends to small business owners

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Zara Business
Model
• Zara needed to be able to respond very
quickly to the demands of target customers,
who were young, fashion-conscious city
dwellers
• Senior managers wanted to take advantage of
the intelligence and trust the judgement of
employees throughout the company, instead
of relying on a small set of decision makers
• Zara spent little on ads, but relatively
heavily on its stores
• Zara intended its clothes to have short life
spans, both within stores and in customers’
closets
• Zara had decided not to sell clothes over the
Internet
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The difference of Business Model between
Zara and other large clothing retailers

 Other companies in the apparel industry had shown that marketing

and advertising campaigns could be effective at convincing a
customer to buy their clothes. While Zara wanted to be able to
produce and deliver new styles while they were still hot, rather
than relying on the persuasiveness of its marketing to push clothes
it had made some time ago.

 In contrast with other large clothing retailers, Zara’s collections

were not conceptualized and designed by a small, elite team.
Instead, collections were created, extended and modified over time
by teams of commercials, each dedicated to a section of the store.
 Unlike its main competitors, Zara did virtually no advertising
except promote its twice-yearly sales and announce the opening of
a new store.
 Zara did not try to produce classics, it always produced new styles.

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Zara C O M P E T I T I O N & W E A K N E S S

WEAKNESS COMPETITORS​
Company H&M
With the development of technology,
Growing organically with higher
people are used to purchasing clothes
profitability (12%).
online.
Companies GAP​
If Zara still does not sell clothes over
Largest market share and market
the Internet, it might lose a lot of
leader
customers.
Companies Bentonn
Affordable pricing model

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 Operations

Ordering Fulfilment Design & Manufacturing

Most regular, preciously Matching inventory and Bring new collections fast
defined & standerdised. prioritizing supply to stores and reduce lead time

6/22/20XX Pitch deck 11

 Ordering
Stores place order twice a week
• Replenishment of existing items + requests for newly available.
• If Hard Deadline is missed, then replenishment-only order

How to know replenishment quantities?

• Walking around the store, talking to salespeople
• Inventory balances are not available on any in-store computer

What's New?
• Know by using PDA was linked each night, via dial-up modem, to
information systems at La Coruña
• The Offer - was transmitted to all stores’ PDAs.
• Each store’s offer was different

Beaming
• Offer divided into segments and “beamed” to different PDAs using
infrared.
• After fill in - beamed back to the store manager.
• After reviewing, the manager would send “the order” to La Coruña.

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6/22/20XX
Fulfilment

1. Shipping cloths to the store

• To match up the supply of finished clothes in DC with the stores’
demands.
• Two information set: the aggregated orders and the total
inventory in the DC at the same point in time

2. When demand > supply?

• Determine which stores would get the available inventory and
which would not.
• How? by looking at which stores had been most successful at
selling the item

3. Future target & shipping whats new

• Worked with product managers to determine future production.
• Also ships items, typically new garments for which Zara wanted to
assess demand.

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Design &
Manufacturing
The latest fashion
• Zara new items continuously throughout the year.
• Generally, Zara brings new designs 3-4 times more than the competitors.

Vertically integrated manufacturing

• Short lead time is extremely necessary
• Zara owned a group of factories to do the capital-intensive initial
production steps of dyeing and cutting
• Cut fabric was sewn into garments at a network of small local workshops
that guaranteed quick turnaround times

Faster cycle time

• Moving a new design from conception through production and into the DC
< 3 weeks.
• No need to rely on accurate long-range sales forecasts.
• On the fly model - continuously sense what customers wanted to buy and
respond.
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 INFORMATION TECHNOLOGY AT ZARA

IT SYSTEM AT ZARA STORE SOLUTIONS - APPLICATIONS

▪ No formal Chief information officer ORDER PRODUCT INVENTORY

PROCESSING ALLOCATION TRACKING
▪ Decisions by a technology steering committee
▪ Applications were developed in-house
▪ Decentralized decision making
▪ No IT budgets and investments
• Offer • Order validation • Track theoretical
preparation against inventory on
and inventory shipment basis
distribution • Validation of • Taking allocation
• Processing of
STORE SOLUTIONS supply and decisions
orders received demand
from across the • Order execution
world

APPLICATI LOGISTICS SUPPORT

ONS
As inventory tracking is theoretical, there were inaccuracies in
ADMINISTRATIVE the inventory levels
SYSTEMS
 FACTORIES AND DISTRIBUTION CENTRES

Simple applications Sophisticated technologies

• Presented order quantities with due dates CNC machines for cloth cutting

Automation

• Automated conveyor belts to package garments received from factories into shipments

• Applications for DC were in-house and integrated with conveyor suppliers

STORES

Ordering through Fax machines Personal Digital Assistants (PDA)

• Time consuming • Additional tasks like handling garment returns

• Unreliable fax machines • Multiple PDAs allowed division of labor

• Delays due to limited infrastructure Limitations:

• Information sharing was costly • Had to constantly upgrade the PDA

 BENEFITS OF EXISTING POS TERMINALS

• POS applications were stable and easy to roll out • No IT support was required to open a store

• Applications were developed in-house • Restoration during a trouble was easy

• New POS could be easily configured with two floppy disks

DRAWBACKS AND CONCERNS OF ZARA’S IT

TECHNOLOGICAL OPERATIONAL STRATEGIC

• POS terminals within a store were
not interconnected
• DOS is no longer supported by
• Sales totals from each terminal was
Microsoft • IT was not looked upon as a part of
copied and transmitted through a
terminal connected to modem business strategy
• Dependency on terminal supplier for
existing POS • No specific process for IT
• No connection between POS and PDAs
investments
• Uncertainty over availability of POS
• POS terminals are not connected to
terminals if supplier decides to • Lacks strategy with respect to future
other stores in the locality to check
upgrade business requirements
available stock

• No provision to check inventory at

factory
Positioning of “Zara” in IT Strategic Grid

• No formal process for IT budget allocation

• Order, reorder, distribution, production and
inventory managed by self developed IT
applications
 Benefit of new OS

Wireless
Better inventory
Ample technology can
Upgradation of management at Reduction in
availability of be installed for Competitive
PDA will be stores and human
related interconnectivit advantage
user friendly distribution dependency
hardware y with stores
centers
and factories.
Financial Analysis (1/2)
Expected No. of stores in ‘03 : 556 (N)( Assuming 5% growth trend continues as from 507 no.s ‘01 to 531 no.s in ‘02 )
Cost per store
Line item Cost (€)-CPS x N Assumptions
(€)-CPS
• OS-Windows
Operating System 170 472600
• 5 terminals/store
Hardware 5430 3019080 • POS-5000€, Router-80€,Ethernet card 250€
Connectivity 240 133440 • Annual cost (given)
Installation/Training 8000 4448000 • 32 hours/ 8 hr shift x 2000€ per day
Overall Programming
- 1125000 • (20,000 HRS/8 hr shift) x 450€ per day
Cost
Total Cost 9198120

Approximate budget for upgradation~ 9.2 million €

Financial Analysis (2/2)
Inditex-Net Operating Revenues (CAGR :25.66%) Inditex- Expected Income & Net Margin
Million €
5000
‘02 ‘03 Projection
3974
4000 3250 Operating Revenue 3974 4994
3000 2615
2035 COGS 1955 2437
2000 1217 1615
1009 Gross Margin 2019 2557
1000
0 Operating Expense 1180 1504
1996 1997 1998 1999 2000 2001 2002
Operating Profit 839 1053
Non operating 224 276
Inditex- Working Capital & Current Ratios Expense
Million € Pre-tax income 615 777
1996 1997 1998 1999 2000 2001 2002 Income tax 173 218
200 133
100 20
Minority Interest 4 4
1
0 Net Income 438 554
-100 -44 -53 -70 -70 Net Margin 11.0% 11.1%
Current 0.81 1.00 0.88 0.87 0.90 1.02 1.13 • Revenue and Expenses: Increase as per respective CAGR of last 6 yrs.
Ratio • Operating Expenses: Expenditure of 9.2 million € added
• Tax rate and Minority interest held constant for analysis

Inditex can retain the net profit and margin with the expenditure.
 Conclusion

Zara should upgrade existing system to modern operating system. The system can
include systems like instore network

The company should give employees the ability to look up inventory balances for
items in their own and other stores

Company has healthy and stable financial to support the upgradation

IT strategy can be shifted from support to factory

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Thank
YOU!!