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CASE ANALYSIS ZARA: IT FOR FAST FASHION

Outline ‡ ‡ ‡ ‡ ‡ ‡ ‡ Introduction to Zara Business Model Points of Difference Financial Comparative Study TOWS Analysis Focus Ahead Options & Suggestions .

Spain ‡ Holding company Inditex ‡ Zara chain had 550 stores in 45 countries in 2003 ‡ Zara accounted for 73.Introduction to Zara ‡ Zara.3% of Inditex group s sales .a multinational fashion clothing retailer and manufacturer ‡ Founded by Amancio Ortega in 1975 ‡ Headquartered in La Coruna.

fashion conscious city dwellers ‡ Needs ± Fashion Taste changes ‡ What Zara Does ± Market Information ± Design to Shelf ± Value Drivers .Business Model of ZARA ‡ Customers ± Young.

3% of revenue as compared to 3-4%) ‡ Sells trendy clothes and not classic ones with longer life span (shoppers didn t expect durability from Zara.Points of Difference ‡ Virtually no spending on advertising & marketing (0. clothes to be worn 10 times ) ‡ Introduces new designs throughout the year (competitors introduce the new collection at the start of the fall/winter and spring/summer ) ‡ Least time to introduce merchandise (almost 3 weeks shortest in industry) ‡ Efficient Distribution System .

32 14.005% 1144 0. Data Unav.50% Benetton -0.54% 10.30% 12320 1.56 19.38% Data Unav. Data Unav.46 4.39 Gap 3.Comparative Study As of year 2002 Inditex Net Margin Market Capitalization (in mn) Asset Turnover Ratio ROA Inventory Turnover Ratio 11.49% 16496 1. *Using Exhibit 4 and 5 .75 -0.82% H&M 12.02% 13981 1.

Internal Strengths (S) 1) Clear product communication 2) Lowest time to market product 3) Efficient Distribution System 4) Stores located on the best known street in prime retail districts 5) Vertical Integration Internal Weaknesses (W) 1)No support of DOS based OS from Microsoft 2)Point-of Sales designs over 10 years old 3)Inability of real-time communication within and other stores 4) Manual Inventory Management eg: counting SO Utilize the strengths to expand the number of stores in other places like Italy (one of the most fashion conscious people) WO Improve the current supply chain to handle small orders. ST Responsive supply chain result in lowering threat of competitors.TOWS Strategic Alternatives Matrix External Opportunities (O) 1) Geographical Expansion 2) Online Sales External Threats (T) 1) Local and Global Competitors 2) Threat from POS hardware vendor 3) Competitors using the new OS capabilities to reduce their costs & get real time information. OR Routing the orders via stores (chance of additional sales) WT By going for new OS and POS .

‡ Introduction of new functionalities. ‡ In-house software development.Focus Ahead ‡ Invest in IT. .

No inter. real time information availability Disadvantages No assistance for long Employees reaction is Employees reaction is term scalability. may require new software vendor. able to match competitors in IT space New POS + New OS + Software with porting + Other Functionalities Advantages of Option2 + Interconnectivity between stores. will support available from new investment. availability of new features. and between stores. employees familiar with system.Options in front of Zara Continue with the current New POS + New OS + DOS based System and Software with porting other processes Advantages Established process with almost no complaints or disturbances. will require uncertain. may to leverage real processes. Help in future scaling. management and pricing. non-reliance on single vendor.disrupt few age old information flow among connectivity between processes. no way disrupt few age old investment. cant shops continue with age old Porting: Recoding software to make it compatible with new OS system for long . no uncertain. better inv. company growing at decent pace.

licensing and AMC) Option 2 No.46 million (total costs reflect internet. software.745.75 million (includes internet. programming. of Stores Cost of 5 POS terminal Cost of wireless router Cost of 5 ethernet cards Hi Speed Internet Connection Training & Instalation cost for four day Porting Cost Unix Lisence Annual Maintenance (10 yrs) Other Software Costs Total Cost for System Upgradation 550 5000 180 250 240 8000 843750 88000 13750 0 8. ROA is good and increasing New POS + New OS + New POS + New OS + Software with Software with porting porting + Other Functionalities Total costs = 8.02%).250 Total costs = 8.Options Continue with the current DOS based System and other processes Financial Position Inditex has high industry relative net margins (11. labour.250 .464. hardware.000 8. hardware. licensing and AMC) Option 3 550 5000 180 250 240 8000 843750 88000 13750 281.

In-house software development? ‡ Current Software customized to the operational needs of Zara -different from industry ‡ With new OS. it can outsource the development as software becomes complex serving new needs ‡ Outsourcing can free up resources and also help in getting cost effective software customization . new and complex needs might arise in future ‡ Considering future needs.

Recommendations ‡ New IT Investment Required ‡ Option 2 + Lookups of Same Store Inventory ‡ Outsourcing of Software development .

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