Zara Case Essay examples

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Case # 4 – Zara

Zara is the flagship company of Inditex, an international clothing retailer. Zara began its business as a small retail store in Spain founded by Amancio Ortega Gaona in 1975. In the following decades Zara has grown to nearly 450 store location in 29 countries by the year 2000. Zara consistently accounts for more than 80% of Inditex’s net sales as indicated by Figure 1; linking the success of Inditex to the success of the strategies of Zara.
Figure 1 Inditex Net Sales by Concept

The success of Zara is linked to its vertical integration strategy with local sourcing that differentiates it from other international clothing retailers.
Sourcing Strategy
Zara uses a combination strategy when sourcing their
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It is necessary to have plans in place and implement them as soon as feasible. Zara has to send several deliveries in a week to update its styles in stores. Zara has to produce different styles of current fashion trend; this helps Zara to become fashion forward merchandise.
The biggest contributors to Zara’s success in regards to their replenishment strategy are the in-house manufacturer and the owned retail stores. This allows for the vertical integration of their supply chain, improving communication and reducing a potential bull-whip effect. Two shipments are made every week, by trucks for Europe and by air transport for stores outside Europe.
Future Strategy
The current in-house sourcing strategy being supplemented by outsourced manufacturing can help Zara in reducing production costs. A closer look at the financial metrics of Inditex provides some insight into the impact of the strategies of Zara to date. Figure 2 shows four profitability metrics for Inditex from 1996 to 2000. The return on equity has held consistently above 20% from 1997 onward. There is also a general upward trend across the other 3 metrics highlighting the continued growth relative to the success of cost cutting measures.

Figure 2: Profitability Measures

Another area of finical metrics to consider is the review of the degree of leverage Inditex

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