ZARA: Fast Fashion
The Spanish retail chain Zara has unique supply chain management practices that enable it to gain a competitive advantage over other fashion retailers in the industry. Zara’s rapid response time enables the firm to quickly respond to changing fashions while deliberately under producing products. This strategy, which is supported by competencies in logistic management, design and information systems, allows the company to maintain less inventory and higher profit margins and is a key factor to Zara’s success. The firm should continue to add value by seeking new opportunities to expand in the retail market and maintain their sustainable growth.
Financial Analysis
Being aware of a company’s financial health and
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No business in this type of industry has total control over the market price and there are no barriers to entry and exit. Because of its monopolistically competitive playing grounds, Zara’s conduct is to increase its market power by producing demand for its heterogeneous products. Through differentiation and cost leadership, Zara attempts to increase market demand by offering new items weekly while keeping a low inventory, thus making its products unique and attractive to consumers. Because of its backward vertical integration model, Zara creates a strong synergy throughout its production process. Zara has sustained a competitive advantage globally by expanding into new markets and becoming more efficient. In a monopolistically competitive industry, Zara is expected to make profits in the short run but will break even in the long run because demand will decrease as average total costs increase. This means in the long run, a monopolistically competitive firm, such as Zara, will make zero economic profit (AmosWEB, 2001).
Porters Five Forces
Barriers to Entry: Due to the recent recession and weak economic market, many new players have avoided entering the retail industry. Zara has taken advantage of this opportunity to be the first to enter into many markets across the world before its competitors. With the economic future improving, Zara will be facing more and more competition especially in the United States. Rather than implementing new strategies on
Zara, one of the world’s largest apparel retailers, was founded in 1975 in La Coruna, Spain. With its successful rollout in the Spanish market, it began to expand its stores around the world, and became one of the most profitable brands in the appalling market. Zara was famous for its ability to quickly respond to the market demands, which provides a useful lesson in terms of competitive advantage with its competitors. But confronting to the fast-paced and constantly changing market, if a company wants to consistently increase market share in order to survive in the competitive market, it is irrefutable that it needs to achieve sustainable competitive advantage, since the achievement of sustainable competitive advantage can be expected to lead to higher performance.
Quick response of Zara leads it to be successful in the fashion clothing industry. Zara adopts international strategy for its operation. With vertical integration, it benefits Zara in cost aspect, however, it involves some risks. Due to our anaylysis on Zara’s operations, some of the recommendations are made to facilitate its further improvements.
Zara owns both its production and retail units which give the upper management a better overall control. They have successfully integrated Information Technology into their business model. They also have great international growth selection
* Social - Changes in social trends and in social life can force on the demand for Zara’s products and the availability and enthusiasm people to work. The company must work in relation with costumers need, trends and demand as a result of change in generation choices. Even thought the prices of Zara are relatively low this is a very good point in their favor if they enter in Albanian market. Because Albanian people cannot afford products that have high prices. Zara can be afford from 60% of the population.
It is becoming apparent that the ever changing environment in the global marketplace requires a swifter response time from businesses and their supply chains. The era when production was moved overseas, so businesses can take advantage of low-cost labor is coming to an end, because businesses are not only competing on price but also on time. The owner of Zara, a Spanish clothing store knows this first hand, and has turned supply chain management on its ear, making his company the “envy of the industry” (Ferdows, Lewis, & Machuca, 2004).
In comparison to competitors, Zara’s business strategy, in regards to strategic partnerships and cost of production, provide for a strategic competitive advantage. Zara, unlike its competitors such as Gap, Benetton, and H&M, does not use Asian outsourcing. Eighty percent of Zara’s materials are manufactured in Europe, with 50% made in Zara controlled facilities in the Galicia region of Spain near headquarters. Most of Zara’s competitors have 100% outsourcing to cheap Asian countries. Though the cost of production in Spain is 17-20% more expensive than Asia, Zara does have a competitive advantage over its competitors in regards to operations. The local strategic partnerships that Zara maintains with manufacturers in Europe allow for a product throughput time of 3-4 weeks from conception to distribution. To make this happen, the company designs and cuts its fabric in-house and it acquires fabrics in only four colours to keep costs low. The proximity of these suppliers gives Zara great flexibility in adapting their product lines based on up to date market trends and consumer behaviour. It also decreases costs of holding inventory. Zara’s competitors, through outsourcing to Asian countries such as China, sacrifice the benefits of proximity for low labour and production costs.
This report aims to study the supply chain management and logistics of fashion retailer, Zara, to boost customer value. The concept of sustainability and competitive advantage is considered with other business models and compared with successful and unsuccessful company. The study is compared with the supply chain management and business strategies of Zara with Dell and Zara with Myers.
Even though there are threats and risks involved along with other challenges, the firms move into the direction of expansion so as to reach and to penetrate new markets segments. Zara, a vertically integrated company, yet controls most processes in the supply chain wherein 50% of its products are manufactured in Spain, 26% in the rest of Europe and 24% in Asian countries. Although it outsourced the production of labor intensive processes, it still preserved the in-house other capital intensive processes, shielding its knowledge and know how. The quick-response capability of Zara is made possible by the three main stages that define the competitive edge of the company: design, manufacturing and distribution.
Though above analysis, Zara's core competencies ensure the four criteria of sustainable competitive advantages: valuable, rare, difficult to imitate and exploited by organization meaning cannot be replaced. Zara's products express a unique style that has created sustainable position in customer's minds and make them feel in each of Zara's product. The attraction of Zara is creative in each product, innovative and unique characteristics. So it is not easy for competitors to achieve the results.
Zara’s successful fast - fashion business model also refers to its push-pull strategy in which the customer plays an active role. Zara’s design and production activity begins with customer demand in retail stores. The trend information and feedback are sent back continuously to the headquarter where designers create new designs based on the real-time data. This strategy enables Zara to get access to real demand and leverage the responsiveness to customers. A very fast and highly responsive supply chain is needed to make certain that deliveries are sufficiently frequent (Ferdows et al., 2004).
The business idea of Zara is to link customer demand to manufacturing, and to link manufacturing to distribution. And based on this general idea, Zara has several essential elements for its business model. First, speed and decision making, which means that in the external level, Zara need to respond very quickly to demands of target customers, and always keep in style. While for the inside, Zara treasure intelligence and judgment of common employees who enjoy a great deal of autonomy. Second, its marketing, merchandising and advertising strategy. Zara does not spend on virtually advertising, while it spends heavily on stores, and no selling online because of
The basic strategy for fighting competition is to attract buyers at lower prices, more unique designs, high-quality design, efficient customer service and solid image brand. Thus bargaining power of buyer for apparel industry is high as the products falls under the basic needs in human lives. There is no much difference in terms of products offered by the apparel company, so if buyer is unhappy with the product or service they can easily switch to another brand. Thus, Zara are trying to strengthen its position in the market by using their unique strategy by giving priority to buyer to meet their special needs.
Based on Michael Porter’s universal strategy, Zara are put on board economy scope. Zara available cost leadership strategy and additionally differentiation system, combined this to win its competition. Zara play at fair price because they build cost authority strategy, consequently even they set for reasonable price they nonetheless could gain reasonable perimeter. And developing differentiation tactic enables Zara to design and end products in a much reduced time as opposed to the competitors.
Zara’s product differentiation strategy is based on high quality and low prices. The company wants to be fashionable and desire for everyone. This is the reason of their strategy (low price and high quality).
Collaboration of chief tasks, strategic use of organizational resources and core competencies contribute to Zara’s competitive advantage. Zara follows vertically integrated supply chain so it exercises control over suppliers. Demand is easily met and manufacturing is easily achieved. It uses Vertical Marketing System (VMS). It has Zara successfully integrate design, production, distribution, and retailing and which has turned it into the world’s fastest-growing fashion retailer. Its design team is having skilled and talented and experienced staff and the designers are regularly updated by stores and sales staff which keep record of moving stock. Its in-house team of production department is also hardworking and producing clothes quickly as it is manufacturing clothes in small batch. The market survey said that people visit Zara often when compared to Zara’s competitors. Its employees wait for one week for selling its stock and meanwhile if stock is not sold then they just take it out from store and then design team try to make better design for customer satisfaction and the design which is not sold their production will be stopped and in this manner it will face only little cost but will be able to attract customers. So its vertical integration system is helping it to gain advantage. Its customers are well aware that its stock will be changing after every week so they visit quite often to this store as they know if they don’t visit regularly then they can miss good stuff and good designer clothes. In the market survey it has been revealed that in Spain top branded fashion store is visited by customers 3 times a year and whereas Zara is visited by its customers 17 times a year so it is clear that Zara is taking advantage of vertical integration (Christopher,