Zara: Vertical Retailer

1069 Words Apr 2nd, 2008 5 Pages
According to Inditex, the Group 's business model is characterized by a highly integrated vertical structure. In contrast to the model that has been adopted by competing international corporations, the Group handles all the processes required in the apparel industry—design, production, logistics, distribution to retail outlets—on its own. This model is based on a desire for structural flexibility and a belief that the customer should come first in every aspect of the company 's operations.
The main elements of this vertical structure can be seen in the retail outlets. The stores are designed with an eye for detail, providing a comfortable venue for the customer to encounter fashion. At the same time, it serves as a site for acquiring the
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Retailers can shift sourcing according to the costs and exchange rates. Manufacturers can hedge risk by supplying different retailers.

Zara has succeeded by creating a vertically integrated system where the disadvantages of vertical integration (higher costs of manufacturing in Europe, lack of flexibility in shifting plant locations, etc.) are offset by the unprecedented speed and design flexibility that its tightly coordinated vertical system permits. Thus, Zara’s highly compressed product development cycle would be impossible for Gap or any other retailer relying on contract manufacturers in Southeast Asia.
Zara’s vertical integration works for Zara because it fits with other aspects of its strategy: mid-market pricing, high-fashion orientation, and constantly changing product range.
For Gap, vertical integration probably would not work: it’s pricing is relatively low (hence, it needs to produce in low-wage countries), it does not have manufacturing experience, and its products tend to be basic staple (jeans, T-shirts, khaki pants and shorts) such that seasonal product changes are adequate to keep abreast of changing market preferences.

Interbrand describing Zara, said, "Cutting-edge Spanish apparel retailer epitomizes cheap chic knocking out mass-produced copies of catwalk fashions almost overnight."5 Zara introduced about 12,000 designs every year; the shelf life of each design was about four weeks. In January 2006, Zara had 853 stores,
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