Monday, 6 June 2011
CASE 308 - Zara
Zara is a Spanish clothing and accessories retailer based in Arteixo, Galicia, and founded in 1975 by Amancio Ortega and Rosalía Mera. It is the flagship chain store of the Inditex group; the fashion group also owns brands such as Massimo Dutti, Pull and Bear, Oysho, Uterqüe, Stradivarius and Bershka.
It is claimed that Zara needs just two weeks to develop a new product and get it to stores, compared to the six-month industry average, and launches around 10,000 new designs each year. Zara has resisted the industry-wide trend towards transferring fast fashion production to low-cost countries. Perhaps its most unusual strategy was its policy of zero advertising; the company preferred to invest a percentage of revenues in opening new stores instead.
Zara was described by Louis Vuitton Fashion Director Daniel Piette as "possibly the most innovative and devastating retailer in the world." Zara has also been described as a "Spanish success story" by CNN
The founder of Zara, Amancio Ortega, opened the first Zara store in 1975 in a central street in downtown La Coruña, Galicia, Spain. It should be noted that before the store opened Amancio worked regular seller in the ordinary clothing store, which later brought to fruition, because it perfectly oriented in the fashion world and understood the tastes of its customers, which in turn gave him the opportunity to develop a correct, but importantly, an effective strategy for the company Zara. Its first store featured low-priced lookalike products of popular, higher-end clothing fashions. The store proved to be a success, and Ortega began opening more Zara stores throughout Spain. During the 1980s, Ortega started changing the design, manufacturing and distribution process to reduce lead times and react to new trends in a quicker way, in what he called "instant fashions". The company based its improvements in the use of information technologies and using groups of designers instead of individuals.
In 1980, the company started its international expansion through Porto, Portugal. In 1989 it entered the United States and in 1990 France.
This international expansion was increased in the 1990s, with Mexico (1992), Greece (1993), Belgium and Sweden (1994), etc. until the current presence in over 73 countries.
Zara stores are company-owned, except where local legislation forbids foreigner-owned businesses. In those cases, Zara franchises the stores.
Zara is a vertically integrated retailer. Unlike similar apparel retailers, Zara controls most of the steps on the supply-chain: It designs, produces, and distributes itself. Zara set up its own factory in La Coruña (a city known for its textile industry) in 1980, and upgraded to reverse milk-run-type production and distribution facilities in 1990. This approach, designed by Toyota Motor Corp., was called the just-in-time (JIT) system. It enabled the company to establish a business model that allows self-containment throughout the stages of materials, manufacture, product completion and distribution to stores worldwide within just a few days.
Regarding the design strategy, an article in Businessworld magazine describes it as follows: "Zara was a fashion imitator. It focused its attention on understanding the fashion items that its customers wanted and then delivering them, rather than on promoting predicted season's trends via fashion shows and similar channels of influence, which the fashion industry traditionally used.
Zara on Briggate in Leeds, UK
50% of the products Zara sells are manufactured in Spain, 26% in the rest of Europe, and 24% in Asian and African countries and the rest of the world. So while some competitors outsource all production to Asia, Zara makes its most fashionable items—half of all its merchandise—at a dozen company-owned factories in Spain and Portugal, particularly in Galicia and northern Portugal where labour is somewhat cheaper than in most of Western Europe. Clothes with a longer shelf life, such as basic T-shirts, are outsourced to low-cost suppliers, mainly in Asia and Turkey.
Zara can offer considerably more products than similar companies. It produces about 11,000 distinct items annually compared with 2,000 to 4,000 items for its key competitors. The company can design a new product and have finished goods in its stores in four to five weeks; it can modify existing items in as little as two weeks. Shortening the product life cycle means greater success in meeting consumer preferences. If a design doesn't sell well within a week, it is withdrawn from shops, further orders are canceled and a new design is pursued. Zara has a range of basic designs that are carried over from year to year, but some fashion forward designs can stay on the shelves less than four weeks, which encourages Zara fans to make repeat visits. An average high-street store in Spain expects customers to visit three times a year. That goes up to 17 times for Zara.
On September 6, 2010, Financial Times reported that Inditex has launched the first online boutique for its best-selling brand Zara. The long-awaited website will begin in Spain, the UK, Portugal, Italy, Germany and France – six countries that are among the most important of the company's 76 markets. When asked about the company's late arrival to internet retailing, Pablo Isla, chief executive, said they have been waiting for online demand to build before launching into cyberspace. All items on sale at its Zara outlets would be available online and at the same prices. Customers can choose from the usual range of paying methods and opt either for a free store pick-up or paid-for postal delivery. The online return and exchange policy is identical to the store system, with shoppers given 30 days to change their minds. Queries will be handled by customer service operators or via e-mail or chat messaging. Inditex said that iPhone and iPad applications that allowed purchasing would soon be available.
On November 4, 2010, Zara Online extended the service to five more countries: Austria, Ireland, the Netherlands, Belgium and Luxembourg. Online stores will begin operating in the US, South Korea, and Canada in 2011. The simple website allows shoppers to filter a search for garments by; type of garment, colours, sizes, prices, reference number, etc. Customers can view products in precise detail from different angles and use a SuperZoom feature to get an exceptional close-up look at the details of each item. In 2011, Zara entered the Australian market with a three storey,1830sqm store in the Westfield Sydney complex opened on April 21st 2011 and a second at Bourke Street Mall Melbourne which opened on 15 June 2011