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ZARA Case Brief

Zara is a highly successful Spanish clothing retailer known for its rapid response to fashion trends. In 2006, Zara had revenue of $7.1 billion, net profit of $282 million, and 990 stores across 63 countries. Zara's business model focuses on vertical integration, rapid design to store delivery timelines of 2 weeks, twice-weekly store deliveries, and small batch production to create scarcity and encourage frequent store visits. This just-in-time model allows Zara to commit only 15-20% of designs and production pre-season compared to 45-60% for traditional retailers. Zara's success demonstrates the power of a supply chain oriented around fast fashion responsiveness rather than pre-season stock

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Kundan Kumar
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98 views34 pages

ZARA Case Brief

Zara is a highly successful Spanish clothing retailer known for its rapid response to fashion trends. In 2006, Zara had revenue of $7.1 billion, net profit of $282 million, and 990 stores across 63 countries. Zara's business model focuses on vertical integration, rapid design to store delivery timelines of 2 weeks, twice-weekly store deliveries, and small batch production to create scarcity and encourage frequent store visits. This just-in-time model allows Zara to commit only 15-20% of designs and production pre-season compared to 45-60% for traditional retailers. Zara's success demonstrates the power of a supply chain oriented around fast fashion responsiveness rather than pre-season stock

Uploaded by

Kundan Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 34

Zara

Prepared by Professor Nelson Fraiman

What is Zara
about?
3

2006 Revenue (million US$)


$8,705
$7,065

$2,521

Benetton

Zara

8.3%

21%

Li & Fung

22%
5

2006 Net Profit (million US$)


$858

$282
$165

Benetton

12%

Zara

25%

Li & Fung

23%

2006 Net Margin


12.1%

6.5%
3.2%

Benetton

Zara

Li & Fung

Number of Stores (2006)


5000

990

Benetton

Zara

138
8

Where are Zara stores?


SPAIN

286

FRANCE

98

GERMANY

53

UNITED KINGDOM

50

PORTUGAL

48

ITALY

46

MEXICO

44

GREECE

41

USA

24

JAPAN

23

BELGIUM

20

BRAZIL

19

SAUDI ARABIA

18

TURKEY

16

ISRAEL

15

CANADA

14

POLAND

13

RUSSIA

12

AUSTRIA

10

There are 990 stores in 63 countries;

71% of stores are outside Spain.

Inditex Sales by Region


FY 2006

FY 2005

International expansion: More than 60% of Inditexs sales (and


more than 72% of Zaras Sales) comes from outside Spain.

10

Inventory to Sales Ratio


Zara
Matalan
H&M
Gap
6

10

12

14

11

Working Capital as
a percentage of sales
40%

38%

30%
20%
7%

10%

4%

0%
-10%
Benetton

Hennes &
Mauritz

Gap

-7%
Inditex

12

Some quotes.
Possibly the most innovative and devastating
retailer in the world
Daniel Piette, LVMH Fashion Director
Floating on airthe Economist

13

Zara Tidbits
Amancio

Ortega quit his sales job to start the


business with just 5,000 pesetas ($83)
Founded in 1963 as a maker of ladies lingerie in
the Galician town of La Corua
Today, 71-year-old founder and majority
shareholder, Mr Ortega, is Spains richest man.

14

Zara
Flagship

enterprise of Inditex (2001 IPO)


Sales of 7 billion dollars in 2006
HQ and central distribution in La Corua
(Galicia northwestern corner of Spain)
Womens, mens and childrens wear
Over 1021 stores in 63 countries

15

16

Zara and Mango


Spanish

apparel retailers
Both tap into global fashion trends:
Global appeal of catwalk fashion
International youth and fashion culture
Value proposition in rich countries; aspirational
fashion in poorer countries the unserved tier
combining middle-market pricing with high
fashion content and novelty
17

Zara: Product Position

18

The Zara Timeline compared the


traditional timeline
ZARA
6 months ahead:
15-20% committed
Start of season:
50-60% committed
In-season response:
45-50%
End of season sale:
15-20%

Traditional
6 months ahead:
4560% committed
Start of season:
80100% committed
In-season response: 020%
End of season sale: 3040%

19

Production Commitment and Markdown


6-month
Pre-season

Traditional
Industry
Model

45-60%

In-season

Start of season

80-100%

Advertisement

Zara

15-25%

50-60%

0-20%

Sales%
Not at full
price

30-40%

Advertisement
+
Markdowns
+

40-50%

15-20%

Fresh items
20

The Zara Model..


Design-driven;

11,000 styles per year


Partial vertical integration, with owned
factories; owned factory production is reserved
85% for IN-SEASON production
Tight coupling of market data and production
decisions in-season; cycle CAN be as short as 2
weeks from design to store delivery of the
completed garment

21

..The Zara Model.


Twice-weekly

shipments of new product to all


stores from central distribution
In-season production in response to demand is
limited by fabric on hand
Small batch production creates a scarcity
premium and encourages impulse purchase
Customers expect rapid inventory turnover,
learn to shop frequently (17 times per year)

22

The Zara Model..


Store

design is uniform and upscale; stores are


located on premium shopping streets
Pricing is market-based, not cost-based
premium pricing in higher cost markets
Powerful word of mouth supports store growth
without advertising (usually about 3-4% of
sales)
Growth has been organic from Spain and EU,
outward
23

Relative Wage Levels:


Textile & Clothing

Hourly Wage (US$)

$30.00
$25.00

13.6

$20.00

10.12

$15.00
6.79

$10.00

15.81
12.97

3.7

$5.00
$0.00

8.49

2.12
$0.39
$0.60

India

0.43
0.62

China

1.76

1.36
1.89

2.98

4.51

Tunisia Morocco Hungary Portugal


Textiles

Spain

USA

Italy

Clothing
24

To get a sense of the order of magnitude of wage variance:


Clothing:
India

hourly labor costs in U.S. $:

- China - Morocco - Spain - USA --

$0.39
$0.43
$1.36
$6.79
$10.12

Source: European Commission 1998 Statistics, Textile and Clothing Time Labor Costs
25

Pricing Strategy

Pricing Strategy
200

170

150

200

140

100

100

110

50
0
Spain

Rest of
Europe

Northern
Europe

Americas

Japan

26

Economics of Scarcity
Highten

the sense of now-or-never

Supply only handful of dresses at a time


Rapid design changes (11,000/yr)
Dont over-saturate the market
Typical shelf life couple of weeks
Change the location of key items

Stores

are not flooded with garments


A typical Zara customer visits the store 17
times/yr (compared to 4-5 for Gap)
Friends dont tell friends about Zara
27

No advertising?
Why?

Dont need to. Why spoil a good thing?


We do advertise, but dont like to pay for them
(free press is plenty)
High speed fashion not amenable to ad
campaigns

by the time an ad reaches audience, dress may be


sold-out or obsolete
28

JIT, really
Most

JIT system (even Toyotas) focus on


manufacturing
Zara has a true just-in-time system
From customer to design, production, and
fabric manufacturing
Customers pull not designers push drives the
system

29

Zaras Strategy
A

Passion for Fashion


Global Reach
Vertical Integration
Backward Integration

Design, Fabric, Coloring

Forward Integration

Retailing, market
research

Supply Chain at the


core of their strategy

Flexibility

Volume, design, fabric,


color, manufacturing
Economics

of Scarcity
Efficient Knowledge
Management
No advertising
Uniformity of Store
Format
Two-pronged
manufacturing strategy
30

Lessons from Zara


Focus

on

Design
Fashion
New material
Knowing your customers
Response to market
Flexibility
Productivity
31

Lessons from Zara


Rethink

the entire value chain

Reduction in mark-down can more than


make up for the increase in labor cost
Planned shortages can induce more future
demand
Good store location, layout and product
display can be a substitute for advertising
Faster response eliminates inventory risks
Excess capacity pays for itself by faster
response
32

Questions for Zara


How

to continue to manage the


sourcing/distribution/fashion equation as
Zara grows
Related: growth, pricing and marketing
strategies
Can others duplicate their models or
improve on them? Does the formula
dilute?
33

Summary
As

of the moment, Zara has got it right

Supply

chain and logistics management in


support of a winning, design-based
marketing strategy.

34

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