M17-S1 - Case - Zara

Read the full case

here

Questions

1. Map out Zara’s product design, production, supply chain management, and retailing processes. What do you find interesting, different or surprising about them?
   1. Large 'control of own destiny;
   2. Little outsourcing
2. What are the reasons behind Zara’s success? What does it do well and how does it do them?
   1. Sales forecasting
   2. Branding through stores at high end locations
   3. Limited supply and affordable exclusivity
   4. "The retailer is therefore highly competitive. If a design doesn't sell well within a week, it is apparently withdrawn from shops, further orders are cancelled, and a new design is pursued. No design stays on the shop floor for more than four weeks, which encourages Zara shoppers to make repeat visits"
3. Who should pay for inventory at the retail shops: store managers or the headquarters? What about joint-venture and franchised stores? Why?
   1. It should be headquarters, also for the joint-ventures and the franchised stores, crucial for the brand is the high turn over, if the risk for inventory of non-current fashion assets will rely at the franchise, it will hurt the Zara brand
4. Compare Zara’s approach to two other successful competitors: H&M and Benetton (look for information on these two others using their internet websites)
   1. H&M:
      1. Owns the stores
      2. Outsources manufacuring
      3. Direct distribution from production suppliers to the stores (no central warehouse)
   2. Beneton
      1. Owns manufacturing and design
      2. Sells through 3rd party stores

Summary

• Sending out small 'test batches' of clothing to stores in top locations
• Mariage between retail and manufacturing
• Zara is one brand in a bigger mother company, Inditex
• Each brand operated with its own stores, warehouses.
• Corporate service were:
  • Legal, Finance, Acquisitions
  • Focus on affordable fashion
  • Share business model for control of supply, distribution and production
• Negative working capital model: cash came in faster than it would go out
• Zara owned most of the stores (small portion in franchises and joint ventures
• Extensive market research on the viability of retail locations
• Prestigious locations: expensive but still 'pleasant' use of available floor space
• Stores were designed in La Coruna and one team was responsible to rebuild new stores.
• "Store managers should focus on sales and customers: not on furniture"
• Little spend on marketing and advertizing: "our stores are our image and we rely on word of mouth"
• Deliberate decision not to focus on internet sales
• Focus on training the sales people
• Simple metric to track sales improvements (compare with same day a year earlier)
• "Fashion not clothing": low inventory to ensure local exclusivity. Affordable fashion.
• Market specialists allocated to regions of stores to create personal relationships with the store managers
• Owned manufacturing facilities in Spain
• Inditex also owned a fabric supplier (90% of the revenue was with Zara)
• Central warehouse with impressive volumes
• Less pre season commitments - High focus on sales forecasts
• Fast turnover - Max 3 weeks - Customers had incentive to buy and decide on the spot or risk that the piece would be gone
• For future expansion the # franchises was expected to grow