case study - zara international retail expansion
TRANSCRIPT
International Expansion
Presented by: Neha Randhawa, Alivia Ye, Arjun Pisharody
2AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Agenda For Today’s Meeting
Current situation overview at ZARA1
Identifying ZARA’s core problem2
Recommendations & rationale3
Risks & mitigation4
Implementation plan5
Executive Summary
3AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Highly competitive, fragmented $900Bn global apparel industryZARA performing well, but Inditex challenged with high growth expectations
Situation
Which market should ZARA enter next and how?Problem
Pursue Asian market, starting with Shanghai, ChinaSetup JV with local partner, “oil stain” approach, new distribution centreSource from China & Bangladesh
Reco
Large market opportunity; population, disposable income growing, trendy fashionFast fashion garments at lower price points popular in ChinaChina and Bangladesh has lower labour inputs and rents, cost to manufacture low
Rationale
Situational Analysis – Highly competitive, fragmented $900 Bn global apparel industry (Year 2000)
• Buyer-driven apparel global chain – fragmented, research & design important
• ZARA is highly profitable; primary driver of Inditex’s positive results
• Inditex (ZARA) challenged by investors expecting high future growth
• Many global competitors competing on price/fashion (ex. 1)
• GAP• H&M• Benetton
4AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Situational Analysis – Industry trends
• 30% of worldwide apparel production is exported• 50% from developing countries (lower labour costs)
• Per capita spending on apparel fairly inelastic as per capita income grows
• Significant local variation in customers’ attributes and preferences• Within a region• Within a country• Differences between regions is greater
• Richer communication links affect global and local trends (pop culture)
5AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Core Issue – Marketing and Sales Problem
As ZARA grows internationally…
Which market should it enter and how?
6AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Situational Analysis – Key Criteria
7
Market selection
Population and market opportunity, per capita spend
on apparels, design alterations, local preferences
Logistics / Proximity to suppliers
Reduce shipping costs and lags, QR practices, landed
costs, labour input costs, rent expense
AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Recommendations
8AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Where to Expand? Shanghai, China
How to Expand? JV with local partner, “Oil stain” approach
Where to Source? Bangladesh
How to Distribute? New DC in China
Timeframe? 3 years
Why China - The Golden Opportunity
9AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
• 2001: China became an official WTO member • Lowered tariff rates• opened its domestic retail and distribution market to foreigners • granted access to funds for new foreign retailers
• Shifting towards a market-based economy• rural to urban migration increasing • market segregated into first-tier, second-tier, and third-tier cities• first-tier cities are most attractive → metropolises located along
coast-line• Proximity of cities easy for the Oil Stain strategy • Why Shanghai? Shanghai sets the fashion trend in China
10
Shopping is very important for Shanghai residents
AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Beijing and Shanghai rank
Shopping as the most important
leisure activity
Shanghai pays more attention
to fashion information
Shift in Consumer Trends
11AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
• Significant increase in individual’s disposable income
• Fast fashion with lower price points becoming extremely popular• Rising number of working women → significant increase in demand for
womenswear• Estimated that women’s office wear and business casual wear will be
the fastest growing segments
Total Annual Savings (1 RMB = 0.14 EU)
Year 1990 2000 2001 2002 (projected)
Total (RMB Billion) 712 6,433 7,376 9,000
Total (EU Billion) 100 901 1,033 1,260
How to move forward
12AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Joint Venture Strategy• Only 2 types of department stores in China
• State-owned• Joint venture
• Land is very expensive in China hard to secure prime retail space
Source from Bangladesh• Cheaper labour• Looser legislations
Plan to set up new DC in China• Lower costs and ensures JIT • Foundation for Asia expansion
Risks & Mitigation
13AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
RISK: Zara products entering the black market
MITIGATION:Hard to imitate trends and low price points
HIG
HLO
W
HIGHLOW
RISK: Failure to create an impact in China
MITIGATION:Starting with major cities. Starting with Shanghai minimizes risk
RISK: Quality of the material used for production and risk of ‘sweatshop trade’ and Multi FiberAgreement
MITIGATION:Develop strong relationship with suppliers and have strict regulations against wrong practices
RIS
K
MITIGATION
Implementation
14AgendaExecutive Summary
Situation Analysis
Core IssueRecommend
ationsRisks &
MitigationImplementa
tionRationale
Search and finalizing the location of the flagship store in Shanghai –Nanjing Road
Find a Joint Venture Partner
Change in marketing plan depending on results
Years 1 2
Evaluate the success of the first store
Find the supplier in Bangladesh
Advertisements using European Models
Store launch
Depending on the success, plan out store launches in other cities (SuZhou) or others in Shanghai
3
Plan to set up a distribution center
Find distribution centers to support the next phase of expansion
Market Research -Have people on the ground to know the latest trends
ANY QUESTIONS?…
THANK YOU!
15
16
Exhibit 1: Product Market Positioning Map
Fashion - Fashion +
Price -
Price +
Benetton
GAP
H&M
ZARA
ZARA: Medium quality fashion clothing at affordable prices
17
Exhibit 2: ZARA vs. Key Competitors
GAP H&M Benetton ZARA
Production Outsourced Outsourced In-House40% In-House
60% Outsourced
Production
Lead TimesHigh High High Low
18
Exhibit 3: ZARA’s Business System
ZARA
Design
Sourcing &
Manufacturing
Distribution
Retailing
19
Exhibit 4: ZARA Competitive Advantages
• Strong business model integration• Decentralized store management; managers determine products to sell
and return or re-distribute• Returns from other stores quickly re-routed• Quick Response (QR pull demand system)• Small batch production due to low product pre-commitments vs.
industry (short forward order book)• High product turnover, limited quantities reinforce “buy now or lose it”• Central DC with strong IT system
20
Exhibit 5: Product Pre-commitments; ZARA vs. Industry
S
A
L
E
S
M
A
R
K
D
O
W
N S
S
A
L
E S
15%INTERNAL MANUFACTURING 85%SEASON
ZARA
M
A
R
K
D
O
W
N S
65% 35%
55%
DESIGN AND RAW MATERIAL
SOURCING
EXTERNAL MANUFACTURING 40-50%
SEASON
DISTRIBUTION AND SALES
Traditional
Industry VISIT TO
EXHIBITIONSDESIGN
INTRODUCTION
TO COLLECTIONMANUFACTURING
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 5TH QUARTER