zara case brief

7/26/2019 ZARA Case Brief

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Zara

Prepared by Professor Nelson Fraiman


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WhatisZara

about?


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2006 Revenue (million US$)

$2,521

$7,065

$8,705

Benetton Zara Li & Fung

8.3% 22%21%


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2006 Net Profit (million US$)

$165

$282

$858


12% 23%25%


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2006 Net Margin

6.5%

12.1%

3.2%



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Number of Stores (2006)

5000

990

Benetton Zara

138


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Where are Zara stores?

10

12

13

14

15

16

18

19

20

23

24

41

44

46

48

50

53

98286

AUSTRIA

RUSSIA

POLAND

CANADA

ISRAEL

TURKEY

SAUDI ARABIA

BRAZIL

BELGIUM

JAPAN

USA

GREECE

MEXICO

ITALY

PORTUGAL

UNITED KINGDOM

GERMANY

FRANCESPAIN

There are 990 stores in 63 countries;71% of stores are outside Spain.


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Inditex Sales by Region

FY 2006 FY 2005

International expansion: More than 60% of Inditexs sales (andmore than 72% of Zaras Sales) comes from outside Spain.


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Inventory to Sales Ratio

6 8 10 12 14

Gap

H&M

Matalan

Zara


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38%

7%4%

-7%-10%

0%

10%

20%

30%

40%

Benetton Hennes &

Mauritz

Gap Inditex

Working Capital asa percentage of sales


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Some quotes.

Possibly the most innovative and devastating

retailer in the world

Daniel Piette, LVMH Fashion Director

Floating on airthe Economist


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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 inthe Galician town of La Corua

Today, 71-year-old founder and majority

shareholder, Mr Ortega, is Spains richest man.


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Zara

Flagship enterprise of Inditex (2001 IPO)

Sales of 7 billion dollars in 2006

HQ and central distribution in La Corua(Galicianorthwestern corner of Spain)

Womens, mens and childrens wear

Over 1021 stores in 63 countries


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Zara and Mango

Spanish apparel retailers

Both tap into global fashion trends:

Global appeal of catwalk fashionInternational youth and fashion culture

Value proposition in rich countries; aspirationalfashion in poorer countriesthe unserved tiercombining middle-market pricing with highfashion content and novelty


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Zara: Product Position


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The Zara Timelinecompared 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: 45-

60% committed

Start of season: 80-

100% committed

In-season response: 0-

20%

End of season sale: 30-

40%


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Production Commitment and Markdown

6-month

Pre-season Start of season In-season

Sales%

Not at full

price

Traditional

Industry

Model

45-60% 80-100% + 0-20% 30-40%

Advertisement Advertisement

+

Markdowns

Zara 15-25% 50-60% + 40-50% 15-20%

Fresh items


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The Zara Model..

Design-driven; 11,000 styles per year

Partial vertical integration, with owned

factories; owned factory production is reserved85% for IN-SEASON production

Tight coupling of market data and productiondecisions in-season; cycle CAN be as short as 2

weeks from design to store delivery of thecompleted garment


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..The Zara Model.

Twice-weekly shipments of new product to allstores from central distribution

In-season production in response to demand islimited by fabric on hand

Small batch production creates a scarcitypremium and encourages impulse purchase

Customers expect rapid inventory turnover,learn to shop frequently (17 times per year)


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The Zara Model..

Store design is uniform and upscale; stores arelocated on premium shopping streets

Pricing is market-based, not cost-basedpremium pricing in higher cost markets

Powerful word of mouth supports store growthwithout advertising (usually about 3-4% of

sales)Growth has been organic from Spain and EU,

outward


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Relative Wage Levels:

Textile & Clothing

$0.60$0.39

0.620.43

1.76 1.891.36

2.98

2.12

4.51

3.78.49

6.79

12.97

10.12

15.81

13.6

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

HourlyWage(US$)

India China Tunisia Morocco Hungary Portugal Spain USA Italy

Textiles Clothing


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

Clothing: hourly labor costs in U.S. $:

India -- $0.39China -- $0.43

Morocco -- $1.36

Spain -- $6.79USA -- $10.12

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


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Pricing Strategy

100110 140

170 200

0

50

100

150

200

Spain Rest of

Europe

Northern

Europe

Americas Japan

Pricing Strategy


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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 lifecouple of weeks

Change the location of key items

Stores are not flooded with garments

A typical Zara customer visits the store 17times/yr (compared to 4-5 for Gap)

Friends dont tell friends about Zara


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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

campaignsby the time an ad reaches audience, dress may be

sold-out or obsolete


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JIT, really

Most JIT system (even Toyotas) focus on

manufacturing

Zara has a true just-in-time systemFrom customer to design, production, and

fabric manufacturing

Customers pull not designers push drives thesystem


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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 KnowledgeManagement

No advertising

Uniformity of StoreFormat

Two-prongedmanufacturing strategy


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Lessons from Zara

Focus on

Design

FashionNew material

Knowing your customers

Response to market

Flexibility

Productivity


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Lessons from Zara

Rethink the entire value chain

Reduction in mark-down can more thanmake up for the increase in labor cost

Planned shortages can induce more futuredemand

Good store location, layout and productdisplay can be a substitute for advertising

Faster response eliminates inventory risks

Excess capacity pays for itself by fasterresponse


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Questions for Zara

How to continue to manage thesourcing/distribution/fashion equation as

Zara growsRelated: growth, pricing and marketing

strategies

Can others duplicate their models orimprove on them? Does the formuladilute?


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Summary

As of the moment, Zara has got it right

Supply chain and logistics management in

support of a winning, design-based

marketing strategy.

zara case brief

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