Zara: The Largest Spanish Clothing Company Owned by Inditex

Prepared by: Shaheen Sardar

SCM Lab. Department of Industrial and Management Engineering, Hanyang University, South Korea.

Zara, global fast-fashion retailer and largest chain in Inditex group

ZARA “Vision”

“ZARA is committed to satisfying the desires of its customers.

As a result we promise to continuously innovate our business

and to provide new designs made from quality

materials that are affordable.”

ZARA “Mission Statement ”

“Through its business model, Zara aims

to contribute to the sustainable development of society and that of the environment with

which we interact.”

What we know about Zara and its history?

• Zara’s founder is the first richest person in Spain and the third richest person in the world (2013). This person is Amancio Ortega (Born: March 28, 1936).

His doughter:

Marta Ortega

Inditex founder

What we know about Amancio Ortega?

Amancio began working as a tailor's assistant in his hometown

In 1963 he decided to start a business and he thougt the clothing company Goa. This business began to progress and that in addition to selling began to distribute.

Amancio Ortega was born in La Coruna.

THE CHAIN’S NAME:

In 1975, the first Zara store was foundedin La Coruna.

In 1988 Zara’s company opened the first store outside Spain.

In 2010 Zara’s company opened his first online shop.

portugal

Perceptual Map

Fashion Value

Pri

ce

Everyday Low quality

XX

prices

Zara

Armani

Hilfiger

Design

Feedback

Cut

Production

Sale

Promotion

Display

Shipment

Outsource

None

Outsource

Outsource

Outsource

Promotion

Outsource

Outsource

Design

Outsource

Outsource

Outsource

Sale

Outsource

Display

Co-OP

CONTROL

Head Office & Design lab.

Manufacturing

Logistics

Europe Production Asian Production

Cost: $$$$$$$$$$

Fashion Value: ZZZZZZZZZZ

Cost: $$

Fashion Value: ZZZZZ

High fashion suits & skirts Commoditized eyewear and plain shirts

Competitors Copying Zara Management

H&M Once a week shipments

Target Limited supply designers

Benetton Mid-season lineup adjustments

Patagonia Increased seasonal shipments

0

5

10

15

2003 2004 2005 2006 2007

Zara

Gap

H&M

Benetton

Sales in Billions of $

Profit in millions

0

1000

2000

2003 2004 2005 2006 2007

Zara

Gap

More about ZaraZara’s company is owned by Inditex group.

Inditex group contains Zara and more different brands.

Zara clothing offers quality trend to an audience:

femalemale adolescent child.

From Zara derive other shops like:

Zara home

Zara shoes

Zara accesories

This chain of Spanish fashion stores has more than 200 designers and a higher number of models.

Zara’s collections are small and sell out quickly.

Zara has no advertising, the only trade exhibition is based on trucks ,storefronts,catalog and in the zara bag.

ZARA STORES:

In Zara:

customer first

ZARA

• In Spain Zara’s company has:452 stores and 131 of them with Zara

kids (2013)

452

Zara Global expansion:

1947 stores around the World in 87 countries in 2013

1925 stores around the World in 86 countries in 2012

Online stores in 21 countries in 2012

ZARA “Production Facilities”

60%Spain

20%Europe 20%

Asia

ZARA “Summary”

Owned by Inditex

• Based in La Coruna, Spain• 1947 stores in 87 countries• Fast fashion strategy• 30,000 designs per year• 40% of designs produce in-house• Stock updated twice a week• Vertical Model – limited outsourcing• Zero advertisement

Where are Zara stores in 2013?

• 1947 stores in 87 countries.• 77% of stores are outside Spain.• 166 Kiddy's Class stores out of 1947 stores.

Where are Zara stores in 2013?

Where are Zara stores in 2013?

Where are Zara stores in 2013?

• Zara’s consumers are young, highly sensitive to latest fashion trends .

• Zara sells apparel, footwear and accessories for women, men and children .

• Zara offers fashion at affordable price by following the most up to date fashion trends .

Zara Target & price

Inditex

• Founder: Amancio Ortega Gaona• He Thought:

Consumer would regard clothes as a perishable commodity just like yoghurt,

bread or fish to be consumed quickly, rather than

stored in cupboards, and he has gone about building a retail business that provides “Freshly

Baked Clothes.”

Inditex CompaniesNumber of

Stores (2013)Year of

Creation1. Zara 1781 19752. Pull and Bear 825 19913. Massimo Dutti 634 19954. Bershka 910 19985. Stradivarius 816 19996. Oysho 533 20017. Zara Kids (Kiddy's Class) 166 20018. Zara Home 363 20039. Uterque 87 2008

Total Stores (2013) 6115  

INDITEX

  2012Revenue 13.79 billionOperating income 2.522 billionProfit 1.932 billionTotal Assets 10.95 billionTotal equity 7.455 billionEmployees 120,000

INDITEX “Growth”

Fiscal Year 2012 2011 12/11

Net sales (millions of euros) 15,946 13,793 16%Net profit (millions of euros) 2,361 1,932 22%No of stores 6,009 5,527 482No of markets 86 82 4Employees 120,314 109,512 10,802

Total Stores (2013) 6115  

Fiscal Year 2013 2012 13/12Net sales (millions of euros) 7,655 7,239 6%Gross profit (millions of euros) 4,486 4,313 4%Net income (millions of euros) 951 944 1%

INDITEX “Gross margin and Operating expenses”

% on sales 2013 2012 2011Gross margin 58.6% 59.6% 58.4%

Gross profit growth of 4% or € 4.5 billion

Millions of euros 2013 2012 13/12Operating expenses 2,861 2,690 6%

INDITEX “Strong Growth”

INDITEX “Strong Growth”(millions of euros)

INDITEX “Net profit”(millions of euros)

INDITEX “Sales by geographical area”(%age)

INDITEX “Employees by Geographical area 2011-12”

Employees 2012

INDITEX “Employees by Gender 2011-12”

INDITEX “Employees by Gender 2012”

Waste Management

Garments released on the market VS total industrial waste

INDITEX “Number of Employees”

INDITEX “Results”(millions of euros)

INDITEX “Stores”

INDITEX “Markets”

INDITEX “Sales by Concept”

Concept Name 2013 13/12CAGR (2 year)

1. Zara 5,004 4% 11%2. Pull & Bear 530 13% 13%3. Massimo Dutti 575 17% 12%4. Bershka 702 5% 8%5. Stradivarius 463 2% 8%6. Oysho 152 6% 4%7. Zara Home 196 30% 21%8. Uterque 33 - 3%

CAGR = Compound Annual Growth Rate

INDITEX “Global Sales Platform”

Store sales (%) 2013 2012Europe excluding-Spain 45% 44%Asia & RoW (Rest of World) 22% 20%Spain 19% 22%Americas 14% 14%

INDITEX “Zara Sales”

INDITEX “Global Online Sales” • Europe• US• China• Japan• Russian Federation• Canada

INDITEX “Supply Chain Management”

Clusters of suppliers

Morocco

SpainPortugal

ArgentinaBrazil

Turkey

BangladeshChinaIndia

87% of Inditex's total production

INDITEX “Supply Chain Management”

“Geographical Distribution of Suppliers to the Inditex Group” 2012

Inditex's Supply Chain in 2012-13

INDITEX “Principal Indicators”

Principal indicators in 2012 ZARA Pull &

BearMassimo

Dutti Bershka Stradivarius Oysho Zara Home Uterque

Net sales (in millions of euros)

10,541 1,086 1,134 1,485 961 314 350 74

Number of stores 1,925 816 630 885 780 524 357 92Net openings 120 69 57 74 96 41 47 3Markets 86 59 60 62 52 35 35 18New markets in 2012 5 11 10 6 7 4 5 1

ZARA “Sales” • Zara sales increased by 18% in 2012, up to

€10,541 million

INDITEX (Business Structure)

• Name: Industria de Diseno Textil, S.A. (Inditex)

• Inditex Group: Inditex and its subsidiaries

• Centralized management: Applying policies and strategies at group level

INDITEX (Business Structure)

Head office: La Coruna (Spain)

• Sets Inditex strategy

• Co-ordinates brands

• Provides centralized IT, HR, Logistics, design and real estate functions

Textile Sourcing

Comditel S.A (La Coruna)

Tempe S.A. (Alicante)

Nikole S.A (La Coruna)

Zara Asia Ltd (Hong Kong)

ITX Trading S.A (Freiburg, CH)

Uterque S.A (La Coruna)

Lefties Espana (La Coruna)

E-commerce

ITX Fashions Ltd 100% (Ireland)

Manufacturing

InternalChoolet SA,

Confecciones Fios, Gonfecciones Goa, Denlio, Hampston,

Jema Creacione Infantiles, Samlor,

Stear, Trisko, Zintura, Glencare, Indipunt

(all based in La Coruna)

ExternalInditex works with

around 1,500 external suppliers around the

world.

Logistics (Zara)

Zara Logistica SA (La Coruna, Spain) - 50%

of Zara women and menswear, serving

Iberia, Americas and Middle East

Plataforma Europa SA (Zaragoza, Spain) - 50% of Zara women

and menswear, serving non-Iberian Europe,

Russia and Asia

Plataforma Logistica Leon SA (Leon, Spain) Zara Home and Zara

distribution

Plataforma Logistica Meco SA (Madrid,

Spain) manages Zara childrenswear

Tempe, Inditex’s footwear company is

only 50% consolidated at corporate level, but is

solely responsible for sourcing,

manufacturing and distributing footwear

for the group.

Brand Divisions

Zara

Oysho

Stradivarius

Pull & Bear

Bershka

Massimo Dutti

Zara Home

Uterque

Each Inditex brand is managed

independently with its own logistics and production facilities.

INDITEX (Business Structure)

Traditional model

Design

Sourcing

Store

Customer

Inditex model Opposite of traditional clothing cycles

Pull type production process Quick response Real-time sales information from

its stores Small batch quantities allow the

retailer to see what items are working with shopper

A central distribution centre in Arteixo, with strong IT systems developed by Inditex and third parties, supports its supply chain model

All items are shipped back to Spain where they are then shipped out to stores around the world

Sourcing

Design

Store

Customer

INDITEX (Business Structure)

INDITEX'S “Waste Management”ZNormativa: Set of rules and regulations common to all suppliers to optimize • Packaging process • Waste management • Distribution and logistics

Good Waste Management Practices: Methodology of work used to manage waste to• Reduce content of packaging material• Improve waste separation and storage • Facilitate recycling

ZARA “Business Model”

1. Develop system that requires short lead times

2. Decrease quantities produced to decrease inventory risk

3. Increase the number of available styles and/or choice

ZARA “Competitive Advantage”

Cost LeadershipFashionable (quality) at reasonable price

1. Based on Product Positioning:“ZARA is cheaper price than Benetton and GAP, and still being fashionable”

Fast Production2. Ability to Design and get finish goods in stores

within 4 to 5 weeks3. Very quick to get designer-influenced

products into their storesProduct Variation

4. Ability of ZARA to launch new trends, design and variation of product5. Low Level of Inventory6. Efficient Distribution System7. Turnover of Product is High

ZARA “Objectives”Maximize Profit:• Maintain an ability to go further fashionable

(quality) at reasonable price ZARA positioning

ZARA fashion

Price

Fashion

ZARA(New)

-

+

--

+-

BeforeTransform

Objective/Expectation+ Price +

ZARA “Objectives”

Analysis map of ZaraAdapted from the Survey.

ZARA “Objectives”• Continuous design, production and distribution

Creative Departments: Staff = 200+

Sewing: Cut fabric isshipped to workshops

to be stitched

Samples: Prototypesmade in-house and

by suppliers

Spreading: Material for garments laid out in layers and marked

Cutting: A machinecuts the fabric according

to the patterns

Finishing: Garments are pressed, dressed and quality checked

Shipping: FromLogistics centres to stores, road and air

Delivery: Garmentsarrive in store within 48 hours of ordering

Design, Productand market Cycle; 1. Final design : 1 day2. Manufacture : 3-8 days3. Transport : 1 day4. Selling : 17-20 days TOTAL : 22-30 days

ZARA “Strategies”

Objectives

MIS

Marketing

Design

Production &

distribution

ZARA “Strategies”

Production & distribution• Maintain quality• Cost leadership• High bargaining power to suppliers• Fast distribution system

Design• Coordinate with R & D and stores to get the

new trends• Ability to produce new trends

ZARA “Strategies”

MIS• Product distribution system• Improving inventory system• Order information flow stores ordering system

Marketing • R & D • Market penetration• Market , location of stores , consumer behavior

analysis

ZARA “Value Chain”

Production :Factory & distributor

Store Store

Store Store

Store

Marketing :Market Research and Analysis

Design

Inventory

Check theMaterial availabilitythen decidingHow much thisproduct will be Produce

MIS

MIS

MIS

Close watchOn trend andBuying Behaviors

MIS

Commercial Team & designer

Strengths

• Ability to recreate fashion• Owned 1947 stores and Active use of stores• Cost leadership strategy• Differentiated in high price fast fashion

industry• Dedicated supply chain process• Vertical systematization of production process• Efficient distribution and High turnover.

Weaknesses

• Centralized distribution system• Doesn't spend much money on advertising• Lack of online stores in many countries• Repeated sales of out-of-stocks• Low quality

Opportunities• Growth of fashion market• Diverse cultural area• Constant use of social media marketing

strategy• Online marketing strategy• Global market penetration • Distribution center in US • Expanding into potential new market e.g.

China, Australia

Threats• Emerging new comers

• Local and Global competitors

• Cheaper alternatives may be available in economic downturn

• Zara based in Spain and has a great no of stores in Europe will dent in revenues

• Limitation of design copies

• Product Cannibalism

ZARA “International Strategy”• Combined Strategy:1. Cost Leadership is usualy captured in mass production

(mass product, less differentiation) Standardization 2. Differentiation Strategy is ussualy captured to produce

goods that are more value added fashionable, fast delivery customization

• Good Consideration:1. Market selection2. Marketing approach3. Market entry

ZARA “International Strategy”

Market Selection

Marketing Approach

Market Entry

InternationalStrategy

Market Selection:

ZARA “International Strategy”

Market Selection:

ZARA “International Strategy”

Market Selection:• Consideration

• Characteristic or behavior of Consumers

ZARA “International Strategy”

Country Character of Consumers

French More Fashionable (Quality Oriented)

German Price Sensitive

Italian More Fashionable

USA Less Trend

Japan More Trendy

British Stores Based on Social Affinity

Market Entry:

ZARA “International Strategy”

Barriers Factors

Market EntryConsideration

Economics Factor

Market Entry Government

Market Entry:

• Consideration• Economics

• Macroeconomics Factor :• tax, political condition, export tariff

• Microeconomics Factor :• Local Competitors• Demand • Location of Store

• Government• Regulation from Government

• Barriers• Local producers protection issues

ZARA “International Strategy”

ZARA “International Strategy”

Marketing Approach:

• Consideration• 4 P consideration Product, Price, Promotion

and Placement. Each Country has different marketing approach.

• Product local preferences, design, trends• Price different pricing strategy for each

country. For example: Italy and Paris has no problem for price but quality-oriented, but German has sensitive price.

• Promotion different promotion strategy for each country

• Placement efficient distribution, location of stores

ZARA “Financial Position as Compared with Competitors”

GAP H & M Benetton Inditex

Net Margin -0.06% 9.60% 7.05% 10.46%

Asset Turnover 1.82 1.96 0.74 1.25

ROA -0.11% 18.78% 5.25% 13.05%

ROE -0.27% 24.85% 11.93% 22.88%

ZARA “Inventory Management”

• Focus on reducing response time

• Approximately 11,000 new items per year, compared with 2,000-4,000 for H&M and Gap.

ZARA “Inventory Management”

• Stock outs: Common

• Short shelf life: More customers

• Inventory holding: • ZARA: 6 days • H&M: 52 days• Cortefiel (Spain): 94 days

ZARA “Forecasting”• Extensive market research

• Quick input and output response

• Frequent new styles

• Near-term forecasts

• Customer feedback

• Short product life cycles Reduce errors Improve current products

ZARA “Procurement”• In-house production: Half

• Each clothing line: Separate staff

• Basic textiles: Global suppliers

• Simple items: Outsourced to China.

• Difficult items: Zara factories and domestic outsourcing

• Most suppliers: Close to distribution centers

ZARA “Production Planning”• Design & Production Centre:

Centralized

• Supply chain: Constant data flow

• Retailers: Have authority to change 40%-50% orders

• Factories:Single-shiftChange quickly according to

demands

ZARA “Warehousing”• High-velocity shipping: Rapid

information flows

• Stores: Electronically connected to headquarters

• Logistics system: Speed and flexibility

• Products: Selected Sorted Routed Delivered Local distribution centers Retail store stockrooms

ZARA “Transportation”

• Distribution: 2 weeks

• Supply chain: Quick response

• Transportation network: Effective and efficient

• Zara Promotes: Service quality

• Zara Coordinates: All aspects of logistics

Production Commitment and Markdown

6-monthPre-season Start of season In-season

Sales%Not at full

price

TraditionalIndustryModel

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

AdvertisementAdvertisement

+Markdowns

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

Fresh items

Recommendations to ZARAKEY PROBLEMS:Emphasize on high efficiency and

fast production processes

Demotivation of workers

Quality drops

Lack of inventory tracking

Inability to check inventory within stores

Real time counts and scan must be done.

Recommendations to ZARA• ZARA SEEMS TO:Go in the right directionGrow at a remarkable rateShow no signs of slowing down

• ZARA SHOULD: Expand in each district/region Expand into North American and Asian markets Continue growth throughout Europe Increase its production and reduce costs by outsourcing to

Asian countries

Recommendations to ZARA

• CHANGE THE SYSTEMCentralizedTransform DecentralizedBuild decentralized distribution & Production

in each region (Asia, Europe & America, more is better) toPenetrate new market & trend Decrease the complexity of process

Recommendations to ZARA

INCREASE ADVERTISEMENT• Part of marketing• Bridge between customers and companies

INCREASE NETWORKING CAPABILITIES:Ineffective communication between its stores and the

home office. Currently used POS terminals are not connected to

other store POS terminals or to corporate headquarters.

Recommendations to ZARA

Improve IT Infrastructure • Efficient for past operations

• Insufficient to deal with modern technology

• Ineffective in future as company continues to grow and expand internationally

References

1. Bureau of Labor Statistics (2011). International comparisons of hourly compensation costs in manufacturing, 2010. http://www.bls.gov/news.release/pdf/ichcc.pdf

2. Werner International management consultants (2012). Comparison of the hourly labor cost in the primary textile industry winter 2011.

3. Verlina N. Whatley (2011). Case Analysis of Zara: IT for Fast Fashion http://www2.uhv.edu/luj/MGT6352/ Samples/Student%20Sample%202.pdf

4. http://en.wikipedia.org/wiki/Zara_(retailer)5. http://en.wikipedia.org/wiki/Inditex6. http://www.inditex.com

ANY QUESTION?