Essay Summary of Zara Fast Fashion

Overview

Zara’s vision on growth and global strategy

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• Building up fixed assets
• Vertical integration
• No advertising, creating premium stores
• Fashion follower – QR to fashion trends
• Strongly customer oriented
• Stable growth
• Markdowns half the average (15% as supposed to 30% )
• Pricing market based

Business model

• Vertical operations and downstream activities
• Multi-chain concept
• Creative design team
• Competitive advantage – Sustainable growth

Problem Statement

Growth challenge – 20% per annum expected, 76% of equity value implicit on Inditex’s stock price was based on expectations on future growth. Failure to deliver expected growth results might cause a serious offset in company’s market capitalization. Room for non-local growth – in average a retailer was present in 10 countries while e. g. a pharmaceutical company averaged operations in 125 countries.

Problem statement is: In what geographical area(s) should further Zara expansion follow? Should there be another logistics-distribution centre created as increase of operations might cause dis-economies of scale? Should it acquire additional chains given the complexity of managing those and the risk of own-product-replacements? Preserve the margins.

Evaluation of the alternative solutions

Growth challenge

• Notes: not much potential on the local market;
• different markets require different positioning
• though costs grow as distance grows, prices also change (margins are kept)
• 50% of all export is to developing countries
• Zara shopper visits the store 17 times a year, average is 2-4 times
• Creating a climate of scarcity and opportunity in stores

Change in marketing strategy

Current: Three types of entering a market: company owned stores, joint ventures, franchising

• Strategy is standard across the countries
• No adv
• One big shop central city (capital)
• Followed by smaller ones (spreading around the country)
• Shop windows used excessively
• Products do not differ much from country to country
• Model is downstream
• No knowledge is shared
• From design to stores within 4-5 weeks, industry average 9 months
• Due to product testing, failure rate only 1% compared to industry average of 10%

Change in pricing strategy

Current: Prices vary on the different markets, due to transport costs (all supplied from the base in Galicia) – this changes positioning Lower mark-down than industry average

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