Zara strategy
Resources - Client-Oriented Store Organization:
o Fresh Ideas: New products are shipped twice a week allowing constant changes in style selection. Customers enjoy coming to Zara because each time they shop, they find new clothes, shoes and accessories. This intrigues them and, as a result, prompts them to visit Zara’s stores more often than its competitors’. By constantly introducing new, low-price items, Zara entices new and existing clients to return to Zara regardless of sales. Such a business model increases customer satisfaction as well as company profits.
o Store Layout: The stores are created in a way that is attractive to customers. Unlike most of their competitors, Zara recreates their older stores every three or four years to adhere to demand and maintain customer interest. Moreover, three-quarters of the display merchandise is changed every three to four weeks. This is done to capture the interest and meet the needs of Zara’s repeat clients since research determined that existing shoppers visited the stores (Kasyuk, Reedman 3) about 17 times a year. In addition, word of mouth advertising creates a positive pre-emptive vision of Zara stores.
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- Management Style & Information Transfer:
o Flat Hierarchy: Top directors choose to treat each store as its own business and as a result, there are very specific reporting requirements and targets set for each store. By requiring individual stores to monitor trends, store managers take an active role in determining which merchandise to restock or discontinue as well as provide insight about demand for new products. “For those who want to adapt to our business model, they will have to…change the method of applying human resources, which is most costly. This is where Inditex’s competitive advantage lies” (Zara: Fast Fashion Video).
o Open Lines of Communication: Most companies have much bureaucracy associated with the way valuable information about trends and behaviors is transmitted within the company, but Zara has a fast solution in which lines of communication are wide open. “… Zara's organization, operational procedures, performance measures, and even its office layouts [are] all designed to make information transfer easy” (Ferdows).
- State-of-the-Art IT Systems:
o Advanced Just-in-Time Manufacturing System: The “advanced telecommunications systems [connects] headquarters and supply, production and sales locations” (Zara 9). Highly developed systems facilitate the tracking of customer preferences, company trends, fashion fads etc. (Kasyuk, Reedman 4)
o Personal Digital Assistants: PDAs are also used throughout the company to enhance and allow for more effective and efficient communication methods. “Through the PDAs and telephone conversations, stores transmit all kinds of information to La Caruña such hard data as orders and sales trends and such soft data as customer reactions and the ‘buzz’ around a new style” (Ferdows).
o Production Schedule: Zara’s fast production schedule demands precision within technological systems. “The central creative function relies on computer-aided design technology to refine prototypes. But the designers can also send specifications directly to cutting machines and other equipment in the production process” (Computer Weekly).
- Ideal Store Locations:
Zara stores are found in highly visible locations such as the Champs Elysees in Paris, Regent Street in London and 5th Avenue in New York. The company considered these locations valuable assets amounting more than 400 million Euros. Diego Copado, leader of Zara’s corporate communications team, agreed saying, “We have the best creative energy in the world - our real estate department” (Zara: Fast Fashion Video).
- Limited Products:
o Created Scarcity: By producing lower quantities of clothing and having limited amounts of merchandise in stores, Zara has been able to artificially increase demand for clothing, accessories and shoes. “The emphasis on fast turnaround motivates consumers to purchase items on the spot. Unlike in many clothing stores, where seasonal lines remain on the shelves for weeks or months, a particular style in a Zara store can disappear within a week” (Global (Kasyuk, Reedman 5) Logistics ; Supply Chain Strategies). This creates a sense of “scarcity and opportunity” and facilitates immediate revenue.
o Low Risk for Failure: Because there are small quantities of merchandise, there is virtually no possibility of large design failures that would dissatisfy clients and decrease overall profits. Limited quantities of poor performance items are sold quickly and easily during sales. In fact, in 2003, Zara’s failure rates on new products were 9 percent lower than its competitors’ (Zara 10).
Capabilities
- “Fast Fashion” Model:
This unique strategy develops a continuous production based on market research, employee observations and consumer demand. The fashion forward strategy enables Zara to exceed customer expectations.
- Quick Response: The quick response strategy is a “set of policies and practices targeted at improving coordination between retailing and
manufacturing so as to increase the speed and flexibility of responses to market shifts” (Zara 3).
- Low Cost and Low Outsourcing of Production: Zara designs, creates and sells clothing at low costs allowing it to increase overall revenues. By outsourcing less than its competitors, Zara has more control over its product lines. “Inditex brings more than 10,000 new items to market every year, dwarfing the likes of nearest rival Hennes ; Mauritz (H;M), with half the output. Essentially, production batches are deliberately kept small to control supply and create demand” (Computer Weekly). Furthermore, while most stores ship new items only a few times a season, Zara ships new products twice a week. (Kasyuk, Reedman 6)
- Production Cycle: Zara is able to create new designs and deliver them to stores within four to five weeks for restocking purposes while designs with minor modifications could be sent to stores within two weeks. This is an incredibly short turnaround time since most brands take up to six months to design and at least three months to manufacture. Additionally, as previously mentioned, the design organization is flat, which allows for equal opportunity and autonomy in the workplace. Zara is able to gain insight from all individuals within the organization regardless of status.
- Lower Lead Time than Major Competitors: Vertical integration plays a key role in Zara’s success. All internal and external production flows into Zara’s central distribution center. As a result, large inventory and warehouses are eliminated and products are shipped directly from the central distribution center to company stores twice a week. Centralized manufacturing decreases lead time enabling Zara to react quickly to fashion fads and trends. Deputy Chairman and CEO, José Maria Castellano explained that Zara is the leader because of its internal production. “Because we organize production here in Spain, we compete effectively in terms of response times. Our competition in terms of costs corresponds to the products we don’t produce internally,” he said (Zara: Fast Fashion Video).
- Three Channel Operation System - There are separate design, sales, procurement and production-planned units for each line (men’s, women’s and children’s). Although it is more expensive to operate in such a manner, the supply chain is much more direct. Furthermore, the three groups work in close proximity enhancing the communication, and allowing for faster design, development and implantation. The designers also frequently interact with market specialists, who communicate often with store (Kasyuk, Reedman 7) managers and provide recommendations as well as feedback about designs and prices. Procurement and production planners assist as well by providing financial estimates. “The cross-functional teams examine prototypes in the hall, choose a design, and commit resources for its production and introduction in a few hours, if necessary” (Ferdows). Read also about Zara corporate social responsibility issues
- Unique Approach to Marketing: In 2003, Zara only spent 0.3 percent of its profits on advertising. The brand does not focus on creating an image for women, men or children through media advertising. Zara, on the other hand, chooses to utilize only word-of-mouth advertising to promote its products. This allows Zara to remain a sophisticated, sought- after name instead of becoming another irritating retail brand name that consumers see daily. “The subsequent word-of-mouth, every time you open a store, the trajectory of your growth is improved and the awareness of your product increases” explained Diego Copado, a specialist at Zara’s Corporate Communications (Zara: Fast Fashion Video). Zara chooses not to advertise, focusing on brand loyalty and customer satisfaction from their existing shoppers to encourage new customers. Deciding not to advertise differentiates the brand and decreases overall costs. Essentially, “the high traffic in the stores circumvents the need for advertising” (Ferdows).
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