Zara

Case Study

Submitted byNikita Jain 37223

Saluja Tirkey- 37260
MBA-1(Marketing B)

Zara

Contents

S.No

Contents

Page No.

1.

Introduction

2.

Background

3.

Business Model

4.

Zara in India

5.

Findings

16

6.

Perceptual Map

19

7.

References

20

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Introduction
Innovation in Textile industry
The textile and clothing industry starting climbing the ladder post the industrial revolution. To cater to
the growing need, there was an urgent need for constant innovation in spinning and weaving. And the
growth of the industry fuelled scientific research and led to developments like the invention of synthetic
dyes (which allowed a much broader range of colour) and the development of bleaching agents. one of
the earliest forms of programmable control, long before the invention of the computer, was the
Jacquard punched-card system which could control the weaving of different threads across a loom. But
actually making material into various items of clothing is more difficult simply because material doesnt
have a fixed and controllable shape so this remained increasingly a labor-intensive process.
By the twentieth century, the industries had become huge and well established, with growing
international trade in raw materials such as cotton and in finished goods. The role of design became
increasingly important as basic demand was satisfied and certain regions for example, France and Italy
began to assume strong reputations for design. Branding became increasingly important in a world
where mass communications began to make the telling of stories and the linking of images and other
elements into advertising, which fuelled demand for clothing as much more than a basic necessity
purchase.
Mass production methods and the scientific management approaches underpinning them diffused
rapidly and, in the case of clothing assembly which remained a labor-intensive process, led to the quest
for lower-wage-cost locations. So began the migration of clothing manufacture around the world,
visiting and settling in ever cheaper locations across the Far East, through much of Africa and Latin
America to its present home in China.
Today this is a global industry embracing design activities, cutting and processing operations, assembly,
distribution and sales all fuelled by a huge demand for differentiation and personalization. This is an
industry in which price is only one element non-price factors such as variety, speed, brand and quality
matter. And its an industry dominated by the need for high-frequency product innovation fashion
collections no longer run along the old seasonal track with winter and summer collections. In some
cases the range is changed every month and innovation in information and communications technology
means that this cycle is getting shorter still.
All of this has shaped an industry which is highly networked across global value chains and coordinated
by a few major players. Much of the front end of the industry is about major brands and retail chains
while the backroom operations are often small-scale subcontractors often in low-wage-cost areas of
the world.
Like so many industries it has become somewhat footloose and wandered from its origins leaving
behind only a small reminder of its original dominance. Compared with countries like India and China

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todays European clothing industry is a small player on the global stage. There are some exceptions to
this and they underline the power of innovation and entrepreneurship.

Zara- Background
Zaras 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 form quality materials that are affordable.
Zaras 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.
The desire for innovation and constant improvement with which we began this project 36
years ago is the motivating idea which has guided us up to the present time. Now we have
the privilege of seeing how this original idea, from which many others, with an open and
creative mind, have emerged and continue to emerge, has converted itself into the Inditex
Group. Amancio Ortega Gaona, on Zaras path to success

Introduction
Zara is aclothing and accessories retailer based in Arteixo, Galicia, Spain and founded in 1975
by Amancio Ortega and RosalaMera. It is the flagship store of the Inditex group. Inditex group also owns
brands such as Massimo Dutti, Pull and Bear, Stradivarius, Uterqe and Bershka.
The first Zara store was opened in 1975 by Mr. Ortega in a central street in downtown A. Corua,
Galicia, Spain. At first it featured low-priced lookalike products of popular, higher-end brand clothes. The
store was a huge success, and Mr. Ortega decided to open more Zara stores throughout Spain. During
the 1980s, Mr. Ortega changed the design, manufacturing, and distribution process to reduce lead times
and react to new trends in a quicker way, in what he called "instant fashions". The companys
improvements were based on the use of information technology and using groups of designers instead
of individuals.
Zara claims that it only needs two weeks to develop a new product and get it to stores, as compared to
an industry average of six months. It launches around 10,000 new designs every year. It has resisted the
industry-wide trend towards transferring fast fashion production to low-cost countries. It also follows a
very unusual marketing strategy of zero advertising instead the company prefers to invest a percentage
of revenues in opening new stores. Lack of advertisement is also in contrast to its direct competitors

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such as H&M, Uniqlo and GAP. This strategy has given Zara the identity of a "fashion imitator" company
which produces low cost products.
Zara has been described by Louis Vuittons Fashion Director Daniel Piette as "possibly the most
innovative and devastating retailer in the world." Zara has also been described as a "Spanish success
story" by CNN.

Manufacturing, Distribution and Supply Chain Strategies

Zara is a vertically integrated retailer i.e. it controls almost all the steps, right from supply-chain to
designing its products to manufacturing, and finally to the distribution of its products. Zara built its own
factory in La Corua, Spain in 1980, and upgraded to reverse milk-run-type production and distribution
facilities in 1990. This approach was designed by Toyota Motor Corp. and was called the just-in-time (JIT)
system. It allowed the company to establish a business model that allows them self-containment
throughout the stages of materials, manufacturing, product completion and distribution of products to
stores worldwide within just a few days.

Fig.1: Stages of JIT System followed by Zara

One day its in and the next day its out a phrase that comes to mind when we talk about the apparel
industry. The fashion industry runs on a high degree of uncertainty. As there is regular change in trends,
it is even harder to predict the market and therefore forecasting the required raw materials and supplies
becomes almost impossible. Its important to recognize what chimes with the consumer and quickly
respond by satisfying their needs. Additionally, every geographic location in the world differs in terms of

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spending patterns, local fashion & styles, per capita income etc. and the clothing lines need to
efficiently and precisely evaluate the demand that will exist in every market.
Zara has continuously maintained its position as a leader in the apparel industry and the
reason its so profitable is its unique supply chain strategies. Following are some of the
principles that are the secret to its long standing of being a brand that is both fashion forward
and affordable.

We rely on
fast-changing
fashion so have
regular inputs to
the design team.
We work on
minimum
inventory model
and the efficient
distribution
network takes
care of the
supply chain,
explained Zara
Store Manager,
Pune

Quick response to Demand Zara follows a pull model in their inventory and supply
chain management. In this model, based on the current trends in the market and the
store sales, approximately 900-1000 designs are created. They keep a regular check
on the customer spending in the store to assess and understand what types of designs
are being consumed and then accordingly make changes in their next designs.

Small Batch Productions Zara has a fast turnover i.e. it produces a small number of quantity
for every product. This gives them the chance to quickly understand what is selling in the market
and whats not. Its also an intelligent way to explore new designs and understand its
acceptance rate in the market. This method also reduces the risk of suffering losses from
producing large quantities of something that the customer does not want. Even though it may
seem like a bad idea to invest in different designs, Zara makes the best use of the same material
by using it in different ways.

Central Distribution Center Zara has very strong IT systems that back its distribution. All the
clothes that are manufactured at its different factories around the world are shipped back to
Spain, the main central distribution center. From here, it is distributed to its different stores in
the world based on their individual requirements and needs of the particular locality.

Fig 2. Annexure I for Zaras unique business model

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Unique selling proposition
Zaras unique selling proposition is that it creates and imitates the latest trends within a short period of
two weeks. The new styles are available on the shop floors for no longer than 4 weeks and if a style
doesnt sell for a week it is removed from the stores.
Analyzing Zaras Business Model
Who is the customer?
Zaras target market is young, stylish, trendsetting, price-sensitive, and highly fashionable customers.
They have an advantage over their traditional retailers as they do not define their target market by
segmenting it into age and lifestyle, thus giving them a much broader market.
They segment their product line by womens (60%), mens (25%) and the fast growing childrens (15%)
department.
Zara which started its operations in Spain in 1975, and now operates in over 74 countries worldwide.
What is the value proposition?
Fashionable, affordable clothes
Zaras strategy is to offer cutting edge fashion at affordable prices by following fashion and identifying
which styles are hot, and quickly getting the latest styles into stores. They can move from identifying a
new trend to having apparels ready for sale within 30 days (whereas most retailers take from 6-12
months). This has been made possible by their controlling of almost the whole garment supply chain
which covers design to retail. Our main focus is on fast-changing fashion and we give regular inputs to
the design team for the same. The efficient and wide distribution network takes care of the supply
chain. We have a minimum inventory model. The stock which is a hit among customers, stays in the
stores for around one month or till it runs out. The other stocks are changed or tweaked within 2-3
weeks, explained Zara Store Manager, Pune.
Large choice of styles
Zara produces around 12,000 apparel styles per year which is very high as compared to the retail
average of 3,000. This means that the latest fashion trends reach the stores instantly. A typical Zaras
customer visits the store around 17 times a year compared to the average of 3 times per year for other
brands. These many number of styles also means that the commercial teams have a brighter chance to
finding a winning style.
Scarcity
Another strategy that Zara follows is of manufacturing only a limited amount of each style, Thus it
creates artificial scarcity and lowers the risk of having stock it cannot sell.

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Scarcity in fashion these days increases desirability, which means that the shoppers need to buy quickly
as the item may or may not be available next week.
Lower quantities also mean there is not much to be disposed when the season ends; Zara only discounts
18% of its stock in sales, which is half the industry average.
Prime locations
Zara spends relatively less on advertising (0.3% of revenue) compared with traditional retailers (3-5%),
instead they reach their target market by locating their stores in prime town-center locations.
How do they deliver it?
Most retailers outsource production to low cost Asian countries but in comparison to them, Zara uses a
more vertically integrated approach where majority of production is carried out in owned or closely
monitored facilities in Spain. This provides a lot of flexibility and speed but results into higher cost of
production.
Stores place orders twice per week and the supply of finished goods is matched to demand at the store.
Having this data, the production is then increased or decreased in the flexible production facilities. The
production is based on the amount of demand which means there is very little inventory in Zaras supply
chain, therefore there is much lower working capital requirements.
It takes around 1-2 days for the deliveries after ordering with most deliveries arriving by truck from the
factories in Spain. Apparels are then put straight onto the sales floor for purchase.

Fig 3: Flow of Information in Zaras production model

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Zara in India
The world's most popular 'fast fashion' brand, Zara's Indian unit Inditex Trent - a
joint venture between the brand's owners Inditex with Tata Group's retail arm
Trent - has made profits in two out of the three years it has been around. In
comparison, Levi Strauss continues to make losses despite being in India for over
a decade.
Zara has replicated a model that has worked for it globally - creating imitations
of the latest fashions or designer-wear at affordable prices and making them
available to shoppers in double-quick time. Inditex being the owner of Zara,
controls major part of the operations - from design to distribution and a large
chunk of manufacturing. Zara is very proactive and takes any non-appealing clothing line off the shelves
within a week. Even popular styles are not kept beyond 4 weeks. There is minimal warehousing and
reorders are rare.
Industry executives said demand is only part of the reason for Zara's financial success in India. It is
observed that by striking a good deal with landlords and mall owners, Zara keeps real estate costs in
control. Most of its back-end jobs and merchandise sourcing are handled by Inditex while the Tata
expertise is mainly for identifying real estate and suitable locations. Also, speaking of the directors on
the board of Inditex Trent, just three out of eight - Inditex Trent's Chief Financial Officer P Venkatesalu,
vice-chairman Noel Tata and the company's MD Sanjay Rao - are Indians. Rao, who was previously
financial controller at the company in North America, relocated to India and launched the operations.
Zaras annual sales in last fiscal soared to Rs 580 crores in India, with each of Zara's nine stores in the
country making Rs 45 crore on an average, over six times more than the country's largest apparel brand
Louis Philippe and a tad higher than the country's largest department chain Shoppers Stop.
Inditex Trent, the Indian arm of Inditex, clocked 56% growth in sales without any new store
addition in the year ended March 2013, according to its latest annual report.
What Makes Zara Different From Its Competitors
In terms of revenues and growth, Zaras main global competitor is the Swedish firm H&M.
H&M has already got permission from FIPB in November 2013 for opening its wholly-owned
subsidiary in India. They have been eyeing India for some time now and have finally got the
permission for opening their stores in India. The two leading fashion retailers have been
competing to grab larger market shares across the globe which will also be the case in India,
though Zara has a big first-movers advantage. In the rat race to supremacy, both the labels
have transformed their philosophies into business models intricately, which has been a
major motivator to drive towards success.

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Runaway
fashion at
runaway prices is
what Zara is for
me. I visit the
store for its
unique clothing
range having
something new
to offer on each
visit, thus
bringing
exclusivity to my
wardrobe,
explained one of
Zaras customers
outside its Pune
store.

Zara
In the Indian market, Zara is competing with Marks& Spencer (Major British multinational retailer),
Tommy Hilfiger (American fashion designer) and French Connection (British multinational retailer
commonly known as fcuk).
Zara offers mid-market chic at down market prices. Zara when compared with its competitors is a clear
winner when it came to turnaround time. For a typical brand, the entire process starting from defining a
concept to receiving goods in the retail store took anywhere from 9 to 12 months. As Zara geared up to
enter the US in a big way, it was being compared to Gap (a leading fashion retailer in the US) and H&M
(Swedish retailer who had also entered the US recently) more frequently. A key differentiator was Zara
having the shortest turnaround time. Zara's turnaround time was 14 days, whereas H&M took 21 days
and Gap needed 9-12 months to reach stores.

Fig 4 : Brief Comparison of Zara with its Major Competitors in India

Source: Annual Reports & Industry Estimates (sunandchronicle.wordpress.com)

The profit margin on the products manufactured is also low, but Zara invests a meagre 0.3% of its sales
to market its product because of the fast changing fashion trends unlike its competitors and as the
manufacturing is done in less quantity, a failure of a fashion trend still leads to minimal loss. It has been
proved that only 18% of the total production goes for an annual sale compared to 35% of its
competitors in the international market. (Refer Fig. 7 Annexure I)
Zara is a smart choice of those that want to combine fashion with great price. A customer survey in Pune
reinforced this with the fact that 67% of respondents found Zara synonymous with fashionable clothing
line and quality clothing brand (Refer Fig.7 Annexure I). Probably its ability to imitate and copy the great

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designs of the top firms and put them in the best located stores in the quickest time is the killer
combination. The clear example of this strategy is the success story of its expansion to Italy. Milan is
considered as one of the worlds fashion capitals. Many foreign firms have failed trying to open new
stores there, because of the protectionist attitude of the Italian industry and the exigent Italians
customers being used to getting the most radical and latest designs at a reasonable price. The best
opening record made in Milan was by Zara and today is one of the most successful
firms in the city.
In India, Zara has been targeted towards the upper middle class and above, mainly in
the age group of 18-35 years. In order to target the market, Zara strategically launches
its outlets in high profile locations and provides customers with a turnover time of 4-5
weeks for its new collections made available at a fraction of the couture cost. Its styles
include trendy, classic, contemporary, grunge, Latino and therefore is more preferred
by women than men in India. The main objective for positioning the Zara brand in a
market as mentioned by the company is to democratize fashion (Refer Fig.
6Annexure I).The company targets to deliver to its customers, trendy and high
fashion products at lower prices to accommodate their requirements.
Another pointer is Zaras marketing strategy of opening stores and outlets that provide
the Zara experience at high profile locations to set the image of the brand as being
trendy, hip, high fashion and accessible.

In India, no
brand provides
fashion at such
affordable prices.
If we are not able
to change the
fashion trend
regularly, we will
not keep up to our
reputation. We
bring in new
styles, new trends
within a matter of
2-4 weeks having
wide distribution
system, Zara
Store Manager,
Pune

Marketing Strategy
The fashion company Zara has a marketing strategy that is quite unique. As discussed above, Zara
doesnt believe in advertising. This would be the reason Zara does not appear on television or poster
advertisements. Prospective customers read articles on Zara in magazines, e-newspapers but no
promotional activities are undertaken anywhere whatsoever. Zara also believes in word of mouth
promotions, celebrity followings, said the Manager in charge of Zara Store, Pune.
Zara focuses heavily on their product, place and pricing and not so much on promotion. Unlike other
retailers, Zaras advertisements are limited and do not even include any store sales or sales promotions,
other than sale items. A key point to note is that they never place their brand or logo on their products.
It is their innovative products and affordable pricing that keeps customers returning to their store. Their
products seemingly advertise themselves.
In addition, Zara has remarkable logistics and they are able to get a product from design to the shelf in
just two weeks. Using such remarkable efficiency, they are able to produce thousands of new designs a
year. In fact, Zaras website claims of it producing new products every week. Zara is famous for its fast
fashion, due to which popular and trendy products may disappear off the shelf within days, which
constantly pulls customers to stores to check for new items.

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Fig 5: Product Pre-commitments: Zara vs. Traditional

Industry
Zara also markets its brand through rapid expansion; it opens close to 150 new stores every year, thus
expanding its footprint to around 1,500 stores in over 70 countries. With the brand becoming world
renowned, the company is also focusing on sustainable marketing by opening stores which consume
30% less energy compared to the average conventional store. The new stores also save 50% of water
consumption and maintain their CO2 emissions below 150 tons a year.
Future Expansion Plans
Inditex Trent has plans to throw open over 18 stores in the next 3-4 years in Tier-II cities such as
Mangalore, Surat and Indore.
The pitfall could be that shoppers in these cities may not have the same attraction for Zara despite
having the propensity to spend on international brands. As Zara expands in India, experts said the
challenge will be to sustain sales momentum. But Mr.Anshul, Sales Manager at Zara, Pune was confident
of Zaras growth plans, Regarding the strategy of expanding in the near future, we will be conducting a
thorough research study and mapping various cities overall feasibility. We plan to open up in promising
Tier 2 cities as well.

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Survey on Zaras customer perception
Questionnaire:
Are you aware of the brand ZARA ? *
o

Yes

No

Do you know that Zara has a fast changing fashion collection?

o

Yes

No

Have you shopped/visited the store? *

o

Yes

No

If yes, how often do you visit the store?

o

Less than once a week

Once a week

Once a month

Less than once a month

Please indicate how attractive the following features of Zara are to you *
Very
Unattractive

Unattractive

Latest
Fashion Trend
Quality

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Neutral

Attractive

Very
Attractive

Zara
Very
Unattractive

Unattractive

Neutral

Attractive

Very
Attractive

Customer
Service
Please indicate your level of agreement with the following statements related to Zara
Strongly
Disagree

Disagree

Neutral

Low prices
Contemporary
image
A well-known
brand name
Convenient
location of
store
A good store
atmosphere
High quality
products
Zara is a
trendsetter
How did you hear about Zara? (Tick all that apply)
o

TV or Radio

Online Media (Facebook, online forum, etc.)

Print Media (Newspapers, magazines)

Word-of-mouth

Other
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14

Agree

Strongly
Agree

Zara
Do you recommend Zara to others?
o

Yes

No

Please rank the following brands in order of preference with respect to price *
(1 being the lowest and 7 highest)
1

Zara
Forever 21
Mango
Guess
Vero Moda
Esprit
FCUK
Please rank the following brands in order of preference with respect to quality *
1

Zara
Forever 21
Mango
Guess
Vero Moda
Esprit
FCUK

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Findings of the survey:

Number of respondents: 100
1) 97 % were aware of the brand zara
2) 80 % are aware that zara has a fast changing collection
3) 79 % have visited the store
4) 57% of the respondents visited the store in less than a month.

5)
Features of Zara:

Attractive feature
60%
40%
20%
0%
Latest fashion trend

Quality

Customer service

6)

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Low Price
30
20
10
0
Strongly Disagree Neutral
Disagree

Agree

Strongly
Agree

Contemporary Image
50
40
30
20
10
0

Strongly Disagree Neutral

Disagree

Agree

Strongly
Agree

Brand name
50
40
30
20
10
0
Strongly Disagree Neutral
Disagree

Agree

Strongly
Agree

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Convenient Location of store
40
30
20
10
0
Strongly
Disagree

Disagree

Neutral

Agree

Strongly
Agree

Good store atmosphere

60
50
40
30
20
10
0
Strongly Disagree
Disagree

Neutral

Agree

Strongly
Agree

High Quality Products

40
35
30
25
20
15
10
5

0
Strongly
Disagree

Disagree

Neutral

Agree

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Strongly
Agree

Zara
Trendsetter
40
30
20
10
0
Strongly
Disagree

Disagree

Neutral

Agree

Strongly
Agree

7) 80% of the people heard about Zara through word of mouth

8)82% recommended Zara to others
9)

Zara ranks high on quality but low on price when compared with other competitive brands whereas

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