ANIRUDH

PG-A
36

Value Creation in the Global Apparel

Industry

Submitted by:
Name: ANIRUDH
Roll no: 36
Course: PGDM-A

Q1. Since the case in the book ends as of 2007, outline in detail, the
evolution of ZARA from 2007 to today- covering changes if any in its
business model, its major competitors and changes in its industry's
International Business Environment over the last 7 years.
Sol: Zara is one of the largest international fashion companies. Its business
model is based on creativity and quality design together with a rapid
response to market demands and the democratization of fashion. It does
not believe in lavish marketing campaigns instead have used their funds to
open new stores in prime locations.
After Euro crisis in 2010, same-store sales fell 2% in the six months to the
end of July 2010. Profits were down 3% from 822 million (723 million) in
the first half of last year to 799 million for the same period this year although this was better than the 780 million expected by analysts. Shares
in the company rose 3% on the figures.
ZARA is facing competition from International brands like GAP and also from
e-commerce platforms which have reduced the distance between the buyer
and the seller.
Inditex - Europe's largest clothing retailer, which also owns fashion chain
Massimo Dutti - said Zara went online during the Autumn-Winter 2010
season for the first time. The website began in Spain, the UK, Portugal, Italy,
Germany and Francesix countries that were among the most important of
the company's 76 markets. The simple website allowed shoppers to filter a
search for garments by; type of garment, colours, sizes, prices, reference
number, etc. When asked about the company's late arrival to internet
retailing, Pablo Isla, chief executive, said they have been waiting for online
demand to build before launching into cyberspace On 4 November 2010,
Zara Online extended the service to five more countries: Austria, Ireland, the
Netherlands, Belgium and Luxembourg. Online stores began operating in
the United States and South Korea in 2011.Currently, Zara.com plans to
expand its online platform for a total of 27 countries by the start of 2015.

Other important points:

. On June 2012 it revealed that its profit climbed 30% in the first
quarter of this year and sales jumped 15% year over year.

In 2011, Zara entered the Australian market with a three story,

1400sqm store in the Westfield Sydney complex

70% of its revenues come from Europe.

In November 2011, Zara entered the South African market with a

flagship store in the upmarket suburb of Sandton, in Sandton
City Shopping Complex, Johannesburg.

According to John Bason, finance director of Primarks parent Associated

British Foods, British value fashion retailer Primark have overtaken ZARA
to become the biggest clothing store in the country.

Q2. Comment on this Industry's attractiveness. Explain your

rationale and assumptions if any. State and explain briefly the
Industry in which Zara competes using Porter's 5 Forces model.
Sol: Porter five forces model for Zara case analyses the industry and
competitor and helps the companies to build their strategy accordingly. The
five forces model is:
1. Barrier entry: For competitor it takes 6 months minimum for getting the
new trend in market (for all its apparel to reach stores). However, in
case of Zara, the lead time of clothes first-designed by the designer
teams take only about two weeks which is very much to its advantage
over the competitor.High SG&A which includes advertising, in-store
promotions, etc.; up to 3.5% of its revenue, even though for Zara, the
company is famous for spending minimum level of advertisements and

commercials. However, recently the company announced that it

invested 450 million in commercials as well as logistics area.
2. Bargaining power of suppliers: As cloth production and stitching is
available at low cost the supplier power decreases a lot. Contract
based cloth production and stitching functions readily available. Low
price of fabric. Local cooperatives work without contracts or labour
unions.
3. Substitute products: It is very easy to switch to other brands as the
buyers can just walk into other store for the apparel. Buyer propensity
to substitute is high with several competitors to choose from (H&M,
GAP, MANGO, and many other fast-fashion brands). Customer loyalty is
something that Zara harps on and the customers even visit the Zara
store more often than they do for other competitor.
4. Threat of Rivalry: Due to high investment cost the exit barrier is quite
high in apparel industry. High advertising expenses; 3.5% of revenue
indicates intense competition.
5. Buyer Power: New trends and fashion wear is customers demand and
they would not compromise on the quality. Since similar products and
choice available price is also a factor that needs to be considered. Zara
prices its product in different market. In the case of Zara, for European,
American, and eastern Asian countries, Zara is positioned as the lowend products, however, in emerging markets such as India, China, and
Indonesia, Zara is considered as the high-end products.

Q3: Using the Value chain diagram explain in detail ZARA's Value
Chain across different countries. Comment on ZARA's choice of
countries for the various activities in its Value Chain.
Sol:

Zaras Value Chain Model

Inbound Logistics
50 % of Zara products are manufactured in Spain, 25% comes from Europe,
and the remaining from Asia and Africa. It has Warehouses in Spain before
sending it to the stores. If it turns out that the demand is higher for a
particular product, the company is able to react quickly and produce
additional items with a particular design or color.
Operations
Zara's designers work together with market specialists and planners for
procurement and production. Market specialists are intermediaries between
designers and store managers, who can quickly provide feedback to their
colleagues in design and procurement. Zara has more capital intensive
industry.
Zara has built a network of about 450 workshops located in Galicia and
across border in Northern Portugal that performs labor and scale sensitivity
activity of sewing garment pieces that are cut from the factories.
Outbound Logistics

At the beginning of each season, the whole merchandise is being distributed

to the stores. However, when the production reaches the stores, managers
are responsible for the order replenishments. It is their responsibility to
decide how many units of each item to order and to do that, they are taking
into consideration various data (forecasts of customer demand, how many of
that product the store had and already sold and etc.)
Now tags are put by factory workers. Earlier it was done by employees who
had to put tags on the products before they could reach store shelves. This
improvement puts some value on faster delivery of the production to the
customer.

Q4. In what ways is ZARA's business model different from those of

H&M and GAP? Why?
Sol: One of the most innovative strategies that Zara applies is the production
process. As mentioned before, instead of designing the clothes first, the
designers actually examine the available materials and/or fabrics, then after
that they will design apparel based on the existing material and/or fabrics,
therefore, the lead time can be reduced and costs will be decreased. Rather
than subcontracting manufacturing to China, India or Bangladesh, Zara built
14 automated factories in its home country Spain, where robots work 24/7
cutting and dyeing fabrics and creating semi-finished products, which are
then finished to suits, shirts, dresses and the like by about 450 finishing
shops in Northwestern Spain and Portugal.
In the industry with high competition profile, choosing to emphasize on your
customer is important and wise. Because in this type of industry, the key is
to be able to make your customer loyal so that they will not shift to other
brands easily. By concentrating on customers demand and preferences,
supported by its operational strategies, Zara shows their commitment

towards their customers. That is why Zaras customers are loyal; thus, Zara
can reach its position right now.
Also unlike its competitors it believes in updating its fashion line every 4
weeks and also mapping the consumer taste and preference time to time. It
also believes in placing the same product (fashion) across all countries
except few Arabic countries where culture needs to be kept in mind.
The new and emerging trends were captured from various fashion shows and
these were replicated and distributed across all stores within a short duration
of less than 15 days. This gave them a competitive edge over their rival
brands.
The Stores were also designed to give a complete shopping experience to
the customers. The store designer visits the store well in advance and proper
store design plan is made before the store is opened for the customers.
H&M has over 900 suppliers which gives them flexibility and larger volume
capability as opposed to Zara which has suppliers in and around Beijing,
Barcelona and Hong Kong.
Zara has no lead here since after so many years, the company seemed not
care about this factor, which then ties H&M and GAP full on advertisements
and marketing. Not until just recently when Inditex finally decided to improve
their marketing efforts.

Q5. Using the diagram for Resource Based View, outline ZARA's key
resources and explain separately, how each of these key resources
enables ZARA perform certain unique activities to build its
competitive advantage over its rivals. Explain your strategic
rationale.
Sol:

The RBV approach to competitive advantage contends that internal

resources are more important for a firm than external factors in achieving
and sustaining competitive advantage. Therefore, in this analysis, we will
look deeper into the internal factors that Zara is relying on for their success.
RBV is divided into three main categories:
Physical Resources, Human Resources, and Organizational Resources. In
order to be valuable, each resource must be either: (1) rare, (2) hard to
imitate, (3) not easily substitutable. The following are the analysis of Zara
using the RBV:
1. Physical Resources
a. Prime Location: One of the best strategies that Inditex applies to all of its
brands, including Zara is that the stores are always located in prime
locations of the city. If the center of the crowd is in the shopping malls like
Jakarta, then that is where you will find Zara stores. In European countries
and USA, crowds are usually centered downtown or in shopping streets, and
that is exactly where Zara stores are located. Choosing prime locations give
more benefits to the company from the amount of store visitors which can
result more sales created.
b. Attractive Window Displays: Even though Zara does not have many
advertising or commercials, Zara does rely so much on its physical storeexperience. Their marketing strategy includes putting attractive and
creative window displays to attract consumers, and maintain them inside the
store with the store ambiance and service; hence, creating an impressive
shopping experience for consumers.
c. Exclusive and Trendy designs: As the leader in fast-fashion industry, Zara is
popular for its fast-changing designs. What makes it interesting is that Zara
is able to provide apparel designs that their customers love and it is
consistent, even in a very short amount of time. Their total designs in 2012
reached 36,000 designs in a year. That is a marvelous number.
d. Sophisticated IT System: One of Zaras secret will be the integrated
information system using the PDA and POS. Both will be explained further in
the following chapters.
2. Human Resources

a. Trained designers: In order to boost their product quality in terms of its

couture value, Zara cooperates with many new designers and they give
training to the designers for them to able to produce in shorter lead-time,
and adaptive enough to produce with materials/fabrics that are available
instead of designing the apparel first then finding the material/fabric. That
type of operation will cost more also consumer more time to the company.
b. Caring Employees: In order to enhance the customer service in each of its
retail store, Zara, therefore, train their employees to prove better service,
including their attitude, professionalism, having a sense of belonging to the
store, and hard-working.
3. Organizational Resources
a. Market-oriented Strategy: Just like what the old saying says, the customer is
the king. In the industry with high competition profile, choosing to emphasize
on your customer is important and wise. Because in this type of industry, the
key is to be able to make your customer loyal so that they will not shift to
other

brands

easily.

By

concentrating

on

customers

demand

and

preferences, supported by its operational strategies, Zara shows their

commitment towards their customers. That is why Zaras customers are
loyal; thus, Zara can reach its position right now.
b. Staff-education: Related with the discussion on Zaras human resources, Zara
is concentrating on customer service; thus, the need to educate their staff is
one of their top priorities.
c. Eco-friendly strategy: The global warming issue is a hot topic nowadays.
More and more companies start to put special attention to deal with this
issue. Especially in European countries, where the society is fully-aware with
the importance of eco-friendly business operation, having a mission of
becoming an eco-friendly company will inevitably bring positive response
from the society. Note that the society is actually the consumers.
d. Production strategy: One of the most innovative strategies that Zara applies
is the production process. As mentioned before, instead of designing the
clothes first, the designers actually examine the available materials and/or
fabrics, then after that they will design apparel based on the existing

material and/or fabrics, therefore, the lead time can be reduced and costs
will be decreased.

Q6. Is ZARA's business model sustainable? If so, why? If not, why

not?
Sol: Yes, Zaras business model is sustainable,Zara is in a fast changing
industry in which it practices fast fashion trend moves. It also manufactures
fashion sensitive products. The Zara designer pay close attention to
customer feedback and it keeps reinventing its fashion line to maintain the
challenges in the fashion industry. Through its business model Zara wants to
help the sustainable developments of the society and the environment in
which it interacts. This commitment is a part of the Inditex group corporate
social responsibility policy. Zaras business model helps it to create a product
line for charity purpose, financed by its sales turnover. As a side effect this
will create an additional brand awareness and highlight Zaras sustainable
responsibility.
Its supply chain has undergone tremendous changes to ensure that lead
time is as minimum as possible. Its mission is to provide fast affordable and
fashionable item. Its product has a fresh look with colors, material and its
Zara label aims at customer loyalty. The communication goal of Zara are to
inform the consumer about new products. As a quick response systemcomposed of efficient human resources and accelerated information
technology. Its core competency is to provide new and innovative products
(18000 new product design a year). It also believes in mapping consumer
feedback and has a fast responsive mechanism to cater to its consumer
need.
They need to seriously look towards competition from E-Commerce Industry.

Q7. Using the relevant diagram, classify ZARA's strategy for

International Business as one of the following four:
Global / Multi-domestic / Transnational / International
Explain your strategic rationale for your classification.

Sol:
ZARA's strategy for International Business

Global Strategy:
Zara is a highly vertical-integrated company. Even though Inditex

enters many markets through another retailer, however the concept,

decision-making, and business operations and standards are always
centralized and standardized universally. For example in Indonesia, Zara is
brought-in by PT MitraAdi Perkasa which comply all Inditexs regulations
from the importing process down to the post-purchase customer service.
Moreover, they need to report to the headquarters daily about activities in
the store. As a result, we can find that the culture of Zara, or the concept
of Zara, or pretty much everything about Zara will be the same regardless
the location of the store. This includes the store layout, the store design,
lighting, window displays, and other physical resources, as well as the
management of the store. The following pictures will show how Inditex as
the owner also the headquarters of Zara controls all of its retailers in
order to vertically-integrate Zaras overall business operation. Moreover,
Inditex actually applies this policy to all of its brands sold by other
retailers worldwide.

Multi-domestic strategy:
Since

Zara

is

practicing

both

market

penetration

and

market

development strategies; therefore, it is important to improve the level of

consumer shopping experience while at the same entering many new and
potential markets. Further, Zara is currently expanding aggressively in
Asian countries; consequently, to increase sales they need to be able to
adapt its designs with the local preferences to generate more profit from
Asians pocket. What the company can do is to enhance customer service
through employee trainings, especially those who face the customers
directly everyday in the store. Moreover, Zara can optimizing the use of
its PDA and POS technology to obtain information regarding the
customers preferred designs and feedbacks.

Transnational Strategy:

Zara seeks to achieve both global efficiency and local responsiveness. Due to
vertical integration, Zara has more flexibility than its rivals in terms of
moving products from the designing stage to the store shelf. In order to
respond to local customer preference changes, Zara transmits customer
feedback directly to its massive design team in Arteixo in Spain, facilitated
by information technology. According to researchers the three elements that
comprise a Retail Business Model are format, activities, and governance and
can help retailers to think strategically about the optimal locus of business
model innovation. These three factors are crucial to Zaras success within a
transnational market. For example, the format of activities may vary
depending on the technological advances within the industry and the cultural
implications of activities in a particular country. Governance and quality
structures are vastly different internationally, and Zara must do a thorough
strategic analysis before moving into new markets.

International Strategy:

To have a fully international presence, Zara has aggressively taken up

strategies involving partnerships and joint ventures with companies in other
countries. In 2009, Zara has decided to make a joint venture with a largest

manufacturer in India, TATA. this agreement helps Zara and TATA both parties
to gain a new big market share.
As other deals, this also makes some advantages and disadvantages on the
company. Lets take some time to see what the advantages that will have on
Zara are.
As the part of this deal, Zara will have 51% of control while TATA has
only 49%. This will helps Zara to take decisions more easily.
With the help of TATA, Zara can earn more popularity of sales and
market.
Zara will surely make some large profit because India is the second
largest populated country of the world.

Q8. what is your learning from the Zara Case from the
perspective of a future manager (post April 2016)? Explain the
rationale for your answer.
Sol: It is important to maintain your Brand Identity. The learning is that
company should not just concentrate on its strength for the business but
also on different opportunities or the difficult areas which it can enter.
Taking the cues from Toyota, Zara implemented JIT (just in time)
predicting future. The company should try to apprehend the trends in the
market of not only its own industry but markets surrounding or assisting
the company. Analysis of these trends helps the manager and the
company to decide where there are opportunities and company can move
forward. Backward and Forward integration is necessary for the future
growth of the company. The Customer should be retained by giving him
full Satisfaction. All these will help create a marketing Strategy which will
enable growth in future.