INTERNATIONAL SCHOOL OF BUSINESS AND

MEDIA, PUNE
A
Assignment
On
“Zara Case Study”
By
Jasmeet Singh Chabra
19405
Introduction
The blend of technology-enabled strategy that Zara has unleashed seems to break all of the rules in the
fashion industry. The firm shuns advertising and rarely runs sales. Also, in an industry where nearly
every major player outsources manufacturing to low-cost countries, Zara is highly vertically integrated,
keeping huge swaths of its production process in-house. These counterintuitive moves are part of a
recipe for success that’s beating the pants off the competition, and it has turned the founder of Inditex,
Amancio Ortega, into Spain’s wealthiest man and the world’s richest fashion executive.

The firm tripled in size between 1996 and 2000, then its earnings skyrocketed from $2.43 billion in 2001
to $13.6 billion in 2007. By August 2008, sales edged ahead of Gap, making Inditex the world’s largest
fashion retailer (Hall, 2008). “Gap versus Inditex at a Glance” compares the two fashion retailers. While
Inditex supports eight brands, Zara is unquestionably the firm’s crown jewel and growth engine,
accounting for roughly two-thirds of sales (Murphy, 2008).

Gap Inditex
Revenue $14.5 billion $18.3 billion
Net Income $833 million $2.56 billion
Number of Stores 3,248 5,527
Number of Countries 31 82
Biggest Brand Gap Zara
Number of Other
4 7
Brands
Based in San Francisco, USA Arteixo (near La Coruña), Spain
First Store Opened 1969 1975

Zara is undergoing one of the fastest global expansions the fashion world has ever seen, opening one
store per day and entering new markets worldwide—seventy-three countries so far. The chain’s
profitability is among the highest in the industry (Sull & Turconi, 2008). The fashion director for luxury
goods maker LVMH calls Zara “the most innovative and devastating retailer in the world” (Surowiecki,
2000). Zara’s duds look like high fashion but are comparatively inexpensive (average item price is $27,
although prices vary by country)(Rohwedder, 2009). A Goldman analyst has described the chain as
“Armani at moderate prices,” while another industry observer suggests that while fashions are more
“Banana Republic,” prices are more “Old Navy” (Folpe, 2000). Legions of fans eagerly await “Z-day,” the
twice-weekly inventory delivery to each Zara location that brings in the latest clothing lines for women,
men, and children.
 Key Points
• Zara has used technology to dominate the retail fashion industry as measured by sales, profitability,
and growth.

• Excess inventory in the retail apparel industry is the kiss of death. Long manufacturing lead times
require executives to guess far in advance what customers will want. Guessing wrong can be disastrous,
lowering margins through markdowns and write-offs.

• Contract manufacturing can offer firms several advantages, including lower costs and increased
profits. But firms have also struggled with the downside of cost-centric contract manufacturing when
partners have engaged in sweatshop labor and environmental abuse.

How The Zara using the technology to get more successful?

Zara’s store managers lead the intelligence-gathering effort that ultimately determines what ends up on
each store’s racks. Armed with personal digital assistants (PDAs)—handheld computing devices meant
largely for mobile use outside an office setting—to gather customer input, staff regularly chat up
customers to gain feedback on what they’d like to see more of. A Zara manager might casually ask,
“What if this skirt were in a longer length?” “Would you like it in a different color?” “What if this V-neck
blouse were available in a round neck?” Managers are motivated because they have skin in the game.
The firm is keen to reward success—as much as 70 percent of salaries can come from commissions
(Capell, 2008). Another level of data gathering starts as soon as the doors close. Then the staff turns into
a sort of investigation unit in the forensics of trend spotting, looking for evidence in the piles of unsold
items that customers tried on but didn’t buy. Are there any preferences in cloth, color, or styles offered
among the products in stock?

They also using the point of sale system a transaction process that captures customer purchase
information—showing how garments rank by sales. In less than an hour, managers can send updates
that combine the hard data captured at the cash register with insights on what customers would like to
see. All this valuable data allows the firm to plan styles and issue rebuy orders based on feedback rather
than hunches and guesswork. The goal is to improve the frequency and quality of decisions made by the
design and planning teams.

Design
Rather than create trends by pushing new lines via catwalk fashion shows, Zara designs follow evidence
of customer demand. Data on what sells and what customers want to see goes directly to “The Cube”
outside La Coruña, where teams of some three hundred designers crank out an astonishing thirty
thousand items a year versus two to four thousand items offered up at big chains like H&M (the world’s
third largest fashion retailer) and Gap (Pfeifer, 2007).
” Team members must be humble enough to accept feedback from colleagues and share credit for
winning ideas. Individual bonuses are tied to the success of the team, and teams are regularly rotated to
cross-pollinate experience and encourage innovation.

Manufacturing and Logistics

The average time for a Zara concept to go from idea to appearance in store is fifteen days versus their
rivals who receive new styles once or twice a season. Smaller tweaks arrive even faster. If enough
customers come in and ask for a round neck instead of a V neck, a new version can be in stores with in
just ten days (Tagliabue, 2003). To put that in perspective, Zara is twelve times faster than Gap despite
offering roughly ten times more unique products (Helft, 2002)! While H&M, it takes three to five months
to go from creation to delivery—and they’re considered one of the best. Other retailers need an average
of six months to design a new collection and then another three months to manufacture it.

s. Zara is so vertically integrated, the firm makes 40 percent of its own fabric and purchases most of its
dyes from its own subsidiary. Roughly half of the cloth arrives undyed so the firm can respond as any
midseason fashion shifts occur. After cutting and dying, many items are stitched together through a
network of local cooperatives that have worked with Inditex so long they don’t even operate with
written contracts. The firm does leverage contract 57 INFORMATION SYSTEMS: A MANAGER'S GUIDE
TO HARNESSING TECHNOLOGY manufacturers (mostly in Turkey and Asia) to produce staple items with
longer shelf lives, such as t-shirts and jeans, but such goods account for only about one-eighth of dollar
volume (Tokatli, 2008).

Key Points
• Zara store management and staff use PDAs and POS systems to gather and analyze customer
preference data to plan future designs based on feedback, rather than on hunches and guesswork.
• Zara’s combination of vertical integration and technology-orchestrated supplier coordination, just-
intime manufacturing, and logistics allows it to go from design to shelf in days instead of months.
• Advantages accruing to Inditex include fashion exclusivity, fewer markdowns and sales, lower
marketing expenses, and more frequent customer visits.
• Zara’s IT expenditures are low by fashion industry standards. The spectacular benefits reaped by Zara
from the deployment of technology have resulted from targeting technology investment at the points in
the value chain where it has the greatest impact, and not from the sheer magnitude of the investment.
This is in stark contrast to Prada’s experience with in-store technology deployment.
• While information technology is just hardware and software, information systems also include data,
people, and procedures. It’s critical for managers to think about systems, rather than just technologies,
when planning for and deploying technology-enabled solutions.
Limitation of Zara
Consider the limitations of Zara’s Spain-centric, just-in-time manufacturing model. By moving all of the
firm’s deliveries through just two locations, both in Spain, the firm remains hostage to anything that
could create a disruption in the region. Firms often hedge risks that could shut down operations—think
weather, natural disaster, terrorism, labor strife, or political unrest—by spreading facilities throughout
the globe. If problems occur in northern Spain, Zara has no such fallback.
In addition to the operations vulnerabilities above, the model also leaves the firm potentially more
susceptible to financial vulnerabilities during periods when the euro strengthens relative to the dollar.
Many low-cost manufacturing regions have currencies that are either pegged to the dollar or have
otherwise fallen against the euro. This situation means Zara’s Spain-centric costs rise at higher rates
compared to competitors, presenting a challenge in keeping profit margins in check. Rising
transportation costs are another concern. If fuel costs rise, the model of twice-weekly deliveries that has
been key to defining the Zara experience becomes more expensive to maintain.

Still, Zara is able to make up for some cost increases by raising prices overseas (in the United States,
Zara items can cost 40 percent or more than they do in Spain). Zara reports that all North American
stores are profitable, and that it can continue to grow its presence, serving forty to fifty stores with just
two U.S.

Another possibility might be a center in the Maquiladora region of northern Mexico, which could serve
the U.S. markets via trucking capacity similar to the firm’s Spain-based access to Europe, while also
providing a regional center to serve expansion throughout the Western Hemisphere. Rivals have studied
the Zara recipe, and while none have attained the efficiency of Amancio Ortega’s firm, many are trying
to learn from the master. There is precedent for contract firms closing the cycle time gap with vertically
integrated competitors that own their own factories. Dell (a firm that builds its own PCs while nearly all
its competitors use contract labor) has recently seen its manufacturing advantage from vertical
integration fall as the partners that supply rivals have mimicked its techniques and have become far
more efficient (Friscia, et. al., 2009). In terms of the number of new models offered, clothing is actually
more complex than computing, suggesting that Zara’s value chain may be more difficult to copy.

Conclusion
Zara’s winning formula can only exist through management’s savvy understanding of how information
systems can enable winning strategies. It is technology that helps Zara identify and manufacture the
clothes customers want, get those products to market quickly, and eliminate costs related to
advertising, inventory missteps, and markdowns. A strategist must always scan the state of the market
as well as the state of the art in technology, looking for new opportunities and remaining aware of
impending threats. With systems so highly tuned for success, it may be unwise to bet against “The
Cube.”

Key Points
 Zara’s value chain is difficult to copy; but it is not invulnerable, nor is future dominance guaranteed. Zara
management must be aware of the limitations in its business model, and must continually scan its
environment and be prepared to react to new threats and opportunities.
Another possibility might be a center in the Maquiladora region of northern Mexico, which could serve
the U.S. markets via trucking capacity similar to the firm’s Spain-based access to Europe, while also
providing a regional center to serve expansion throughout the Western Hemisphere. Rivals have studied
the Zara recipe, and while none have attained the efficiency of Amancio Ortega’s firm, many are trying
to learn from the master. There is precedent for contract firms closing the cycle time gap with vertically
integrated competitors that own their own factories. Dell (a firm that builds its own PCs while nearly all
its competitors use contract labor) has recently seen its manufacturing advantage from vertical
integration fall as the partners that supply rivals have mimicked its techniques and have become far
more efficient (Friscia, et. al., 2009). In terms of the number of new models offered, clothing is actually
more complex than computing, suggesting that Zara’s value chain may be more difficult to copy.