FINALS OUTPUT: CASE ANALYSIS

THE MAN OF ZARA: FROM ZERO TO ZARA

 Table of Contents
Background of the Case/Company 2
I. Statement of the Problem 3
II. Statement of Objectives
III. Areas of Consideration (SWOT Analysis) 4
Internal Environment (SW) 5
External Environment (OT)
IV. Assumption
V. Alternative Courses of Action (ACA)6
VI. Analysis
VII. Conclusion
VIII. Plan of Action
Appendices 7
Reference 8
 Background of the Case/Company
Established in 1975 by Amancio Ortega, ZARA is the flagship store of parent
company Inditex (Industria del Diseño Textile SA). With few jobs available in Galicia
(northern border of Portugal), thousands of men worked at sea, leaving their women to
struggle alone back home. Enter young Ortega, he offered jobs to these women who would
work for a little money but who are really good at sewing. He organized them into sewing
cooperatives. He oversaw a thriving production of quilt bathrobes for his first company
GOA. The women were thrilled to be hired, recalled Mercedes Lopez, now 52 and textile
union representative at Inditex. Working conditions were pretty good. They knew Amancio
well, he was very close to the workers. It was a family business. Ortega ran design, his
brother Antonio headed the commercial side, and his sister Josefa was bookkeeper. The
company trucked in textiles from Barcelona, cutting out the middlemen. With enough cash,
Ortega opened his first storefront in 1975, two blocks from Gala. He named it Zara because
the preferred name of was already taken. All throughout speed has been the driving force.
Zara stores refresh their stocks twice a week within 48 hours. Ortega imposed the 48 hours’
rule in the 1970s, forcing his first Zara stores near La Coruna. Many stores lined the well-
traveled truck route to Barcelona's textile factories.
Ten years later he founded his holding company Inditex and opened his first international
store in Portugal (labor force cheaper than Spain's). This was followed in the late 1980s by New
York and Paris. Zara proliferated across Europe through the 1990s although much of the
production was kept close to home. "Our roots have always been in manufacturing,' says Jesus
Echevarria Hernandez, spokesman of the company, about their sprawling headquarters in
Arteixo, outside La Coruna, with floor to ceiling windows overlooking farmland.
Zara´s aim, according to Amancio Ortega, founder of Inditex, is to democratize
fashion by offering the latest fashion in medium quality at affordable prices. What
differentiates Zara´s business model from that of its competitors is the turnaround time and
the store as a source of information. Zara’s vertical integration of design, just-in-time
manufacturing system, delivery and sales; flexible structure, low inventory rule; quick
response policy and advanced information technology all combined to enable quick
response to customer’s changing demands (Castellano, 1993; 2002). A completely new
piece of clothing can be designed, manufactured and delivered in less than four weeks.
Changes of an existing garment can be put on display within two weeks, much faster than
the competition.
Zara, the most internationalized chain of Inditex, opened its first store in 1975 in La
Coruña, north-west Spain. During the 1980s, Zara expanded within the domestic market,
opening stores in all Spanish cities with population greater than 100,000 inhabitants
(Ghemawat and Nueno, 2003). The second involved the international expansion of Zara
with the opening of a store in Oporto (Portugal) in 1988. By the end of January 2006, Zara
was operating in 59 countries with 852 stores: 664 stores were located in Europe (259 in
Spain), 112 in America, 45 in Middle-East and Africa and 31 in Asia. International sales
accounted for 69 percent of its total turnover in 2005, with Europe being its largest market

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 by far. This section will discuss the internationalization process of Zara focusing on three
issues: motivation, market selection and entry options.
Statement of the Problem
Could the Spanish retailer keep its principles of giving customers what they want and
deliver faster than anyone in new geographical locations.
- With the expansion of ZARA to other countries such as the US, Asia and online
(zara.com), this begs the question if the company can deliver its two rule principle,
which it to give the customers what they want and to deliver faster than anyone in the
industry. Expanding other locations would also collide with the fact that Mr. Ortega
does not want to bury up inventory.

Statement of Objectives (SMART)

- To provide the latest fashion trends and deliver the same service level agreement to
customers in other countries with the same timeframe (24-48 hours).

- To keep up with the latest fashion trends in accordance to the local and international
fashion trend and customer requirement.

Areas of Consideration (SWOT Analysis)

Internal Environment (SW)
STRENGTHS
 Efficient distribution – The logistics of Zara which operates in places such as Baku and
Melbourne can deliver customized orders to every Zara store on the planet within 24
hours to Europe, Middle East, and the United States; 48 hours to Asia and Latin America.

 Cheap labor in production of textile - Zara has cheap labor, it is mentioned in the
article that Mr. Ortega had hired women in Galicia who would work for little money and
are great for sewing.

 Low expenses in advertising – Zara does not spend much in their advertising, as also
mentioned in the article, they do not go to fashion shows and only track bloggers and
listen to customers for their revisions.

 Low level inventory – Locally, or on a specific region, this can be a strength as they can
get the products within a short distance.

 Fast paced production - In the factory, restocking continue at top speed. The pace is
frantic; designers create about three items a day and patternmakers cut one sample for
each. Seated alongside designers are commercial sales specialists, each with regional
expertise, who dissect tastes and customer habits using sales reports from Zara store

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managers to see what sells and what customers are looking for. Staff members get
product ideas/inspiration from streets, clubs, bars, and restaurants. Each is trained to keep
an eye on what people are wearing

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WEAKNESSES
 Passive approach on advertisement and promotion - Absence of new marketing
approaches and promotional efforts (as it can lead to communication gap between
customers and the company)

 Centralized Distribution System – The distribution system of Zara is found in Spain.

All textiles are sent there to be cut, sewn, packaged and distributed to all other parts of
the world. Which is in only one location in the planet, this is a weakness especially if
Zara is looking for expansion in other geographical locations. This can be a challenge
when it comes to delivery in specified time frame.

 Limited Inventory – Mr. Amancio Ortega has a rule to not bury up on inventory. This
can be a challenge in expansion as if the distribution center is in another country and if
the local area doesn’t have enough inventory to supply, this can lead to insufficient
number of products to fulfill the demand.

 Small workforce to attend Zara.com – Part of Zara’s workforce that manages Zara.com
is small, which are connected only through webcams from three different locations
(Tokyo, New York and Shanghai). This can be a weakness as having a small workforce
to address an online e-commerce for the major branches of the company can be
challenging to address online transactions.

External Environment (OT)

OPPORTUNITIES
 International Expansion in new emerging markets – Most of the Zara stores are
located in Europe. Expanding to other countries such as US, Asia, and the launching of e-
commerce for their company can increase the profitability and popularity if the brand.

 Mobile App – Having a mobile app nowadays can help with customer engagement and
communicate to them directly. This also very helpful in finding out customer preferences,
which product a specified location sells and which doesn’t. How much money does a
customer is willing to spend on a Zara product, how many times does a specific customer
visit the online store and many more? With the information collected, Zara can formulate
business strategies to engage and keep their customers.

 The opportunity to get cheap labor in other geographical zone - The only place where
Zara does the labor is in Spain. However, Zara can utilize the cheap labor found in
countries such as Bangladesh, Vietnam for Asia. US also has its own communications
and customers already so Zara can use these for production. This way, the exporting of
products from Spain to other parts of the world can reduce transportation cost and keep
up with the fast delivery of products to its end user.

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  Demand for high fashion at a reasonable price – The way Zara designs their products
are always simple yet fashionable and always in the trend. This lets them stay in the high
end retail fashion which customers can also afford and would raise their sales.

THREATS
 Recession – With unstable economy, Zara sometimes loses sales.

 A vertical integrated supply chain - If one part of the vertical integrated supply chain
goes wrong, every part of it will be affected. Also, having limited distribution centre
which is located in Spain is not strategic for someone who plans to expand
internationally.

 Oversaturation of markets – With the emergence of other high fashion brands and their
different approach and strategy, this threats the takeoff of the brand in its new other
locations and could lead to it being one of the expensive but not really patronized brands,
especially in Asia.

 Local competitors – If a customer would need to choose between two products that has
good quality, but other one is more costly because it will come from Spain, customers
will choose the less expensive one.

Assumptions
They have been sourcing the textiles from different countries such as Paris, Italy and
Spain itself which are then brought to Spain in Zara’s headquarters for cutting, sewing, quality
control, packing and distribution. We can only assume that this process takes time and this will
be a challenge for the company to shipped its products and get it on time to the other countries
where it has expanded. In addition, with its principle of not stocking up inventory in other
countries, this can be a challenge to give customers new and fresh designs in a small period of
time.

Alternative Courses of Action (ACA)

Alternative Course of Action 1
Zara keeps the total control strategy of the business
 Zara can keep its current strategy of keeping low stock inventory, vertically integrated
supply chain, very limited distribution centre, fast paced production, low-cost
advertisement to run in new countries where they are looking to expand, to give the latest
trends and continue to deliver fast to keep its signature strategy; to deliver faster than
anyone else.

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Alternative Course of Action 2
Zara can improve and up its current strategy
 Zara can create a different strategy when it comes to their supply chain, distribution
location, inventory stocks, and advertisement approach if they are looking to expand in
other geographical zones. As different countries differ in their own unique ways, Zara
can try to hire cheaper labor along with highly skilled human resource management and
quality control department closer to the countries where they have expanded. In Asia for
example, rather than shipping the textile to Spain, having it sewn, packed and distributed
from there, Zara can start doing this in a nearby country in Asia for its Asian customers.
This way, Zara can save up transportation costs, labor costs, and they would still be able
to keep up with the trend in Asia and deliver faster because it will just be fewer miles
away rather than from Spain. This would also give Zara an independence to its supply
chain in Asia or other countries should a problem arise from its individual vertical
integrated supply chain.

Analysis
 Zara is a perfect example of implementing an optimum combination of segmentation,
cost leadership, and differentiation strategy. The product line of Zara is divided into three major
sections; female, male, and kids. It has developed a system by which it has a low manufacturing
cost enabling it to provide great latest designs at lower prices to the customers. However, with
the expansion to other countries and its one-way approach to the market, it can be challenging to
deliver and keep up the image of the fastest fashion brand to delivery in its international market,
which begs the question, is this one-way approach still be effective to other countries.

Conclusion
The well-taken strategic decisions have provided a strong and reliable foundation for
the organization. Their one-way approach has been working for a long time, but with the
ever changing times, for the company to maintain the growth rate and excellence of the
company, it needs to bring changes and new approach when it comes to its other stores all
over the world. Just like what happened with companies that stuck themselves to one-way
approach and did not adapt to change, this can be one of the reasons why Zara might lose its
current standing in the fashion industry, and with the competitors popping out everywhere,
it needs to up and introduce changes in its current one-way strategy.

Plan of Action

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 We have chosen alternative course of action number 2 as we see that Zara’s strategy is
already working, however needs some changes in its current strategy when it comes to the other
countries where it is visible. A customer’s preference from Spain might differ from a customer’s
preference from Japan or the US. Therefore, Zara must add additional distribution centers in the
neighboring countries of where it has expanded, to be able to keep up with its principle of
delivering what customers faster than anyone in ay other given country where they are present.

Appendices
Picture 1. Before and during the gathering and formulating the case study:

Picture 2. After finishing the case study:

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Reference
Castellano, J.M. (1993), Una ventaja competitiva: El factor tiempo. El caso Inditex Zara, Papeles
de Economia Española, No 56, pp. 402-404.
Castellano, J.M. (2002), El proceso de internacionalizacion de Inditex, Informacion Comercial
Española, No 799, pp. 209-217
Ghemawar, P. and Nueno, J.L. (2003), “Zara: Fast Fashion”, Harvard Business School Press.
Case No. 703-497.