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Zara pursues product differentiation through fashionable clothing designed for limited use and sold at competitive prices in meticulously planned stores to brand its image. It focuses on quick response to trends through a producer-driven supply chain with in-house design, manufacturing, and distribution. This allows Zara to continually refresh stores with new inventory, creating scarcity and driving sales. While fast expansion could dilute Zara's brand and supply chain responsiveness, its competitive advantage of scarcity-based retailing is moderately to highly sustainable through maintaining unique producer-driven operations. The document recommends Zara focus on Italy, cautiously expand in Asia, and avoid the complex U.S. market.
Originalbeschreibung:
This write-up identifies Zara's chosen strategy, value chain, operating economics and competitive advantage; as well as recommendations.
Zara pursues product differentiation through fashionable clothing designed for limited use and sold at competitive prices in meticulously planned stores to brand its image. It focuses on quick response to trends through a producer-driven supply chain with in-house design, manufacturing, and distribution. This allows Zara to continually refresh stores with new inventory, creating scarcity and driving sales. While fast expansion could dilute Zara's brand and supply chain responsiveness, its competitive advantage of scarcity-based retailing is moderately to highly sustainable through maintaining unique producer-driven operations. The document recommends Zara focus on Italy, cautiously expand in Asia, and avoid the complex U.S. market.
Zara pursues product differentiation through fashionable clothing designed for limited use and sold at competitive prices in meticulously planned stores to brand its image. It focuses on quick response to trends through a producer-driven supply chain with in-house design, manufacturing, and distribution. This allows Zara to continually refresh stores with new inventory, creating scarcity and driving sales. While fast expansion could dilute Zara's brand and supply chain responsiveness, its competitive advantage of scarcity-based retailing is moderately to highly sustainable through maintaining unique producer-driven operations. The document recommends Zara focus on Italy, cautiously expand in Asia, and avoid the complex U.S. market.
Zaras Generic Business Strategy: Differentiated Focus
Zara pursues differentiation through its choice of product design and presentation. Where its competitors push real clothes, lower prices or leaving store management to licensees, Zara places emphasis on fashionable clothes meant to be worn just 9 10 times, sold at competitive prices and in meticulously planned stores for the purposes of instilling its brand. Behind the scenes, Zaras focus becomes quite apparent. Whereas its competitors are content to continue in the vertical structure of commodity chains, Zara has been successful in its operation as a producer-driven chain. Response to External Environment Three main environmental threats are apparent in the retail apparel market. First, the market is buyer-driven. Second, market operations are dominated by the dynamic of strategic overseas factory brokers. Third, the market is in a constant state of an ever-increasing pace to outrun commoditization. Zaras business strategy responds to each of these threats by seeing them through three different lenses, which turn them into opportunities. The first lens is one of design. The second lens is the vertical integration of its manufacturing process. The third lens, and most important, is the lens of a producer-driven value chain. Evidence of External Environment Response in Value Chain Lens 1: Design Top management stressed that instead of being run by maestros, the design organization was very flat and focused on careful interpretation of catwalk trends suitable for the mass market
The process of adapting to trends and differences across markets was
more evolutionary and placed greater reliance on high-frequency information. conversations with store managers were as important in this regard as the sales data captured by Zaras IT system. Time permitting, very limited volumes of new items were prepared and presented in certain key stores and produced on a larger scale only if consumer reactions were unambiguously positive. Lens 2: Vertical Integration Fashion sourcing: purchasing offices in Barcelona and Hong Kong Fabric processing: much of this volume was funneled through Comditel, a 100%-owned subsidiary of Inditex Apparel Manufacturing: most fashionable done close by with more basic/price-sensitive outsourced to Asia. Internal manufacture was the primary responsibility of 20 fully owned factories cut garments were sent out to about 450 workshops As subcontractors, they generally had long-term relations with Zara. Distribution: Zara had its own centralized distribution system. Lens 3: Producer-driven Value Chain Emphasis: using backward vertical integration to be a very quick fashion follower Production: limited and inventories strictly controlled even if that meant leaving demand unsatisfied Merchandising: emphasized broad, rapidly changing product lines Store Operations: we want our customers to understand that if they like something, they must buy it now, because it wont be in the shops the following week. It is all about creating a climate of scarcity and opportunity.
Zaras Core Competence
Like Toyota, and even assisted by them, Zara implemented a just-in-time apparel delivery system, but unlike Toyota they were able to truncate it with one step further to create even greater added value. This step could be called the too-slow system. As previously mentioned, creating a climate of scarcity and opportunity was what drove sells. Effect of Business Model on Operating Economics The effects of Zaras design focused, vertically integrated and producer driven value chain business model on operating economics occurs in two major ways. First, the design focused aspect encourages a flat management structure, substantially decreasing its selling, general and administrative expenses. By comparison, the case mentions World Co. of Japan as the only other apparel retailer in the world with comparable cycle times, leading to similar gross margins. Even so, World Co. is unable to obtain net margins greater than 2%; whereas, Zara is hovering around 10%. This is due largely to Zara spending half as much on SG&A as World Co. The second is how the vertically integrated and producer-driven value chain fosters a climate of scarcity and opportunity. While this drives sales and achieves a competitive gross margin, it also leads to Zara spending less than any of its competitors to maintain the operation of this climate. It is by this distinguishing factor that this component of Zaras business model is able to result in a significant added value to the firm.
Why Zara Might Fail
By expanding too rapidly, Zara may begin to lose its ability to continue to benefit from its core competency by over-extending its supply lines. In addition, by spreading itself too thin across three continents at once may cause the extreme, meticulous branding presentation to lose quality, luster and succumb to generalization. Finally, it seems that the U.S. and Asia present a different set, quite different in the case of the U.S., than Europe in terms of market dynamics. Without fully understanding how to grasp the motivations behind what drives consumers in these markets to pull the trigger on apparel purchases will most definitely lead to failure. Sustainability of Competitive Advantage
By defining its competitive advantage as the ability to create a climate of
scarcity and opportunity; Zaras ability to sustain this is moderate to high. The reason for the range is due to the fact that the just-in-time system can be adopted by one of its competitors and furthermore truncated with a socalled too-slow system to create this same climate, and the chances of this happening are moderate. By moderate, it is possible that a competitor could do this. However, the likelihood of a competitor doing this is low, which in turn creates a high level of sustainability for Zara. Even so, Zaras greatest threat could be construed to be the possibility of one of its competitors partnering with a producer-driven retail chain in either the U.S. or Asia and take advantage of its distribution system. That being said, this competitor would also have to upgrade its manufacturing as well. In the mean time, Zara might expand its manufacturing and distribution centers to the U.S. and Asia along with its manufacturing to counter. Evidence and planning of this exists in Zaras further expansion and reliance on its Hong Kong operations. Recommended Adjustments 1) Forget the U.S. Market Both Benetton and H&M have tried and failed, not to mention the still existing retailing overcapacity, less fashionforward market state and considerable regional variations. 2) Focus on Italy This market is far from in the bag or secure enough to not require a significant amount of attention. Just because Italians spend more on clothes than the rest of Europe doesnt mean that Zara will automatically benefit by simply entering it. Due to the substantial investment required to enter the Italian market, Zara will not benefit unless this outlay can reap a profit. Italy has shown its favor for independent stores which account for a 61% market share. 3) Explore cautious expansion into Asia Through significant capital expenditures on distribution and production and doubling down on the Hong Kong presence, this may lead to a greater understanding of local market, current trends and cultural navigation. The thought would be for Zara to strengthen its ability to overcome the already existing competition and barriers to entry found there. Furthermore, keeping a look out for potential joint-ventures such as that developed in Italy might help in reducing the level of cautiousness required without.