ZARA: IT for Fast Fashion

Q1) What is Zara's business model? How is different from the business model
of other large clothing retailers?

Zara has pioneered the niche market and has presence in all continents: Europe, America,
Asia, Middle East, and Africa. Zara’s core business model is vertically integrated, it
specializes in speed and efficiency and the fast fashion trend. Inditex operates 1,558 stores
in 45 countries out of which 550 stores are a part of Zara chain. Zara generates a major
portion of Inditex’s sales accounting for 73.3%
Zara business model can be compared with it’s competitors in the following parameters:

Marketing :Zara unlike it’s competitors such as H&M ,GAP and Benetton placed ads only to
for yearly sales figures and promotes only when there is any new store opening which is
virtually no advertising wherear others placed their ads for its assortments which resulted in
zara spending only about 0.3% of its revenue on advertising instead of 3-4% as compared to
its competitors.

Design team: Zara has a dedicated team for designing consisting of two designers and two
product managers who helped in procurement ,production and setting up the prices
,another group of commercials ,called store product managers working closely with the
product managers and served as La Coruna’s main interface and they analysed the trends
and fashion across the globe and to find out what kind of clothes are selling in the market
whereas the competitors did not conceptualise on the setting up different teams and
instead had small elite team for all segments .

IT spending: Zara used 0.5% of total revenue on setting up IT infrastructure as mainly their
were in-house applications whereas the competitors used 2-5 % of their total budget and
they mostly outsourced it .

Role of store manager: Zara gave lot of autonomy to store managers in comparison to its
competitor where they only had the limitation till employees and customers but in Zara
managers were the part of designing team ,determining the current trend and fashion
prevalent in the market .
Supply Chain: Zara had a very well vertically integrated system for responding to the shifting
consumer demands and had divided into three cyclical process: ordering, fulfilment and
designing whereas competitors rely mostly on the outsourced stations.

2. What information does Zara need to operate its business model?

Zara should consider the plan of upgrading the outdated operating system (OS) with the
new OS. the capital investment in the new operating system will be a one-time cost, the
maintenance cost will be distributed over the lifetime of the software. In the short run,
there is no need to upgrade the operating system. Zara needs to upgrade the software in
the long run. For Zara to maintain a competitive edge, it should first develop a robust
strategy for upgrading the current OS. At present, Zara should stop investment in the
existing system and probably conduct a pilot project of the new OS to collect the data of its
responsiveness. It should set aside a budget for implementing the whole IT upgrade. Instead
of investing a large amount of money at one go. Zara should make an investment in phases.
Zara will need to design a formal chain of decision-making. The PDAs used for ordering are
inconvenient to use and so, Zara should replace them with convenient equipment such as
the PCs. In addition, the PDAs and the POS are not connected. In order to enhance the
networking capabilities at each store level, Zara should upgrade from a modem-based
network to a broadband-based network.

As Zara uses POS terminals that operate on the obsolete operating system, it needs to
change the POS terminals with a latest and compatible system. The latest POS terminals that
are available operate on modern OS such as Windows, UNIX and can use a variety of
physical layer protocols, though Ethernet is currently the preferred system.