ZARA: Fast Fashion

Case Analysis

 

- Organizational Strategy

    Reading the case, someone could easily recognize that Zara had many organizational strategy components. As an example, the first underlined strategy implied that Zara was hiring more designers compared to its competitors, the firm used this strategy in order to promote creativity. 

    Another strategy used by the company was hiring young and women employees. For instance, their average age was 26 and the majority of workers with 78%were women.

     Then, the business chains were independent and were responsible of their own strategy, product design, sourcing, manufacturing, distribution, image, personnel and financial results while the group management set the strategic vision of the group, coordinated the activities of the concepts and provided them with administrative and various other services.

    After that, in Zara, the role of the corporate center was to be a strategic controller rather than being an operator. Thee controlling task was based on standardized reporting systems which focused on sales growth, EBIT margin and return on capital employed.

    Next, Zara highly valued IT (Information Technology) and Just-In-Time (JIT) Manufacturing System. Major investments were done on these two areas which later benefited the company in great values.

    Following that, Zara also had a strategy of keeping the selling, general and administrative expenses at minimum. This strategy provided Zara a great advantages over its competitors.

     As another organizational strategy, before producing a new product, Zara designers always attended the fashion shows, referred to catalogs, considered the data of IT system, followed industry publications, TV, Internet and film contents and also focused on university campuses, discotheques and their young, fashion-conscious staff.

     Zara also gave a lot of importance on keeping the failure rates on new products very low. For example, their product failing rate was 1% compared to the industry's 10%.

     The distribution system was another organizational strategy tool for Zara. The company had a centralized distribution system which was again supported by IT. The products also never remained so long in Zara's inventories.

     One other unique organizational strategy of Zara was attracting customers via its stores. The company always had its stores in famous streets, prime locations and popular places. The decoration of the stores was changed often and the products were limited. Because Zara frequently produced new products and leaving the demand dissatisfied made consumption much more fast and attractive.

     Additionally, Zara was spending too less on media advertising. As an example, only 0.3% of its revenue was spent on media advertising. The company also didn't exhibit any fashion shows and the new products were always displayed first in their stores.

     Moreover, Zara had an organizational strategy which focused on manager and employee training. For example, store managers were trained extensively before starting their duty and the employees were given a two-week training with specialized Zara staff including training at other stores which fulfilled important socialization goals. The personnel were also provided periodical training afterwards.

 

- International Strategy

    The first mentioned international strategy of Zara was that they had strong ties with their employees, suppliers, subcontractors, non-governmental organizations and local communities.

     Secondly, when Zara opened a new store in a major city of one particular country, they developed some experience operating locally and then added stores in adjoining areas. The company also preferred to open more than one store in each country since delivery costs were cheaper, customers were more aware of Zara and it was more logical to do so in terms of headquarter costs.

     Thirdly, before entering a new country, Zara analyzed to see if that particular market was positive. If it was really positive, Zara then searched for ways to enter it. Also, the business used three different modes of market entry - company owned stores, joint ventures and franchises. Usually, only one of these modes were used for each country but then shifts among the modes were observed. Additionally, Zara established company-managed stores in key, high-profile countries with high growth prospects and low business risk. Opposite to that, Zara used franchises in countries that were small, risky or subject to significant cultural differences or administrative barriers. Then, Zara used joint ventures in larger, more important markets where there were barriers to direct entry which was usually related to the difficulty of obtaining prime retail space in city centers.

     Finally, to manage their country subsidiaries, the Zara Holding had country operations. Country management teams typically consisted of a country general manager, a real estate manager, a human resource manager, a commercial manager, and an administrative and financial manager. These management teams sometimes served as clusters of neighboring countries if individual countries were too small. Also, the country general managers had a very critical role like serving as a communication bridge between the top headquarters management and local store managers.

 

- International Expansion

    Zara's first international expansion was given birth in Oporto, northern Portugal in 1988. In 1989, the company opened its first store in New York and after in 1990, the first Zara store was opened in Paris.

    Between 1992 and 1997, the firm entered one country per year. Thus, by the end of this period, there were Zara stores in seven European countries. Zara didn't stop with the international expansions. In 1998-1999, 16 new countries and in 2000-2001, 8 countries were added.

     In 2001, Inditex formed a 51:49 joint venture with Percassi to enter the Italian market. That joint venture resulted in the opening of Zara's first store in Milan in April 2002 which was the company's largest store in Europe.

    In May 2001, Zara had its IPO (Initial Public Offering) and sold 26% of the company's shares to the public, but founder Amancio Ortega retained a stake of more than 60%. 

     Later, Zara had 67 stores in France by the end of 2001. Again at the end of 2001, the company was operating 231 stores in 18 countries.

 

- Recommendations

   Since the demand for Zara products is still very high, I think the company must continue to take advantage of it. Concerning other Inditex brands, in my opinion, the right move should be to keep them if they still generate profits and do not require extreme resources which hurt Inditex. On the other hand, if these other brands cause loss and need high level of resources that makes them too difficult to manage, then closing these brands seems a better idea. Finally, if eliminating the other brands will help Inditex to concentrate more on such a valuable and profitable brand such as Zara, the company can decide to go on with this decision. In regards to starting up and acquiring additional chains, even though they should not expand very fast, the company can still go into new markets (countries) if they will increase the profitability. However, they must avoid risky markets because their current situation doesn't force them to make risky investments.