I. Executive Summary
Zara is the largest retail company owned and run by Inditex, largest Spanish corporation and the world’s largest fashion group. The way Zara has runs its company is by following a vertical integrated operation that has the advantage to shorten the time in making decisions. Inventories in the stores depend on the geographic area in which the store is located; and the way Zara does their marketing is by just displaying posters at stores and by their windows display. This approach to make business has work very well for Zara; they show an economic growth despite the strong crisis suffer in the United States. The problem that Zara faces is whether to update their existing software or to keep the current software but running in the misfortune that the only DOS supplier will cease to maintain the software. Several benefits and economical costs are described to observe either it would be a wise move or not.
II. Situational Analysis
III. Target Market
Zara sells apparel, footwear and accessories for women, men and children. Product lines were segmented into these three categories, with further segmentation within the women’s line as it was considered the strongest out of the three, with an overwhelming majority of women in the target market (78%).
Zara’s consumers are young, value conscious and highly sensitive to the latest fashion trends in the industry. An advantage that the brand has over conventional retailers is that they do not define and segment their target market by ages resulting in designs and styles that can reach a broader market.
Zara offers cutting edge fashion at affordable prices by following the most up-to-date fashion trends and identifying consumers’ demand, and quickly getting the latest designs into stores.
IV. Swot Analysis
V. Marketing Objective and Goals
“The original business idea was very simple. Link customer demand to manufacturing, and link manufacturing to distribution. That is the idea we
still live by.” (Jose Maria Castellano Rios, Inditex CEO)
Zara’s CEO and founder, Amancio Ortega, saw the great importance of having retailing and manufacturing closely together in the apparel industry and from his view; Zara was able to position itself as a company with vertical integration control system. It covers all phases of the fashion process: design, manufacture, logistics and distribution to its own managed stores. It is also characterized by their strong focus on their customers. Vision
“ZARA is committed to satisfying the desires of our customers. As a result we pledge to continuously innovate our business to improve your experience. We promise to provide new designs made from quality materials that are affordable”
“Through Zara’s business model, we aim to contribute to the sustainable development of society and that of the environment with which we interacts.”
VI. Marketing Strategy and Tactics
Competitive Advantage: Market-oriented Strategy
Most of Zara’s designs are based on the latest trends and they are ever changing according to the immediate feedback from customers. Zara employs its service staff in listening to customers’ preferences and reacts very quickly to them. It is only a matter of weeks before the designs get altered, manufactured and restocked in the stores. If a design is largely unpopular, Zara will not hesitate to withdraw them from the shelves. Its global establishment also provides an extensive network of shopper-feedback which allows them to be ahead of competitors in spotting global fashion trends. Product: Fast Moving Fashion
Zara prides itself on fast moving fashion with new designs restocked in limited quantity every two weeks. This encourages consumers to frequent the stores for new designs and to snap up interesting outfits on the spot in order to guarantee themselves a piece. This provides a sense of exclusivity to shoppers. Process: Industry Leader in Lead Time
Creative teams consisting of designers, sourcing specialist and product development personnel, develop design collections. The teams work simultaneously on different clothing, building and improving on styles previously available. Zara’s designers are trained to limit the number of changes made by lowering the number of samples required, minimizing cost and turnover time. Its demand based production or Just-in-time (JIT) production reduces the amount of inventory available, lowering Zara’s storage cost. Zara’s outstanding lead time is unbeatable in the industry at the moment. Furthermore, Zara eliminated the traditional design process, where design and development overrides fabric procurement. In Zara, the design teams work with the available fabric, allowing for faster fashion. Price: Low Cost, High Fashion
Zara believes in offering high fashion at a low cost. Prices range from $79.90 to $539.00 for both Womenswear and Menswear while the Kids segment has coats starting from $65.00 and these prices can start from $30 during a sale. Taking quality and cost into account, Zara prides itself in providing high fashion at an affordable cost, making its customers’ purchases value-worthy. Place: Prime Retail Locations
Zara, like its competitor brands, is located in prime retail areas like Ion Orchard, Orchard Road, [email protected] where human traffic is high. As aforementioned, Zara invests in prime locations as they place great emphasis on the presentation of its storefronts. Zara also has an online store, which increases accessibility to its customers, allowing them to make purchases conveniently on the go. However, this function is currently not available to Singaporean customers. Promotion: Minimum Advertising
Zara uses 0.3% of sales revenue on advertising, minimal when compared to its competitors (3-4% of sales revenue). Instead of relying on traditional mass-marketing mediums, Zara uses prime retail locations to attract its customers. It also ensures that storefronts and window displays are attractive and fresh to customers by making frequent changes to the items on display. The interior of the store is also clean and bright, with spacious lanes in between racks. This provides a very comfortable shopping experience. Having a good image projection of the store is vital as this is Zara’s most effective marketing communications tool. When customers walk into a store, Zara wants to portray to customers that the latest fashion is always available. VII. Implementation and Control
1975-1995: Since its inception in 1975 till 1995 Zara has followed the method of inspection in order to keep a check on the quality of its products. Zara’s designing team has worked closely with customers and have spend their time in spotting the latest trends in demand. An instant sketch of the design has been analysed and the accordingly produced. The quality control teams at Zara inspected the designs before placing them in stores. M995 till date: After 1995 Zara has implemented the practice of Total Quality Management. In this practice Zara’s vertically integrated supply chain tries to achieve Continuous Improvement of their processes, which includes spotting of the fashion trends, designing, and procurement of their materials, the CAD technology they use for designing, their improved inventory management and finally their centralised logistics and distribution system. Each of the components of the supply chain process has been explained below. Implementation Effectiveness
Zara choose to invest within its own software rather than buying new technology simply because the company’s operations were unique and commercial packages would not fit; also the fact that Zara is a global company, it deals with various currencies that standard accounting packaged would have to be extensively customized and comprehensive. Zara’s operating system, DOS, is obsolete from the market affecting the firm with no reliable system for future forecasting; “not keeping up any historical date means being unable to predict sells, plan or estimate loses/gains and margin on particular designs (Anonymous, n.d). Unreliable fax machines that were taking too long and costing too much to fax order forms back and forth to stores caused delays and frustration. The use of telephones is greatly affected by miscommunication and mishearing. From the above it can be deducted that Zara’s internally application is not a good match for the firm’s needs because: their internally developedapplications are not easy to upgrade and are not compatible with other applications, POS terminals are outdated and stores need POS terminals that will insure no infrastructure problems and its IT department is relatively small for the size of the firm. Evaluation of IS Implementation
In this case, Zara believes less is more and makes minimal use and investment in IT. The competitive advantage Zara has over its competitors is not so much due the use of IT, but because of its quick response to the changing market. Zara does not have a chief information officer or any formal process for setting an IT budget. Castellano estimated Inditex’s IT budget for 2002 was 0.5 % of the revenue, as compared to the 2% of the revenue of other North American retailers (McAfee et al., 2007). As there is no formal justification of IT efforts, there is also not any cost/benefit analysis. However, to maintain business competitiveness is the most important factor to consider when making any decision regarding the upgrade of IS. Zara needs to analyze and compare the Tangible (quantitative) costs and benefits as well as the Intangible (qualitative) costs and benefits of the old system and the new system.