Question

• Develop a case report for the Zara case using case report rubric and guidelines
• Case report must integrate your concepts along with the input of your peers from the discussion assignment conducted in the previous unit

Answer 1

Inditex is a world-wide retailer that designs, manufactures, and sells clothing, footwear, and accessories for all people throughout the world. Zara is the biggest and most internationalized of the six retailers that Inditex owns: Zara, Massimo Dutti, Pull & Bear, Bershka, Stradivarius, and Oysho. By the end of 2001, Zara had 507 stores throughout the world (Chapter 3 Zara: Fast Fashion from Savvy Systems, n.d.).

Of Inditex’s total employees, over 80% of them are part of the retail sales force and 8.5% are in manufacturing, design, logistics, and distribution. The remaining 11.5% are part of the corporate headquarters of Inditex, which is located in the region of Spain called Galicia (Chapter 3 Zara: Fast Fashion from Savvy Systems, n.d.).

The duty of corporate is that of a “controller” alone, and is involved in creating the corporate strategy, allowing the business strategies of each chain, and controlling their overall performance rather than as an “operator” involved in operating the chains. This gives Zara the ability to be responsible for its own destiny, product design, sourcing and manufacturing, and financial results (Chapter 3 Zara: Fast Fashion from Savvy Systems, n.d.).

With this ability, Zara was able to make huge investments in manufacturing, logistics, and IT, including creation of a just-in-time manufacturing system, and a massive warehouse close to its headquarters. Zara made its most fashion-sensitive products itself and its designers constantly tracked client preferences and made orders with suppliers based on this data. Due to its unique needs, Zara chose to internally develop its business systems. Zara is now able to begin a design and have a finished product in stores within weeks for new designs, and take even less time for changes to existing lines (Chapter 3 Zara: Fast Fashion from Savvy Systems, n.d.).

Gap, H&M and Benetton are considered Inditex's three closest comparable international competitors.  As in the product positioning map, Inditex's flagship brand, Zara, is relatively perceived as more fashionable than all the other three and prices less than Benetton and Gap but higher than H&M. In these four competitors, Benetton and Gap place at relatively less fashionable and higher price, while Zara and H&M is more fashionable and price lower (Chapter 3 Zara: Fast Fashion from Savvy Systems, n.d.).

H&M is the same in many areas, such as ROE, Gross and Net Profit Margin, etc. Also, H&M's focused approach to international market is more similar to Inditex's expansion style than the other two closest competitors (Fevrier, 2017).

Essentially, thanks to a pioneering technological strategy, Zara is a market leader. By using new tools including big data, augmented reality, and artificial intelligence, the Spanish clothing manufacturer has been able to go past all of its direct competitors. Zara’s parent is known for taking fashion trends to retail outlets in a matter of days, instead of many other organizations, which can take months to do it. Zara is concentrated on utilizing technology to improve the customer experience. Zara is always examining their clients…it aims at giving them a smooth, seamless, and ultimately enjoyable buying experience (Masril, 2018).

Zara is implementing another distribution facility located in Zaragoza. This will help with its continued European expansion. Now that it has a flagship store in Milan, it should continue expanding in Italy. Zara should keep growing like it has in the rest of Eastern Europe with its “oil stain” method. It already has a presence in many of the countries like Germany and Poland. Therefore, its expansion will be more of the same. Its distribution system is already in place, so integration of the new stores into the network will be something Zara already has experience in (Fevrier, 2017).

For overseas expansion, it requires much more capital. Zara needs to invest in production and distribution facilities in North America, as it gets into that marketplace. As soon as it has the capital requirements, Zara should build a manufacturing facility in North America. In addition, Zara will have to invest in training the management to be able to operate these facilities in a similar fashion. The purchasing and designing can continue to stay centralized. However, the new facilities will need investments in IT and logistics to communicate with the current systems and utilize the existing knowledge in the system (Fevrier, 2017).

The risks involved by expansion into the US market are clear. There is intense competition, higher operating costs, and weakening demand in the US market. This clearly poses a risk to the growth Zara may be able to obtain. This can result in capital losses and similar obstacles were faced by both Benetton and H&M (Masril, 2018).

Other risks that the organization has are to its margins overall with international growth. The company is unable to control the increased costs in exporting to foreign countries and currently passes these costs to the consumer. However, it may be difficult to continue doing this and margins are likely to get squeezed. The company needs to be able to grow while maintaining these margins. If it is unable to do so, it risks threats to its competitive advantages and cost efficiency (Masril, 2018).

Zara also faces risks to its image and needs to be very cautious with franchising and joint-ventures. With these, Zara may have a greatly reduced role in running the retail locations. If these locations are shoddily managed, there is a possibility of tarnishing the image that Zara has built. This can also effect the positioning in a particular country…for example, in South America, the organization has to position itself as a “made in Europe” brand (Masril, 2018).

To summarize, understanding and implementing good strategies and utilizing technology is extremely important to the financial success of an organization. A good leader has an obligation to create a good strategy. Good management can make or break the success of an organization.

References

Chapter 3 Zara: Fast Fashion from Savvy Systems. (n.d.). Retrieved from saylordotorg github

Fevrier, D. (2017). 7. STRATEGIC RECOMMENDATIONS. Retrieved from sbmldanielle wordpress

Masril, A. (2018).  Zara supply chain analysis - the secret behind Zara's retail success. Retrieved from tradegecko blog