Zara

ZARA- Operations Management

1. The fashion industry is characterized by being particularly sensitive to changes in market trends. Zara’s model is successful because it answers the need of "on the spot" change of variety in its stores, according to continuous changes in trends and demands (i.e. "respond in season").
This is made possible by producing "in-house" in one central location in which all of the design and a large part of the production takes place (The production in Europe focuses on trendy items - 85% of in-house production is devoted to seasonal products of that particular season).
By not relying solely on external sourcing and remote production, Zara is able to eliminate rigid commitments to vendors and long lead times which may result from transportation of work-in-progress stock between different locations of the supply chain. Therefore, production can be completed at incredibly high speed – in as little as 10 days from the time that the decision to produce a certain style.

Zara outsource the basics and knits, this allows it to focus on its core activity, which is designing.
Another advantage is that Zara owns its stores, so that it can easily get information about current demands and respond accordingly (store managers are required to get feedback from costumers and send frequent feedback to store specialists at the headquarters). Only when a specific trend is detected proved to be consumed at high rates, new items are produced (local production lines are kept at low capacity for this purpose) and once products are ready they are immediately shifted to the stores (by train for local stores, or by air to other continents).
This allows Zara to keep very little in stock, thus tying less of its cash and avoiding the risk of markdowns or liquidation of items for which there isn’t enough demand. The low vloume of specific item also allows Zara to relocate it very easily from store to store if needed.

The fact that the inventory on the stores changes rapidly (within 2 weeks from detection of demand), and that it is up to date with the customers will, brings to a high level of stasisfaction among the customers and to a high number of customers that comes back to the stores. This method also enables Zara to save money on marketing expenses.
Lastly, Zara recruit desingers, that are willing to live in La Coruna, those desingers are not so innovative, and required only to follow trend and copy them with minor additions. The "copying method" is one of the basics reason to Zara's success.

2. The most prominent competitors of Zara are H&M, Mango and Gap. These copmetitors have more or less the same positioning points regarding: targrt-market, style and price.
As for Zara’s adventages over its competitors:
Zara's main advantage over its competitors comes from the rapid change in the variety offered in stores. As described in the answer to the previous question, this is maintained by centralized in-house "on-season" production which enables cutting down of lead time and large-volume commitments significally, and by responding to constant feedback from customers and store-managers. This production-to-demand process is advantageous in several ways: First, keeping inventory low saves money both on holding costs and on overage costs. Second, Zara’s ever-changing stocks in stores cause customers tend to visit them very often (17 times a year on average, instead of 4-5 times with competitors), and the constant change creates “enthusiastic hunger” with costumers, that results in more purchases. This also allow Zara to save money on marketing expenses.

Additionaly, Zara listens to its customers, the information about new trends, is coming from the most reliable source. This oppose to its competitors, which only rely on their ERP systems.

Bershka and Pull and Bear are not to be considered as competition (even though they are at the same price range, though keep more casual items in store), as they belong to Inditex as well. However, Inditex should take notice of the fact that these brands may share cliental – and should take it in consideration in its decision. For example – the CEOs of these 3 brands can coordinate their varieties so that they will not be too similar and bite off each others market.

3. It seems that Zara wants to expand, as it keeps on opening stores around the world and in the U.S. in particular, However, since half of production is local, one would assume that the farther they sell, the more shipment costs they will suffer. Moreover - since Europeans and Americans have different body structure and sizes (i.e. – Americans could lose a few pounds), selling the exact same items in the U.S. may be problematic. Customization for specific markets means complication of production lines, which is something Zara wishes to avoid if it wants to keep it’s ability to respond quickly to trends.
Therefore, we would advise to rethink expantion to very distant and different markets like U.S and the Far East.




4. The previous method of price tagging with multiple prices for different countries had some advantages:
A. Simplified tagging – procedure permits movement of goods from store to
store in different countries without retagging, saves time and money.
B. "international flavor" – customers really feel the global effect of Zara fashion.
C. "enthusiasm factor" – customers visiting stores in countries where prices are
relatively low (like Spain), are encouraged to purchase "right away" so they
can enjoy the lower pricing (in comparison to U.S. price for instance).

Disadvantages:
A. Customers' impatience – the differences between prices in different countries
might cause the customers feel exploited if they see they are being charged at a
higher price.
B. Political rivalries – some customers from specific countries may be offended when
they see the flag of enemy country on the tag. This problem can be prevented by
appropriate awareness.

To conclude without numbers it's hard to judge which method is better, we seem to find the previous method better, but we can only asses it with the relevant data (unavailable to us at this point).

Due to the fact that the previous method still apply in Zara’s stores at Israel, and that the reason Zara stoped using the previous method is because that countries that are members of the European Union uses the same Euro currency (but the prices are not the same). We can assum that Zara prefer to use the previous method in countries in which this method is practical.

Zara 7.6 of 10 on the basis of 1997 Review.