About a third of these outlets are in Spain. The year old company is based in northern Spain. The Traditional Fashion Industry Model: Long Lead Times When one thinks of the fashion industry one of the first thoughts that usually springs to mind are the long lead times involved.
Who is the customer? They have an advantage over traditional retailers because they do not define their target by segmenting ages and lifestyles giving them a much broader market.
Zara started operations in Spain inand now operates in 74 countries worldwide. What is the value proposition? They can move from identifying a trend to having clothes ready for sale within 30 days where as most retailers take 4—12 months.
This is made possible by controlling almost the whole garment supply chain from design to retail. Large choice of styles Zara produces around 12, styles per year compared to the retail average of 3,which means that fresh fashion trends reach the stores quickly.
This high number of styles also means that the commercial teams have more chances to find a winning style. Scarcity By reducing the manufactured quantity of each style, Zara creates artificial scarcity and lowers the risk of having stock it cannot sell.
Scarcity in fashion increases desirability, which means shoppers need to buy quickly as the item may not be available next week. Prime locations Zara spends relatively little on advertising 0.
Most retailers outsource production to low-cost Asian countries. In contrast Zara is vertically integrated with the majority of production carried out in owned or closely controlled facilities in Spain. This gives a lot more flexibility and speed however it means higher costs.
Stores place orders twice per week and the supply of finished goods is matched to store demand. Production is then increased or decreased in the flexible production facilities. Deliveries typically arrive one to two days after ordering with most deliveries arriving by truck from the Spanish factories.
Clothes are then put straight onto the sales floor and are available to purchase. Any weather, labour or terrorist disruption to the area will have a serious impact to sales, as there are no alternative supply centres in Europe. As production is carried out in Spain where average wages are higher than low-cost Asian countries so factory wage costs will be higher than competitors, which will affect margins.
Zara is also vulnerable to financial vulnerabilities in the Euro as most of its cost-base is denominated in Euros. Finally increased oil prices will affect profits as twice-weekly deliveries means higher transportation costs.The elements supporting Zara's business structure and strategy are also greatly interlinked and location, as of its counter-intuitive business strategies.
While it may not be possible for another this allows it to schedule . Evaluation of business strategies of the case companies. there are huge risks associated with the companies operation even though it helps them to follow the counter-intuitive approach to apparel market. This is clearly shown in deciding and structuring Zara's business model in a way that has become impossible to replicate to another.
Zara was able to do accommodations to their merchandises throughout the season and hada merchandise failure rate of 1 % compared to the industry criterion of 10 %.
Although Zara has proven that its success comes from being a quick-response manner follower. the winning elements in Zara's business model, and probably only scratched the as well as some unique aspects of the retailer's business model. Spain, the Far East, India, and Morocco. By retaining control as its counter-intuitive .
In what ways is the Zara model counterintuitive? In what ways has Zara’s model made the firm a better performer than Gap and other competitors? What are Zara’s key resources? How is IT helping Zara sustain a competitive advantage? %(6). Zara's business model: Part 2: Retail @ The Speed of Fashion 1.
retail @ the speed of fashion part-II By Devangshu Dutta, Zara's success is as much a result of its history and location, as of its counter-intuitive business strategies.