Discuss about the Logistics and Supply Chain Management for Zara.
As all we know that Zara is a most famous international brand of fashion. This fashion brand is owned by the Spanish fashion group and this company started its operation in the year of 1963. Amancio Ortea Gaona, founder of Zara, opened its first outlet in the year of 1975 at La Coruña. Talking about the background, then there was a factory named as Inditex established by Amancio Ortega in 1963 and this factory turns into an outlet after 10 years and it was known as Zorba in Spain and the cost of this outlet was Euro 30 at that time. After a few years, Amancio Ortega changed his outlet name Zorba to Zara. However, by the year of 1990, Zara expanded its fashion business in the US, Europe, New York, France etc. Recently, Zara also starts operating from India in 2010.ZARA successfully opened its outlets around the world and ZARA has three product lines Men’s wear, children wear and Women’s wear. ZARA is successful because it easily located the market trends and performs quickly according these changes. ZARA is now considered as global brand as it has 1820 stores all over the world and as per the records the annual sales of ZARA is around 3.8 billion EURO (Wang, et al., 2013).
When comes into picture the famous Founder Ortega, his strategies always reflect high performance and best quality. Throughout his whole career as Founder, he made the people working under him reach the highest standards of quality work and always supported the employees to give their best and keep working and keep improving their performance at every level.
The Secret behind the success of Zara involves the Information delivery system that focused on the customers. The latest trend that is introduced in the market and the process of designing is affected by consumers at ZARA. This system is associated with the interactive communication between store managers and the creative team at headquarters in Spain. Firstly the information regarding the customer tastes, needs and about their demands is gathered by the store managers and then, this information is shared by the store managers to the design team into headquarters and this system helps in fulfilling the client’s needs as well as give ideas to create new designs and styles as per the client requirement (Schlossberg, 2015). Moreover, the analysis of industry environment is must.
Industry Environment: The Fast Fashion Apparel Industry
ZARA is commented as the Fast fashion brand of the Fashion industry innovation. ZARA adapt the current and upcoming trends as per the needs of customers and deliver designs in just a few weeks as compared to the other fashion brands.
Threat of New Entrants: For ZARA there is no threat of new entrants. The reasons for this low threat are that the costs for Marketing, production, and distribution are already divided over units of production that lowers the cost of production. For new entrants it is not an easy task as it is very difficult for them to compete and achieve its aim as in the starting point, the huge amount of funds or investments are needed to enter into the industry (Kim, et al., 2015).
Bargaining Power of Suppliers: There are lots of people in the fashion industries who supply the raw material in the fashion industry and the raw materials are adequate and can be offered to the many rising countries. Due to this reason the bargaining power of suppliers is low.
Bargaining Power of Buyers: The bargaining power of buyers of ZARA is reasonable as ZARA customers’ switching costs are low and the products offered by ZARA are at affordable prices. In the fashion Industry, the customer is the only one that is very flexible in choosing the style across a number of brands. The High Brand Loyalty of ZARA also the low possibility of customer integration is the reasons of lowering the bargaining power of buyers (Mo, 2015).
Threat of Substitute Products: In this competitive industry, there is always a high threat of substitute products. There are many substitutes or can say competitors of ZARA that are a threat to this fashion industry like MANGO, H&M, and FOREVER21. This high availability of substitute or competitors leads to the huge threat for the fashion retailers. There are many chances of Customer switching because of the price comparison for the same product of a different brand.
Rivalry among Competitors: In this fashion industry, there are a large number of competitors and Rivalry among competitors is intense. There are a large number of fashion retailers who adopted fast fashion model like H&M, TOPSHP, MANGO, etc. All the listed companies are unable to take a decision of exit the industry at will.
Business Level Strategy – Cost Leadership- This is the strategy that is adopted by ZARA in order to achieve low costs but maintain high fashion. Zara gets some idea from the latest couture designs and inform to the design team then makes similar design with a less expensive fabric. Moreover, ZARA always tries to produce less quantity of dresses to sell because it is an easiest way of cutting the cost or loss when that particular design is not popular, and it can also cut the stock cost as well (Fan & Lopez, 2009).
Corporate Level Strategy – In this strategy the Company can choose to do a multiple business. The sales revenue of ZARA comes from the business of clothing and it’s nearly about the 95% of the sales revenue. No doubt, ZARA is also doing the business of home furnishing items under the brand name ZARA Home, the contribution of this is nearly 2.3% of the total revenue.
International Strategies – Transnational Strategy- The aim of Zara is to attain both global efficiency as well as the local responsiveness. By adopting the vertical integration, Zara has more litheness than its competitors in terms of moving products from the designing to stores. Also, ZARA responds to the local customer preference changes by taking a proper feedback from the client itself and then intimate this information to the design team at headquarters to introduce the new varieties on national and international level (Dutta, 2007).
SWOT analysis is very important for every organization that before making any plan or strategies. Because one should know that what are the consequences and positive outcomes of the implementation of strategies (Lewis, et al., 2003).
An organization is an established mechanism and has an organizational structure for achieving its objectives and competitive advantages on other brands. Effective organizations have strategies to mark and maintain a viable and feasible market for their products and services. The Founder, Amaciano Ortega has adopted the following growth strategies (Fan & Lopez, 2009). Integration strategy is must for achieving its goals and objectives which generally include profit maximization, Goodwill and brand image, etc to sustain in the market. There are various types and forms of Integration that help the ZARA to maintain its image and sustainability in the market. For ZARA, the dynamic process of adapting to market changes and uncertainty of the market environment, organizational reorganization and integration is an important tool in effectively maintaining and efficient alignment with the ever changing environment. These include vertical, horizontal backward and forward integration. These have been discussed in detail as under:
Vertical Integration: This is a strategy which is used by ZARA to utilize in order to gain effectual control over the players which are vertically placed under them in the value chain of production and distribution. This is a significant and a conscious corporate decision. This strategy includes design, just in time production, sales and marketing of the fashionable clothes and accessories. Through this integration, the corporate firms decide whether to venture into the vertically placed activity or just to focus only on production. In order to reduce transaction costs and have a secured supplier and distribution channel, the firms gain control over their distributors through various measures to increase its power in the market.
Horizontal Integration: This integration strategy of ZARA involves acquiring of similar businesses and activities which are essentially placed at the same level of the value chain thus it is called horizontal integration. It includes corporate strategies of acquisition, mergers and joint ventures. This is mainly done to consolidate with competitors in the market and to drive them out in order to gain market power and control.
Backward integration: Backward integration is also a strategy which entails the buying of an entity which lies above the main firm in the vertical value chain. This is done to purchase suppliers and results in better efficiencies and improved costs.
Forward Integration: This is also one of the types of vertical integration and includes the acquisition of a previous firm in the market thus acquiring its consumer base. It means when the activities are increased to include several others in order to gain control in the straight and undeviating control over distribution of one’s products (Crofton & Dopico, 2011).
The above four points are considered by the Founder Ortega to filter the processing of the company. These are followed at every step to make the organization work better.
Zara and the other brands are very different in nature. The Dell Company follows horizontal supply chain integration, whereas Zara follows a vertical chain of integration. The production line of both the companies is very different as the products offered by the companies are not the same. Dell has come up with “distinctive” approach to the production of computers or electric items is dependent on third parties like on suppliers for the final product and delivery of these products, whereas the Zara is not dependent on any third party for its clothes production. The success of the company is totally because of the control on every aspect of designing, production, and distribution. This control in all business activities also helps Zara to manufacture and deliver new designs in a short period of time and this is the only reason that Zara is more successful than the other companies. The horizontal supply chain management has an advantage that it is very easy to control as you have only minimum responsibilities on the part of the company. On the other hand, coordinating a number of small activities has the benefit of being able to control the whole picture of the company (Bhardwaj, et al., 2011). Zara also has a control on the suppliers too, as it adopted the vertical supply chain. Also the brands, Gap Inc and H&M have also developed new channels of sale. The GAP and H&M developed a system of offering products, whereas Zara which does not offer its products online. A fashion brand H&M’s also follows the expansion strategy that involves the development of business systems in each country entered whereas the Zara has already wider range of international presence in contrast to both Gap and H&M, this is the reason that ZARA become a global company in a very less period.
Basically, Myers is the departmental store that is offering the basic needful product to the people. Thus, the products offered by the both the brands ZARA and MYER are different. Zara has always focused on the demographic and psychographic conditions before starting any outlet, whereas the Myers do not focus on the demographic and psychographic factors because the products offered by the departmental store do not need to analyze the location, taste of the customers because it already focus on the products which are a necessity for any individual. The market of Myers is uncertain as the target market of Myers is also comprised with different categories of customers. On the other hand, the market of Zara involves a lot of creativity and innovative approaches and changing trends so it attracts the people aged between 20 to 35 years. The products offered by the Myers are large in numbers and it is very difficult to attract the customers as the customer services of Myers are not very approachable. (Orcao & Pérez, 2014).
Conclusion and Recommendations
Effective and fruitful leadership roles have proved to be not only an origin ZARA effective competitive advantage, but it is also a very significant hampering aspect to entry. For example, as we all know that ZARA is among that only Fashion Brand with all the essential abilities to establish a good Brand image. It has also built in important switching costs through heavy and advanced technology. In the healthcare sector, through its R&D abilities, it has made a strong and the qualitative leadership position in advanced health sciences. By analyzing the strengths and weaknesses and threats and opportunities, it is imperative to work on them and make the company more progressive.
Certain objectives should be set beforehand to develop the product strategy and hit it in the market and while setting out the objectives, following should be kept in mind. Some of the objectives are as follows: –
The objective to respond to your customers’ demands and expectations requires time for setting out research to make sure that the product is developed at the right time, for the right person and in the right conditions.
References
Bennett, H., Bennett, S. & Joines, H., 2009. H&M vs. Zara: Comparing Marketing Strategies, Available at: https://dianajoines.files.wordpress.com/2009/09/final-term-paper-hm-vs-zara-marketing-strategies.pdf
Bhardwaj, V., Runyan, R. & Eickman, M., 2011. A case study on the internationalization process of a ‘born-global’ fashion retailer. The International Review of Retail, Distribution and Consumer Research, 08 July, 21(3), pp. 293-307.
Crofton, S. & Dopico, L., 2011. ZARA-Inditex and the growth of fast fashion, Available at: https://www.ebhsoc.org/journal/index.php/journal/article/viewFile/216/218
Dutta, D., 2007. Retail @ speed of fashion: Third Eyesight, Available at: https://thirdeyesight.in/articles/ImagesFashion_Zara_Part_I.pdf
Fan, Y. & Lopez, C., 2009. Internationalisation of the Spanish fashion brand Zara. Journal of Fashion Marketing and Management: An International Journal, 13(2), pp. 279 – 296, Available at: https://www.emeraldinsight.com/doi/abs/10.1108/13612020910957770
Kim, M., Truong, N. & Ha, J., 2015. “ ZARA in Korea: The Myth of Success ”. Journal of Marketing Thought, February, 1(4), pp. 64-71.
Lewis, K., Lewis, M. & Machuca, J., 2003. Zara: The Inditex Story. An International Journal, Volume 2, pp. 1-6.
Mo, Z., 2015. Internationalization Process of Fast Fashion Retailers: Evidence of H&M and Zara. International Journal of Business and Management, 10(3).
Mo, Z., 2015. Internationalization Process of Fast Fashion Retailers: Evidence of H&M and Zara. International Journal of Business and Management, 10(3), pp. 1-20.
Schlossberg, M., 2015. This Spanish retailer with the ‘best business model’ in apparel is scaring Gap, Abecrombie & Fitch, and J. Crew, Available at: https://www.businessinsider.in/This-Spanish-retailer-with-the-best-business-model-in-apparel-is-scaring-Gap-Abecrombie-Fitch-and-J-Crew/articleshow/50251799.cms
Wang, X., Tan, T., Kao, H. & Tao, Y., 2013. Zara Synopsis: history, Available at: https://www.sfu.ca/~sheppard/478/syn/1123/Synopsis6.pdf
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