Background of Zara: Zara is considered as one of the greatest global fashion companies.

This
belongs to the Indicted as one of the greatest groups of distribution in world. Its specific model
of the business is consumer –based and comprises the distribution, manufacture and selling of
the products with the help of extensive system of group owned retailers. It has been examined
that designers of Zara are continuously tracking the preferences of customer and placing the
orders with the external and internal suppliers. The 3 product lines of Zara for men, women and
children had the creative team comprising of sourcing specialists, designers and personnel for
product development. It is viewed that in year 2001, Zara operated approximately 507 stores in
different countries throughout the world, comprising Spain with around 488, 400 square meter of
the selling region and using 1050 million capital of the Company out of which the network of the
store is responsible for around 80%(Dessain, Mcafee & Sjoman, 2004).The culture of Zara
believes in fast fashion. The devise team of the Zara has skills to produce the clothes according
to the needs of the consumer at the current moment (Peter, Heywood & Kliger, 2002). They
search current famous trends and ask from consumers what they actually want as compared to
predicting future trends. Moreover, Zara launches and produces approximately 10, 000 new
designs yearly.

Mission of Zara: ZARA Textile is devoted to achieve consistent improvement in the system of
providing products & services to the customers through On Time Delivery & Enhancing
Customers Satisfaction by means of Quality and Value.

Problem identification:

Marketing:

Zara has adopted a different marketing strategy form beginning which is not to advertise through
traditional media. There are not many businesses which are running without any marketing in
this age of communication and technology. If some business is doing good without marketing it
does not mean that the business has captured maximum market and there are no more
opportunities to grow. If some business is already doing well, it can do better by launching a
marketing campaign and can get more market share.

But in last 2 years Zara has changed its strategy slightly and started campaign through some
social networking website to keep in touch with its customers.

Political issues:

According to Fareed Rafiq Zakaria who is a famous Indian American journalist the India’s
democracy system has all ability to qualify for “illiberal democracy”. So that is why the political
system is volatile and takes any positive or negative impact on economy on day to day basics.
Major political and local political powers plays important role in major city’s economy.
Foreign investor Zara has very sensitive about its liberal policies due to its main origin of
business in Europe is facing very illiberal policies of government in its labour law. And also
media the forth pillar of political system play an important part to rock the economic system by
flaring up political issues.

Due to this Zara is reluctant to invest more in Indian cloth industry which is growing with a GDP
of 9% annually.

Product:

Zara is based in Europe, so it has 3 to 4 main colors which are used by its designers most of the
time. But in India there are lots of colors used in readymade cloth industry especially bright
color. Female and male clothes lot of or small embroidery work is like which is lack of Zara
fashion designs. Indian consumer likes bright color for party occasions.

Social issues:

Cultural differences in India and Europe has a great impact on sales in India due to its designs
which are more influenced by Europe. Statistics shows that the Indian cloth market is 490000
million rupees and 30000 million rupees market is only European based apparels. Zara’s limited
origin designs make its global brand image of fashion industry. Zara opened two shops in India’s
metro cities New Delhi and Mumbai but both have vast cloth’s cultural differences. In New
Delhi customers like Indian dresses more than foreign designs but vice versa in Mumbai. There
are also traditional cloth designs for special occasions which are lacking in Zara stores.

Weather:

India’s weather is totally different from Europe because of its five extreme seasons (summer,
Monsoon/rainy, winter, spring, autumn) in a year. The winter is of very short duration and not
too much cold as compared to Europe and summer (April, May and June) is warmer than
Europe. Variation of season requires rapid fashion change according to local weather. At Zara
store you will find most of the cloths for normal weather and not for extreme weather.

Legal issues:

In India there are some legal requirements for foreign companies to start business and the most
important one is that you have to make a local partner from India. Zara has started its business
with the collaboration of Tata a local Indian business company. Next, Marks & Spencer,
Accessories, Debenhams and Guess have all franchised their stores to India.
Another problem in India is the implementation of copyright law. This is a fact that the day Zara
will launch its new design in Indian market it will be pirated in couple of days and you will find
the same design at very lower prices in the local shops.

Economic issues:

The growth rate of Indian economy is comparatively high but it does not affect the life of
common people very much because of the unequal distribution of wealth. So the whole
population of India should not be considered as a target market of Zara.

On the other side high rate of taxes for foreign companies also results into higher prices of the
products. Mango, Guess, Esprit, and French Connection are also in line with Zara prices in other
markets including Singapore, Dubai and some European markets. It is surprising that the prices
in Singapore and Dubai are less than India because Indian duties could add 30-40 percent on
retail prices, while duties in these countries are much lower. Devangshu Dutta, managing
director of Third Eyesight, a retail consultancy based in the capital, reckons that Inditex may be
taking a long-term view of the Indian market and relying on strategic pricing.

SWOT analysis of Zara

Strengths: Unique designs – One of the first and foremost advantages of Zara lies in its
design abilities. It has a plethora of designers on board who understand the Zara brand and the
psyche of the customers who visit Zara very well. The clothes are elegant, superior quality and
have fantastic finishing. They come in a lot of varieties including party wear, office wear, for
kids, for men and women, casuals as well as several others. Even accessories are an integral part
of Zara wear.

Strong presence – Zara has kept expanding its presence across the globe. On latest count in
2015, it had 2100 stores worldwide with an average sale of 15.9 Billion per annum. In 2016, it
has expanded even further. If it has to survive in retail, Zara has to keep expanding its presence
and it is good to know that the brand is doing exactly that.

Brand value – The brand is ranked number 53 by Forbes in its brand ranking and is valued at a
whopping 10.7 Billion dollars. There are several positive points leading to the excellent brand
equity of Zara. The performance over the years and the consistent quality it has provided has
given a boost to the brand in recent years. Besides this, the brand has stayed away from
controversies and tried to stay humble even when it came across them. Such a healthy culture has
resulted in the brand being loved by its consumers over and over again.

Superb supply chain – Zara is known to get its designs from conception to the stores in 2 weeks
whereas it takes other competitors minimum 6 weeks or more, automatically making Zara the
trendiest store which has the latest in fashion. On an average, 450 million items are designed
every year by Zara. This naturally pushes the consumers to visit the store again and again to
check out the latest designs.

Design advantage – Zara has the reputation of launching 1000’s of new designs every year
across the globe. As a result, a customer who might visit other stores twice or thrice a year to
check out the latest in fashion, might have to visit Zara every month to see whats new in Zara.
Because of their strong design advantage, the customer keeps buying fashion forward clothing
from Zara besides purchasing the basics from the brand as well. Some customers dedicate their
complete wardrobe to Zara clothing. All of Zara’s designs are elegant yet trendy, and are loved
by their customers.

Low cost and higher profits – Because of their design advantage and fantastic physical
evidence in stores, Zara rarely advertises its products. It relies completely on its trendy image to
pull the customers to its stores. This is the reason that Zara has very low cost of operations and at
the same time has high margins. It spends most of its earnings and profits on backward
integration and on supply chain rather than spending it on Advertising.

Physical evidence of stores – Another strong positive of Zara is that the service has very good
physical evidence of the stores. Whenever you walk into the store, you will get this open minded
feeling instead of feeling cramped like you do in other showrooms. Zara uses a wide and deep
store layout so that customers would love to walk around the store while picking up and trying
out their favorite designs.

Weaknesses: Generalized collection – Zara does not specialize in anything and has everything
for everyone. One of the reasons that a customer shifts to a competitor is when the competitor is
focused on one thing. It might be shirts, it might be pants, it might be dresses or party wear or
whatever. Such immediate focus is lacking in Zara and it is good for the day to day wear or
trendy wear.

Lack of advertising – While it may lead to a cost advantage and cost is one of the strengths of
Zara, the lack of advertising is a weakness because the brand cans double its profit and its
turnover by advertising its collection. It is known to be a trendy fashion outlet and it can easily
pull in more customers with advertising which will generate a lot of positive word of mouth for
the brand.

Low safety stock – A regret which Zara stores have is that stocks which are fast moving rarely
have a safety buffer behind it. Low inventory is kept at Zara as a strategy to keep customers
walking into the stores to check out the latest items. But it also means that if a particular design
is a hit with the customers, it won’t reach its potential because there is no safety stock or buffer
for this design.
Opportunities: Online E-commerce – Zara can definitely take advantage of the online buying
trend and make its clothes available not only in its own stores but also on other E-commerce
stores as well thereby bringing a hike in sale.

Threats:

Low advertising – Zara needs to ask this question to itself. Looking back, will Zara think that it
made a mistake by not advertising its unique brand proposition from the start? The way that Zara
keeps rotating design, it can rope in a lot more consumers if it advertises the fact that you will get
the latest in designs from Zara. But maybe, if its consumer base increases tremendously, coming
up with new designs and differentiating itself will become more and more difficult. So, the
debate of whether Zara should advertise or not, will be going on in the management room of
Zara itself.

Competition – Zara is not the only one which is known for its chic design. Vero moda, H&M
and Mango are also loved for its design. But the advantage to Zara is that the other brands are
quite costly when compared to Zara whereas Zara gives much better designs at affordable prices.
However, this competition leads to saturation in the semi premium segment indirectly affecting
the margins.

Reach – Zara needs to increase its reach tremendously. Zara operates exclusively through its
own stories and does not have shop in shop kind of stores or smaller displays (at least in Asia).
This is where the competition gets its tremendous volumes from. But these volumes are missing
in Zara and the only answer to this is that Zara increase its reach. If it does not, then competitors
will eventually affect the brand equity of Zara because of their sheer power of penetration.

Zara’s supply chain strategy:

1. Quick response to Demand – Zara follows a pull model in their inventory and supply chain
management. They create up to 1000 designs every month based on store sales and current
trends. They monitor customer spending’s in the store to evaluate and understand what types of
designs are being consumed and then accordingly iterate on their next designs.

2. Small Batch Productions – Zara has a fast turnover, they produce small number of quantities
for every product. This gives them the opportunity to quickly understand what designs are
successful. It is also a great way to explore new designs and understand its acceptance rate in the
market. This also heavily reduces the risk of producing large quantities of something that the
customer does not want. Even though it might seem like a bad idea to invest in different designs,
Zara optimizes by using the same material only in different ways.
3. Central Distribution Center – Zara has very strong IT systems that back its distribution. All
the clothes are shipped back to Spain, the central location. From here, it is distributed to different
countries and stores are based on individual requirements and needs of the particular locality.

As industries and competitors follow up on Zara’s unique supply chain model, it is. Will Zara not
be threatened by the new entrants or old catching up and continue to practice it’s well tested and
tried model or they will they be agile and innovate to sustain a competitive edge through supply
chain

4. Produce in small lot: small lot is the unique characteristics of lean manufacturing which is
not the case here. The logic behind this is that small lot creates the sense of exclusivity.
Customer need to make a quick decision otherwise the next day the products they want will be
gone. So customer visits Zara’s stores to see new products more often and this creates the huge
amount of traffic and revenue.

5. Centralize design and product development: the norm in the apparel (and some other)
industries are to develop new products by both in-house staffs and through merchandisers. In the
latter case, suppliers need to send samples (through merchandisers) to buyers many many times.
Elimination of this back-and-forth communication reduces the time to market drastically.

6. Utilize work cell organization: each new product development team has its own designers,
sales, and procurement and production planners the same way as in a cellular manufacturing.
This helps Zara to streamline the internal communication a lot.

7. Control scheduling strictly: at Zara, store managers can place order 2 times a week,
shipments are prepared and delivered within 24 hours (in Europe) and products will be on
displayed at stores the same day they arrived. Since everything runs in a steady pace, they can
reduce a waiting time at every step of the way.

8. Keep production in-house: Zara tries to stay away from low-cost country sourcing and make
an investment in the in-house manufacturing as much as possible. The reason is that they believe
the in-house production help them to increase the overall flexibility.

9. Automate production and warehouse facilities: since Zara believes in time based
competition, automation is the key to help them to increase the speed and the accuracy of the
operations.

10. Adhere to all rules: implementing any one of these rules alone is not quite effective. Then,
they have to stick to all rules so the whole supply chain is running like the well-oiled machine.
Recommendations:

 Zara must develop the center of central distribution for decreasing the logistics to deliver the
fashionable products in the faster manner.
 Zara should offer specialized goods for several geographic locations throughout the similar
city.
 The Company is required to work as per the current trend and fashion and fulfills the demand
of the customer
 The Company must continue to innovate themselves to remain creative and fresh in the
Fashion Industry.

Conclusion:

At last, it can be concluded that Zara has potential for the sustainable growth because of its
capability and competitive advantage to experience the challenges of fashion industry. The
Company maintains its income elevated and has unique and strong model of the business and has
several opportunities for the diversification in the apparel industry. It has been viewed that
Indicted is developing new procedures for the diversification. The basic concept of the Zara is to
keep production, design and production process which shall enable Zara to react promptly to
shifts in demands of consumers. It is advisable to the Company that they should continue to
innovate and re-invent themselves to remain fresh and creative in the fashion and apparel
industry. In current time, numerous companies are viewing to Zara as new standard of the
industry for how to operate the retail business.