Essay Summary of Zara Fast Fashion
Overview
Zara’s vision on growth and global strategy
- Building up fixed assets
- Vertical integration
- No advertising, creating premium stores
- Fashion follower – QR to fashion trends
- Strongly customer oriented
- Stable growth
- Markdowns half the average (15% as supposed to 30% )
- Pricing market based
Business model
- Vertical operations and downstream activities
- Multi-chain concept
- Creative design team
- Competitive advantage – Sustainable growth
Problem Statement
Growth challenge – 20% per annum expected, 76% of equity value implicit on Inditex’s stock price was based on expectations on future growth. Failure to deliver expected growth results might cause a serious offset in company’s market capitalization. Room for non-local growth – in average a retailer was present in 10 countries while e. g. a pharmaceutical company averaged operations in 125 countries.
Problem statement is: In what geographical area(s) should further Zara expansion follow? Should there be another logistics-distribution centre created as increase of operations might cause dis-economies of scale? Should it acquire additional chains given the complexity of managing those and the risk of own-product-replacements? Preserve the margins.
Evaluation of the alternative solutions
Growth challenge
- Notes: not much potential on the local market;
- different markets require different positioning
- though costs grow as distance grows, prices also change (margins are kept)
- 50% of all export is to developing countries
- Zara shopper visits the store 17 times a year, average is 2-4 times
- Creating a climate of scarcity and opportunity in stores
Change in marketing strategy
Current: Three types of entering a market: company owned stores, joint ventures, franchising
- Strategy is standard across the countries
- No adv
- One big shop central city (capital)
- Followed by smaller ones (spreading around the country)
- Shop windows used excessively
- Products do not differ much from country to country
- Model is downstream
- No knowledge is shared
- From design to stores within 4-5 weeks, industry average 9 months
- Due to product testing, failure rate only 1% compared to industry average of 10%
Change in pricing strategy
Current: Prices vary on the different markets, due to transport costs (all supplied from the base in Galicia) – this changes positioning Lower mark-down than industry average
