Zara Case Analysis

        Founded in 1975 by Armancio Ortega, Zara is a very successful Spanish clothing and accessory realtor and the business that started the Inditex Group empire. Zara started in a small Galician city known as La Coruna in Spain and has grown to be a retailer powerhouse with over 6,000 stores in 85 different countries. The number of stores and locations is constantly changing since Zara is known to open more than a store a day in past years. Zara has become the giant they are today because of their differentiated business model, this system has not been copied by any competitors which gives Zara a great competitive advantage.

        Zara’s business and operating model is focused on speed and the need for fast fashion, targeting young fashions, price conscious people and is built on a vertically integrated system focused on supply and demand. Zara is constantly updates its design and production based on customer buying habits and the latest trends to deliver exactly what the client wants. They are very close to their customers and gives them what they want.  

        The integrated IT system is crucial to Zara because it allows it to have such short and precise product cycles. Store managers can report directly to the production centers and designers in Spain while also being able to check on the latest clothes designs and place their orders with the buying trends observed in-store in mind. This makes the whole process for Zara more streamlined. The production centers in Spain work on-demand and deliver the product in unbeatable market times. By reducing the quantity of each style produced there are more styles but only for a limited time, so buyers purchase more often since they realize that what they like might not be there next week. Buyers also come to the store much more often than other retailers since the collection is constantly changing. The location of their shops in prime locations and having a minimal advertising budget is another key aspect of their business model.

        Zara's goal is to reduce any waste and to produce on-demand where and when the client needs it. Each part of their process is essential in providing this. It also puts the decision-making in the hands of the store manager who is closest to the clients. This in turn optimizes sales and reduces wasted time and unwanted products. This system is also absolutely unique to Zara. Many other retailers are now trying to be copycats. The only problem for competitors is that it requires a fully vertically integrated supply chain system full of designers, manufacturers, transporters, well trained store managers, and fully integrated IT systems. The production structure of Zara puts it in a vulnerable position. This is because every part of the value chain is vital for the effectiveness and value creation for the company and if executed correctly it adds value.

        Zara and H&M are huge competitors and H&M does things differently than Zara. H&M's value chain is made to mass produce and does not need to rely heavily on short lead times. They uniform the brand and marketing to focus on products that are suitable for an international market instead of focusing on the smaller batches like Zara does. H&M also should be able to keep costs to a minimum due to it mass-producing with larger lead times. There are of course many disadvantages too. H&M cannot play  on newer trends and produce goods only bound to be best sellers. They also have the disadvantage of clients visiting their stores three to four times a year instead of every three to four weeks as in the case for Zara.