Zara Case Study

Oct 2012

ZARA – Operations case study

Abhishek Dubey, Scott Striegel, Scott Huthmacher, Ankur Ahlawat, Annapurna Karicherla, Gaurav Bhatt

The problem

Zara is planning to open 100 new stores worldwide over the next two years.

Why it matters

Zara has gained competitive advantage by tight vertical integration of supply chain processes. As Zara gets bigger and spreads across distant locations, this type of integration may fail to scale up.

What to do about it

Zara needs to identify key stress points in its operations and adapt its strategy for large- scale expansion.

Zara's competitive advantage has been the ability to respond quickly and efficiently to the latest fashion trends and consumer preferences. Zara plans to open almost 100 new stores, a third of which will be joint ventures and franchises. In this case, we analyze the risks of expansion to determine whether Zara needs to loosen its policy of vertical integration. We start with the analysis of the company's strengths, customer preferences and competitive challenges that Zara faces. We look at a key financial measure of performance, return on assets, to analyze Zara's performance in past years. In particular, we benchmark Zara's current performance with the company's performance in 1991 – before the first wave of international expansion began. We look at key strengths in operations that made Zara successful from 1991 – 2001 and identify potential risks as we move beyond 2001.

3Cs

Customer

Zara's customers are below 40 years of age (exhibit 2, Zara Case) and are conscious about the latest fashion trends. Over half of the customers are women. There are three primary sources of value for the customer – one, a sense of exclusivity and scarcity; two, new seasonal trends (page 5, Zara case); and three, affordable prices. Over three quarters of the customers are located in Europe, with almost half of the company's total sales coming from Spain. Thus regional fashion trends of Spain and Europe drive the primary preference of the customers.

Most of the customers make a decision to buy after trying out the clothes in stores (page 5, Zara case). Word-of-mouth recommendations play an important role in buying decisions. Customers like to shop in up-scale and prestigious shopping malls.

Company

Zara is valued at 12 Billion Euros and has grown sales by about 25% over the past 3 years (Figure 1). Zara is