ZNRF University of Management Sciences (ZUMS)

MBA, MGT-522, International Business Theory and Practice

Assignment-2
Case Study - ZARA

SUBMITTED TO: DR. QUAMRUL ALAM

SUBMITTED BY: MD GOLAM SORWER MORSHED

TASHNUVA MAHBUB
TAHMIAN RAHMAN
DATE: MAY 8, 2022
Introduction
Zara is a Spanish clothing retailer based in Galicia, Spain. Founded by Amancio Ortega in 1975, it is the flagship chain
store of the Inditex group, the world's largest apparel retailer. The fashion group also owns brands such as Pull & Bear,
Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe. The company operates over 2,264 stores and is
present in 96 countries (Roll, Business & Brand Leadership, 2021). Zara has consistently acted as a pioneer in fast fashion
based in a highly responsive supply chain. The customer is at the heart of a unique business model, which includes design,
production, distribution and sales through our extensive retail network.
Zara has most of its retail stores in Spain, France, Portugal, Mexico, and Greece, US. Zara is very cautious in doing
business with countries like Japan which is culturally very different and poses high risk. Zara is the owner of most of its
retail owner and also operates them independently. Usually a Zara store consists of women’s, men’s and children’s sections.
Every section has a manager in charge. Almost 60% of sales are obtained from women’s section. Other two sections
contribute almost equally to the sales. Zara accounts for the largest Inditex sales which are almost 70.7% of total Inditex
sales.
Zara has been generating maximum profits for Inditex. It is the most popular and recognized by the customers in market.
Zara has proven in the past to produce high revenues as well as satisfying its customers. Zara has emerged as the fashion
icon which has been in the fashion industry since decades. Its customers are very satisfied and the brand promises to show
good results in future. The main reason for its success are the appropriate decisions taken by the management since the
brand’s inception. The decisions were focused on entrepreneurial line at the time when brands were risk averse. They were
able to do this by doing good research on micro and macro level before indulging in any decision. This helped the
management to take rational decisions.
Zara uses extensive technology for manufacturing process. It follows the strategy of affordable pricing to ensure that
it does not lose customers in economic downturns. It follows Toyota’s Just in Time strategy as well as Agile
management in its supply chain management and operations. All the decisions and strategies are made after careful
analysis.
Economic indicators, evolution over the last four years

2021 2020 2019 2018

Turnover (Millions of Euros)
Net Sales 27,717 20,402 28,286 26,145
Online Sales 25.5% 32% 14% 12%
Sales by Brand (Millions of Euros)
Zara +Zara Home 19,586 14,129 19,564 18,021
Pull & Bear 1,876 1,425 1,970 1,862
Massimo Dutti + Utreque 1,653 1,271 2,015 1,903
Bershka 2,177 1,772 2,348 2,240
Stradivarius 1,824 1,283 1,750 1,534
Oysho 600 522 604 585
Sales by geographic area (percentage)
Spain 14.4% 14.6% 15.7% 6.2%
Europe 48.4% 48.7% 46.0% 45.1%
America 17.5% 13.5% 15.8% 15.5%
Asia and rest of the world 19.7% 23.2% 22.5% 23.2%

Total 100% 100% 100% 100%

(Report, 2021)
Net sales share of the Inditex Group worldwide in 2021, by brand

 Zara 70.67%

 Bershka 7.85%

 Pull & Bear 6.77%

 Stradivarius
6.58%

 Massimo Dutti
2.16%
ZARA Company History
The legend began when Ortega established a dress making factory in 1963 under the name of Inditex. The success of his
foundation led him to the path of retail market for which he had a vision unmatched. Ten years after having set up a
factory Ortega with Rosalía Mera started a small store called Zorba, which he had to rename as ZARA. Marking the year
1975 for a store setup, the investment was merely nothing and yet another feather was pulled out of Spain’s hat which
has made a remarkable name all across the globe.
After setting up the first store in A Coruña, Galicia, in Spain, ZARA slowly expanded its empire in the rest of the country
and later in Portugal in 1988 and the year after that- 1989 ZARA made it to the United States of America.
This annual growth has not dropped since day one and every year Zara has been expanding in countries and places across
the globe. France in 1990. During the 1990s, Zara expanded to Mexico (1992), Greece, Belgium and Sweden (1993). In
the early 2000s, Zara opened its first stores in Japan and Singapore (2002), Russia and Malaysia (2003), China, Morocco,
Estonia, Hungary and Romania (2004), the Philippines, Costa Rica and Indonesia (2005), South Korea (2008), India
(2010), and South Africa and Australia (2011) (Kala, 2018).
With about 2,264 stores across 96 countries ZARA has kept pace with the technologically advancing world (Roll,
Business & Brand Leadership, 2021). They pushed out their stock online in the year 2010 in Spain, the UK, Portugal,
Italy, Germany and France. In November that same year, Zara Online extended the service to five more countries:
Austria, Ireland, the Netherlands, Belgium and Luxembourg. Online stores began operating in the United States in 2011,
Russia and Canada in 2013, and Mexico, Romania, and South Korea in 2014. India in 4 October 2017 (Kala, 2018).
ZARA’S PORTER’S FIVE FORCES ANALYSIS

Threat of New
Entrants

Threat of Substitutes Supplier Power

Five
Forces
Model

Competitive Rivalry Buyer Power

ZARA’S PORTER’S FIVE FORCES ANALYSIS
Threat of new entrants: The force of new players is high since the apparel and retail industry is very attractive owing to its
uniqueness and profitability. Retaliation by existing big players in the apparel industry such as initiation of price war also
gives advantage to new comers. However high costs for setting up business, distribution, advertising etc makes it difficult
for new entrants. A new player must have adequate resources to enhance development of new lines of fashion. Zara already
has the advantage of economies of scale and established brand name which makes it rigid for new players to enter.
Threat of substitute: Clothing now not only acts as basic need but also as a symbol of socioeconomic class to demonstrate
personal identity. Buyer’s propensity to substitute is high with several competitors to choose from like H & M, GAP and
Armani. Duplicate fashion can be considerable threat to the revenue in some market such as India, China and Indonesia
because of lower buyer switching costs. However good alternatives are not available as they are made costly with cheap
quality. Zara’s products are more affordable and made with exceptional high quality natural materials. Also, substitution to
online shopping poses a threat to retail stores like Zara.
Buyer Power: Customers of Zara in general range from middle class to upper class who considerably possess a high buying
power as they seem to have more income at their disposal. There are also other garment retail suppliers who distribute
considerably same line of products to Zara, so there is low customer loyalty to the company’s products which places more
weight on innovation. Therefore, a huge battle exists for the sellers given that the buyer has relatively more power to decide
where to buy. However, Zara’s strategy of introducing new fashion trends at faster rate and affordable price makes it
stronger among its competitors.
Supplier Power: As there is continued liberalization of the global trade, the power of the supplier is less through rivalry
from the producers in low wage boundaries such as China. Suppliers power is considerably high as it consumes more time
to establish quality partnerships. The supplier power of bargaining is more when the members in the industry experience
higher costs by switching to a new supplier since the suppliers are well knowledgeable on standards of safety and quality.
Hence, Zara organizes the various licenses offered to all suppliers and hence with the existing licensing contract, the power
of the suppliers is further weakened as they are required to stick to particular provisions which minimize variation or
manipulation of the designs.
Rivalry: The apparel industry has allowance for smaller firms globally due to its segmentation. Even though Zara has very
many direct rivals such Gap and H &M its brand has still considerable loyal consumers. Zara remains adrift from its
competitors. The chances of buyers’ cost of switching to other brands are relatively high in case they do not like the price
setting. They are more concerned about the reputation of the brand. The buyers purchase in small quantities which imply
that they have less power to bargain based on the small quantities. Besides, an increased demand establishes a market for
the seller and moves the power of bargaining to the sellers. Therefore, a company such as Zara offers quality which makes
the buyers to lack other close options.
 ZARA’S PESTEL ANALYSIS
The most common political factor to adversely affect any business is the financial regulations imposed by the nation in which the business is done. Zara faces
Political challenges in countries where Foreign Direct Investment is limited by the government. The only option left to enter in such markets is by partnering with the
existing local brands in the country. Also, even after setting up business, other political factors like political stability, political turmoil, disruptions etc affect the
particular economy which in turn affects the business. Hence, Zara tries to overcome this by doing business only in its home country and neighboring countries.
Thus, the threat from political instability is reduced.
The condition of economy in any nation directly affects the businesses there. To reduce the adverse effects, Zara uses the strategy of ‘Affordable Pricing’. This means that
Economic even if economy faces downturn, and people are saving instead of spending on high end products, they would still be able to afford Zara products. Thus Zara does not suffer
any losses due to economic turmoil. The effects of recession or low economic activity thus does not affect Zara very badly as it does for other brands.

Social factors are very critical for any business to run. Social trends, youth mentality and attitude etc have to be taken care of for any business. To stay in touch with the
Social customers and their likes is required for any business to sustain in the long run. As a result, Zara always does prior market research before entering into new territory.
Because new business entry is always risky with many stakes. Cultural and social research is always considered before venturing into new business territory. Trends are
adjusted according to local culture

Technology is one factor which is constantly changing. Technology development occurs at a very high speed now a days. Data analytics has been the backbone of all
Technology businesses. Zara extensively uses technology especially in its supply chain management. It contributes largely to its profit. Zara uses Just in Time and Lean technology in
their manufacturing process. It helps to improve their responsiveness to customer demands. It assists in connecting supply chain and logistics with manufacturing in an
efficient way. Latest technology is also used in supply chain wherein tracking of inventory, customer order is made easier. Thus inventory management becomes efficient.
As a result, Zara stands as a winner in supply chain management.

Environmental Sustainable development has become a necessity for any business to survive in global environment. Zara invests largely in sustainability. The parent company Inditex is
working towards making the stores hundred percent efficient. They will help in saving energy and recycling. It also works towards removing hazardous waste produced
from its manufacturing. They have also developed a line of fashion wear which focuses on sustainable wear.

Every business has to abide by certain laws in every business environment. Zara follows ethics and sustainability in all its environments. They follow compliance policy in
Legal all their internal systems. It takes care of all the local laws in the areas it operates in. A main focus for Zara is to create an ethical brand image.
ZARA’S SWOT ANALYSIS
Strengths
Weakness
An important factor in performing an internal analysis of an
organization is knowing the strengths of that company. Now, When performing an internal analysis of an organization

S in context to Zara, the strengths of this company can be w to know what is being an obstacle in its journey to be a
considered as listed below. leading company, you look into its weakness. When we
consider the same for Zara, here are the areas where it
• Brand awareness lags behind:
• Brand loyalty
• Efficient distribution • Expense for training personnel
• High fashion for modest price • Higher costs from vertical integration
• Information technology • Lack of e-commerce
SWOT Analysis • New in this segment
• Short lead time

Opportunities Threats

When you are looking at the opportunities of an organization, Another factor that can affect the position of a company in the
O they come under the external analysis performed on the T market is the threats it has from the competitors. This is again a
segment of external analysis performed on a company to know its
company. In the case of Zara, the factors that come into the
light are listed below: value. For Zara, external threats that can affect it are as below:

• Brand image • Design challenges

• Expanding to online market • Fluctuation in exchange rates
• Global market penetration • Global competitors
• Variations in designs • Local competitors
• Market entry barriers
• Regulations and Restrictions COVID-19 Pandemic
• Russia Ukraine War
ZARA Has Revolutionized the Concepts of Marketing
Zara has been at the top of the fashion industry for over two decades. The secret behind the success of this globally
leading retailer is its marketing strategy. It focuses on the product variety, speed-to-market and store location.
Zara has turned the traditional 4Ps marketing to innovative 4Es of marketing where:
• Experience replaces product
• Exchange in place of price
• Evangelism takes over promotion
• Every place instead of a place
This company has taken over the fashion world with its prime focus on customers. It is a company that works with a
motive “for the customer, of the customer, by the customer.” where it manufactures products for the customers,
according to the interests of the customers and meeting the trends set by the customers. Zara manages so efficiently with
delivering new items with latest designs twice a week to over 6,500 stores across the globe; introducing the concept of
instant fashion to the world.
Competencies of ZARA:
1) Fast and powerful design team
2) Fast Fashion brand image
3) Quick production process
4) Frequent new product
5) Quality
6) Low cost
Core strategy: quick inventory turnover and lead time, and remaining low volume of inventory in each style.
Zara can quickly react to customer demand thanks to its large-scale, flexible in-house production. In-house
production factories in Spain and Europe (within a short distance) reduce the time between design and product
delivery to just two weeks. The in-house factories mostly employ a pull approach, in which in-season output is
adjusted to meet current consumer demand. They keep a small quantity of new style inventory moving at a rapid
speed to create a sense of urgency among buyers to buy now or the things will be gone soon.
Additionally, a modest amount of inventory decreases markdown. If clients do not purchase a new style, Zara may
stop producing it in-house and simply keep a small inventory. Zara may reallocate such inventory to other
locations to sell without markdown, eliminate losses swiftly, and move to other trends quickly due to the
distribution center's flexibility.
The centralized distribution increases accuracy and speed of delivery to each store within less than 2 days using
trucks or airplanes
ZARA’S strategy features

Zara is the youngest of the trio, having begun in Spain in 1975. The company is owned by textile giant Inditex and is its
flagship brand. Zara’s ownership of its supply-chain steps allows for more rapid product turnover; Zara can design a product
and have it sold in stores a month later.

Zara boasts 2,264 stores in 96 countries. It currently has 99 stores open in the United States, with a majority of its locations
worldwide in Spain, where there are 464 locations (including Zara Home) (PARIETTI, 2021).
Zara's strategy is to offer a higher number of available products than its competitors. While most clothing retailers
manufacture and offer to the public for sale 2,000 to 4,000 different articles of clothing, Zara's production has been markedly
higher, at over 10,000 pieces produced per year. This unique feature of the company's strategy has allowed Zara to appeal to a
broader number of customers with unique tastes (PARIETTI, 2021).
The ZARA brand strategy
In 2019, Zara was ranked 29th on global brand consultancy Interbrand’s list of best global brands. Its core values are found
in four simple terms: beauty, clarity, functionality and sustainability.
The secret to Zara’s success has largely being driven by its ability to keep up with rapidly changing fashion trends and
showcase it in its collections with very little delay. From the very beginning, Zara found a significant gap in the market that
few clothing brands had effectively addressed. This was to keep pace with latest fashion trends, but offer clothing
collections that are a combination of high quality and yet, are affordable. The brand keeps a close watch on how fashion is
changing and evolving every day across the world. Based on latest styles and trends, it creates new designs and puts them
into stores in a week or two. In stark comparison, most other fashion brands would take close to six months to get new
designs and collections into the market.
The media often quotes that the brand produces “freshly baked clothes”, which survive fashion trends for less than a month
or two. Zara concentrates on three areas to effectively “bake” its fresh fashions:

Shorter lead times (and more fashionable clothes):

Shorter lead times allow Zara to ensure that its stores stock clothes that customers want at that time (e.g. specific spring/
summer or autumn/ winter collections, recent trend that is catching up, sudden popularity of an item worn by a celebrity/
socialite/ actor/ actress, latest collection of a top designer etc.). While many retailers try to forecast what customers might
buy months in the future, Zara moves in step with its customers and offers them what they want to buy at a given point in
time.
Lower quantities (through scarce supply):
By reducing the quantity manufactured for a particular style, Zara not only reduces its exposure to any single product but
also creates artificial scarcity. Similar to the principle that applies to all fashion items (and more specifically luxury), the
lesser the availability, the more desirable an object becomes. Another benefit of producing lower quantities is that if a style
does not generate traction and suffers from poor sales, there is not a high volume to be disposed of. Zara only has two time-
bound sales a year rather than constant markdowns, and it discounts a very small proportion of its products, approximately
half compared to its competitors, which is a very impressive feat.

More styles:
Rather than producing more quantities per style, Zara produces more styles, roughly 12,000 a year. Even if a style sells out
very quickly, there are new styles waiting to take up the space. This means more choices and higher chance of getting it
right with the consumer.
Customer co-creation: Zara’s principal designer is the customer
Zara’s unrelenting focus on the customer is at the core of the brand’s success and the heights it has achieved today. There
was a fascinating story around how Zara co-creates its products leveraging its customers’ input. In 2015, a lady named Miko
walked into a Zara store in Tokyo and asked the store assistant for a pink scarf, but the store did not have any pink scarves.
The same happened almost simultaneously for Michelle in Toronto, Elaine in San Francisco, and Giselle in Frankfurt, who
all walked into Zara stores and asked for pink scarves. They all left the stores without any scarves – an experience many
other Zara fans encountered globally in different Zara stores over the next few days.
7 days later, more than 2,000 Zara stores globally started selling pink scarves. 500,000 pink scarves were dispatched – to be
exact. They sold out in 3 days. How did such lightning-fast stocking of pink scarves happen?
The fact that Zara’s designers and customers are inextricably linked is a crucial part of the brand strategy. Specialist teams
receive constant feedback on the decisions its customers are making at every Zara store, which continuously inspires the
Zara creative team.
Zara’s super-efficient supply chain
Zara’s highly responsive, vertically integrated supply chain enables the export of garments 24 hours, 365 days of the year,
resulting in the shipping of new products to stores twice a week. After products are designed, they take around 10 to 15 days
to reach the stores. All clothing items are processed through the distribution center in Spain, where new items are inspected,
sorted, tagged, and loaded into trucks. In most cases, clothing items are delivered to stores within 48 hours. This vertical
integration allows Zara to retain control over areas like dyeing and processing and have fabric-processing capacity available
on-demand to provide the correct fabrics for new styles according to customer preferences. It also eliminates the need for
warehouses and helps reduce the impact of demand fluctuations. Zara produces over 450 million items and launches around
12,000 new designs annually, so the efficiency of the supply chain is critical to ensure that this constant refreshment of store
level collections goes off smoothly and efficiently.
This expectation for such a high frequency of repeat visits is evidence of Zara’s confidence that it is keeping on top of
changing consumer needs and preferences and is helping them shape their ideas, opinions and taste for fashion. In
reality, Zara is also helping in giving birth to new trends through its stores or even helping in extending the longevity of
some seasonal styles by offering affordable lines.
Sustainability at the core of Zara’s operations
Sustainability has been a hot topic in business for the last decade and is now quickly becoming a must-have hygiene
factor for companies that want to resonate with and win the loyalty of its global customers. For Inditex, this means
having a commitment to people and the environment.
Commitment to people: Inditex ensures that its employees have a shared vision of value built on sustainability through
professional development, equality and diversity and volunteering. It also ensures that its suppliers have fundamental
rights at work and by initiating continuous improvement programs for them. Inditex also spends over USD 50 million
annually on social and community programs and initiatives. For example, its “for & from” programs which started in
2002 has enabled the social integration of people with physical and mental disabilities, by providing over 200 stable
employment opportunities across 15 stores.
Commitment to environment: Being in a business where it taps on natural resources to create its products, Inditex
makes efforts to ensure that the environmental impact of its business complies with UNSDGs (United Nations
Sustainable Developmental Goals). Inditex has pledged to only sell sustainable clothes by 2025 and that all cotton, linen
and polyester sold will be organic, sustainable or recycled. The company also runs Join Life, a scheme which helps
consumers identify clothes made with more environmentally friendly materials like organic cotton and recycled
polyester.
Business Model of Zara
Zara is one of the firms producing fast fashion, and it is also one of the world’s largest apparel retailers, thanks to its
useful and well-organized business plan.
Zara’s business strategy is based on vertical integration and logistics trade-offs. Zara’s success and global recognition
are largely due to these two techniques. Vertical integrations assist the organization in maintaining control over all of its
verticals, such as design, manufacturing, shipping, and distribution.

Fast Fashion in Business Model of Zara

Before delving into the various facets of Zara’s business strategy, it’s important to grasp one key notion on which the
company is founded: rapid fashion.

The concept of fast manner is comparable to that of FMCG (Fast-moving Consumer Goods). Fast fashion is typically
employed to appeal to a young adult and middle-aged demographic. This type of clothing does not go out of style;
rather, it runs out of stock.
This concept has been adopted by several companies, including Forever 21, H&M, and others. However, there is
something unique and efficient about Zara’s business model that makes it more successful than other clothing retailers.
Key Strategies of Zara’s Business Model
Zara’s business model is one of the most important factors in its global expansion and unbridled success. It employs tactics
such as vertical integration at a high level and a systematic value chain model. The company’s value model focuses on
integrating multiple aspects of the business, such as design, manufacturing, distribution, and proper raw material supply. The
following are some of the primary strategies that the company is developing.
Integration on a Vertical Scale
Vertical integration is one of the aspects that distinguishes Zara’s business model. It oversees the design, manufacture,
distribution, management, shipment, promotion, and sales entirely on its own using this method. Being vertically integrated
brings many advantages. The brand has complete control over every part of its business and can effectively manage it.
Furthermore, this technique allows for natural or fluid communication between the company’s many stages or segments –
design, manufacture, and transportation. Zara will be able to develop more efficient supply and distribution channels as a
result of this.
Trade-offs in Logistics
Due to advanced booking of the area by competitors, the company is continually at risk of losing production space. Zara is
known for producing primarily in Europe, which is a costly endeavor.
Zara makes the majority of its money in Europe. According to statistics, Europe accounts for around 66 percent of total sales,
Asia for approximately 20%, and America for approximately 14%.
Zara can avoid the cost of vertical integration by generating the majority of its sales in Europe. Other corporations are unable
to coordinate this circumnavigation due to their significant reliability over low-cost Asian labor.
Design and Manufacturing Control
Zara keeps the design and manufacturing verticals close to the management centers to maintain close interaction and control.
It ensures that only higher-quality garments are produced. The utilization of high-quality equipment in conjunction with skilled
workers has a significant impact on the quality of the clothing produced.

Quick Cycle of Product Replacement

Zara can quickly and consistently modify designs in response to changing trends because all of the products are made in
Europe. It reminds me of Zara’s lightning-quick product replacement strategy, which was unmatched and unrivaled.
This replacement cycle benefits the apparel company in two ways. To begin with, it assists the business in staying.
Furthermore, it aids in the transfer of trends and the adaptation to client requests. Second, this cycle pushes buyers to buy
garments regularly because the clothes that are in style today may be replaced by ones that aren’t.
The steps in this product cycle are as follows:
• Patterns, new styles, customer demand, weather, and other factors are observed and recognized.
• Design and production
• Distribute and re-distribute as needed.
• Sell to the customer and then sell to them again current with current trends.
Lack of Promotion
Zara, ironically, does not use advertising as one of its marketing techniques. Catalogs and branding on shopping bags are the
most effective forms of advertising. It benefits the brand since it is essential to retaining the brand’s authenticity, luxury, and
uniqueness.
The company items are far less expensive than those of luxury labels, yet the lack of advertising helps to maintain the
brand’s luxury image.
CONCLUSION
The major factors responsible for Zara’s success are quick deliveries, customer services, use of modern technology,
logistics, vertical integration, economies of scale etc. Zara has main focus on generating customer value to gain
competitive advantage.
Zara’s business model cannot be easily replicated by its competitors until their supply chain model is implemented.
Supply chain model is built on multiple factors such as members, technology, methods. This needs accurate training and
proper use of technology. Their success is directly related to the way they understand customer needs and how they fulfill
them by using best approaches and strategies. They are constantly involved in innovation which helps them satisfy
customer demands effectively. Thus Zara is a good example of strategic business model and integration of supply chain
management in improving customer value. Also, it shows how investing in good technology helps the brand in long run.
References
2021, A. R. (2021). Annual Report 2021. Inditex.
Kala, K. (2018). FASHION HISTORY- ZARA. FASHION HISTORY- ZARA.
PARIETTI, M. (2021). H&M vs. Zara vs. Uniqlo: What's the Difference? Investopedia.
Report, A. (2021). Inditex. Annual Report 2021.
Roll, M. (2021). Business & Brand Leadership. Martin Roll.
Roll, M. (2021). Business And Brand Leadership. Martin Roll.
Roll, M. (2021, NOVEMBER). Business and Market Leadership.