Zara’s Business Plan
Product Development
Zara’s unique approach to product development is
instrumental to their success. Zara gives store managers significant autonomy
in both determining the products to display in their stores and which to place
on sale, and relaying market research and store trends back to their
headquarters in La Coruña. At headquarters there are teams of commercials who
take this information into account to design and effectively plan and produce
all of Zara’s products. Zara maintains a design team of 200 people, all of
which produce approximately 12,000 new styles per year for Zara. The process of
obtaining market information and relaying it to design and production teams
expedites product development by shortening the throughput time of a product to
3-4 weeks from design to distribution. This process is very different from its
competitors. Many competitors rely on a small elite design team that plans both
design and production needs well in advance. Stores have little autonomy in
deciding which products to display or put on sale because Headquarters plans
accordingly and ships quantities as forecasted. Zara’s speed to market in
product development exceeds the capabilities of its competitors. This in itself
provides additional value to stakeholders, customers, and stores in producing
quality clothing at affordable prices .Zara’s product development capabilities
are essential to Zara’s business strategy and future success.
Strategic Partnerships and Cost of Production
In comparison to competitors, Zara’s business strategy, in
regards to strategic partnerships and cost of production, provide for a
strategic competitive advantage. Zara, unlike its competitors such as Gap,
Benetton, and H&M, does not use Asian outsourcing. Eighty percent of Zara’s
materials are manufactured in Europe, with 50% made in Zara controlled
facilities in the Galicia region of Spain near headquarters. Most of Zara’s
competitors have 100% outsourcing to cheap Asian countries. Though the cost of
production in Spain is 17-20% more expensive than Asia, Zara does have a
competitive advantage over its competitors in regards to operations. The local
strategic partnerships that Zara maintains with manufacturers in Europe allow
for a product throughput time of 3-4 weeks from conception to distribution. To
make this happen, the company designs and cuts its fabric in-house and it
acquires fabrics in only four colors to keep costs low. Zara postpones dyeing
and printing designs until close to manufacture, thereby reducing waste and
minimizing the need to clear unsold inventories. The proximity of these
suppliers gives Zara great flexibility in adapting their product lines based on
up to date market trends and consumer behavior. It also decreases costs of
holding inventory. Zara’s competitors, through outsourcing to Asian countries
such as China, sacrifice the benefits of proximity for low labor and production
costs. Though there is a cost advantage in their approach in regards to labor,
the lack of flexibility in changing orders based on current trends hinders
their operational efficiencies. Inventory costs are higher for competitors
because orders are placed for a whole season well in advance and then held in
distribution facilities until periodic shipment to stores. This proximity
effect and the flexibility that it gives Zara is fundamental to their basic
concept to respond quickly to shifts in consumer demand and has provided them
with a competitive edge in comparison to their peers.
Advertising and Marketing
Zara’s unique approach to advertising and marketing is an
additional factor within their business model that adds to their success. Zara
spends 0.3% of total revenues on advertising and marketing. This is
significantly less then their competitors who on average spend 3-4% of their
total revenues on similar expenditures. Hence, Zara maintains a cost advantage
to their competitors in marketing activities. In order to effectively complete
with their peers Zara uses location, store layout, and product life cycles to
act as their marketing tool to consumers. For instance, Zara strategically
locates all of their stores in prime retail districts for visibility marketing.
Additionally, because of the product development cycles mentioned earlier,
customers are trained to visit Zara stores often because new items are
presented weekly and are often not restocked. This feeling of scarcity
encourages customers to come to the stores and buy frequently. Lastly, in order
to keep the stores looking fresh and trendy; Zara invests heavily in their
store layouts. They have a testing facility nearby their headquarters in Spain
where different types of store layouts are tested. Each Zara store is remodeled
every 5 years in order to keep up with current trends. Zara does not invest heavily
in direct marketing, though their efforts in image/brand marketing do a great
deal to attract a loyal customer base. Their cost advantage and ability to
maintain brand recognition and customer loyalty are essential elements of
Zara’s capabilities that build value in the company.
Information and Communication Technologies
Zara’s information and communication protocols are
significantly different from its competitors. Zara spends less than 0.5% of
total revenue on IT and IT employees account for only 0.5% of Zara’s total
workforce. This differs from their competitors who spend on average 2% of total
revenue on IT expenditures and have 2.5% of their total workforce devoted to
IT. Zara utilizes human intelligence (from store managers and market research) and
information technology (such as their PDA devices) in order to have a hybrid
model for information flow from stores to headquarters. For example, managers
at Zara stores use handheld devices to send standardized information regarding
customer feedback and ordering needs directly to in-house designers. This not
only keeps Zara's designers informed of fast-changing customer trends and
demand, but also provides the company with insight on less-desirable
merchandise. Unlike Zara’s hybrid model (which incorporates human intelligence
and IT applications), competitors rely almost completely on information
technology. Zara’s unique approach of human intelligence assisted IT solutions
results in well-managed inventories, linkages between demand and supply, and reduced
costs from obsolete merchandise; however, there is still room for improvement
in their IT processes to realize more effective management of inventory levels.
Hence, the hybrid information and communication system that Zara uses provides
cost advantages to Zara’s operations and helps to abide by their fundamental
principle to have the ability to rapidly respond to changes in consumer demand.
Zara’s concept, capabilities, and value drivers, as
demonstrated through their business model, have proven to be extremely
successful. Their resistance to outsourcing, concentration on core operations
and production capabilities, and focus on the pulse of fashion have made them
one of the most successful clothing retails. In the event of future global
expansion, their future success and sustainability will be drawn into quention.
They will need to adapt their business capabilities of product development,
strategic partnerships and cost of production, marketing and advertising, and
information and communication technologies in order to adjust to increasing
global operations.
