Competitive Analysis for ZARA and H

8/10/2019 Competitive Analysis for ZARA and H

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Competitive Analysis for ZARA and H&MCompetition in the fashion industry has always been tough. H&M has always been

Zaras competitor in this industry. H&M has been in business since 1947, while Zara started

business in 1975. Experience can play a big role in business, but strategy has been the edge of

Zara to gain competitive advantage in the business. Zara has gone against the conventional

strategy where other companies dare to pursue. Zaras strategy works in making the products ofthe company more anticipated by customers. Its products are customer-based. Zara's designers

are completely anonymous; some would say this is because they are copiers rather thandesigners.

Fresh inventory is a key to Zaras sale strategy stocking verylittle and updating collection

often, with stores getting stocked with new designs twice a week. This way company

encourages its customers to come back to the store again and again. on the other hand, if u are a

fashion enthusiast, they feel that they have to guarantee it will not sold out.The strategy alsogives the company the full responsibility in managing all the business processes; from designing

to production to shipping, etc. This allows the company to focus in each process, making each

process vital.

One of its biggest marketing moments was an unpaid placement: Kate Middleton, stepped

out in a cornflower blue, pleated polyester dress that cost just 49.99 at Zara.
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H&M Hennes & Mauritz (a Sweden-based company active in the retail clothing

industry) operates 1.345 retail outlets in 24 countries with its largest markets in Germany,

Sweden and United Kingdom. During 2006, H&M opened 168 new stores, primarily in theUnited States, Spain, Germany, France, Canada, and launched of online sales outside the Nordic

region. H&M offers sportswear, lingerie, and clothing for all events, gender and ages. Moreover,it offers cosmetics and home department which conveniently allows the costumer to shop forentire family at once. H&M gives its customers a wide range of design and style of product that

allow customers to have more choices to mix and match in their own interest and lifestyle,

variety of styles from updated classics and fashion basics.

And because H&M offers its customers a lower price product with a good design withappropriated material, more people include price as an important matter nowadays. H&M also

provides affordable fashion lines similar to its competitors, but with a fast turnaround from

design to production to sales. The direct distribution strategy is used by the company to maintainlow costs and fast time to market. Its unique streamlined distribution channel is the key

component of its success. These are the competitive advantage for H&M.
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H&M collaborates with some famous designers for its collections as a strategy to promote the

brand and for marketing. H&M's partners were such as Anna Dello Russo, Versace, Lanvin,Stella Mccartny and the latest one is Isabel Marant.

First off, sorry for the late late post on Zara. Got distracted with stuff.. but here goes.

Overview of the determinants of industry profitability (PortersFive Forces Analysis)
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Zarascompetitive position can be quickly summarized using the chart below, where it is seen that Zara

has a dual advantage over its competitors: generates more top-line revenue (in 2008 it became the largest

fashion retailer in the world surpassing GAP), maintains low cost manufacturing and distribution

networks (goes from concept to store in 15 days on average, 10 to 12 times faster than closest rivals, H&M

and GAP[1]respectively with a 17.4 factor-advantage over advertising costs[2]).

[1] H&M takes 3 to 5 months from creation to delivery: 5*30/15=10 factor advantage. GAP data given in

case. [2] Industry average: 3.5% of revenue spent in advertising. Inditex spends 0.3%, 67% of this cost

attributed to Zara. 3.5%/(0.3%*.67) = 17.4 factor advantage.Competitive position & strategy
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The strategic choices Zara has made and the competitive levers afforded to it by way of implementing

these strategies is documented in the table below (the color-coded activities are mutually reinforcing):


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[3] H&M creates 2000 to 4000 designs per year compared to 30000 designs by Zara at La Coruna, The

Cube.[4] 1/8thof dollar volume is contracted out to Turkey and Asia. [5] Zara gains up to 3 hours of prime

selling time over competitors, assuming an 8 hour window that translates to a 5/8=37.5% advantage vs.

competitors. [6] Avg. industry markdown is 50% (=markdowns/net-sales), therefore about 50% of


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garments are NOT soles at full price. Zara sells 85% of its products at full price, and therefore generates

maximum margins on 35% more of its products than competitors do.[7] Customer visits: Zara is 17 times

versus 3 times a competitor. [8] The case mentions 2% of work hours, which would- for hourly

employees, it is assumed- translate to 2% on variable and direct labor costs

Extent to which activities mutually reinforce each other

1.

Store managers using PDA data and relaying data into POS terminals

2. Using technology to handle complexity and minimize errors

A. These two reinforce each other to a very high degree. Technology is used pervasively by Zara, both

in stores and in the distribution center at La Coruna (and Zaragoza)

1. Inventory control using limited production runs

2.

Hanger signaling system lets savvy customers identify newer apparel

A. These two work hand-in-hand because a savvy customer knows the item in a black hanger wont

last that long, and is willing to pay the full price to look differentiated

1. Garment ranking system and demand forecasting using customer feedback

2. 50% of production fabric is received undyed at La Coruna

A.

Receiving undyed fabric lets Zara control for demand fluctuations in the short-term

B.

Zara is better able to respond to changing local and national tastes by receiving undyed material,

and then working with local cooperatives to stitch together customizations identified using the

POS customer data collected in stores.

Potential for conflicted choices

1. Manufacturing in-house: There is inherently some risk in producing 40% of total fabric and 60% of

merchandise in-house at La Coruna. Zara is exposed to demand fluctuations, supply-side distortions

like oil price hikes that could derail the carefully syndicated and orchestrated logistics. However, Zara

manages to stay ahead by using forecasting techniques, and incorporating customer feedback into

creating those forecasts.2. Ironing clothes in advances, paying extra to pack them in hangers imposes some cost to Zara, and is a

sunk cost if the garments are not sold. However, Zara controls for this outcome by limiting production

and cycling through inventory every 2 weeks or so.

Sustainability of Zarasapparent competitive advantage

The following factors contribute to the sustainability of competitive advantage:


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Vertical integration rationaleChoosing a high degree of vertical integration has several advantages for Zara: it helps to correct market

imperfections such as eccentric consumer behavior (e.g. switching patterns driven by Hollywood

releases), helps to create levers for Zara to pull (or regulate) in order to manage inventory in times of

demand and supply distortions and helps Zara extract maximum margins on its products. The following

table details these and some other advantages of vertical integration for Zara.


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Documents

Competitive Analysis for ZARA and H