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Zara
Prepared by Professor Nelson Fraiman
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WhatisZara
about?
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2006 Revenue (million US$)
$2,521
$7,065
$8,705
Benetton Zara Li & Fung
8.3% 22%21%
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2006 Net Profit (million US$)
$165
$282
$858
Benetton Zara Li & Fung
12% 23%25%
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2006 Net Margin
6.5%
12.1%
3.2%
Benetton Zara Li & Fung
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Number of Stores (2006)
5000
990
Benetton Zara
138
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Where are Zara stores?
10
12
13
14
15
16
18
19
20
23
24
41
44
46
48
50
53
98286
AUSTRIA
RUSSIA
POLAND
CANADA
ISRAEL
TURKEY
SAUDI ARABIA
BRAZIL
BELGIUM
JAPAN
USA
GREECE
MEXICO
ITALY
PORTUGAL
UNITED KINGDOM
GERMANY
FRANCESPAIN
There are 990 stores in 63 countries;71% of stores are outside Spain.
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Inditex Sales by Region
FY 2006 FY 2005
International expansion: More than 60% of Inditexs sales (andmore than 72% of Zaras Sales) comes from outside Spain.
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Inventory to Sales Ratio
6 8 10 12 14
Gap
H&M
Matalan
Zara
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38%
7%4%
-7%-10%
0%
10%
20%
30%
40%
Benetton Hennes &
Mauritz
Gap Inditex
Working Capital asa percentage of sales
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Some quotes.
Possibly the most innovative and devastating
retailer in the world
Daniel Piette, LVMH Fashion Director
Floating on airthe Economist
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Zara Tidbits
Amancio Ortega quit his sales job to start the
business with just 5,000 pesetas ($83)
Founded in 1963 as a maker of ladies lingerie inthe Galician town of La Corua
Today, 71-year-old founder and majority
shareholder, Mr Ortega, is Spains richest man.
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Zara
Flagship enterprise of Inditex (2001 IPO)
Sales of 7 billion dollars in 2006
HQ and central distribution in La Corua(Galicianorthwestern corner of Spain)
Womens, mens and childrens wear
Over 1021 stores in 63 countries
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Zara and Mango
Spanish apparel retailers
Both tap into global fashion trends:
Global appeal of catwalk fashionInternational youth and fashion culture
Value proposition in rich countries; aspirationalfashion in poorer countriesthe unserved tiercombining middle-market pricing with highfashion content and novelty
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Zara: Product Position
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The Zara Timelinecompared the
traditional timeline
ZARA
6 months ahead:
15-20% committed Start of season:
50-60% committed
In-season response:
45-50% End of season sale:
15-20%
Traditional
6 months ahead: 45-
60% committed
Start of season: 80-
100% committed
In-season response: 0-
20%
End of season sale: 30-
40%
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Production Commitment and Markdown
6-month
Pre-season Start of season In-season
Sales%
Not at full
price
Traditional
Industry
Model
45-60% 80-100% + 0-20% 30-40%
Advertisement Advertisement
+
Markdowns
Zara 15-25% 50-60% + 40-50% 15-20%
Fresh items
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The Zara Model..
Design-driven; 11,000 styles per year
Partial vertical integration, with owned
factories; owned factory production is reserved85% for IN-SEASON production
Tight coupling of market data and productiondecisions in-season; cycle CAN be as short as 2
weeks from design to store delivery of thecompleted garment
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..The Zara Model.
Twice-weekly shipments of new product to allstores from central distribution
In-season production in response to demand islimited by fabric on hand
Small batch production creates a scarcitypremium and encourages impulse purchase
Customers expect rapid inventory turnover,learn to shop frequently (17 times per year)
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The Zara Model..
Store design is uniform and upscale; stores arelocated on premium shopping streets
Pricing is market-based, not cost-basedpremium pricing in higher cost markets
Powerful word of mouth supports store growthwithout advertising (usually about 3-4% of
sales)Growth has been organic from Spain and EU,
outward
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Relative Wage Levels:
Textile & Clothing
$0.60$0.39
0.620.43
1.76 1.891.36
2.98
2.12
4.51
3.78.49
6.79
12.97
10.12
15.81
13.6
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
HourlyWage(US$)
India China Tunisia Morocco Hungary Portugal Spain USA Italy
Textiles Clothing
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To get a sense of the order of magnitude of wage variance:
Clothing: hourly labor costs in U.S. $:
India -- $0.39China -- $0.43
Morocco -- $1.36
Spain -- $6.79USA -- $10.12
Source: European Commission 1998 Statistics, Textile and Clothing Time Labor Costs
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Pricing Strategy
100110 140
170 200
0
50
100
150
200
Spain Rest of
Europe
Northern
Europe
Americas Japan
Pricing Strategy
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Economics of Scarcity Highten the sense of now-or-never
Supply only handful of dresses at a time
Rapid design changes (11,000/yr)
Dont over-saturate the market Typical shelf lifecouple of weeks
Change the location of key items
Stores are not flooded with garments
A typical Zara customer visits the store 17times/yr (compared to 4-5 for Gap)
Friends dont tell friends about Zara
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No advertising?
Why?
Dont need to. Why spoil a good thing?
We do advertise, but dont like to pay for them(free press is plenty)
High speed fashion not amenable to ad
campaignsby the time an ad reaches audience, dress may be
sold-out or obsolete
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JIT, really
Most JIT system (even Toyotas) focus on
manufacturing
Zara has a true just-in-time systemFrom customer to design, production, and
fabric manufacturing
Customers pull not designers push drives thesystem
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Zaras Strategy
A Passion for Fashion
Global Reach
Vertical Integration
Backward Integration
Design, Fabric, Coloring
Forward Integration
Retailing, market
research
Supply Chain at the
core of their strategy
Flexibility
Volume, design, fabric,color, manufacturing
Economics of Scarcity
Efficient KnowledgeManagement
No advertising
Uniformity of StoreFormat
Two-prongedmanufacturing strategy
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Lessons from Zara
Focus on
Design
FashionNew material
Knowing your customers
Response to market
Flexibility
Productivity
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Lessons from Zara
Rethink the entire value chain
Reduction in mark-down can more thanmake up for the increase in labor cost
Planned shortages can induce more futuredemand
Good store location, layout and productdisplay can be a substitute for advertising
Faster response eliminates inventory risks
Excess capacity pays for itself by fasterresponse
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Questions for Zara
How to continue to manage thesourcing/distribution/fashion equation as
Zara growsRelated: growth, pricing and marketing
strategies
Can others duplicate their models orimprove on them? Does the formuladilute?
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Summary
As of the moment, Zara has got it right
Supply chain and logistics management in
support of a winning, design-based
marketing strategy.