Zara Industries Case Analysis Assignment - Essay Example

Zara Industries Case Analysis Assignment Why do s buy clothing from Zara? Be sure to discuss style, price, quality and the retail store experience. According to the 10Best Website, Zara has become the successful clothing retailer that it is today because it is able to mimic fashionable runway looks at affordable prices. Ferdows, Lewis, and Machuca suggest customers purchase clothing from Zara as a response to the unique retail store experience. The fashions are presented in a spacious store, averaging approximately 1,000 square meters, but in limited supply.

For example, they may display just one of each size of a given style of pants, so the customer feels as though they must buy the clothing or miss out on the opportunity (Ferdows, Lewis, and Machuca). 2. How does the design function at Inditex differ from similar design shops at H&M and GAP? Explanation Zara has its supply chain completely under control. The company is able to have its inexpensive, fashionable clothing styles from the designer to the retail location in about two weeks (Capell).

It typically takes GAP 9 months for clothing styles to make it from design to retail. H&M on the other hand takes approximately 20 days to get its designs into its stores; because like Zara, its costs are under control and the supply chain is very tight (Larenaudie). Impact on Costs and Profit Approximately 70% of the compensation paid to sales managers working in the Zara retail locations is based on commission. This is an incentive for them to accurately identify trends on a daily basis to inform the 300 designers what is hot at the moment, and what is not selling very well (Capell).

The clothing is affordable, which fits well with the current economic situation. Generally, designers plan their collections well in advance, upwards of a year in most cases; however Inditex’s developed “fast fashion” strategy has set the stage for a number of other clothing retailers, including Forever 21. The strategy, which Inditex has perfected over the last thirty years or so, has proven to be very successful (Capell). Since the strategy practically guarantees sales of fashions that are current and popular, Inditex is able to set price points higher than competitors like GAP and H&M, positively impacting profits, while reducing overall cost of unsold inventory (Capell). 3. How does manufacturing at Inditex differ from the way it is done at H&M and GAP?

Explanation Rather than outsourcing manufacturing to lower-paying countries in Asia, like most apparel manufacturers including GAP and H&M, Inditex keeps a good percentage of its manufacturing in-house—done in factories located in Morocco, Spain, and Portugal (Capell). Pieces are still purchased from outside sources, in Africa, Eastern Europe, and Asia, such as basics like T-shirts. However, approximately half of production is done by its own factory workers, who make roughly 8 times more than the average factory worker in China (Capell).

Impact on Costs and Profits There are many areas where Inditex’s strategy saves the company money, which allows them to stay ahead of the competition on multiple levels. For example, saving money on shipping costs by manufacturing goods in-house allows Inditex to pay its factory workers more money than its competitors (Capell). 4. How does warehousing and distribution at Inditex differ from the way it is done at H&M and GAP? Explanation GAP operates 12 distribution centers: nine in the United States, one in Canada, one in the United Kingdom, and one in Japan (“Gap Inc.”). H&M does not own any manufacturing plants (Larenaudie).

Conversely, while competitors are forced to sell clothing for little to no profit when it is out of season, because the store locations have so much of the product on-hand, Inditex simply stops manufacturing the product when it is no longer demanded (Capell). Impact on Costs and Profits Distribution of products to overseas retail locations by air in less than 48 hours ultimately saves the company money; even though shipping by air is more expensive in and of itself than shipping by sea (Capell).

Unsold stock represents, on average, less than 10% of total stock at any given Zara retail location because of this distribution strategy. However, as of 2005, the retail industry average for total unsold merchandise in a given retail location, represented up to 17% of the store’s total stock (Ferdows, Lewis, and Machuca). 5. How does the management of the retail stores at Inditex differ from the way they are managed at GAP and H&M? Explanation Up to three-fourths of the sales managers’ salaries in the retail locations at Inditex are based on commission (Capell).

Every link of the Inditex supply chain relies upon constant information exchange from another link beginning with the customers to the store managers, “from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors” (Ferdows, Lewis, and Machuca). Since the managers’ salary relies on the success of the business, number of sales, and popularity of the products, they have a major incentive to relay accurate information to designers via the supply chain (Capell; Ferdows, Lewis, and Machuca).

Impact on Costs and Profits The more invested the sales managers are in the success of the company, the better the company is going to do. Paying managers on almost entirely commission-based salaries does not cost the company any more unless sales are greater, which means profits are greater and they can afford to pay the managers equivalent to what their locations are earning (Capell). 6. Explain how the marketing and advertising activities at Inditex differ from those of H&M and GAP. Explanation On average, Zara customers visit the stores at least 4 times as often as research shows customers visit other retailers in a given 12-month period (Ferdows, Lewis, and Machuca).

The reason customers come back to the store so often is because of the window of opportunity that Inditex offers specific styles of clothing. The limited supply drives customers to constantly return to see what is new. GAP and H&M spend at least 10 times more on marketing and media advertisements than Inditex spends on marketing efforts of any kind (Ferdows, Lewis, and Machuca). Impact on Costs and Profits Inditex does not rely on marketing efforts. In fact, the company is reported to spend approximately 0.

3% of total sales on marketing and advertising. The average competitor like GAP and H&M are reported to spend, on average, between 3% and 4% of sales on various forms of advertising (Ferdows, Lewis, and Machuca). Thus, Zara is able to hold on to a greater percentage of sales and use it to reinvest into the business. Works Cited Capell, Kerry. "Zara Thrives by Breaking All the Rules." Bloomberg Businessweek. Bloomberg, 09 Oct 2008. Web. 4 Apr 2011. . Ferdows, Kasra, Michael Lewis, and Jose Machuca.

"Zara's Secret for Fast Fashion." Working Knowledge for Business Leaders. Harvard Business School, 21 Feb 2005. Web. 4 Apr 2011. . "Key Facts." Gap Inc. Gap Inc., 2011. Web. 4 Apr 2011. Larenaudie, Sarah Raper. "Inside the H&M Fashion Machine." TIME. Time Inc., 16 February 2004. Web. 4 Apr 2011. "Zara." 10Best. 10Best, n.d. Web. 4 Apr 2011. .