Zara's Secret for Fast Fashion - Case Study Example

Zara's Secret for Fast Fashion Introduction Zara is a company that was founded by Amancio Ortega who by the year 2003, was rated as the largest shareholder and the richest man in Spain. Zara is the largest clothing company of the Spanish Inditex Group. With time, the company founder came to realize that manufacturing and retail needed to be closely associated with apparel industry where the demand of the consumer was very hard to predict or forecast. This realization made him open the first Zara store in La Coruna in 1975 (The economist, 2001). With time, Zara Company decided to manufacture clothes for men, women, children and sportswear. In this expansion move, the company concentrated on women’s fashion clothes. The company expanded rapidly in the fashion and industry in 1980s in Spain. This expansion made the Zara group think internationally by opening stores in Portugal in 1988, USA in 1989, Sweden in 1994, Milan 2001 and Mexico in 1994 (The Economist, 2001). Zara’s competitors in the fashion and industry were amazed at how the company was rapidly expanding both locally and internationally. It is important to note that all these stores were opened under the company’s brand but when the ventured into the Asian market, the company’s managers had different views of the market in that they decided to exercise the concept of Franchising. For instance, in Malaysia, Kuwait and Saudi Arabia, the company operates as B2B Company. Zara did virtually no advertising unlike its international clothing competitor such as Gap, Benetton and H&M. Instead, the company places only two ads to promote its yearly sales and announce the opening of new store. This decision has led Zara to realize 0.3% average revenue instead of 4%. Zara store managers have no discretion about the look and the feeling of their stores (Wikipedia, n.d). Zara does not aim to produce classic clothes that are always in style instead the company intended to have its clothes to have fairly short life spans both in stores and customers wardrobe. In the year 2003, Inditex operated 1,558 stores in more than 40 countries of which 550 were part of Zara chain stores. The company has 90,000 employees of which 80% are female while the rest are male. Currently, Inditex is the biggest and fastest growing retailer while Zara is the biggest leading retail innovator in the world and that has established its place in the fashion industry by offering not only apparel and accessories for women fashion but also for children and men. More so, Zara Company had provided and established a unique environment for shopping by altering the manner others companies such as Gap and H&M store appear. The company changes its layouts oftenly to incorporate artwork. Zara has realized how to expand and make profit due to its capability to face the apparel challenges in the market. This paper aims to discuss the businesses model and key elements of disruptive busineses, identify distinctive competencies of disruptive companies and discuss competitive advantages of disruptive companies. Disruptive business model Disruptive innovation is a creation that aids establish a new market and value network, and it usually goes on to disrupt the an existing market and value network by replacing or displacing an earlier technology. Disruptive model is used by a company to improve a product in manner that the market does not expect by designing for different segment of consumers in the new market and afterwards by lowering the prices in the current or existing market. Businesses that adapt and applies disruptive model usually have a competitive advantage over its competitors in the market (Wikipedia, n.d). For instance, companies such as Dell and Zara have this model in order to remain in front of their competitors. Dell has survived the bust and now looks better for it since in one of the worst PC industry history, dell has gained enough share to become the leading PC seller in the world. Dell has survived the market in that it has been connecting the customers to the suppliers by adopting direct to consumer and just in time model. Dell for instance, changed the way its customers bought its PC, s by using just in time method which eventually led to big advantage over Dell competitors in PC manufacturing such as Compaq, HP and IBM. The disruptive model adopted by Dell allowed the users to customize their PC and within a period of 10 days, the customer will have gotten the new PC (The economist, 2001). This at last led to reduction in the cost of operation by Dell since there was elimination of Dell’s products in the warehouse which gave a chance to manufacture new PC’s. The ‘just in time’ method helped in reducing the cost of ordering and holding inventory. In addition, Dell has used a combination of direct to consumers and just in time methods which pragmatically means no invention. Another company that has successfully used the disruptive model to edge out its competitors is Walmart. Wal-Mart has applied information technology to assist it in implementing its everyday lower price plan. The company has gone on the ground to create and develop good relationship with its suppliers by sharing its information in all its stores so to build customer base and gain high economic scale (Wikipedia, n.d). This model has helped the company stand the test of time and place it ahead of its competitors in the business. Companies that adopt disruptive model such as Dell and Wal-mart have core competencies over their competitors which give them an advantage to succeed even during hard financial times. Such businesses aim to provide benefits to their consumers, it can be leveraged widely to products and market and lastly, it is not easy for competitors to imitate. For instance, when Dell adopted direct-to-consumers and Just In Time models, it rivals such as IBM were forced to leave the market because they had lost their customers to Dell and instead they were making losses rather than profits (Wikipedia, n.d). What Business Zara in? Zara business is a business that does not forecast on market trends rather than it acts according to the consumer demands unlike Gap which engages in predicting marketing trends. Zara company model, competitive advantage, consumer behavior and business process What distinguishes Zara from its competitors is what the company has done to its business information and process. Rather than focusing too much on forecasting or predicting accurately, it has developed its business around reacting swiftly to market conditions. Zara concentrates on targeting city residents who are conscious about new fashion in town. In this case, the company is made to respond very fast to consumer behaviors. More so, the company has embarked on a trend to offer its customers with new products within a month so that it keeps up the design, process and production of distribution. In order to attract more customers, the company takes its products from the design stage to be exhibition or display on the shelves of its stores. In order to achieve this, Zara adopts a disruptive model than its competitors thus changing this model to a competitive advantage since it has ousted its rivals which enable it attain more profits that sustain its business (The economist, 2001). Zara information and technology is the secret to its success. For instance, the company has a team that closely monitors and watches the trend on buying behavior. Zara store managers oftenly approach customers and ask them of their taste and preferences in clothing which a hard thing to forecast in clothing industry. This information is disseminated to the management who sits with its designers to use the information to create new lines and tweak the existing one. The company then manufactures what is required by the customers and is in consistent with the customer’s wants and needs. Then the company controls its inventory departments and lastly distributes the products to its stores. Contrary to its competitor Gap, Zara has continued to flourish due to its business model of reacting to the needs of the customers rather than predicting. Gap Inc. embarked on a mission to predict the consumer’s demands and ended up producing clothes and designs that were not attractive to the customers. In addition, Gap Inc. adopted a huge inventory which later affected its revenues in that it could not bow to the market pressure like its competitor Zara (Dart, 2010). The competitive advantage of Zara Company is that it does not disseminate its processes of production to other continents such as Latin America but instead opts in producing its products locally. Zara has for many years managed to build strong customer base despite the fact that it is usually hard to maintain customer’s faith in a brand while at the same time adjusting to massive orders of a company’s products. In order to facilitate local manufacturing, Zara Company has merged with domestic manufacturers to produce products to its customers on time which is an essential aspect in apparel industry. Additionally, the company has the potential to change and adjust to market demands in the sense that it allows its retailers to change maximum percentage of their orders (Dart, 2010). The company has given them an okay to adjust up to 50%. In doing this, the company eliminates the possibility of incurring overproduction costs, sales and any discounts. Gap Inc. uses outsourcing method which places it in an awkward position since it cannot control its manufacturing firms and as a result, the company will not be able to react to changes in the market and thus may encounter threat of its operation security since the main purpose of outsourcing implies sharing the company’s information with outsourcing firms. Another competitive advantage of the company is that its worldwide stores receive small batches and undertake little inventory activities so as to avoid production of products that are not attractive to the customers. For instance, the items that were not sold add up to 9% or 10% of stock value as compared with average 20%. Unlike Gap, Zara designers are endorsed by sales information that helps them decide on what kind of order should be disseminated to manufacturers to be manufactured. Managers are allowed to make decisions regarding what orders should be sent to the manufacturers. It takes the Zara Company less than four weeks to give its new design on shelves while companies like Gap struggle to place new design on shelves because they have adopted outsourcing and inventory policy thus they lack the ability to control their manufacturing industries (Machuca, 2005). Zara aims to manufacture products that do not last for a long time. This idea makes its customers to buy its products at a high rate because they believe the next time they visit the store, the product will have gone. This company normally replaces its old products with new ones within a period of three weeks. This move inspires people to visit the stores oftenly. It is estimated that Zara customers visit the stores more than ten times annually. Gap Inc. spends too much in advertising with an aim of inning more customers and rebranding its image in the minds of consumers. Gaps advertising percentage is 3.1 which in turn increases its advertising costs. It is significant to note that Zara does not engage in advertising its products instead it only advertises when it is intending to open up new stores (Buck, 2010). The company majorly depends on choosing good locations where it can successfully operate rather than engaging in advertising. Recently in 2010, Zara opened its online boutique that was set to begin in Spain, France, Portugal and Germany. This move was propagated by the idea that the company aimed to its logistics and supply chain very simple. This has enabled the company to have cost advantage over its competitors in advertising and marketing (Dart, 2010). Zara uses small batch manufacturing technique and holds a planned and strategic inventory in fabrics rather than engaging in finished goods which in turn increases their speed to market and flexibility. References Buck, J. (2010). Outsourcing is Bad for Your Company. Retrieved April 10, 2012 from http://operationstech.about.com/od/outsourcing/tp/OutSrcDisadv.htm Dart, M. (2010).The new rules of Retail: competing in the world’s toughest marketplace. New York: Palgrave Macmillan. Machuca, J. (2005). Zara's Secret for Fast Fashion. Retrieved April 10, 2012 From http://hbswk.hbs.edu/archive/4652.html The Economist. (2001). Spain’s Zara Floating on air. Retrieved April10, 2012, from http://www.economist.com/node/627426 Wikipedia. (n.d). Disruptive Innovation. Retrieved April 10 2012 from http://en.wikipedia.org/wiki/Disruptive_technology Read More