Zara
Prepared by Professor Nelson Fraiman
What is Zara
about?
3
2006 Revenue (million US$)
$8,705
$7,065
$2,521
Benetton
Zara
8.3%
21%
Li & Fung
22%
5
2006 Net Profit (million US$)
$858
$282
$165
Benetton
12%
Zara
25%
Li & Fung
23%
2006 Net Margin
12.1%
6.5%
3.2%
Benetton
Zara
Li & Fung
Number of Stores (2006)
5000
990
Benetton
Zara
138
8
Where are Zara stores?
SPAIN
286
FRANCE
98
GERMANY
53
UNITED KINGDOM
50
PORTUGAL
48
ITALY
46
MEXICO
44
GREECE
41
USA
24
JAPAN
23
BELGIUM
20
BRAZIL
19
SAUDI ARABIA
18
TURKEY
16
ISRAEL
15
CANADA
14
POLAND
13
RUSSIA
12
AUSTRIA
10
There are 990 stores in 63 countries;
71% of stores are outside Spain.
Inditex Sales by Region
FY 2006
FY 2005
International expansion: More than 60% of Inditexs sales (and
more than 72% of Zaras Sales) comes from outside Spain.
10
Inventory to Sales Ratio
Zara
Matalan
H&M
Gap
6
10
12
14
11
Working Capital as
a percentage of sales
40%
38%
30%
20%
7%
10%
4%
0%
-10%
Benetton
Hennes &
Mauritz
Gap
-7%
Inditex
12
Some quotes.
Possibly the most innovative and devastating
retailer in the world
Daniel Piette, LVMH Fashion Director
Floating on airthe Economist
13
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 in
the Galician town of La Corua
Today, 71-year-old founder and majority
shareholder, Mr Ortega, is Spains richest man.
14
Zara
Flagship
enterprise of Inditex (2001 IPO)
Sales of 7 billion dollars in 2006
HQ and central distribution in La Corua
(Galicia northwestern corner of Spain)
Womens, mens and childrens wear
Over 1021 stores in 63 countries
15
16
Zara and Mango
Spanish
apparel retailers
Both tap into global fashion trends:
Global appeal of catwalk fashion
International youth and fashion culture
Value proposition in rich countries; aspirational
fashion in poorer countries the unserved tier
combining middle-market pricing with high
fashion content and novelty
17
Zara: Product Position
18
The Zara Timeline compared 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:
4560% committed
Start of season:
80100% committed
In-season response: 020%
End of season sale: 3040%
19
Production Commitment and Markdown
6-month
Pre-season
Traditional
Industry
Model
45-60%
In-season
Start of season
80-100%
Advertisement
Zara
15-25%
50-60%
0-20%
Sales%
Not at full
price
30-40%
Advertisement
+
Markdowns
+
40-50%
15-20%
Fresh items
20
The Zara Model..
Design-driven;
11,000 styles per year
Partial vertical integration, with owned
factories; owned factory production is reserved
85% for IN-SEASON production
Tight coupling of market data and production
decisions in-season; cycle CAN be as short as 2
weeks from design to store delivery of the
completed garment
21
..The Zara Model.
Twice-weekly
shipments of new product to all
stores from central distribution
In-season production in response to demand is
limited by fabric on hand
Small batch production creates a scarcity
premium and encourages impulse purchase
Customers expect rapid inventory turnover,
learn to shop frequently (17 times per year)
22
The Zara Model..
Store
design is uniform and upscale; stores are
located on premium shopping streets
Pricing is market-based, not cost-based
premium pricing in higher cost markets
Powerful word of mouth supports store growth
without advertising (usually about 3-4% of
sales)
Growth has been organic from Spain and EU,
outward
23
Relative Wage Levels:
Textile & Clothing
Hourly Wage (US$)
$30.00
$25.00
13.6
$20.00
10.12
$15.00
6.79
$10.00
15.81
12.97
3.7
$5.00
$0.00
8.49
2.12
$0.39
$0.60
India
0.43
0.62
China
1.76
1.36
1.89
2.98
4.51
Tunisia Morocco Hungary Portugal
Textiles
Spain
USA
Italy
Clothing
24
To get a sense of the order of magnitude of wage variance:
Clothing:
India
hourly labor costs in U.S. $:
- China - Morocco - Spain - USA --
$0.39
$0.43
$1.36
$6.79
$10.12
Source: European Commission 1998 Statistics, Textile and Clothing Time Labor Costs
25
Pricing Strategy
Pricing Strategy
200
170
150
200
140
100
100
110
50
0
Spain
Rest of
Europe
Northern
Europe
Americas
Japan
26
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 life couple of weeks
Change the location of key items
Stores
are not flooded with garments
A typical Zara customer visits the store 17
times/yr (compared to 4-5 for Gap)
Friends dont tell friends about Zara
27
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
campaigns
by the time an ad reaches audience, dress may be
sold-out or obsolete
28
JIT, really
Most
JIT system (even Toyotas) focus on
manufacturing
Zara has a true just-in-time system
From customer to design, production, and
fabric manufacturing
Customers pull not designers push drives the
system
29
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 Knowledge
Management
No advertising
Uniformity of Store
Format
Two-pronged
manufacturing strategy
30
Lessons from Zara
Focus
on
Design
Fashion
New material
Knowing your customers
Response to market
Flexibility
Productivity
31
Lessons from Zara
Rethink
the entire value chain
Reduction in mark-down can more than
make up for the increase in labor cost
Planned shortages can induce more future
demand
Good store location, layout and product
display can be a substitute for advertising
Faster response eliminates inventory risks
Excess capacity pays for itself by faster
response
32
Questions for Zara
How
to continue to manage the
sourcing/distribution/fashion equation as
Zara grows
Related: growth, pricing and marketing
strategies
Can others duplicate their models or
improve on them? Does the formula
dilute?
33
Summary
As
of the moment, Zara has got it right
Supply
chain and logistics management in
support of a winning, design-based
marketing strategy.
34
