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Zara Business Model Essay

2915 words - 12 pages

The Zara boutique-clothing store on Calle Real in the northern Spanish city of La Coruna is buzzing. Customers have made the journey here on a rainy Saturday morning to see what new exciting styles are available this week. The red tank tops and black blazers seem to be a hit, but customers also really like the beige and bright purple ones too. Faces with this problem most fashion companies would normally have to spend months retooling and restocking their range. Not Zara, however. Each store manager is able to spot these changes in trends and then type them into their handheld computer on Saturday in the safe knowledge that they will arrive on Monday or Tuesday the next week.

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‘Nobody else can get new designs to stores as quickly,’ says Keith Mortimer, European-retail analyst. ‘Unless you can do that, you won’t be in business in 10 years. It continuously analyzes its value chain and seeks to achieve control of as many sections of it as possible. By focusing on reducing time between design and sale, it has developed operations cycle that is entirely different from fashion sector norms. The design team is working throughout the season studying everything from what clothes are worn in hit TV series to how clubbers dress. This means there is a continuous stream of new designs that ensures customers keep coming back to see what’s new. Its clothing has filled an untapped niche: Prada at moderate prices.’

Customers seem to love the result of this high-velocity operation. They are often known to queue up in long lines at Zara’s stores on designated delivery days, a phenomenon that has been dubbed in the press as ‘Zaramina’. And this popularity is generating tangible, bottom-line results as well as admiration from the fashion world. Over the last five years it grew profitability at a 30 per cent average annual rate, which is 45 per cent faster than its four industry rivals during that period.

Founded in 1963 as a maker of ladies’ lingerie, Zara opened its first store in 1975 as a retail clothing company with a single location in the city of La Coruna, northwest Spain. By 1989, the company had 98 retail shops and production facilities distributed around Spain and in the same year the company started its international expansion by opening a shop in Lisbon, Portugal. This was only the beginning of what became a huge expansion plan across the world. It is now the largest and most profitable unit of Inditex SA, the Spanish clothes manufacturer and distributor, with over 1,400 stores distributed throughout Europe, Middle East, Asia Pacific and the Americas.

As Jonathon May, retail consultant comments, ‘This rapid expansion has meant that Zara now has three characteristics that distinguish it from its competitors. Firstly, they are the fastest-growing retail business not only in Europe but also across the world. Secondly, they have been able to export their formula internationally exceedingly well at a time when many other clothing companies in the middle and lower-middle market have found it difficult. Next, for example, is a fantastic company, but has always struggled to export its particular format. And thirdly, they have created a simple, singular message for all their customers. The shopping experience is upscale, while the product offering a very much good quality, but not best quality, at a good price. They might well have sacrificed a little bit of technical quality but they have more than made up for it through how products are designed in terms of fabrics, colors, patterns and styles. If you go into a store this immediately hits you and then when you look at a garment you will see that their price...

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