Zara’s in-house production purposely creates a rapid product turnover since its “runs are limited and inventories are strictly controlled”. This rapid product turnover creates a climate of scarcity and opportunity in Zara’s retail stores. The climate also increases the frequency and rapidity with which consumers visit the stores and buy the products. Regular customers know that new products are introduced every two weeks and most likely would not be available tomorrow. Therefore, Zara’s scarcity climate allows the company to sell more items at full price. This strategy minimizes Zara’s total cost because it reduces 15-20% of markdown merchandise compare to a traditional retailer.In the retail environment, Zara’s managers and sales associates are in charge of transmitting the sales analysis, the product life cycles, and the store trends to the designers. This allows the designers in Spain to develop the right products within the season to meet consumer demand. The transfer of this communication is also accelerated by IT software that is specifically designed for Zara’s diverse business. Zara’s quick response communication strategy is effective due to its management and corporate culture. Amancio Ortega, the founder of Inditex, still owns 60% of Zara’s shares. Mr. Ortega has effectively transmitted the values of the company, which are: freedom, perfectionism, responsibility, rapidness, flexibility and respect to others, to his management team. zara showroomThis has created a very autonomous and flexible corporate culture for Zara. Also, this has allowed the company to work horizontally with an open communication environment rather than a hierarchal one. Due to this, Zara’s managers work in teams in the countries where the chain is located. These divisional headquarter teams are composed of a head country manager who is constantly communicating with local managers and reporting to top management. The constant flow of information between managers allows the company to keep its customers happy, which results in increased sales.Moreover, Zara’s centralized distribution facility gives the chain a competitive advantage by minimizing the lead-time of their goods. Zara’s internally or externally produced merchandise goes to the distribution center. This is cost-effective due to the close proximities of the distribution center in Arteixo and their factories in Coruña. In the distribution center, products are inspected and immediately shipped, since Zara’s distribution center is a place where merchandise is moved rather than stored (12). Then, to increase delivery speed, the shipments are scheduled by zones and shipped by way of air, and land. The typical delivery time within and outside Europe is between 24 to 48 hours.Zara also has an advantage over its competitors due to its low advertising costs. Zara’s advertising investment is 0-.3% as compared to traditional retailers who expends 3 – 4% (13). Zara’s cuts in advertising investments reduce total expenses, which make the international expansion more economical. This also signifies that Zara relies mainly on its stores to project their image. For that reason, Zara has a department, which exclusively works in acquiring global prime real estate locations. In addition, this department is responsible for the frequent refurbishing of store layouts, as well as the creation of a common window display for Zara’s global stores. The display positions Zara in the industry with a prestigious and elegant image.By targeting a broad market Zara has an international advantage over its competitors. Zara’s target market is very broad because they do not define their target by segmenting ages and lifestyles as traditional retailers do. Zara’s target market is a young, educated one that likes fashion and is sensitive to fashion. Today, people around the world through various communication devices have more access to information about fashion. Therefore, fashion has become more globally standardized and Zara uses this to their advantage by offering the latest in apparel. For that reason, 80- 85% of the products that Zara offers globally are relative standardized fashionable products. This is due to the fact that Zara’s marketing teams believe that a product that sells well in a fashion capital such as New York will most likely sell well in another such as Milan, Sao Paulo or Madrid since fashion has become more globally accessible.
Vertical integration, a distinctive feature of Zara’s business model, has allowed the company to successfully develop a strong merchandising strategy. This strategy has led Zara to create a climate of scarcity and opportunity as well as a fast-fashion system. Zara manufactures 60% of its own products. By owning its in-house production, Zara is able to be flexible in the variety, amount, and frequency of the new styles they produce. Also, 85% of this production is done through the season, which allows the chain to constantly provide its costumer with very updated products. Traditional retailers lack this flexibility. Traditional retailers are obligated to place production orders to manufacturers overseas at least 6 months in advance of the season.
Zara’s in-house production purposely creates a rapid product turnover since its “runs are limited and inventories are strictly controlled”. This rapid product turnover creates a climate of scarcity and opportunity in Zara’s retail stores. The climate also increases the frequency and rapidity with which consumers visit the stores and buy the products. Regular customers know that new products are introduced every two weeks and most likely would not be available tomorrow. Therefore, Zara’s scarcity climate allows the company to sell more items at full price. This strategy minimizes Zara’s total cost because it reduces 15-20% of markdown merchandise compare to a traditional retailer.In the retail environment, Zara’s managers and sales associates are in charge of transmitting the sales analysis, the product life cycles, and the store trends to the designers. This allows the designers in Spain to develop the right products within the season to meet consumer demand. The transfer of this communication is also accelerated by IT software that is specifically designed for Zara’s diverse business. Zara’s quick response communication strategy is effective due to its management and corporate culture. Amancio Ortega, the founder of Inditex, still owns 60% of Zara’s shares. Mr. Ortega has effectively transmitted the values of the company, which are: freedom, perfectionism, responsibility, rapidness, flexibility and respect to others, to his management team. zara showroomThis has created a very autonomous and flexible corporate culture for Zara. Also, this has allowed the company to work horizontally with an open communication environment rather than a hierarchal one. Due to this, Zara’s managers work in teams in the countries where the chain is located. These divisional headquarter teams are composed of a head country manager who is constantly communicating with local managers and reporting to top management. The constant flow of information between managers allows the company to keep its customers happy, which results in increased sales.Moreover, Zara’s centralized distribution facility gives the chain a competitive advantage by minimizing the lead-time of their goods. Zara’s internally or externally produced merchandise goes to the distribution center. This is cost-effective due to the close proximities of the distribution center in Arteixo and their factories in Coruña. In the distribution center, products are inspected and immediately shipped, since Zara’s distribution center is a place where merchandise is moved rather than stored (12). Then, to increase delivery speed, the shipments are scheduled by zones and shipped by way of air, and land. The typical delivery time within and outside Europe is between 24 to 48 hours.Zara also has an advantage over its competitors due to its low advertising costs. Zara’s advertising investment is 0-.3% as compared to traditional retailers who expends 3 – 4% (13). Zara’s cuts in advertising investments reduce total expenses, which make the international expansion more economical. This also signifies that Zara relies mainly on its stores to project their image. For that reason, Zara has a department, which exclusively works in acquiring global prime real estate locations. In addition, this department is responsible for the frequent refurbishing of store layouts, as well as the creation of a common window display for Zara’s global stores. The display positions Zara in the industry with a prestigious and elegant image.By targeting a broad market Zara has an international advantage over its competitors. Zara’s target market is very broad because they do not define their target by segmenting ages and lifestyles as traditional retailers do. Zara’s target market is a young, educated one that likes fashion and is sensitive to fashion. Today, people around the world through various communication devices have more access to information about fashion. Therefore, fashion has become more globally standardized and Zara uses this to their advantage by offering the latest in apparel. For that reason, 80- 85% of the products that Zara offers globally are relative standardized fashionable products. This is due to the fact that Zara’s marketing teams believe that a product that sells well in a fashion capital such as New York will most likely sell well in another such as Milan, Sao Paulo or Madrid since fashion has become more globally accessible.Vertical integration, a distinctive feature of Zara’s business model, has allowed the company to successfully develop a strong merchandising strategy. This strategy has led Zara to create a climate of scarcity and opportunity as well as a fast-fashion system. Zara manufactures 60% of its own products. By owning its in-house production, Zara is able to be flexible in the variety, amount, and frequency of the new styles they produce. Also, 85% of this production is done through the season, which allows the chain to constantly provide its costumer with very updated products. Traditional retailers lack this flexibility. Traditional retailers are obligated to place production orders to manufacturers overseas at least 6 months in advance of the season.
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