Ans 1: Inditex is a global specialty retailer that designs, manufactures, and sells apparel, footwear, and accessories for

women, men and children through its chains around the world. Zara is the largest and most internationalized of the six retailers that Inditex owns: (Zara, assimo !utti, "ull # $ear, $ersh%a, &tradi'arius, and (ysho). Zara is one of the leading retail garments chain in *urope. +heir main competitors are ,ap and -# , and together they form a group of speciality chains in the apparel industry. Zara has operated and adopted a different strategy as compared to ,ap and -# and the following points draw the difference between the players. 1. Vertical Integration: +raditionally the global apparel industry is highly labor intensi'e rather than capital intensi'e. -ence outsourcing production to de'eloping countries with low labor rates to lower costs is a common trend amongst the big retailers. +he same strategy is followed by ,ap and -# . In contrast, Zara has de'eloped a successful di'erse method of doing business in the fashion industry by wor%ing through the whole 'alue chain. Zara manufactures ./0 of its own products and is able to be flexible in the 'ariety, amount, and fre1uency of the new styles they produce. In fact the whole line of most fashion sensiti'e products is produced internally (comprising around 2/0 of the total manufacturing) and in small batches for the most time3sensiti'e ones. 4. Distribution System: Zara has one centralized distribution centre compared to -# and ,ap, which ha'e distribution centres in all the countries they operate. +his reduces the distribution lead3time of their goods and leads to better in'entory control. +he distribution centre is highly technically ad'anced leading to almost negligible flaws and high accuracy rates. 5. Advertisement Expenditure: Zara6s ad'ertising expenditure is /3.50 as compared to its competitors who spend almost 20 of their re'enues. Zara6s cuts in ad'ertising in'estments reduce total expenses, which ma%e the international expansion more economical. +his also means that customers ha'e to 'isit their stores to get the latest fashion. 7. Store Management: Zara relies mainly on its stores to pro8ect its image. Zara stores are established at the most prime real estates with hea'y foot3 falls. Zara store layouts are fre1uently refurbished and are more spacious and well organized compared to others. +he &tore managers are other personnel are regularly trained with a part of their remuneration lin%ed directly to the actual sales. 2. Quick response Time: Zara follows a 'ery flat hierarchical structure and hence the pace of communication is 'ery fast. +here is regular real3time interaction between &tore anagers and store specialists, which helps in

assessing the customer re1uirements and mar%et trends and the further store fulfilment. &ince almost all of Zara6s functions are in3house, they are 1uic%ly able to replace trends, add more of the large selling stoc% and decrease the lethargic one. In fact, compared to the competition which commits 723./0 of production in the six3month pre3season period, Zara commits, 8ust 123420 before the season begins, 2/3./0 at the start of the season and the remainder manufactured in3season. .. Pricing: -# and ,A" ha'e a standard pricing for their products irrespecti'e of the mar%ets and countries where they are being retailed. (n the other hand, Zara prices its apparels based on the country and the spending power of the people. -ence the affordability for Zara products increases leading to better sales. 9. Scarcity and pportunity: &ince Zara follows a :;ust3in3+ime< model of designing and manufacturing, Zara produces the latest trends and %eeps replenishing its stoc% twice a wee% in its store. +his imparts a sense of freshness to the stoc% for the customers and also urges them to buy as the same garments may not be a'ailable next wee%. In fact, the design process does not seem to stop and the designers are constantly e'aluating consumer preferences. Zara pro'ides 'ery limited 'olumes of new items in the most fashionable of Zara=s stores and then uses the results of those sales to decide whether the items should also be sold in other locations. >. Modes o! Expansion: Zara expands basically in three ways3 opening up of company owned stores, ?ranchise &ystem and through ;oint 'entures. -# and ,A" mainly expand through a @icensing system. A10 of the Zara6s stores are company owned. -ence the ambience, en'ironment and feel is consistent e'erywhere. &ince the stores are company owned, Inditex has a better control on them, in terms of personnel, fulfilment, replenishment, refurbishment etc A. Vendor "elations#ips: In almost all the cases, Zara is the only customer for its 'endors and there no written contracts. +hus the 'endors are hea'ily dependent on Zara and it can 'ery influentially control the supply strategy. -# and ,A" ha'e multiple 'endors who ha'e multiple customers, because of which they do not exert the same %ind of influence as Zara. -ence the response time from 'endor to Zara is 'ery 1uic% with minimum defects in case of Zara.
$ara In3house designing, manufacturing and fulfilment ( almost 2/0 of the production is in3house) &hort @ead +imes3 freshness (riginate !esigns 1uic%ly (ne centralized !istribution Bentre Ceduce distribution lead time %AP&'(M All production outsourced ./0 from Asia @ong @ead times in designing, manufacturing and distributing !istribution Bentre in each country -igh Bosts

Vertical Integration Distribution System

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$etter In'entory Bontrol @ittle ad'ertisement expenditure Ceduced total expenses, ma%ing the international expansion more economical Bustomers need to 'isit stores to get the newest fashion &tores as face to the world

Bloser to the mar%et -igher ad'ertisement expenditure

-igher total costs Do special emphasis on stores ma%e up Dot always located at the places with highest footfall Bommand based system @ow in'entory turno'er a8ority of manufacturing is done pre3season ./0 less designers &tandard "ricing @ess affordability for customers with less income Zara products priced higher than -# and lower than ,A" ainly pre3season manufacturing anufacturing based on pre3decided fashion trends (ne3@icensing system Dot the same loo% and feel in the stores ultiple 'endors, multiple customers @ess dependency of 'endors on -# and ,A" !elayed 'endor response time

Store Management

Quick "esponse Time

@ocated at the most prime real estate with high footfall +rained store personnel ?lat -ierarchical structure -igh In'entory +urno'er In season manufacturing as per the fashion trends *ngages any designers "ricing3 country and mar%et specific ore affordability for customers ,arments with the highest percei'ed fashion 'alue ;ust3in3+ime model Euic% stoc% replenishment based on fashion trends +hree: Bompany owned stores, ?ranchise &ystem, ;oint Fentures Bonsistent ambience and en'ironment in stores &ingle customer for its 'endors with no written contracts -ea'y dependency of 'endors on Zara Euic% 'endor response time

Pricing

Scarcity and pportunity Modes o! Expansion

Vendor "elations#ips

Porter)s *ive *orces Model applied on $ara +ompetitive "ivalry, 'I%' 1. Zara6s closes competitors are -# and ,A". 4. +he target group is almost the same as is the price range of the products with minor 'ariations. 5. Zara has de'eloped a business model which gi'es it competiti'e ad'antage o'er its ri'als in terms of fulfilling the re1uirements of its target audience. 7. Zara has been consistently beating its competition in terms of percentage increase in &ales and (perating "rofit "ercent Increase(4//73 Indite /2) %AP '(M x Sales 3 15.11 45.4A

1.9>0 perating Pro!it 7.AA0

0 19.29 0

0 79.25 0

2. In an industry which is 'ery fast and with short product life cycles, Zara has established a niche for itself o'er its competitors. T#reat o! Substitutes, - . 1. Blothes and garments are one of the essential consumer goods. +here cannot be real substitutes for clothing products in general. 4. Zara has created a niche for itself3 fast and trendy fashion at affordable prices which is 'ery hard to substitute. 5. +he target audience is fashion conscious youngsters and they cannot go on to designer clothes because of lac% of affordability. T#reat o! /e0 Entrants ,- .

1. +he fashion clothing and apparel mar%et is already dominated by Zara, ,A", -# , departmental stores and other mass merchandisers. +he a'erage size of the re'enue pie has already shrun% for the existing players and hence a new entrant would ha'e to compete for the lefto'ers. 4. Zara is a part of the Inditex ,roup, and can benefit from the groups economies of scale. 5. Zara6s business model has been built o'er a decade and hence commands respect in terms of size and economic efficiency. Any new entrant would find it difficult to replicate such a model. 7. Zara had the first mo'er ad'antage and the new entrant will ha'e to deal with existing players and their established strategical mar%et %nowledge, operational superiority and robust infrastructure. 1argaining Po0er o! 1uyers, M DE"ATE 1. Blothing retailers ha'e to ma%e sure that they fulfil the customer re1uirements3 what they are loo%ing for and at acceptable 1uality le'els, in order to remain competiti'e. 4. Information with customers increases due to access to media such as internet and hea'y mar%eting by the competing players which ultimately leads to increased bargaining power for them. 5. Bonsumers are ready to pay more for what they want or for any particular brand if it meets their re1uirements. $rand loyalty as such does not exist when a customer is out to purchase. 1argaining Po0er o! Suppliers, - . 1. In almost all the cases, Zara is the sole customer for its suppliers and 'endors. -ence they are hea'ily dependent on Zara and ha'e a wea% bargaining power.

4. Zara sources around 2/0 of its raw materials from Inditex6s group companies and hence does not ha'e to depend on external suppliers for its needs. 5. Zara has no written contractual agreements with its suppliers which thus completely tilts the game in Zara6s fa'our as it can command undue ad'antage with its suppliers. +hus we find that Zara because of its business model operates in fa'ourable conditions according to the "orter6s ?i'e ?orces Analysis odel.

Ans 4: $ara)s S. T Analysis Strengt#s Fertically Integrated &ystem ?ast ?ashion *ach &tyle of Blothing Celates to a &pecific +rend &trong !istribution BhannelsK &upply Bhain &tore anagement and Bustomer Bare !i'ersified "roduct Cange *ach style of clothing relates to specific trend pportunities *merging and less fashion conscious mar%et s ,rowth in different cities in India .eaknesses +ag of Imitators @ac% of Ad'ertising !iseconomies of &cale

T#reats "otential ('ersaturation in India

Ci'als may copy our strategy Bompetition from Bhinese and other external !i'ersified "roducts "ortfolio manufacturers Internet retailing(*3Bommerce) *xisiting Bompetitors Zara6s strategy can be designed based on the &G(+ analysis in reference to its competitors and the changing mar%et conditions. Zara has to: "rotect its &+C*D,+-& Impro'e on its G*AHD*&&*& ,rab the (""(C+IDI+I*& "rotect against the +-C*A+& Zara6s future strategy can be di'ided as J &hort +erm and @ong +erm. S#ort Term:

1. ?urther *xpansion: Zara is hea'ily *urope focussed, but its presence in *urope also is fragmented with hea'y concentration in some of the bigger countries and almost negligible presence in some other countries. &imilarly, its presence in other parts of the world, including Asia3"acific and iddle *ast is 'ery little. In the fashion conscious mar%ets, Zara must go with its business model of centralized distribution centre ser'ing specific regions and in less fashion conscious mar%ets it should employ a country3dedicated distribution model with pre3season outsourced manufacturing to reduce costs. a. Europe: Zara should concentrate on mar%ets such as &witzerland, Austria, -olland, "oland, @uxembourg, alta, *astern *urope and &candina'ian countries. +he existing presence is 'ery low and presence would be 'ery beneficial with most of these countries ha'ing high per capita incomes. It can use its existing supply chain and fast fashion model to cater to these mar%ets. b. Asia2Paci!ic: Zara should try to replicate the same model in Asia "acific (;apan, &ingapore, alaysia, -ong Hong, Horea) which it has employed in *urope. +he emphasis should be on one centralized distribution centre catering to these mar%ets and responding to latest trends and 8ust3in3time fashion as these countries are substantially more fashion conscious than the rest of Asia. c. Middle East: +his region is one of the worlds richest and hence offers huge re'enue opportunities. $ut being not a 'ery high trendy society, Zara should go in with a more traditional approach ha'ing dedicated country specific distribution centres and pre3season manufacturing to reduce costs. Zara can outsource its manufacturing to suppliers in Bhina, thus countering them as a ri'al and reducing its manufacturing costs. +his mixed model would reduce Zara6s ris%s also and pro'ide ore re'enues with more geographically co'ered area. "re3season manufacturing will help Zara introduce its own fashion trends, which if successful can be introduced in ?ast ?ashion mar%ets. Zara should also resort to extensi'e mar%eting and ad'ertisement to ma%e sure its lead in its existing mar%ets and gain in the new mar%ets. +he best practices and experiences gained with both the models could be clubbed together to generate the maximum results. -ong Term, Gith a long term 'iew, Zara should loo% at: 1. Expansion in /ort# America: Dorth America (including I&A and Banada) remains the world6s largest consumption economy with hea'y fashion consciousness. Gith its strong operational expertise, it should be able to establish itself in a much better way compared to its competitors. -ere also Zara should follow a mixed model strategy3 region specific centralized distribution centres ser'ing 8ust3in3time latest fashion trends and dedicated distribution centre with outsourced manufacturing. It may

also loo% to outsource some aspects of manufacturing %eeping the most necessary manufacturing operations at hand by establish manufacturing set ups. +o reduce lead times, manufacturing can be outsourced to exico which again pro'ides labor cost arbitrage and hence cost sa'ings. 4. Internet "etailing: +he ad'ent of internet has changed the way businesses are being operated. Gith increasing number of internet transactions, it bodes well for Zara to start retailing on the internet by going for an ecommerce portal. +he portal should be country specific to le'erage on the price differentiation ad'antage which Zara currently en8oys. Internet retail will lead to a lot of sa'ings in terms of logistics and distribution and also in terms of setting up of infrastructure and excessi'e manpower. It will also gi'e Zara an opportunity to conduct 'arious experiments in 'arious geographies and if successful implement them in the actual stores. 5. Diversi!ication: Zara should loo% at di'ersifying its product portfolio. It has established strong expertise in distributions and operations and could le'erage this for other product ranges. Zara could try to launch a shoes range, accessories range or cosmetics range and use the mixed model strategy. It would be easier to start it as a part of internet retailing and based on that could be de'eloped further. Zara should loo% to focus hea'ily on ad'ertising and mar%eting in the long as well as short run3 to gain lost ground and get a stronger grip.