Group Case Study of Zara To obtain the academic degree Bachelor of Commerce Fast Fashion Lessons Donald Sull and Stefano Turconi London Business School Professor Benjamin Bental March 1, 21 !i "ae #Caroline$ Lee Corentin %dam Melis &esgin 'osaCastells Sala (arren #Sid$ Tet) Group 12 European Business School International University Schloss Reichartshausen Introduction *+er the ,ast 1- .ears /ara has re+olutioni)ed the fashion retailing through something called fast fashion0 Fast fashion is a com,etiti+e ad+antage created b. the efficient functioning and coordination of man. o,erational areas0 /ara can ,roduce, mar1et, and sell high fashion loo12 a2li1es at e3tremel. reasonable ,rices faster than an. traditional retailer0 Through this ,a,er 4e 4ill brea1 do4n the strategic decisions that /ara has made to create this re+olutionar. com,etiti+e ad+antage 4ithin the fashion industr.0 Strategic decision in Supply Chain /ara fa+ours local ,roduction5 as a matter of fact, labour intensi+e o,erations are outsourced to local subcontractors0 Fift. ,ercent of /ara6s ,roducts are manufactured in S,ain b. 22 factories and subcontractors 4hich are located in 7alicia0 Des,ite chea,er labour costs, /ara a+oids sourcing ,roduction in %sian countries to a+oid 4aiting long lead times 1 for ,roducts the. need ,roduced0 8t is noted, that se+ent. ,ercent of /ara6s ,roduction is in 9uro,e to hel, minimi)e lead times0 *ther areas of o,erati+e ,roduction are +erticall. integrated 4ithin /ara0 Large in+estments in com,uter guided cutting e:ui,ment ensure efficienc.0 (ith some areas of ,roduction being sourced and other areas, such as com,uter guided fabric cutting, being done in2house /ara maintains a stead. stream of information sharing0 %lmost all areas inside and outside the firm recei+e information simultaneousl.0 #93hibit 1$ To facilitate this great su,,l.;,roduction chain, /ara also has a great ad+antage in logistical ,o4er0 Products that ,ass through the logistic ,latform of La Corogne re,resent 1 million ,roducts a 4ee10 There are more than 2 1ilometres of cable and a surface of around < 1 The time from ,roductions initiation ,rocess until com,letion European Business School International University Schloss Reichartshausen m= in this entirel. automatic distribution centre0 9+en more im,ressi+e, t4o times a 4ee1 the centre is em,tied and ne4 turno+er re,lenishes the old in+entor.0 Due to the high +olume of ,roducts and information that needs to be shared bet4een all areas of the firm, /ara retains ninet. ,ercent o4nershi, to a+oid conflict bet4een cor,orate decisions and franchises0 Due to the s,an of cor,orate hierarch., /ara ,a.s ,articularl. close attention to team4or10 /ara tries to brea1 the cor,orate structure and a,,ears as more of a socialistic firm0 9+er ,erson is e:ual in the e.es of the firm and this hel,s to enable 4or1 to be done in an efficient 4a. 4ith the most information sharing as ,ossible0 Furthermore, this also reduces the e3,enditures on fanc. cor,orate offices and hel,s further reinforce the cor,orate culture0 Continuing 4ith efficienc. and lo4 costs, /ara a+oids e3tra+agant and flash. ad+ertising0 8n2 store and ,oint2of2sales ,romotion is the onl. ad+ertising that /ara utili)es0 >ot onl. is this a strategic decision to lo4er costs but also to 1ee, consistenc. 4ith their o+erall strateg. of fast fashion0 The high turno+er of in+entor. 4ithin the store does not gi+e /ara man. o,,ortunities to ad+ertise their in2store selections in catalogues, brochures, or other traditional Medias0 Zaras Core Competency: Shared situation awareness Shared situation is the foundation for /ara6s success to res,ond :uic1l. to changes in demand0 This s.stem is built on three main ,illars? ra4 data collection, h.,othesis building, and testing0 The first ,illar is managing huge amounts of ra4 data and incenti+ising managers to collect accurate as 4ell as useful data0 Managers are re:uired to collect data that enables those 4or1ing in /ara head:uarters to find ,atterns and forecast future trends0 The ra4 data that European Business School International University Schloss Reichartshausen managers collect consists of e+er.thing from 4hat is on the rac1s to 4hat has been tried on and left behind0 (ith the successful collection of ra4 data, head:uarters can anal.se, mani,ulate, and add en+ironmental 2 data to the series allo4ing for the formulation of h.,othesises to antici,ate trends0 /ara6s o,en conce,t cor,orate culture is im,ortant here to facilitate brainstorming during the de+elo,ment of h.,othesises0 This allo4s for man. different h.,othesis to be created 4ithout fear that it 4ill not be considered for the ne3t ste,0 The ne3t ste, is testing the chosen h.,othesises0 This is the final ,illar in /ara6s shared situation a4areness0 Based on the h.,othesis, ,rotot.,es are created0 These ,rotot.,es are then e3hibited in a 2<, m= design hall0 8t is called @Fashion StreetA and it resembles fashion streets of Milan or London0 The ,rotot.,es are designed in house so that the. can be ,roduced :uic1l. allo4ing decisions of 4hether to 1ee, the ,rotot.,e or cull it, to be made :uic1l.0 %,,ro3imatel. 2B, ,rotot.,es are made but about si3t. ,ercent are culled0 This is due to their failure to fit among the e3isting collection or bad results, in terms of data collection, in the first fe4 4ee1s of testing0 Competitive advantage /ara6s com,etiti+e ad+antage is de+elo,ed through their abilit. to collect data and res,ond :uic1l. to fast2changing mar1et trends based on their situation a4areness strateg.0 *bser+ing en+ironmental factors and collecting co,ious amounts of data, /ara can antici,ate the ne4 trends in the fashion mar1et0 This is +astl. different from the t.,ical designer ,ush2,ull retailing model0 #93hibit 2$ Furthermore, fift. ,ercent of /ara6s ,roducts are introduced on ongoing basis0 This is much more fre:uentl. than the t.,ical fashion retailer 4hich t.,icall. introduces ne4 ,roducts based on the four seasons0 The reason that /ara can change turno+er their in+entor. so ra,idl. is due to a +er. small lead time created b. an e3tremel. efficient 2 Data relating not strictl. to /ara and their ,roducts ie0 4orld e+ents, ne4s, etc0 European Business School International University Schloss Reichartshausen su,,l.;,roduction chain5 4hich can ,ut ,roducts into retail outlets in 1B da.s0 #93hibit -$ Further benefits of /ara6s efficienc. are reali)ed 4hen 4e consider their a+erage mar1 do4n ratio and ,rofit margin0 Traditional fashion retailer6s mar1 do4n a,,ro3imatel. fift. ,ercent of their ,roducts 4here as /ara onl. mar1s do4n about fifteen ,ercent of their ,roducts #93hibit <$5 and reali)es a ,rofit margin of si3teen ,ercent com,ared to the se+en ,ercent of traditional retailers0 *+erall, /ara has strategicall. built their com,etiti+e ad+antage on situation a4areness and ha+e been successfull. created something no4 called fast fashion retailing0 Conclusion To conclude /ara is a com,an. that can res,ond :uic1l. to changing demand0 The. ha+e succeeded in de+elo,ing a com,etiti+e ad+antage through strategic ,lanning of o,erations management, "uman 'esources, mar1eting, and their financial structures0 The finall. most im,ortant strategic 1e. to their success is the ,rocess of situation a4areness0 /ara benefits from scale ,roduction and economies of sco,e 4ithin their cor,orate hierarch. sa+ing costs 4here+er ,ossible0 Furthermore, /ara has integrated technologies 4ell to hel, 4ith the management of ra4 data as 4ell as com,uteri)ed cutting ,rocesses0 The combination of in2 house ,roduction and local sourcing has ,ro+ed to be a great success for /ara0 (e 4ould e3,ect to see stead. gro4th of this strategicall. 4ell thought out firm0 European Business School International University Schloss Reichartshausen %,,endices Ehi!it 1 Ehi!it 2 European Business School International University Schloss Reichartshausen Ehi!it " /ara has a +er. small lead time? 1B da.s0 The first da., a st.list designs the ,attern he loo1s at customer needs and lu3urious clothes0 The third da., materials are com,uter guided cutting0 The ele+enth da., clothes are ma1e in a local subcontractor, and then the. come in ,arent factor. for the coating0 The thirteenth da., ,roducts are freighted for4ard b. truc1s in 9uro,e and b. aircraft in %sai or CS%0 Finall., the fifteenth da., ,roducts are sold in the stores o+er the 4orld0 Ehi!it #