ZARA cgs

ZARA: History and BackgroundOf Inditex’s total employees, over 80% of them are part of the retail sales force and 8.5% are in manufacturing, design, logistics, and distribution. The remaining 11.5% are part of the corporate headquarters of Inditex, which is located in the region of Spain called Galicia. The role of the corporate center at Inditex’s headquarters is that of a “strategic controller” only, and is involved in setting the corporate strategy, approving the business strategies of the individual chains, and controlling their overall performance rather than as an “operator” functionally involved in running the chains. This gives Zara autonomy to operate independently and be responsible for its own strategy, product design, sourcing & manufacturing, distribution, image, personnel and financial results. With this freedom, Zara was able to make major investments in manufacturing, logistics, and IT, including establishment of a just-in-time manufacturing system and a 130,000 square meter warehouse close to its corporate headquarters. Zara manufactured its most fashion-sensitive products internally and its designers continuously tracked customer preferences and placed orders with internal and external suppliers based on this information. Due to its unique needs, Zara chose to internally develop its business systems. Zara is now able to originate a design and have finished goods in stores within weeks for entirely new designs and take even less time for modifications of existing products. Key International Competitors of Inditex Gap, H&M and Benetton are considered Inditex's three closest comparable international competitors. As in the product positioning map, Inditex's flagship brand, Zara, is relatively perceived as more fashionable than all the other three and prices less than Benetton and Gap but higher than H&M. In these four competitors, Benetton and Gap place at relatively less fashionable and higher price, while Zara and H&M is more fashionable and price lower. Business Model of Zara For distribution, all merchandise is shipped through either the central facility in Arteixo, Spain, or through satellite sites located in Argentina, Brazil and Mexico. Merchandise in the main facility has a capacity of only 45,000 folded garments per hour. This facility admittedly has its limitations unless more capacity can be created elsewhere. Also, the vertical integration of manufacturing and distribution greatly helped to reduce the Bullwhip effect. On the retailing end, the business model allows for Zara to have a much more fashion forward line because it can commit to its product line much later in the season. In fact, the design process does not seem to stop and the designers are constantly evaluating consumer preferences. Zara's in-store staff is also young, and very fashion-conscious who serve as key "trend-spotters". In addition, Zara provides very limited volumes 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. The limited volume and short available time successfully created a sense of 'scarcity' in consumer's perception. Implementation and Risks Other risks that company faces are to its margins with international expansion. The company is unable to control the increased costs in exporting to foreign countries and currently passes these costs to the consumer. However, it may be difficult to continue doing this and margins are likely to get squeezed. The company needs to be able to grow while maintaining these margins. If it is unable to do so, it risks threats to its competitive advantages and cost efficiency. Zara also faces risks to its image and therefore has to be very careful in regards to franchising and jointventures. With these models, Zara may have a limited role in operating the retail locations. However, if these are poorly managed and operated, there is a possibility of tarnishing the brand and the image that Zara has created. This can also effect the positioning and market segmentation strategy in a particular country – for example, in South America, the company has to position itself as a “made in Europe” brand. Issues/problems with the global strategy Treats from H&M and UNIQLO The main competitors of ZARA in China are H&M and UNIQLO. H & M is a Swedish multinational retail clothing company, known as fast fashion clothing for men, women, teenagers and children. UNIQLO is a Japanese casual wear designer, manufacturer and retailer. ZARA have a total of 26 outlets in China. ZARA have 13 outlets in Shanghai, 9 outlets in Beijing, andv4 outlets in Shenzhen. H&M have lesser outlets that are about 16 outlets in China, 12 in Shanghai, 2 in Beijing and 2 in Shenzhen. The biggest competitor of ZARA is UNIQLO. UNIQLO have 32 outlets in China. 18 outlets in Shanghai, 6 outlets in Beijing, 4 outlets in Shenzhen, and they even have 4 outlets in Chengdu that ZARA do not targeted. H&M had opened the first outlets at Shanghai in 12 April 2007 as the first sales shop in China. After H&M entering the China market, they first targeted Shanghai, the city that are highly internationalize. After that, H&M had opened their store one after another quickly in second and third-tier cities such as Nanjing, Wuxi, and Changzhou. The expansion rate of H&M in China is about 10 percent to 15 percent per year. According to Rolf Eriksen who is Chief Executive Officer of H&M, "China is a strategic and exciting market with great fashion awareness and spending power. We therefore see a vast potential for expansion." UNIQLO was targeted as a fast retailing company worldwide. As early as in 2002, UNIQLO had opened the first branch in Shanghai. The face of the huge market in China, with the rise of brand strength, starting in 2008, UNIQLO will gradually accelerate new store is located in China. Due to the different product line, and positioning, its strategy is slightly different from ZARA and H&M. The goal that UNIQLO targeted is longer and wider. In a single market, UNIQLO is the bigger and stronger, steady progress, and consolidate market. Therefore, it is expected that the future direction of the expansion in China is the Yangtze River Delta, Pearl River Delta, and take deepen regional advantage in the city. Since its product had already sold in low cost. mainly to see the dye would shed or fade. 10% wool and other contents. ZARA failed because of two reasons. The Beijing Consumer Association (BCA) had announced the result on 10 April 2011. faster turnaround. the price of 999 Yuan feather jacket. color fastness and fiber components unqualified. . However. but actually only consist of 51 % of feather.The largest price cut reaches to 34%. but ZARA too outrageous.Failed to pass quality test Since August 2009.0. ZARAbaby jacket / coat color fastness failed. Women's coat. This make ZARA brand's image drop. Product identification does not match with the actual content.0-7. The label state that the fabric is 75% cotton. clothing standard 4. If pH value is ​​in the 4. Ph value. ZARA is using cost leadership strategic. 20% wool and 5% terylene. while children's jeans which sold at 299 Yuan in the past and now sells for 199 Yuan. Fabric in ZARA pants did not conform to a statement on the label. In fact. non-direct contact with skin. there are only consists of fabric 68% cotton. The slowdown in sales led to increased inventory. In addition. ZARA forced to take the promotional price cuts. The economic downturn has affected consumption. Throughout these seven test results. men's suit jacket reduced from 899 Yuan to 699 Yuan. Color fastness textile quality testing is usually included in routine testing project. Second. the dye molecules and heavy metal ions will attach to the skin and bring harm to the body. First. inventory control. First time reduce price ZARA pricing policy in China is same as other countries. The prices of a lot of new clothes are averagely 100 Yuan lower than the similar old styles that sold in 2011. In June 2010. marked with 70% of feather. it will irritate the skin. ZARA sandals were poor color fastness and is the only folding performance that did not reach to the standard published from Shanghai Industrial and Commercial Bureau in August 2009. ZARA had reduces its price in China in September 2012. If not compliance with the testing.0-9. are aimed at maintaining price stability. However. and then proceeded to affect sales of the brand. The standard of children's cloth is higher than adult in terms of material and technical requirement. the first touches is a small problem. took away 20% degree of warmth but not to see ZARA make a discount for each purchase. ZARA usually will not discount anymore. ZARA has detected quality problems seven times in China. causing severe skin infection.5 range. which was 699 Yuan last year and now sells for 499 Yuan. One of the reason ZARA reduces its price is because economic downturn. for example. this situation often happen in other Chinese and foreign brands. it is fashionable and secondly it is low in price thus resulting in a very effective mixture out of it. Spain is the headquarter of Zara. This essay discusses about which mode of entry strategy Zara adapted to entered into the Indian and Chinese market and whether the strategy proved to be beneficial for the company and the benefits / disadvantage sit is going tackling and lastly it also analyses in which country it is doing better and why. The first store of Zara was opened in a central street in Spain in 1977 by Amancio Ortega who also owns.It uses the unusual strategy of zero advertising and instead invests the revenue in opening new stores across the world. bringing the total to 4359 stores in 73 countries worldwide.Entry Mode Of Zara Into The Indian And Chinese Market Introduction Zara is an extremely renowned brand. It is crystal Clear that Zara is successfully living upto the standard of its two winning retail trends firstly. other brands such as Massimo Dutti. Zara have opened 95 stores around the world in quarter 1 of year 2009 alone. Pull and Bear and many others. . Zara is popular amongst old and young generations too because it is affordable fashion. known for its latest designs and is among the top 100 best global brands in 2010 . Entry strategy of Zara in India While Zara owns a majority of its stores in Spain. those in their twenties and even the individuals considered young at heart. To enter the market in India. They have garnered significant profit gains out of this strategy. especially in large. Zara took up joint ventures as its mode of entry in India because this is a co-operative strategy in which the manufacturing facilities and know-how of the local company are combined with the expertise of the foreign firm in the market. This is a customer sector that other clothing companies have previously ignored in place of the adult consumers. As a result. Zara has been able to set up its reputation as one of Spain's primary clothing line companies for several years now. It is able to rise up to the challenges in most of its markets directly (year '99). franchising stores means that the merchant loses certain jurisdiction over how these are operated. Zara Company also has the unique strategy of portraying the generations in their campaigns. and there is no reason why this won't also work in India. These initiatives can also lead in improved financial profit for the organization and will enable the foundation of disshuchi. Zara utilized video advertisements. Target Market Zara has maintained a reputation for targeting the teenagers. the perfect information that Zara Company utilizes is "Providing quality and fashionable clothing lines that fulfills your needs. competitive markets where it is difficult to acquire property to set up retail outlets or where there are other kinds of obstacles that require co-operation with a local company to which Zara regards its stores as one of the related elements in its business sculpt. logistics and finally retail. particularly those priority Indian markets or the consumers in the urban India areas. To promote the organization and its clothing lines. Moreover. Inditex (the company behind Zara) used the strategy of pursuing a joint venture with Trent Limited. further considerations contain the . These campaigns in India will tell that Zara Company is not a mere simple clothing line for the next generation. a Tata Group company. Zara Company can establish an image for itself in India as the clothing line for the present generation. The promotional strategies of Zara in India are easily implemented by the local employees themselves which enables the organization to vastly improve without the burden of implementing costly technologies. This is made possible through the efficient promotional and positional strategies established in order to maintain not only large profits. Joint ventures and Franchising. It has discovered that the purchasing power of the youth and the marketing power of celebrities were similar (1998).mode design.edutribution networks for Zara clothing lines in India.sharma@iipm. This includes the vendor to share its organizations information and data it would usually not reveal. single-brand retailers are regularly cautious of entering the Indian market. a highly recognized clothing line distributor. For a apparel seller akin to Zara. The shop is regarded as the boundary among the buyer and the motor of the whole business . development. but also on establishing the foundations of Zara's clothes and fashion trends. For this promotion campaign. print ads and the idea of e-marketing which fulfilled the varying needs of consumers from India and beyond. its users are also a generation ahead of their competitors. Nevertheless Zara undergoes quite a few hurdles like the existing rules on FDI in India require that foreign single-brand suppliers are obliged to surpass a 49% stake to a resident associate. which numerous businesses worry that it might harm their brand name. the international expansion has adopted three different entry modes: Own subsidiaries. such as when selecting the Chinese market. However ones of the failure factors is Zara's centralized distribution system which may not be inappropriate in entering a specific market of diverse nature like that of China (market entry strategy: case study Zara internationalism in China 3 November 2009). Entry strategy of Zara in China Spain's Zara. differentiation of strategy. creation and sourcing. Teher are considerations. will start its flagship China store at Shanghai's Hua Huai Road.7% within the episode 2009-13. together with twelve directly possessed factories in Spain.000 distinctive designs every year. consolidated manner of dress amongst Indian females that differs significantly to Zara's offered ranges.3%. Slightly more than half of Zara's goods are prepared in its production bases in Spain. Zara's mother company Inditex has to breach the conventional business model. to clients. Inditex cooperates along with around 900 separate suppliers and factories. .relative need of seasonal modification and the separate. which goes from sketch toward sourcing to stores. In order to achieve this. Thirty percent are sourced from Asia and twenty pct are sourced from Eastern Europe and the Americas. Regulation from government and local producers' protection issues are other considerations Zara presents a straightforward explanation for its triumph: It offers fresh stock to its stores two times a week and new supplies at all times contain novel models. Market results in The Republic of China Success factors include the cost leadership strategy. Zara creates more than 19. we find it to be crucial to learn from customers and quickly respond to their requirements. China makes about 13 percent of the merchandise. location os stores. distribution cost and shipment cost of raw materials are considered other considerations are characters or behaviors of consumer and income per capita. labor cost and productivity. the considerations include the 4Ps inherit to the Chinese consumers and business environment. demand." said Echevarria. Monaco and Portugal. Zara's model as an alternative begins with customers and after that goes to stores. fast delivery of new products. designs and trends. International strategy at Zara is defined by the combination generic strategy of cost leadership and differentiation strategy. a division of Inditex SA. that will be presented on stores presentation shelves. Conclusion The clothing retail expenditure of Zara inside India is forecast to raise at a higher speed than bordering China along with a CAGR of 6. political conditions and export tariff and micro eco factors including local competitors. efficient distribution. in comparison to China's 5. Market entry considerations include economics both macro factors which include tax. however. matching to Verdict's Global Retail Database. In terms of marketing approach. Information and technology. These 12 heart factories fabricate the most essential and fashionable outfits. "In this trendy world. The Asian market is enormous and hungry. This study adopts an in-depth case approach based on extensive secondary research. The paper starts with a brief overview of the global textile and clothing industry. to impart a honest support for an organized quick in-fashion retailer. American and Canadian markets is considered a key driving force in the development of the clothing sector (Keenan. The main part of the case examines the key aspects in the internationalisation of Zara namely: motives for internationalisation. there is little research about the firm in English as the majority of publications have been written in Spanish. and international marketing strategies. without doubt we can attempt and learn from its knowledge. fashion aware people. This paper seeks to address this gap in the literature by examining the internationalisation process of Zara. et al. In the final section. It appears that Zara might be leading those that nourish it. Zara victory is as much a consequence of its history and position a sit counter intuitive business strategies. 2004). However. involving the unrestricted access of all members of the World Trade Organization (WTO) to the European. comparisons are made between Zara and two of its main competitors. market selection. While it may not be possible for another company to exactly duplicate the conditions under which Zara grew and flourished. its procedures and its company structures. The global income standard of the middle class in India is 1-5 million consumers that is still a tiny division in India even by purchasing power parity. THE CASE OF ZARA .. INTERNATIONALISATION OF THE SPANISH FASHION BRAND ZARA INTRODUCTION Zara is one of the world’s most successful fashion retailers operating in 59 countries. The global textile and clothing industry The removal of all import quotas in the textile and clothing industry from January 2005.Within India there is a extremely trivial segment of very style. Literature published in both English and Spanish has been reviewed. H&M and Gap. entry strategies. followed by the case study of Zara. This new scenario has created opportunities for large exporters like China and India that are considerably increasing their market share whilst at the same time creating challenges for European Union member states in order to remain competitive internationally. including company documents such as annual reports. This multi-brand portfolio has allowed Inditex to target different segments more effectively. 1997). Inditex has tackled cannibalisation by differentiating the brands mainly through the product. The Zara Concept The store acts not only as a point of sale but also influences the design and speed of production.692 stores spread across 62 countries worldwide by the end of January 2006. et al. 2000). and has even obliged luxury fashion brands like Gucci and . browsing publications and visiting the venues that are frequented by their potential customers (Fabrega. The firm spends only 0. Stradivarius (trendy garments for young women). Zara follows a market-based pricing strategy which sets the target prices that the buyer is willing to pay. Mazaira. Store managers report the demands of customers and the sales trends to the headquarters on a daily basis. Zara continuously adapts to market demands. 2003). All these brands were built within the domestic market and then launched for international markets.Established in 1975. The design group will use the feedback to create new articles or modifications to the existing goods and then deliver the items to the stores (Martinez.). 2001). The quality of customer service and other variables like the music. avoiding large inventories and creating a climate of scarcity and opportunity (Crawford. 2004). Around 60 percent of its products are permanent and the remaining 40 percent vary continually. Zara is the flagship of Inditex (Industria del Diseo Textil.. What distinguishes Zara from its competitors is the feedback that Zara’s managers get from the customers at the point of sale about new garments or new products that they are interested in. However. production and suppliers is fixed according to the target price and the profit margin that the management department wants to achieve with that item (Bonache and Cervio. Zara’s production cycle starts with customers judgments on the new designs of clothes and the information collected by staff members who travel to fashion cities. 1996. It is the end and starting point of the business system. Massimo Dutti (quality and conventional fashion).3 percent of its annual turnover on advertising (Ghemawat and Nueno. Pull and Bear (youth casual clothes). The company estimates that customers visit a Zara store 17 times a year on average. the cost of maintaining several brands and the risk of cannibalisation are the major drawbacks of this strategy. namely Benetton and Mango (Cinco Dias. The two key factors in Zara’s business model is the time factor and the store as a source of information to demonstrate the company’s customer-orientation. target market. a holding company located in Galicia (north-west Spain). temperature and layout are evaluated by using a mystery shopper (Monllor. observing people on the streets. The store is considered its most effective communication tool. 2003). In a relatively short time frame Inditex has become the world’s second largest clothing retailer with 2. Oysho (undergarment chain) and Zara Home (household textiles). In addition to Zara which accounted for 66 percent of the group’s turnover in 2005. normally at the beginning of the sales season or the occasion of a new store opening. compared to merely four visits for other fashion firms (Castro. Inditex owns seven other clothing chains: Kiddy’s Class (children’s fashion). Every store receives small batches of products twice a week. 2004).A. 2003). The budget for the cost of the material. 2003). The success of the Zara concept is also reflected in the impact that the company has created in the fashion industry that brought changes in the organisational methods of other clothing retailers. aiming to deliver a unique service to the customer. S. presentation and retail image (Fabrega. The outlets are situated in main commercial areas and the interiors are designed to create a unique atmosphere with attractive window displays. Bershka (avant-garde clothing). Prices are set centrally following a market-oriented strategy. 2003). 2002. the internationalisation involved the spreading of cost and risk into different markets. the price of competitors products and the recommended price to achieve a maximum level of profitability (Bonache and Cervio. Zara relies on the store as its main promotional tool. 1997). we had the feeling and then we knew for certain that the Spanish fashion and design market was on the verge of saturation (Martinez. 2005). The expansion of Zara in New York (1989). with increased spending in their spare time on travelling and education. window display. Ortega and Blanco. McGoldrick (1995. Advertisement campaigns are carried out only at the start of sales or a new store opening. namely the location. store layout. former CEO of Inditex: Of course before opening the first store in the host market. In addition to the maturity of market. there was a change in Spanish consumer behaviour over this period. Pull factors involve attractive conditions in the host market (Alexander. 2002) provides a third group of factors related to the organisation: the facilitators or enabling factors. . the homogenisation of consumption patterns across countries Zara’s belief is that “national frontiers are no impediment to sharing a single fashion culture and the abolition of barriers to export as well as the development of information technology.. Zara’s promotion strategy is the same in domestic and foreign markets. Push factors are those that encourage the organization to search for international opportunities. Prices in international markets are generally higher due to longer distribution channels (Ghemawat and Nueno. Hence. the globalisation of the economy and thus potential economies of scale. Paris (1990) and Milan (2001) was justified by image and status reasons (Castellano. information systems and logistics. 2003). 1997. The rest of the elements are customised to the market to suit local preferences (Fabrega. All Zara’s shops are situated in prime locations. The key pull factors that explain the internationalisation of Zara include Spain’s entry into the European Union in 1986. Foroohar. Last but not least. Amancio Ortega wrote in his 1998 annual report regarding the learning experience: International expansion is the objective that cannot be delayed and will allow us to enrich our culture and vision of the markets. et al. customer service. store display rotation. The USA was perceived to be a high risk market. The USA offered Zara the opportunity to learn first hand about its American competitor Gap and consumers in a large market with an interest in fashion. The prices of Zara’s garments differ between countries with the Spanish market being offered the lowest prices (D´Andrea and Arnold. 1996). 1995b). 2004).Burberry to increase the rotation of their goods and develop sister brands to expand their customer base (Fernie. the store location is a critical factor in international markets. interior design. The shop window display and interior design are prototyped centrally and then replicated in all international shops by professional store decorators. This decision is based on an analysis of the local market environment that identifies the niche opportunities for Zara’s products in those markets. The limited market growth opportunities at home was the main influence on Zara’s decision to expand internationally as recalled by Jose Maria Castellano. 1997). As in the domestic market. Motives for Internationalisation Existing literature has classified the motives for retail internationalisation into push and pulls factors. These three cities are considered fashion capitals that are highly competitive. a view justified with hindsight (Martinez. Zara standardises the key strategic elements. 2004). and less on clothes. especially a young segment sensitive to fashion. The company uses the name of the firm and a unique brand name for the same product group. 2003. Branding Considerations International retailing is regarded as the transfer of a retail brand with its associated image across national borders (Brown and Burt. H&M Established in 1947 in Sweden. in some cases Zara has had to educate the market and influence consumer shopping habits (Blanco and Salgado. quality and price. Zara’s products are labelled following a dualistic brand-name strategy. 1996) which made Zara change to a practice of recruiting employees locally to get a better understanding of the local market preferences (Martinez. Zara has transformed itself from a local brand to a global brand in less than 30 years. 2001). In line with this objective. Difficulties arose in countries like Mexico and France (Bonache and Cerviño. In order to communicate its benefits. H&M hires celebrity designers like Karl Lagerfeld and Stella McCartney to democratise fashion and catch consumers attention. 1996). ZARA’S MAIN COMPETITORS Zara major international competitors in terms of market share are H&M and Gap Inc. teenagers and children. Zara filled a niche in the Spanish market that was neglected by the department stores (Martinez. `Zara Basic´ and `Zara Trafaluc´. The company’s 1999 annual report states that the aim of Zara is to democratise fashion and to target a broad market. The fact that the prices of Zara’s garments are higher in the international market affects its positioning in those countries and therefore. Prada and Armani. H&M outsources its production from 700 suppliers of clothes. This section will first present some background information of the two firms before offering some comparison with Zara. the next stage is the recruitment and selection of the company personnel. 2004). Examples of these sub-brands are `Zara Woman´. 2003). 2004). The firm declines to use any kind of identification with its origin (Ghemawat and Nueno. Zara brand was ranked 73rd in the list of the world’s 100 top brands 2006 by Interbrand and has overtaken fashion brands like Hermes. 1997). Zara makes a great effort to transfer know-how in order to share the same corporate values. its brand image (Ghemawat and Nueno. 1997) by offering the latest fashion at medium quality and attractive prices.Once the location for the store is identified. Initially Zara sent Spanish managers to replicate the management procedure used in Spain (Fabrega. women. Monllor. H&M business concept is to offer fashion and quality at the best price” for men. The firm churns out 500 new designs every year that can be purchased from its 1. Zara’s positioning strategy is based upon design. the COO effect is played down to convey a broader image. 1992) so branding has an important role to play in the internationalisation of Zara. The location of its stores. The Head Office in Spain controls the subsidiaries to maintain Zara’s concept across its international markets (Bonache and Cerviño. Hence. . flexibility of its production and low prices can be identified as the key factors behind H&M success.193 retail outlets located across 22 countries and also via mail order or through its website for the Nordic countries. 053 stores in 5 countries: United States. Czech Republic. stated in his Annual Report that when we expand. Having operated in its domestic market for 17 years. . Austria and Luxembourg were entered. Hence. Canada. which had two distinctive phases in the early stages (Laulajainen. In 1997 the former Managing Director of H&M. During the end of the 1980s and the early 1990s other Germanic countries such as The Netherlands. We need to adapt but not at the expense of losing what makes us who we area. These three markets share cultural affinities and are grouped in the `Anglo-German´ cluster by Kasper and Bloemer (1995). France and Japan. Its plan of opening stores in Dubai and Kuwait in the near future has led H&M to sign a franchise agreement. Compared to Inditex and Gap. the incorporation of new countries to its market portfolio and the development of the catalogue and e-commerce. This period has been marked by the quick expansion into distant and different markets like the USA. Germany being its largest market with 27 percent of the company total revenue. Italy) and Eastern Europe (Poland. employment rate and purchasing behaviour. H&M strategy resembles that of Zara: replication of the same concept with some local adaptations. Portugal. Gap Inc Created in San Francisco in 1969. women and children. 2005. Its expansion has been at a moderate pace particularly during the early stages. `Old Navy´ and `Forth & Towne´. French and Italian cultures) made this market a reference point for its further expansion in those adjoining countries. 1991): The first focused on Scandinavia. adding at least two more countries per year. Both of them together with Sweden are markets belonging to the zone of cultural similarities labelled as `Nordic Europe´ by Usunier and Sissman (cited in Usunier and Lee.100 suppliers located in the United States and abroad. Germany and other Germanic countries. The second phase was initiated in 1976 with the opening of a store in the UK and later on in Switzerland in 1978 and Germany in 1980. Belgium. Canada. Spain. H&M has been able to consolidate its position in each of the international markets. `Banana Republic´. page 234). H&M launched its international expansion first into neighbouring countries. Gap Inc outsources all its production from 1. Slovenia. establishing new outlets only in the best shopping areas. Hungary) at the beginning of the 21st century. Southern (France. A combination of market saturation and entrepreneurial ambition led the company to embark on internationalisation. and the second aimed at the UK. The interior design is prototyped allowing some customised solutions. it is important to listen carefully to the local market. demand and accessibility is also considered. available in the Nordic countries. Local information about competitors. The mix of cultures in Switzerland (German. Gap Inc operates several clothing brands: `Gap´. The store location is a key factor in H&M business model regardless of the market. H&M expansion has been mainly through its own subsidiaries. The experience gained over the early stages drove H&M to embark on a third phase of international expansion. H&M followed the same expansion pattern as Zara and Gap Inc by selecting international markets based first on physical and cultural distance to the domestic market and then on economic indicators such as purchasing power. Norway in 1964 and Denmark in 1967. H&M is much more internationalised with over 90 percent of its turnover coming from overseas in 2005. launched in 1997 to increase its market share and reach a broader consumer base in the US.The growth of H&M has been marked by the addition of cosmetics and accessories to the apparel line in 1975. diversification into accessories and personal care articles. creation of new brands and development of other channel of sales like electronic commerce. This holding company sells clothing. accessories and personal care products for men. Gap Inc is the worlds largest specialist clothing retailer with 3. Like Inditex. the United Kingdom. which still keeps the management control within the Swedish company to ensure the H&M concept across countries. Gap Inc’s market growth was based on four strategies: International expansion. Stefan Persson. Switzerland. Advertising is a strong communication tool for both Gap Inc and H&M. Although the paper has made some preliminary comparisons between Zara and its two main competitors. they are both close markets given their cultural proximity. However. culturally distant and high business risk countries. while Zara hardly advertises. international sales accounting for merely 15 percent of its turnover in 2005. Gap’s future expansion markets have been identified in Asia and the Middle East. The international expansion of Gap and H&M has been largely organic. the relationship between retail brand image and positioning in different markets. entry options and international marketing strategies. Gap Inc has focused mainly on the home market. The location of the store is a key principle of the H&M and Zara business models. 1992)? Two areas are of particular interests in the further study. Qatar. The main drawback that arises in a single case study is that of limited validity and representativeness which constrains the potential for making generalisations (Creswell. This paper seeks to improve our understanding of the firm. The research has examined the internationalisation process of the firm with a special focus on motives. Zara vertical integration enables the firm to have a faster turnaround than its competitors. CONCLUSIONS Zara is a successful international retailer which. Own subsidiaries have always been the mode of entry adopted to operate in the host markets. having become a global company in a shorter period of time. However. -Gap Inc and H&M have also developed new channels of sale. International sales accounted for 15 percent of the firm’s total turnover in 2005. the unsatisfactory results in sales led Gap Inc to withdraw from that market in August 2004 (Wells and Raabe. Kuwait.Gap Inc internationalisation process has been steady and focused on a few countries. Comparisons between Zara and its competitors Table IV presents detailed comparisons between Zara and its two competitors. The development of electronic commerce sets Gap Inc and H&M apart from Zara which does not offer its products online. has transformed itself from a Spanish local brand into a truly global brand. in less than 30 years. H&M expansion strategy is characterised by developing and reinforcing its business system in each country entered. 1995 despite their geographical and cultural distance. namely the linkage between entry strategies and the degree of standardisation. Zara has a wider international presence in comparison to both Gap and H&M. 1993 and Japan. has led Gap Inc to consider franchising as the strategy to expand into these smaller. Gap Inc and H&M outsource all their production. this case is deemed adequate to provide good insight. Another limitation is that the study was based solely on secondary data. After operating in the German market for ten years. Gap Inc opened its first store in the UK and Canada in 1987 and 1989 respectively. In contrast. -Product and geographic diversification has been used by the three clothing brands as their main directions for growth. and establish the avenue for future studies. During the second phase of its internationalisation Gap Inc expanded into France. The main distinctions are as follows: -While Zara controls its entire production chain. Bahrain and Oman) and in Singapore and Malaysia in the near future. After operating in the home market for almost twenty years. 1998). The expansion pattern of all three brands is marked by the physical and cultural proximity of the international markets. The experience acquired earlier and the attractiveness of these two markets were the main driving forces. its willingness to establish itself in five markets in the Middle East (United Arab Emirates. Zara has used franchising and joint ventures as entry strategies. All three make some adjustments to their product offerings to satisfy the needs of local consumers. . a more thorough comparative study of all the three firms would reveal what is being internationalised: Management expertise and systems? Innovative technique or strong retail brands (Brown and Burt. 2005). it’s important that they develop a strong business model. Zara’s business model is distinctive compared to more traditional fashion retailers because the company has several strategies that other fashion retailers don’t do. it forces customers to purchase the product right away and not wait for discounts. It’s possibly even better as shoppers can purchase products 24/7. (Don 03/09/2010). (Bryan September 06. Zara is hoping to see a 10% rise in revenue linked to its online store. With the distribution center being close to the retailers. The next advantage that Zara holds compared to other retailers is having their factories in Europe compared to China. A business model that stands out compared to the rest of the competition will also gain more market share as they are operating differently then the rest of the companies. Everyone is always dressed fashionably and what they are wearing is important to them.What about its online strategy? After doing some research. Zara. They don’t order more stock in. This also works to the advantage for many customers that want to distinguish themselves from others. Zara is truly the innovator of fashion retailers. I’m going to discuss why these two strategies are an advantage for Zara compared to other fashion retailers. It belongs to Inditex. The European fashion is an important aspect of society. one of the world’s largest distribution groups. When a clothing design runs out. “They’ve trained consumers not to wait for it to go on sale. Other retailers are faced with the disadvantage of having their products shipped from China and facing a lag time of more than two months. Without a strong business model. Zara’s online strategy is the same as the stores. Zara stocks clothing in scanty quantities. it runs out. they may never get the opportunity to again. Firstly. Zara’s factories are based in Europe. they’ve even released an iPad & iPhone apps. Now. is one of the largest international fashion companies. They expect on-line retail to grow $144 billion in Western Europe by 2014. They have over six million facebooks friends that describe the company as possibly the most innovative and devastating retailer in the world. the cost of distribution is lower and the merchandise can reach the stores in a lot less time. Considering the fact that Zara will not order new merchandise after a line is sold out. This will . They understand that if they don’t purchase the product when they see it. This is important for actresses/actors as they try to be different than the rest of society. there will not be as many people wearing the product if they only carry a small amount of inventory. What is unique about Zara’s business model compared to more traditional fashion retailers? In order for a business to stand above the rest of its competition. 2012). (“Company”). Secondly. This demonstrates a great understanding of society’s use in communication and technology devices. companies fail to gain market share and fall behind. so new designs can get into stores in as little as two weeks. With the limited stock.” says Don Huber. it appears that Zara also has a strong online appearance in the market. as introduced above in Diane’s short article. With Zara making this possible. A few ways were discussed above in the previous question. It doesn’t limit the company to one country. and this is when the majority of customers purchase the product. they will generate a lot more revenue than a company that produces a product at high cost and is forced to sell the product at a high cost. they have established a strong customer loyalty to the ones that always want to be the first one wearing a new coat or shirt. What do you consider Zara’s Competitive advantages to be? I think Zara’s competitive advantage is the fact that they are “fresh”. . This increases the frequency of customer visits. The first way that Zara creates value to their customers is by being able to provide them with the newest and most up to date fashions. The customer base can range all over the world. The company has also cut costs on advertising and in other areas of the company in order to maintain their high quality and low cost fashion designs. (Zara). they have to put them on sale. This allows Zara to accommodate all customers in every country. it allows Zara to change over 75% of the merchandise on display every 3 or 4 weeks. with them being able to produce and distribute new fashions in a short amount of time. Also.allow Zara to only order what they are going to sell because if they want to put in a new order. Another way that Zara creates value to its customers is by pricing clothes differently depending on the location. If they can’t sell these items. Zara’s distribution center is out of Europe and therefore the wait time is at most two weeks compared to China’s of two months. They have a fast production and distribution strategy that allows them to offer the latest fashions in less than two weeks. People are always trying to find a way to be the first one representing the newest fashion. How does Zara create value to customers? Zara creates value to its customers in a number of ways. they know they will not have to wait two months for new inventory. The cost of clothing from Zara is cheaper in Europe and more expensive in Asia and North America because the North American and Asian countries are able to afford the latest clothing designs compared to Europe. The customers of Zara are able to wear the newest fashions as they enter the market. If a company can produce a product at low cost and sell to all potential buyers. Other retailers have to order enough inventory to be able to get them through two months. ). Zara Home (2003) and Unterqüe (2005). distribution and retail of men.d. Inditex goes into the business as a dressmaker in 1963. confection. It is one of the most famous clothing brands in Spain and Zara stores can be found all over the world. Stradivarius (1999). Portugal . the company began spreading beyond the borders of Galicia to the rest of Spain. Bilbao and Malaga). Seville. This was followed by the brand's international expansion at the end of the 1980s and the successive launch of new retail concepts: Pull&Bear. n. Massimo Dutti (1991). By the early 1980s. years later. It started life in the a small workshop making women’s clothing. Spanish Fashion's First International Company currently has 335 clothing stores in all Spain. When people talk about the Spanish fashion. manufacturing. women and children apparel.300 stores in 87 markets (Grupo Inditex. Zara is the principal company under the corporation Inditex. In 1986. n. to the launch of the first Zara store in 1975 in the center of La Corūna.Inditex and Zara Worldwide Industria de Diseno Textil SA (Inditex SA) is a Spain-based company primarily engaged in the textile industry. Valencia. In December. the brand had opened clothing stores in most of Spain's major cities (Valladolid. Madrid.d. This strong customer orientation would give rise. Bershka (1998).). Barcelona. This company has always remained focused on listening closely to its customers to offer them the fashion.).d. Today it has over 6. Zaragoza. as well as home furnishings and household textile products (Inditex. footwear and fashion accessories. Oysho (2001). The Company's activities include the design. (Grupo Inditex. name of Zara comes first into their mind. n. Zara becomes the first Spanish clothes trader to open its doors in Porto. Baigorri. Kuwait. Zara follows a market-based pricing strategy. If company starts of sales or a new store is being opened.1998 the company launched its shops in Asia (Israel.After great success in Portugal. Prices in international markets (such as Sweden. In 1997. In Africa Zara began to sale in 2004 (Morocco). 2013). It is naturally based on an analysis and a research of the local market environment. The next year. New York. S. In 2012 by sales it reported a 12 % surge in net profits ($2. so it means that the company is in 80 countries with more than 5 500 stories now. advertisement campaigns are carried out only at it.parent company of fast-fashion chain Zara .. Fan Y.. (Sulisetiasih A. what means that Inditex defines prices that the customer is willing to pay for the clothes and accessories. The shop windows displays are designed centrally and professional store decorators arrange it in all international shops. Zara had truly become an iconic representation of Spanish fashion. Switzerland and Thailand) are generally higher because of the longer distribution channels.all Zara's shops are situated in prime locations. In addition Zara put the first step in Australia only in 2011 (figure 1). In 2014 Zara has 24 online shops (figure 2) in the whole world (Zara Offcial Website. . Zara decided to take the next step towards establishing itself as an international fashion phenomenon and decided to open a store in USA. production and suppliers is determined according to the target price and the profit marge that the company wants to get with that item. Seems that the company follows the classic “stage model”. Norway. 2013) Zara has been very stingy when it comes to marketing campaigns. International Strategy of Zara Spain’s Inditex SA .. Once the brand had firmly established itself in these fashion capitals. logistics and so on) are standardized by Zara. Perhaps conscious of the popular opinion that if you can make аcross the Atlantic. So all the key strategic elements (such as location. (Lopez C. L.. (Dishman. n. window display. UAE. Online sales started in September 2010. Lebanon. Wibawa Junardy K. store layout. If it is about strategy of a store location . 2009) The prices of Zara’s goods differ between countries.68 billion) and a 10 percent net sales gain ($19. Zara began to expand rapidly in the 1990s. Zara's promotion strategy is the same all over the world. another store was opened in Paris. Adam P.770 stores in 86 countries (Berfield. In 1992 Zara opened the first store in Mexico. but the Spanish and Portuguese markets offer the lowest prices. you can make it anywhere. is easy to find Zara store in it..15 billion). what means that Zara firstly occupies geographically or culturally close markets. before taking opportunities in different markets. almost in every new shopping malls.. customer service. Japan).). Zara's stores are its main promotional tool..is the world’s largest clothing retailer. Now the company produces about 450 million items a year for its 1. That is why nowadays. 2012) This past year Inditex invested in 49 markets by aggressive expansion. The total budget for the cost of the material.d. M. Customers could order Inditex's apparel and accessories online in U. especially in existing European and American markets. In the world. Net sales for Inditex reached $20.The main goal of Zara is to focus on a wide market . It also includes and fixes cost of the material.75 billion in fiscal 2012. 2012).what means that INDITEX sets the target prices that the local buyer is willing to pay for the clothes and accessories. ZARA follows a market-based pricing strategy . The customers of Zara are men. because INDITEX delivers similar fashion. Its techniques of doing this strategy are by improving its online store and increase the customer service in all stores.sensitive to beauty and fashion. What is more .custom weather . Companies like INDITEX are a serious threat for luxury brands (Thompson.appropriate collections debuted in stores in Sydney. but at a much lower price. ZARA aims to set price at a level of being available to most common average income living consumers. but also furniture bedding) in each country. Zara’s positioning strategy is based on design.4 However.Zara wants to be an environmental-friendly company that is successful in meeting their customers‘ needs. because of shorter distribution channels. Pricing investigation Pricing strategies are very important for every company. What is important. From the beginning we expected that prices will be different in each countries. quality and price. because it mainly defines company policy. an increase of 16% from 2011. Johannesburg and Lima. Melbourne.. ZARA has to compete with GAP. we recommend the following strategies that will allow Inditex to continue to grow. and maintain its global market share and position: . production and suppliers. It is obvious that the Spanish and Portuguese markets offer lower prices than any other markets. but also ZARA’s strategy is to get as close to Prada or Gucci as possible. women and kids. accessories and perfumes. but Inditex also changed up its retail strategy to adopt to the different seasons .especially a young segment . as competitors continue to mature and Inditex’s rapid expansion begins to pose new challenges due to varied global consumer demand and increased distribution needs. Europe and Japan. The retail strategy for luxury brands is to keep as far away from the likes of ZARA. Inditex is an extremely healthy company with strong financials allowing continued selffunded expansion. increase sales. Of course Zara has the same goods (Zara not only sells clothing. Zara applies the Market Penetration strategy with its existing products.S. who love fashion and like to wear the latest trend of clothing and accessories in their daily life. But the smartest move was to break virtual ground in e-commerce in September 2011. Isla was heavily involved in the creation of Zara’s global onlinecommerce platform. and by year’s end was available in 16 countries. Ortega’s handpicked successor. Isla. and is still involved in the product side of the business. is strongly involved with the company’s finances and costs. Market Definition . Inditex is continuing to increase its online presence. where it launched in September. the first online Zara store was launched in 2010.” his plan aimed to reduce the spread between sales and operating cost growth by 300bps by 2008/09.Pablo Isla Alvarez de Tejera. who stepped down as chairman in 2011 is not completely removed from his enterprise though. The Zara brand is now present online in 21 countries including China. especially in the Americas for Zara. was appointed CEO in 2005 and took over this role quite seamlessly. Mr. social media. and newsletters are intended to both facilitate online retail and allows customers to explore look books and product ranges. Ortega. The company has not released specific financial data for this sector of their business but reports that the online stores are thriving. Ortega still owns 59% of Inditex. apps. Mr. As shown in the chart below. and the particular success of the company in 2012 caused him to edge out Warren Buffet as the third richest person in the world. 2012. with both Zara and Zara Home having presence in about 20 key markets. formerly a lawyer. and further development of the other retail brands. All of Inditex’s additional online platforms such as YouTube channels. His first promise as CEO was to reduce the group’s business risk by better aligning sales and operating cost growth. While Zara Home was the first concept to have a transactional website launched in 2007. There is still much room for continued roll-out. and was achieved one year ahead of plan (ms). Referred to as “Reduce 3. and target audience to better determine competitors. or global chains. but also on price. price. Within the fashion retail industry. Companies that operate within the fast fashion space combine quick response production capabilities with enhanced product design capabilities to both design products that capture the latest consumer trends and exploit minimal production lead times to match supply with uncertain demand. drawing the attention of young. Internal Rivalry Zara is the company’s flagship retail format and the key to their success. Zara offers greatly imitative high-fashion trends at low to midrange price points. fashion enthusiasts around the world. More noteworthy.2% of Inditex’s overall sales as of 2012 so its influence is minimal. offering the most closely imitative European runway styles among its competitors. To summarize what a unique niche Zara occupies in such a highly competitive industry. Zara Home. Since it is ineffective to compare Chanel to Old Navy though both fit under the fashion umbrella. The fashion retail industry is highly saturated and highly competitive. and then targets prices often 15% below this amount. while Chico’s for example targets a much narrower demographic of middle to high income women over 35. each targeting fashion forward and price savvy shoppers. is the one exception and the company’s first foray outside of the fashion world. yet highfashion style retailer. and is today the largest global fashion retailer by sales.1% of overall sales in 2012. As a broad. While other competitors such as Hennez & Mauritz (H&M) also promise affordable trendy clothing. women. Zara Home offers stylish home décor and linen. Within the fashion retail space there are many ways for companies to define themselves and compete. Inditex’s eighth retail format. Inditex owns eight retail concepts. seven of which currently operate in differentiated fashion markets. a Goldman Sachs analyst described the brand as “Armani at moderate prices. it is more useful to stratify the industry into different segments based on size. Inditex first identifies the prices customers will pay for competitors’ products. Zara is more closely aligned with the styles one might find in Paris or Milan. accounting for 66. while its prices are more “Old Navy.” Another industry observer suggests Zara fashions are more “Banana Republic”. while other retailers are regional. Small independent boutique stores may compete solely within a local market. location. Zara competes with most major fashion chains as well as local independents around the world. and children. national. as well as very broad. from teens to the more sophisticated trend seeker.” Zara not only competes with product differentiation. Inditex was the first fashion . product offerings.Inditex operates predominately in the fashion retail industry. Department stores such as Macys or Nordstrom offer separate collections for men. Inditex operates in the fast fashion segment – a space the company invented. though it only accounted for 2. so much so that it has garnered negative criticism for copying high-end designers too closely without credit or payment. teens. places orders for seasonal collections months before they hit the stores in order to accommodate the long lead times of their contracted overseas manufacturers. at which time the company tried to revitalize the brand to ease falling sales. European fast fashion chains have grown more quickly than the retail fashion industry as a whole. it also creates a buying environment that promotes more frequent sales. This cycle creates a “buy now” attitude within Zara stores. but predicted trends horribly wrong. This means that Gap and others have to predict what customers will want months in advance.retailer to compete based on time-to-market. but I would have to knock the company down and rebuild it from scratch. The average Zara customer visits the store 17 times per year. Chasing a new teen demographic that never came. Gap was able to manage this successfully until the turn of the new millennium. styles unappealing to Gap’s typical customer. and today there are 2. Inditex was gaining traction in the market and by August 2008. Why has no one exactly copied Inditex's business model? One executive at Gap is said to have answered: “I would love to organize our business like Inditex. sales edged ahead of Gap and Inditex took the title of the world’s largest fashion retailer. When it comes to Zara. To illustrate what an asset this model truly is. While the Gap was faltering. has incorporated many similarities into their own business. though in the fashion industry nothing lasts forever and the margin between Inditex and its rivals is bound to shrink. While this drastic growth rate means that other companies have learned to replicate parts of Inditex’s model.800 stores in 48 markets. and encourages customers to return more frequently for new items. The industry average length of time it takes clothes to go from the design stage to the store floor is 5-6 months. and the cost of failure is high. compared with only three annual visits made to competitors. but wont be available for long. only a relatively small number of each garment is shipped to stores. and to avoid excess inventory. The company’s vertical integration. the store was left with a stale inventory of mini skirts and low-rise skinny jeans. Not only does Inditex’s business model uniquely protect it from risk. and because of the long lead time required to get new clothes back into the stores. Inditex’s unique business model is what gives it a competitive advantage as the pioneer and frontrunner of fast fashion. Gap Inc. Their first mover advantage has given them more time to fine-tune production and design processes and grow their global presence. ” Inditex’s head start and deep knowledge of this type of production has given it a huge advantage. the retail giant has so far managed to stay one step ahead of the competition. and minimal inventory allow it to be responsive and avoid risk. Gap. this process takes a mere 2 weeks. H&M has expanded substantially in recent years. causing its competitors to either adapt or fall further behind. Inditex’s most similar rival and second largest global retailer. following the traditional fashion model. In recent years. the company could not quickly mediate the issue and saw a decline in sales for a consecutive 29 months. we can examine the fall of the former retail leader and current competitor. short supply chain. The Swedish company H&M. Other retailers are looking to move production out of Asia and some have even started poaching Inditex corporate employees. As a result these classic customers turned to other retailers. . This means that new designs enter stores frequently. made possible by the company’s 20 to 30 production offices placed close to its suppliers. Zara is changing the high-end fashion game as well. Uterqüe must compete with the accessories offerings of department stores and specialist retailers. Masoud Golsorkhi. Like Inditex.Germany being the largest. as well as varying local independent retailers. but within each season there are sub-collections that allow H&M to continually refresh its inventory. and influential roll in the market. but franchising is not part of their general expansion strategy. UK and France. has narrower competition than Zara given its sole female focus. Monki. Zara has a unique offer for consumers. while its prime realestate and prices allow it to compete against affordable luxury and premium lifestyle brands. whose outfits and style have been the center of much media attention. faces competition from other lingerie and accessories chains as well as department stores. That’s absolutely because of Zara. and five other apparel brands with varying target audiences: COS. distinct. which is also highly fragmented. The primary collections are traditional long-lead items while the sub-collections are trendier items with three to six week lead times. While Zara and the likes of Gucci and Prada are not direct competitors. and faces similar competition. Zara’s strategy is to get as close to them as possible. Given Berksha’s narrower consumer demographic. Zara Home competes within the homeware market. Pull & Bear’s casual product offerings makes its closest competitors other casual surf wear and lifestyle/sportswear companies. the Swedish entity offers a lower price point while controlling a much higher percentage of the American market. Louis Vuitton’s fashion director Daniel Piette calls Zara “possibly the most innovative and devastating retailer in the world. H&M collaborates with franchise partners in certain markets. Massimo Dutti’s closest competitors are upper mid-market fashion retailers and lifestyle brands such as Banana Republic and Ralph Lauren. Stradivarius. local specialists. Now… half of the high-end fashion companies make four to six collections instead of two each year. a London culture and fashion Magazine says “The retail strategy for luxury brands is to try to keep as far away from the likes of Zara. “[Zara] broke up a century-old biannual cycle of fashion. and faces competition from other large international chains with a young fashion focus such as H&M. was even photographed wearing Zara. offering two main collections each year. As for Inditex’s other seven retail concepts. followed by the US. Uterqüe’s focus on accessories and leather goods makes its competitive landscape quite broad. Entry . Lastly. like Berksha.” While Inditex will undoubtedly face increased competition as other retailers adapt to a faster fashion approach. Duchess of Cambridge Kate Middleton. The H&M Group includes H&M. H&M employs a blend of traditional and fast fashion. Oysho. the editor of Tank. Weekday. it currently holds a strong. it occupies a smaller competitive landscape than Zara. Inditex’s specialized lingerie and accessories retailer. Golsorkhi went on to say. While Inditex has twice the number of stores as H&M and still boasts a faster response time. H&M Home. and other Inditex concepts. Cheap Monday and & Other Stories. H&M sees potential for continued expansion in existing as well as Asian markets.” As the brand grows and fast fashion becomes trendier. Historically. workshops and storefronts do not require highly skilled laborers. Due to its higher offering of sewing intensive tailored clothing. The most prominent company owned manufacturer is Tempe. Zara is the only concept to source internally. and new entrants are more likely to hesitate. global scale face the highest barriers to entry. manufactures. Asian manufacturers largely supply simple. The other concepts use only external suppliers. Lastly. laborintensive parts of production such as sewing.Inditex uses a total of 1.237 suppliers across the globe. Moreover. and Morocco. The majority of fabric dyeing is outsourced to partly owned subsidiaries in Northern Spain. Portugal. Zara does not produce its own fabrics. then the incentive to enter increases. inventories. Competitors that outsource manufacturing develop a broad network of suppliers over time. However. giving them considerable price bargaining power. During a recession. giving them a resource that cannot be immediately copied by new entrants. Similarly. Furthermore. while the rest are spread throughout Europe. Massimo Dutti sources the majority of products from proximity markets and Europe. Despite Inditex’s high percentage of sales within its home Spanish market. and Inditex has a 50% stake in high-value add production firms. . which designs. In addition to this relatively low capital requirement. economies of scale in production impact entrants who will either accept a cost disadvantage or produce in large volumes. retailers offering low price points become more competitive. though it is free to source as much as necessary externally to ensure that its internal sourcing remains competitive. Inditex and its closest competitors have a high brand value that cannot be achieved immediately. Entrants wishing to compete on a greater. standardized orders such as t-shirts and jeans since these products don’t require particularly fast lead times. the current global economic condition is a potential barrier to entry that must be considered. and a physical storefront was the biggest upfront cost and barrier for companies wishing to enter into the brick-and-mortar apparel space. IT response structure. Beyond morals. By increasing suppliers. and by having so many options they are able to cease business with a supplier if unfavorable or unethical conditions are discovered within that factory. Inditex is known to value corporate responsibility. or distribution system upon entry. this also makes good business sense since scandal could tarnish the brand name.Barriers to entry are relatively low in the fashion retail industry. with the sizeable growth in e-commerce platforms and online retail this initial barrier is reduced. Despite this. encouraging the entry of more competitors and increasing competition. As the global economy moves out of the recession and customers regain buying power. Inditex has spent decades perfecting its integrated network. about 35% in Asia. Supplier Power Inditex has 13 textile manufacturing subsidiaries located in Spain and 11 logistics subsidiaries (one for each concept and 4 for Zara). and a new competitor cannot duplicate this advantageous large-scale integration. the company’s low prices allowed it to remain competitive during the downturn of the economy. and outsources low value-add. and distributes shoes to each fashion retail format. the company is shielded from risk because it is less dependent on each individual firm and can keep each stage of production competitive. acquiring property. About 50% of Inditex’s suppliers are located in Spain. Due to its scale. Zara especially has gained a loyal consumer base eager to return again and again. lingerie. by rolling out its own e-commerce platforms in 2010. About a quarter of Inditex’s sales are generated in Spain. especially those overseas. N. By offering so many products and appealing to various market segments. Similarly. However. Despite the reliance on its stalling home market where consumption is dropping and businesses are struggling. jewelry. and even managed a 1% increase in revenue in 2011. Inditex prices seem less like a bargain and are less assessable.Buyer Power Buyers in the fashion retail industry have no switching costs and can easily search for best prices because the industry concentration is high. swimwear. 4. Recessions affect companies differently depending on their price position in the market. kids to adults. in these markets. (1995a). Inditex’s broad range of offerings and brand formats give it an advantage. in other markets. within the eight brands the company caters to both men and women. Inditex was able to remain competitive given its price leader position. Substitutes & Complements Given the relatively nonexistent switching costs for retail consumers. and within the Spanish market its prices are low due to the proximity to its suppliers and low transportation costs. in foreign markets with lower prices in general and with higher proportions of lower income shoppers. Furthermore. Furthermore. and low price to mid/high price shoppers. Expansion within the single European market. The International Review of Retail. Therefore. External conditions and economic instability are potential threats to fashion retailers due to their effect on purchasing power and demand. accessories. the company also diminished the threat substitute electronic retail channels pose to brick-and mortar companies. REFERENCES Alexander. 5. purses. the threat of substitution within the industry is high. 472- . higher transportation costs are transferred to the consumer so Inditex is not able to maintain as low of a price point. 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European Journal of Marketing. W. Strategic considerations in European retailing.economist. Gonzalez. A dying industry–or not? The future of the European textiles and clothing industry. La historia secreta de un imperio de la moda. and Avendaño. available from <http://www. J. 3. 6. Why Is Zara Vertically Integrated? Zara is vertically integrated as a result of its focus on being the quickest and most agile fashion retailer in the market. (1994). Stengg. The internationalisation of the designer retailer’s brand. 4. 118-126. A. Brands without boundaries. and Raabe. S. Gap Inc. Zarapolis. Enterprise papers. 5. J. R. (22004). Trends in retailing 2005. F. Case No.J. While Zara controls its entire production chain.000 new items are launched every year (Ghemawat and Nueno. 1993. . Zara vertical integration enables the firm to have a faster turnaround than its competitors. Zara’s vertical integration of design. such as Hennes & Mauritz (H&M) and Gap. has allowed the company to successfully develop a strong merchandising strategy. 2003). What differentiates Zara’s business model from that of its competitors is the turnaround time. just-in-time production. Another example is the speed at which Zara’s can take a product from design to market. manufactured and delivered in less than four weeks. buys clothes from more than 900 firms.” says Richard Hyman of Verdict. Vertical integration describes a company that has control over several or all of the production and distribution steps involved in the creation of their product. marketing and sales. whereas Zara owns its on textile dye house. The industry standard is for a design to market cycle of six weeks while Zara is capable of executing a three week production to market cycle. Gap Inc and H&M outsource all their production. and frequency of the new styles they produce At the heart of Zara's success is a vertically integrated business model spanning design. Zara manufactures 60% of its own products. 2002). a retail consultancy in London. founder of Inditex. is to democratise fashion by offering the latest fashion in medium quality at affordable prices. and the store as a source of information. 2005). rather than relying on a network of disparate and often slow-moving suppliers. “Zara is a spectacular exception to the rule. much faster than the competition (The Economist. “Vertical integration has gone out of fashion in the consumer economy. By owning its in-house production. low inventory rule. delivery and sales. Changes of an existing garment can be put on display within two weeks. just-in-time manufacturing.Vertical Integration a distinctive feature of Zara’s business model. About 11.time. flexible structure. Zara makes more than half of its clothes in-house. Moreover. H&M.” Zara’s aim. Unlike other international clothing chains. quick response policy and advanced information technology enable a quick response to customer’s changing demands (Castellano. according to Amancio Ortega. This gives the group more flexibility than its rivals have to respond to fickle fashion trends. This strategy has led Zara to create a climate of scarcity and opportunity as well as a fast-fashion system. Zara is also a vertically integrated company. A completely new piece of clothing can be designed. The retailer operates with a vertically integrated demand and supply chain while most other textile chains rely on outsourcing and cheap labor. amount. Zara is able to be flexible in the variety. for instance.