Zara Case Study

Summary

ZARA is a successful fashion company in the world. They have competitive advantage in the fashion industry. ZARA create the differentiation with other fashion industry. Make their customers believe ZARA's clothes is the newest fashion and hard to find out the same one. Therefore, if I don't buy today, I might can't get it in the future or other stores. To create the strategy to produce more and more different products to different stores, ZARA uses a lot of Information Technology (IT) to help them operate business. With those hardware or software systems, ZARA can reduce the time from design to sale. It also reduce the cost to operate the big business. However, some of the IT system like Point-of-Sale (POS) is still use MS-DOS system. Therefore, some managers think it's time to upgrade the system, or it might out have time. On the other hand, some managers think the system now is perfect, ZARA should still use it. It will have a lot of problem when upgrade to a new system. Below are the analysis about ZARA's situation and the recommendations for ZARA.

Five Forces Analysis of ZARA

To analysis ZARA, first is to know the industry of fashion. With Porter's theory, we can easily understand the fashion industry with five forces analysis and find out why ZARA can success.

Threat of New Entrants

It's not easy for new entrants into the fashion clothes industry to threat with ZARA. The first thing is the new entrants will have to high and large fixed cost. Those are for the new entrants looking for designer, factory, and open stores. The new company needs to provide the newest fashion clothing with not expensive but still need to make enough profit is also very hard. Not only for the products, but supply chain management is also hard for new entrants to learn. ZARA is a worldwide company but provide the newest fashion in all the stores, which might have all different clothing in different store. New entrants are really hard to compete with ZARA without many kinds of clothing and the data of customers prefer.

Threat of Substitute Products or Services

There is not really having substitute products with ZARA. However, ZARA makes their products more different with other clothing company. They provide many different kinds of fashion clothing with cheaper price. So customers believe they can get the unique newest fashion clothes with cheaper price.

Rivalry among Existing Competitors

There are many competitors like H&M, Forever 21, and Abercrombie & Fitch in the world. ZARA is using IT to make their products and strategy different with others. All stores can get the newest fashion and different clothes which are fit for their customers. Because of ZARA already build the brand awareness they only spend 0.3% of revenues annually on advertising. It's far below other competitors. Furthermore, ZARA can keep their low inventory and short produce time, only 15 days from design to sell in store, also help them reduce cost.

Supplier Power

The bargaining power of supplier is low. Because there are many designers and material suppliers that ZARA can choose. ZARA also use computer controls and computer-aided design (CAD) to reduce the bargaining power on supplier.

Buyer Power

The bargaining power of buyers is high in fashion industry, because of there are many competitors and it's no switch cost to buy other companies clothes. However, ZARA reduce their bargaining power by using CAD to shorter its design and respond time. ZARA launch more than 11,000 new products which far more than other competitors which launched 2,000 to 4,000 new products. However, if customer didn't buy the products when they see that, they might be able to get the clothes next time and can't get it in different store. Therefore, customers must buy the clothes they like when they visit the store without hesitate time and wait for special offer.

To sum up, ZARA use a successful strategy by using IT to get more market share. ZARA also can have better situation to bargaining price with their buyers and suppliers to have more competitive than other fashion company.

Value Chain Analysis of ZARA

ZARA is focus on designers, suppliers, manufacturers, and sales channels as their primary value activities. ZARA is using IT well to improve their supply chain get the competitive advantage. First, with POS terminals, ZARA collect the feedback from every store to get the survey about the design of clothes. With those data, ZARA can get the information to decide what kinds of design will customers like in that store and distribute the products to correct store. Second, with those customers feedback, ZARA also can adjustment the suppliers and manufacturing to improve the quality and products. ZARA also uses make to order strategy to help them reduce inventory and product life cycle. So they can follow the fashion and provide the newest products for customers. Third, all the store managers can decide the products they will sell in their store. That's because those managers can easily analyze and observe what their customers like. Therefore, all the value chain is base on what the customers like and improve the supply chain management to arrive the goal. ZARA is providing the newest fashion clothes, so differentiation is ZARA's generic strategy.

Implementing Technologies in ZARA

Zara use a lot of information technology (IT) to help managers make decision. In hardware, ZARA use Personal Digital Assistant (PDA), Point-of-Sale (POS), and Automation and Computerization in Distribution Center (DC). First, PDA helps the stuff can record the products situation. So they can get the information like place orders, returns, and transmit records immediately. It's also easily for stuff to record customers' feedback by PDA. ZARA is still upgrading those devices now. Second, POS transmit sales information to headquarters. However, it still uses MS-DOS as the OS and can't connect with other stores with the Internet. Third, DC is a system to automatic and computing which store the new products delivered from manufactories. It also record when