Competitive Advantage at Zara
The fashion retailer Zara in one of the Spain's latest growing and most successful companies with, sales of some $8.5 billion and a network of 2,800 stores in 64 countries. Zara's competitive advantage centers on one thing-speed. While it takes most fashion houses six to nine months to go from design to having merchandise delivered to a store. Zara can pull off the entire process in just five weeks. This rapid response time enables Zara to quickly respond to changing fashions.
Zara achieves this by breaking many of the rules of operation in the fashion business. While most fashion houses outsource production. Zara has its own factories and keeps about half of its production in-house. Zara also has its own designers and stores. It's designers are in constant contact with the stores, not only tracking what is seeing on a real-time basis through information systems but also taking to store managers once a week, to get thee subjective impressions of what is hot. This information supplements data gathered from other sources, such as fashion shows.
Drawing on this information, Zara, designers create approximately 40,000 new designs per year from which 10,000 are selected for production. Zara then purchases basic textiles from global suppliers but performs capital intensive production activities in its own factories. These factories use computer-controlled machinery to cut pieces for garments. Zara does not produce in large volumes to attain economies of scale; instead it produces in small lots. Labor intensive activities such as sewing are performed by subcontractors located close to Zara's factories. Zara makes a practice of having more production capacity than necessary, so that if an emerging fashion trend is spotted, the company can quickly respond by designing garments and ramping up production.
Once garments have been made, they are delivered to one of Zara's warehouses and then shipped to its Stores weekly. Zara deliberately under produces products, supplying small batches of products in hot demand before quickly shifting to the next fashion trend. Often the merchandise sells out quickly. The empty shelves in Zara stores create a scarcity valve- which helps to generate demand. Customers quickly snap up products they like because they know they may soon be out of stock and not produced again.
As a result of this strategy, which is supported by competencies in design, information systems and logistics management. Zara carries fewer memories than competitors (Zara's inventory amounts to about 10% of sales, compared to 15% at rival stores like Gap Inc and Benetton). This means fewer price reductions to move products that have not sold and higher profit margins.
Question -
List and explain at least four aspects of strategies that Zara has used to maintain its competitive advantages and market position in the fashion industry.