Business Strategy (30012): Pair Assignment 1
Zara-A Cut Apart from the Competition
Mridul Gupta & Shyam Parikh
Q. Diagnosis: Strengths and Weakness (vertical integration) of Zara’s strategy and Business model.
Strengths:
Takeaway: “Zara’s fully vertically integrated process and flexible business model has been pinnacle to their success as a fast fashion retail company.”
The key success to Zara (fast fashion retailer) has been the ‘price’ and ‘continuous supply’ of fashionable & trendy clothes. It’s business model is characterized by a high degree of vertical integration covering all phases of the fashion process: design, manufacture, logistics and distribution to its own managed stores. It has a flexible structure and a strong customer focus in all its business areas. This enables company to achieve ‘the shortest time to the market’ with a greater flexibility, reducing stock to a minimum and diminishing fashion risk to the greatest possible extent. Zara can move from identifying a trend to having clothes in its store within 30 days. That means that Zara can quickly identify and catch a winning fashion trend, while its competitors are struggling to catch up. This results in better margins with more sales happening at full prices and fewer discounts. In comparison, most retailers of comparable size or even smaller, work on timelines that stretch into 4-12 months. The risk of trying to predict fashion trends a year in advance (‘fashion miss’) is weighing on the success of retailers like Gap, H&M, Benetton and others. This is reflected by percentage of Zara sales (consisting of markdown) being 15-20%, half of the industry average of 30-40%.
Furthermore, Zara’s strategy involves stocking very little and updating collections often. Instead of other brands that only update once a season, Zara restocks with new designs twice a week. This strategy may come with...