Zara - A Review - Essay Example

Zara: A Review By Introduction Zara was founded about 39 years ago and operates under the Inditex fashion group in Spain. Zara owns many different brands and is operational in many countries in the continent of Europe. The different clothes and fashion styles by Zara serve the needs of adult men and women, children as well as young people. The company continues to be successful in Spain compared to other companies in the fashion industry (Bhagwat 2011). Reviewing different aspects of Zara is of great interest since the company has differentiated itself in the industry with regard to how it makes use of information technology and communication among others. This together with other ebusiness themes is highly important in helping the company gain a competitive advantage in the industry as well as achieving successful further internationalizing. Inside Internal operations 1. E-Strategy & transformation Zara has experienced success in most of the countries it operates and this can be attributed to different factors. The company adopts a model of continuous innovation that mainly shortens the time the company takes to market its collections. The e-strategy and the digital transformation that Zara adopts has helped the company to improve its customer experience. Through this, Zara, as compared to its competitors respond faster to the preferences and needs of its customers in the market. For instance, in each of Zara’s store, the sales staff profiles the customers and identifies their likes and dislikes while the managers and other employees undergo training on how to communicate with customers and discover their preferences. The company then utilises different collaborative social business applications running on cloud-based infrastructure to send the information on customer preferences to the company’s headquarters where the designers incorporate the preferences of customers in the different designs. Cloud-based applications are also used by the designers to update and send products manufacturers of Zara who then ensure that within three weeks the products are on display (Lopez 2009). The e-strategy and transformation at Zara has also resulted in the improvement of customer experience especially by shortening the design, manufacturing and distribution times. Through the use of IT, Zara ensures that its clothes and accessories among other products are designed, manufactured and sold within the shortest time possible compared to other companies. The company boasts of an efficient distribution channel as well as computer aided design and manufacture which together ensure timely arrival of products in stores (Bhagwat 2011). The use of e-strategy requires that the company and its producers work together for well coordination of information flow so that the transport of raw materials, manufacture, distribution and delivery of products is carried out efficiently in the international markets the company operates (Mohapatra 2012). 2. E-Collaboration in e-business E-collaboration takes advantage of the current internet-driven business environment and requires the companies adopting it to participate in external business relationships through computer interactions. E-collaboration especially for international businesses enables a company to eliminate the barrier of time, distance and resources and interact with other companies, stakeholders, suppliers and customers in different countries (Aykin 2009). Through e-collaboration at Zara, there is coordination of different decisions and activities all over the internet. Zara’s hybrid model highly supports e-collaboration. For instance, store managers collaborate with manufacturers in specifying orders needed at their stores based on customer preferences. Market research at Zara is also made possible through e-collaboration whereby Zara employees gather information on employee preferences online and different groups in the company are assigned to analysing the information and making speedy decision-making and supervision of all stores. Although Zara exhibits different aspects of e-collaboration, the company does not engage in outsourcing which is an important aspect of e-collaboration (Lopez 2009). 3. Knowledge Management Zara adopts a hybrid model that is highly based on the use of human intelligence and information technology. Knowledge management, according to Nonaka (2005), enables an international company to experience success and different benefits including allowing for information to flow efficiently from different stores or branches across the globe to the company’s headquarters. Through the use of handheld devices, managers of different stores at Zara are able to send to in-house designers the standardized information with customer feedback and needs as well as make specific orders for their stores. In this case, such knowledge transferred to in-house designers through technology makes them aware of the preferences and likes of customers so that they can customize the designs based on customer preferences and likes. The company also gets insights on those products that are less popular among its customers as well as the changing trends and demands of customers in fashion (Lopez 2009). 4. E-Communication For any company to internationalize successfully, it must realize the great importance of effective communication across different geographic locations. At Zara, communication is made effective mainly through the use of IT applications and human intelligence IT solutions (Bhagwat 2011). There is need for the company to recognize the importance of consistent, powerful and real-time communication among employees in the company. Employees have a right to receiving information at the right time, thus increasing the speed at which they receive information is imperative to growth and survival of the company. For maximized use of e-communication, Zara must thus create, manage and deploy communications across an IP infrastructure in order to support its e-business activities. E-communication applications are highly important across an organization, especially when there is an interest in internationalizing. E-communication, especially for companies with international presence, saves the company on costs and resources that would have otherwise been used for travel expenses. E-communication solutions enable live broadcasts to large groups located in different geographical regions as well as two-way interactive communications thus making it possible for companies to perform training and communication using these e-communication solutions while reducing costs. When a company expands overseas, effective communication is highly important because there is need of coordination among the different branches of the company. E-communication promotes e-collaboration, thus enabling a company to arrive at decisions easily, train its employees in different geographical locations effectively and easily disseminate information and knowledge across the globe where the company has expanded to. E-communication in this case reduces administrative costs, saves time and other resources and generally increases the productivity of a company (Vasquez & Doloriert, 2011). 5. Globalisation Zara can be considered to rank well as far as globalization is concerned. The company opened its first branch in Spain in the 1980’s and expanded domestically in Spain’s cities that had a significant population. In the year 1988, Zara first globalised by opening a store in Portugal and continued to expand into other countries and by the year 2006, the company had its stores in 59 countries. Most countries where Zara has expanded are in Europe, followed by America, Middle-East and Africa and finally Asia. In 2005, the sales from international markets accounted for 69 percent of the company’s total turnover. The motivation for Zara to globalize was due to different push and pull factors. Spain had limited growth opportunities for Zara and this necessitated its expansion. On the other hand, when Spain made an entry into the European Union in the year 1986, this was a pull factor that motivated Zara to expand because the economy had now globalised and there were reduced barriers to trade and the information technology development level rose. In its globalisation process, Zara adopted different entry modes including own subsidiaries, joint ventures and franchising. The past performance of Zara has proved that globalisation has had a positive influence on the company (Lopez 2009). According to Prakashan (n.d), globalisation of a company contributes to the growth and profitability of the company if the process is undertaken effectively. It is therefore, important that Zara continues to identify suitable international markets and expand more in order to experience growth and increased profitability. Buy Side 1. Supply Chain Integration Supply chain integration is an important aspect that has enabled Zara to remain successful over the years. The supply chain of Zara is vertically integrated and this continues to hold different benefits for the company. With regard to raw materials, the company purchases fabric in four colours only and the cutting of the purchased fabric is performed in-house, even as this highly cuts costs. The suppliers of Zara are located close to the factories of the company so Zara can make orders on a need-basis and this reduces costs and wastes. When it comes to manufacturing, ready clothes are ironed and packed on hangers and it is made sure that tags are affixed to the clothes before they are let out to the stores. With regard to distribution, Zara uses trucks to transport the clothes to different stores in Europe overnight and shipping to countries outside Europe is made possible by air transport (Lopez 2009). Customers are then able to make purchases once the clothes arrive in the different stores. Overall, in Zara’s supply chain vertical integration, the design, production, distribution and retailing are all integrated and this holds many advantages to the company. According to Sadler (2007), integration and internationalisation of supply chain enables a company to use the shortest time between designing and delivery of ready clothes and accessories to different stores across the globe. This time is normally between two to three weeks, as opposed to Zara’s competitors who take more than one month to achieve this. a) Demand Management Zara is known to manage the demand of its customers well and this has enabled the company to manage different risks. Unlike its competitors, the company usually manufactures decreased quantities of clothes and accessories in order to avoid inventory risks. This enables the company to produce about 12 000 new items each year and achieve its strategy of expedited response to the demand of its customers which in turn prevents the experience of wastage and overproduction that would lead to losses especially when the clothes and accessories are not purchased as expected (Lopez 2009). According to Crum & Palmatier (2003), demand management is critical to the profitability of a company, thus, desirable for all international companies. b) Supplier Development Suppliers play an important role in any company hence it is important that the company ensures their development in different ways with regard to the improvement of their processes and capabilities in product manufacturing (Sadler 2007). Zara does not engage in any notable supplier development. Most (70 percent) of the suppliers of Zara are located in Europe, specifically Spain and Portugal, and the remaining are located in Asia in order to ensure that the suppliers have a quick enough response to the orders that Zara makes (Lopez 2009). Zara does not provide significant training to its suppliers on different important areas. c) Inventory Capacity Management Zara focuses on three major aspects that have enabled it to remain successful. These include production of lower quantities, short production time and many styles. The short lead time that Zara embraces helps the company to produce more fashionable clothes as compared to its competitors. On the other hand, production of lower quantities results in scarce supply, thus managing consumer demand levels (Aiello 2007) Apart from having most of its production done in Spain and taking two to three weeks to design and deliver end products, Zara also makes modifications to items in about two weeks and has a design team comprising 200 people. The company also conducts intensive market research that yields important information that is integrated into the product development process. The fact that Zara has located most of its business functions near its headquarters enables the decision-making process to be quick. Control is also made possible including investment in raw materials and production and processing capacities, thus ensuring a fast response to decisions based on the market research. Zara also bases on communication and information technology to manage the different functions and also manage product information that is also huge (Lopez 2009). Unlike its competitors, Zara does not adopt outsourcing from Asia but manufacturers most of its products in its factories. The company manufactures about 80 percent of its products in Europe and maintains strategic partnerships with manufacturers in Europe thus allowing for a short period between designing and distribution of end products. The company designs and cuts fabrics in-house and acquires these in four colours only in order to cut on costs and reduce wastages. Similarly, the company ensures that dyeing and printing of fabrics is performed close to manufacture even as this equally reduces wastage and minimizes the need to clear unsold inventories thus holding many benefits for the company as far as inventory management is concerned. In addition, the closeness of suppliers to Zara’s headquarters decreases the costs of holding inventory and makes it easier for the company to integrate consumer tastes and preferences as well as integrate market trends and consumer behaviour in the products during the product development process. On the other hand, because of its resistance to outsourcing to Asian countries, Zara does not experience low labour and production costs in this context compared to its competitors who outsource to Asian countries. However, inventory costs are higher for Zara’s competitors because these place orders for whole seasons in advance and these end up being held in facilities of distribution until they are periodically shipped to the relevant stores (Lopez 2009). Sell Side / E-Commerce System / The Internet 1. Sales Dynamic Pricing Dynamic strategy is a strategy that is effective in increasing revenues of a company especially in an environment where the market conditions are fluctuating. Most companies adopt this strategy depending on the nature of the industry they operate in. For apparel and sporting goods, most retailers will change prices with time as these items are mostly seasonal. It is important that companies account for different strategic customer behaviour when they come up with their pricing decisions. Most firms achieve this by under stocking their products so that customers which is same as rationing, and this motivates the customers to make their purchases early enough at the provided prices before the products run out of stock (Christ 2011). Zara is a company that is known to maintain low stocks of its products in its stores’ shelves on purpose. This is usually meant to attract the customers into buying the products they see on the shelf as opposed to them waiting for clearance sales. This strategy has been of high benefit as it has made the unsold stock at Zara to account for less than 10 percent of the total stock yet on average at the fashion and apparel industry level, the unsold stock accounts for about 20 percent of the stock (Lopez 2009). 2. Marketing &Advertising Online (Out Reaching customers) a) E-CRM Electronic customer relationship management (e-CRM) involves the integration of different web channels into the overall CRM strategy of an organization mainly with focus on achieving consistency in all functions that relate to sales, customer service and marketing in the company which together enhance the customer experience and increase customer satisfaction, loyalty as well as the profitability of the company (Fjermestad & Robertson 2015). Zara does not adopt any conspicuous e-CRM but has what can be considered as the traditional CRM. For instance, employees of Zara still use floppy disks to copy information about the daily company sales. There is therefore, need for Zara to adopt new and better CRM software that has better capabilities. If Zara plans to expand further into the international market, then an e-CRM is imperative as this will allow the multiple access to the system from different geographical locations and the information therein can be easily understood by any user in the company. b) Customer services, Email to customer, Value-added services for customer, Web updating & promotions Zara invests highly in its customer services and the company believes in the importance of having as much personal contact as possible with its customers. The staff in the different stores at Zara are in contact with the customers in order to identify their preferences in fashion so that it is possible to determine what will end up on the stores’ racks. Although the contact with customers is important at Zara, the company does not communicate with customers solely through emails. Instead, customers can reach the company through a provided telephone number and queries can be attended to through Facebook, Twitter, company email and physically visiting the stores. Since Zara remunerates its employees well, they are motivated to provide quality services to the company’s customers. With regard to value-added services for customers, Zara does not offer this option to its customers. The limited production that Zara engages in ensures that the supply is scarce and customer demand is not fully met, thus resulting in little or no unsold stock. For this reason, customers at Zara are motivated to purchase items at high prices as provided by the company. On the other hand, Zara does not use the internet to make sales and do promotions and marketing of its products. Additionally, the company does not engage in web updating with intentions of influencing its sales. However, the company only uses its web to maintain an online presence and not for any other purpose. Zara does not rely much on promotions and advertisings; rather, the company believes in word of mouth kind of marketing and high investment in its stores in order to attract customers (Lopez 2009). For successful internationalization, a company should consider investing more into its customer services and diversifying its advertising strategy (Aykin 2009). 3. Online Order Management Market extension The different stores of Zara in different geographic locations maintain an online presence thus it is possible for customers to make their purchases online. Customers can choose colour, design, and size and make their payments online and sit and wait for their orders to be delivered to them at their door step. Anyone can make their orders online, including those outside the United States and Europe, irrespective of their geographical location. Customers can make their orders online by visiting the international website of Zara and selecting their products and make their payments (Lopez 2009). By maintaining an online presence and making it possible for customers to make their orders online, Zara is set to experience considerable growth. This is because most people today are gaining access to internet connection and may prefer ordering online for the sake of convenience. For a company that is interested in further expansion into the international market, it is important that the company moves from reliance on the physical stores only. By allowing online shopping, a company gains another segment of customers and makes it possible for customers in different countries to purchase from stores in countries other than their own. A company must also ensure that the online order management is effective in order to ensure quick delivery of products to customers thus enhancing the customer experience (Aykin 2009). 4. Logistics a) Online transportation scheduling Zara ships its products to different stores through road and air transport. Trucks transport products to most of the stores located in Europe while cargo planes ship products to stores in countries outside Europe. The destinations that trucks serve can mostly be reached overnight while cargo planes take a maximum of forty-eight hours to reach the destination. Zara does not have any online transportation scheduling (Lopez 2009). Therefore, it is not possible for staff at Zara to manage the fleet of trucks with products online. For Zara to internationalise more, it has to consider adopting an online transporting schedule as this holds many advantages, especially for companies that operate in international markets. With an online transport scheduling, the staff of a company are able to set up and manage the company fleet and they can have access to the online system from anywhere they are based as long as they are connected to the internet. This enables the company to monitor the transport process and ensure timely delivery of products as well as saving time (Sadler 2007). b) Online shipment tracking Online shipment tracking enables customers to keep an eye on their orders and delivery at any given time and learn about the status of their orders. At Zara, customers can make their orders online and these are shipped to them wherever they are located at a fee depending on the bulk of the orders. Like most companies, Zara has made it possible for customers to track their orders online on the Zara main website. To be able to track their orders, customers have to first open an account on the company’s website after which they can click on “orders placed” and track their ordered products from there (Lopez 2009). Providing online shipment tracking for customers is highly important for any company that operates or intends to operate in the international business environment. Customers that are located far from stores or in different countries can make an order and their products delivered to them, which is highly convenient. This holds great benefits for both the customer and the company. This enhances the customer experience, and when delivery is made on time, helps to increase the level of customer satisfaction and loyalty. On the other hand, the company is able to make more sales as customers from other countries can purchase from the stores despite the geographical distance that may exist (Sadler 2007). c) Customer selected option Zara provides customer selected options for its customers when making online orders. Customer selected option enable a customer to make their orders based on their own desired dates and rates of delivery among others. Zara allows its customers to select the date of delivery from a calendar and does not restrict any particular dates by not allowing selection, and this holds many advantages to the customers as they can choose the dates that are more convenient to them. In addition, customers can order the shipping rates in order of their own choosing (Lopez 2009). For most companies, the customer selected option is not provided, and this is quite inconveniencing for the customers. Any company that seeks to expand into the international market must ensure to consider customer preferences and likes in different aspects. Providing customer selected option in online shopping is highly convenient for international and local customers as they can shop based on their convenience and available funds. This altogether enhances the experience of customers and helps to retain them (Sadler 2007). Conclusion Zara is among the successful companies in the fashion industry today. Although the company is already operational in a number of countries in Europe and outside Europe, this does not imply that the company cannot internationalise further. Despite the position of Zara as far as internationalisation is concerned, to ensure growth and increased profitability, there is need for Zara to expand further into more countries internationally. However, to ensure that the internationalisation process is successful, Zara must focus on the different aspects that have been addressed in this paper. Zara performs well as far as globalisation, internal operations, logistics and supply chain management are concerned. The company must thus maintain the position of these or better improve when expanding. On the other hand, Zara scores low on supplier development and online advertising. When expanding, it will be important that Zara invests in developing its suppliers as these are core to the operations of the company. In addition, investing in online advertising as opposed to word of mouth and physical stores is paramount in this digital age. More people, especially young people, today have access to the internet, thus it is easy to reach them through online means. Works Cited Aiello, J 2007, “Rightsizing Inventory,” CRC Press, New York. Aykin, N 2009, “Internationalization, Design and Global Development,” Springer Science & Business Media, New York. Bhagwat, S 2011, “Zara: IT for Fast Fashion,” Accessed from Christ, S 2011, “Operationalizing Dynamic Pricing Models,” Springer Science & Business Media, New York. Crum, C & Palmatier, G 2003, Demand Management Best Practices: Process, principles and Collaboration,” J. Ross Publishing, New York. Fjermestad, J & Robertson, N 2015, “Electronic Customer Relationship Management,” Routledge, New York. Lopez, C 2009, “Internationalization of the Spanish Fashion Brand Zara,” Journal of Fashion Marketing and Management, 13:2, 279 – 296. Mohapatra, S 2012, “E-Commerce Strategy: Texts and Cases,” Springer Science & Business Media, New York. Nonaka, I 2005 “Knowledge Management: Critical Perspectives on business and Management, Volume 3,” Taylor & Francis, London. Prakashan, N n.d, “International Business and New Trends.” Nirali Prakashan, Mumbai. Sadler, I 2007, “Logistics and Supply Chain Integration,” SAGE, New York. Vasquez, F. & Doloriert, C 2011, “Case-Study of Internationalization in Peruvian SMEs,” Journal of CENTRUM Cathedra, Vol. 4, Issue 1, pp. 77-99. Read More