Zara, Disrupting the Norms - Essay Example

?ZARA, Disrupting the norms A case-quest study Introduction A Fashion product is simply a fresh fruit. That is, just like a fruit its life time is very diminutive. For an example a fashionable, trendy dress on its debut day will be very fresh with customers abundantly buying and appreciating it. However by the next two three days, it would be quite accustomed and should be lucky to be awarded a second glance by the customer. Then by the end of the week the design would successfully reach the end of its life cycle in a quick death. Thus fashion is categorized as an exceedingly perishable, sensitive product. Thus branded apparel/fashion retail is an old industry. Exposed to continuous changes over the years, it is always in its growth stage of its industry life cycle. Despite of the short life of the products, industry continues to prosper as long as innovation and creativity exists. Spain as the base is a brand that leads the fashion retail industry with inspiration and innovation. ZARA the pride of Inditex was established by Amancio Ortega Gaona, who understood the perishable quality in clothes, that consumers would perceive them as commodities like milk, bread or meat to be used quickly rather than kept away in storage over time. His vision was to provide ‘freshly baked’ clothes to the shopper with a recipe transfiguring the branded apparel industry, overcoming many weaknesses that already existed. As a result of this vision at preliminary public offering of Inditex in 2001, the company was 26 times oversubscribed emphasizing the reflective success of all its brands (mainly ZARA, who is now the leader in most of the processes in the fashion retail industry). ZARA delivers the latest styles in international fashion in an environment of created design. With stores in the main commercial areas of cities across, America, Europe and Asia, ZARA offers fashion inspiration in the tastes, wishes and regimes of today's men and women. ZARA’s profound success lies in its business model. This study found it to be a disrupting model. Thus, first part of this paper describes the business models of the industry and Zara discovered from the case-quest tasks. The second part discusses how Zara’s business model disrupts the industry through innovation and risk aversion, while conclusion answers the ultimate question of case-quest. The business model (describe) A company’s business model is known to be closely associated with the company’s strategy. A business model is organization’s story-line for how and why the company’s products and competitive tactics will create revenue stream and have a cost structure that produces desirable earnings and return on investment. Accordingly essentials of a business model depend on whether the chosen strategy makes good business from a money making point of view. (Thompson, Strickland, & Gamble, 2005) Before we discover the business model of ZARA via examining its strategy, the branded apparel industry’s general business model requires to be identified. business model for the industry The branded apparel industry stemming from the apparel industry has almost the same business model with more emphasis on the ‘marketing and sales’ primary activity. Refer Appendix no.1 for an illustration of the same. The story of the business in the branded apparel industry are cyclic in order; design/order, inbound logistics, manufacturing, distribution and marketing & sales respectively. The designs are created by leading designers hired by the brand and the design or the order is often outsourced to another company (mainly in Asia, South America and Africa) for manufacturing process. High labor cost in the brand home and regional countries is the likely reason for the outsourcing decision. Sea, air and land transportation is used to distribute the products usually from centralized distribution center in a cost effective way. Most of the earned revenue is spent on marketing and sales activities. Budgets are heavy on advertising to build brand image, which is a core objective of differentiation in their strategy as belonging to the branded apparel industry. Furthermore technology involvement is highlighted in all business components giving the players edge in the industry. Currently revolutionizing the industry are three key challenges; crafting a consensus-driven forecast (“one-number plan”), exploiting in-season excellence, and developing a synchronized supply chain. Integrating these competencies innovatively into the overall business process will give competitive leverage in the industry. (Verity Partners LLC) business model of ZARA A company’s business model is based on the company’s strategy. Thus ZARA’s current strategy needs to be identified clearly from the topics highlighted by the set tasks of case-quest. Considered to be the largest fashion retailer in the world, ZARA’s mission is to be the leader and provide fast fashion to the consumer while increasing shareholder’s value. The brand focuses on three focal clothes lines (product lines which are women, men and children), considered as segments in a consumer market characterizing consciousness of high fashion at sensible prices. In the BCG Matrix (a strategic tool) which has two axis Relative market share and Market growth rate, women’s clothing (strongest line/product) can be placed as the ‘Star’ of ZARA. Because according to the case information both Matrix variables record high extremes. Men and Children lines also can be situated as the same category but with reduced market share and growth rate. (Kotler, 2003) In application of the Market Options Matrix, ZARA adapts the ‘Product development’ strategy. (Dess, Lumpkin, & Eisner, 2006) That is they present new products (‘freshly baked clothes’) in a very short time span to the current market via continuous innovation and creativity. This strategic approach has influenced unique behaviors of ZARA shoppers such as frequent visits, instant purchases and constant changing in wardrobe collection (no store a ways). Concluding, as per M. Porter’s Generic strategies (Dess, Lumpkin, & Eisner, 2006) ZARA places itself at ‘differentiation’ somewhat towards the ‘cost leadership’. Indefinitely a controversial hybrid strategy! Thru its life ZARA has stayed focused on its principal fashion attitude that creativity and quality design composed with quick reaction to market demands will produce viable profits. Quick reaction meant achieving the ‘First mover’ competency in differentiating + cost leading strategy. (Thompson, Strickland, & Gamble, 2005) Thus to attain this ZARA developed a business model that combined three strategic goals for operations, (which have also become the key competencies): First to develop a system that entails short lead times, secondly to decrease quantities produced to reduce inventory risk and thirdly, to surge the number of offered styles and/or choices. Thereby described business model is pictured in Appendix no.2.1 ZARA within the industry C. Christensen in his book introduces the phenomena of disruptive innovations. These are innovations that upset the existing/natural “order of things” in an industry and thereby cause changes that topple the industry leaders. ZARA’s business model can be recognized as such a disruptive innovation. Zara’s business model disrupting the apparel industry The disruption by ZARA starts with its unique strategy which is a hybrid strategy (differentiation + cost leadership as a fast mover). M. Porter argues that a company cannot adapt two strategies; if it is ‘stuck in the middle’ of his Generic Strategies it would be highly muddled and thus unsuccessful (Dess, Lumpkin, & Eisner, 2006). ZARA however is quite flexible and successful in adapting two strategies disrupting Porter’s argument and general norms. The business model built on this unique strategy therefore is indeed a disruptive innovation. The most outstanding feature in this business model is ‘time efficient’ processes. As in ZARA’s vision the lead time throughout its value chain is absolute minimum. Compared to other industry leaders (Gap, NEXT etc. who battle with time), innovative time management techniques incorporated in the primary and support activities (e.g. concept to store in 2 weeks while others take 6-8 weeks) is ZARA’s foremost competitive advantage. Another feature delivering competitive advantage is innovative cost management like no other. In-line with the cost-leadership section of its strategy the business model presents many unique ways of cost-cutting unmatched by the industry. E.g. no marketing budget instead there is only a store deco budget which easily accomplishes both brand image building and maintenance, no inventory is kept at sales outlets thus storage cost savings, no operation aid software is purchased all inbuilt by employees hence no support cost either, production levels minimum with no excess inventory costs such as storage and discount sales, production units are geographically closer with no additional transportation cost, etc. A customer sensitive design process is another unique disrupting innovation that makes ZARA stand out in the industry. All trendy fashion ideas delivered by ZARA are actually generated from the sales staff (almost 80% of its entire employees) that listens and studies the customer. Thereby ZARA doesn’t make any ‘fashion-misses’ and keeps a returning customer, unlike competitors who invests heaps of money on top designers. A difference from a risk management perspective ZARA’s business model enabled it to create consumer behavior that ensured sales. Shoppers continually satisfied, visited frequently and they always bought because life of a fashion at ZARA was very short and available quantity was limited. Thus the risk of excess inventory, losing market share and sales was managed. Desirable inventories of raw materials (mostly in grey, thus able to style) are always kept in storage. This permits a quick manufacturing process while reducing the procurement risk and fashion misses due to unavailability of inputs. Decentralization of the organization via the business model has empowered the employee (aka commercials). Thereby ZARA employs a well satisfied loyal workforce with all most no employee turnover risk. Information risk within ZARA is also at bare minimum with employee built software and devices that are stable and accurate. These points clearly illustrate the competitive advantage of ZARA’s business model in a risk management point of view. Thus moving at the pace of society, fashion ideas, and trends that society itself has originated via disruptive innovation, ZARA is found to be successful among people, cultures and generations throughout the world. Conclusion Case-quest has proven to be a worthy exercise in studying the branded apparel industry leader ZARA. The step by step approach lead to the discovery of it controversial hybrid strategy that has resulted a disruptive business model. Therefore the final conclusion is that ZARA is in FAST FASHION RETAIL BUSINESS. Bibliography Dess, G. G., Lumpkin, G. T., & Eisner, A. B. (2006). Strategic Management (2nd ed.). New York: MaGraw-Hill. Draft, R. L. (2003). Management (6th ed.). Ohio: Thomson Learning. Kotler, P. (2003). Marketing management (11th ed.). New Jersey: Prentcie Hall. Parkinson, C. (1999). Reading in Strategic Financial Magagement. Practical Elements. London: CIMA. Thompson, A. A., Strickland, A., & Gamble, J. (2005). Crafting and Executing Strategy (14th ed.). New York: McGraw-Hill. Verity Partners LLC. (n.d.). White paper: Verity Partners LLC . Retrieved April 2, 2011, from Verity Partners LLC Web site: http://www.veritypartnersllc.com/files/phatfile/Verity%20Branded%20Apparel%20whitepaper%20final.pdf?&MMN_position=31:31 Wit, B. D., & Meyer, R. (2004). Strategy Process,Content, Context An international Perspective (3rd ed.). London: Thomson. Zara- case quest. (n.d.). Retrieved 03 31, 2011, from casequest.net: http://www.casequest.net/Zara%20CaseQuest/process.html "Zara’s Business Model, Information and Communication Technologies, and Competitive Analysis." 123HelpMe.com. 02 04 2011 Read More