ZARA: Fast Fashion – Case Solution

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ZARA: Fast Fashion Case Answers

1. Provide a short description of the “ZARA: Fast Fashion” case study

The global apparel chain, which includes the company ZARA, has been defined as a buyer-driven chain operating on a global level, profiting from a combination of refined research, design, marketing, and financial services, allowing retailers, marketers, and manufacturers to act strategically in linking international factories.

Apparel production before the 90s was generally spread worldwide, with about 30% of products being exported to developing countries. Despite attempts to lower labor costs, it still required labor-intensive steps, and thus, a need for regionalization arose in the 90s, in coordination with the fact that proximity could reduce shipping costs significantly.

Trading companies played the primary role in transporting apparel from factories to retailers, acting as cross-border middlemen, and managing supply chains for retailers internationally.

Other intermediaries were branded marketers who outsourced apparel production sold under their own brand name and branded manufacturers who also sold products under their brand name but owned some manufacturing, too.

The role of retailers was crucial in shaping imports in developed countries. The dominant trend in the 1990s was concentration, accompanied by the replacement of independent stores by chains.

Apparel retailers were also strong promoters of the quick response (QR) strategy, a set of practices aiming to enhance coordination between manufacturing and retailing so as to improve the speed of response to market shifts, which led to significant compression of cycle times. Finally, unlike other retailing sectors, apparel retailing remained relatively globalized.

In 2000, spending on apparel accounted for a considerable share of the total market while being dependent on market size, per capita income, and price levels.

In addition, despite some variation in customers’ preferences both locally and among different regions, a significant cross-border homogeneity started to prevail, especially in particular population groups such as young adults.

Apart from Zara, comparable apparel chains that dominated most international markets were The Gap, Hennes and Mauritz (H&M), and Benetton, all of which presented differences in terms of product placement, market-entry, and positioning in product space.

The Gap, founded in 1969 in San Francisco, was an unpretentious, smart casual clothesline that achieved continuous growth during the 80s and 90s while being U.S.-centric, although it had outsourced most of its production outside the United States. Its internalization began in the late 80s but was hampered by difficulties in market positioning in Europe, adapting to different preferences and enduring pricing pressures outside the U.S. and it underwent a crisis in 2001 due to a lack of distinct fashion positioning.

H&M, Inditex’s closest competitor, founded in Sweden in 1947, performed particularly well in apparel retailing in the 90s but also endured a small crisis in 2000 due to a fashion miss and a hampered effort to enter the U.S. market. Its lead times were significantly longer than Zara’s due to the complete outsourcing of production. It was quicker to internationalize but with a more focused approach to market entry, and its prices were slightly lower.

Benetton, established in Italy in 1965, achieved success in the 80s and 90s and was known for selling its products through licensees it controlled, and this format led to long lead times of several months. Thus, in the late 90s, it focused on narrowing its product lines by grouping them in “production poles” and opening large outlets in prime locations.

Inditex (Industria de Diseño Textil) was a global retailer responsible for designing, manufacturing, and selling apparel and accessories through Zara and five other chains with 1284 stores worldwide in 2001. It was founded by Amancio Ortega Gaona, still president and shareholder, in 2002 in the region of Galicia in Spain, a place with tradition in apparel and full of individual workshops that, however, lacked an organized industry association to control and manage these activities.

Ortega initially opened a manufacturing facility in La Coruña in 1963 but soon moved forward into retailing by opening the first Zara store in 1975 on the main shopping street of the city. More stores were spread shortly across Galicia, and by the end of the 80s, Zara operated stores in all Spanish cities.

In the early 90s, Inditex started to add more chains to its network by either acquisition or internal development, and in 2002, it operated Bershka, Massimo Dutti, Pull & Bear, Stradivarius, and Oysho, apart from Zara. The six chains operated as separate business units, and each one had its own strategy, image, design, manufacturing, and personnel, while all these activities were coordinated and managed by Inditex’s corporate center, which was seen as a “strategic controller.”

However, in the case of international expansion, coordination increased as the experience of older chains facilitated a quicker expansion of the newer ones.

In 2001, Inditex sold 26% of its shares to the public, although Amancio Ortega kept more than 60% and also adopted a social strategy that involved dialogue with employees, suppliers, non-governmental organizations, and local communities.

Zara was the largest and most expanded of Inditex’s chains, with 507 stores by 2001 worldwide, and was considered the primary driver of the group’s international growth. In 1990, it started…