Zara: Fast

Fashion
• 2001- Zara brand was the most internationalized part of
Inditex
• 282 Stores in 32 countries outside Spain
• Sales of €1.5 Billion – internationally
• 185 stores in Europe, 35 in North America, 29 South
America, 27 Middle East and 5 in Japan

Zara Stores
56% of operations and 61% of sales are accounted as international
Estimates for 2002 -> 80% of new stores will be international
• 1988- First store in Oporto- Portugal
• 1989 – New York
• 1990 – Paris
• 1992-1997 – 1 Country/year – within 3000 km from Spain
• 1998- 1999 – 16 Countries – 5000 km
• 2000-2001 – 8 countries – less than 2000 km
• 2002 – Planned Italy, Switzerland and Finland
• Rapid expansion -> broader footprint compared to competitors
• “Oil Stain” approach – one large city first, then adjoining areas

Market selection
• Paris example:
• 1 Store -> 30 in Paris -> 67 in France – Cheaper to ship to all the
shops than to one shop
• Zara’s conditions:
• Similar to Spanish market
• Minimum level of economic development
• Easy to enter
• Commercial team done the analysis at the headquarters

• Macro analysis: Macroeconomic variables, evolution and effect

• Micro analysis: done on site – prospecting the local market

• Focus on prices rather than cost

• 3 approaches – company owned stores / joint ventures / franchise –
one was chosen for each country, sometimes shifting after entry
• Usually company owned stores were located in low risk, high
growth prospects and high profile countries

• Franchises – Small, risky or significant cultural or administrative

barriers countries (Andorra, Iceland, Poland and Middle East) –
franchises given country wide

Market entry
• Joint ventures – large, important markets with barriers to
direct entry – Germany or Japan
 120%

• General direction –
100%
same business system
in all countries
• Pricing – market 80%
Northern Europe
based
• Price included 60% Other European
Countries
shipping from Spain Americas

40% Japan

20%

Marketing 0%
Price Difference compared
to Spain
• Different affordability and brand
image between countries
• Biannual sales worldwide –
advertising and promotional
campaigns(otherwise avoided)
• Basic designs were common
between locations, with
mandatory differences
• Aided by globalisation in trends,
transcending national borders
• Zara’s international activites are being organized by Zara
Holding B.V. of The Netherlands – founded 1998
• Transactions in Euro
• Zara Holding coordinated real estate and personnel costs
associated with store operation

Management
• Sometimes the structure involved a certain region (more
countries)
• Country manager – bridged top management and store
managers
• Standardized reporting system
• Fixing problems instead pulling out from certain
countries

Management
• 2002 – 55-65 stores planned, with 80% outside Spain
• Further expansion to be determined – it will have impact on the
group since Zara accounts for 2/3 of all sales
• Limited expansion possibility within home market: 4% Market share
Zara, 6% Inditex
• Threat: H&M entry to Spain
• Italy – largest apparel market - €1000/capita vs Spain €600/capita
spent on clothes
• Joint venture in 1998 with Benetton failed
• April 2002 – Zara entered Italy- Milan store – 51:49 joint venture
with Percassi
• 70-80 stores planned in Italy for the next 10 years
• Europe was the most fashion-counscious market

Further growth
• Every region had its downsides:
• South America – smaller and less profitable
• Middle East – Profitable but small
• US – not so fashion-counscious, required larger sizes, saturated
market
• Today – 6500 Zara Stores in 88 countries
• Globally speciality retailer that designed clothes for women,
men and children
• End of 2001 operated 1284 stores around the world, including
Spain.
• 515 stores located outside Spain generated 54% of the total
revenues of 3,250 mil euro.
• 26724 employees, 10919 outside Spain.
• Average was 26 years, and 78% were women
• 80% of Inditex employees were in retail sales.
• Capital expenditures had split 80% on new stores, 10% on
refurbishing and 10% on logistics and maintenance.

Inditex
• For 2002 they wanted
to have a tight
management of
working capital and
510-560 euro million of
capital expenditures
helped them to open
230-275 new stores.
• Despite their high
margins, top
management stressed
that Inditex was not the
most profitable apparel
retailer in the world –
that stability that they
had was a more
distinctive feature.
 Galicia
• Expanded in Galicia (NW of Spain)
• Is the 3rd poorest region
• Unemployment rate of 17% (national
average 14%)
• Poor communication links
• Depended on agriculture and fishing
• Strong on textiles, sophisticated local
demand, technical institutes.

• CEO Jose Maria Castellano told that

“Galicia is in the corner of Europe
from the perspective of transport
costs, which are very important to us
given our business model”.

Home Base
• Ortega was born in 1936
• First job at 10 years old at a shirtmaker “La Coruna”
• In 1963 he founded Confecciones Goa to manufacture
housecoats.
• First Zara was opened in 1975 –”medium quality fashion
clothing at affordable prices”.
• First problem: orders-to customers.
• Resolved by affiliating with Castellano.
• In 1985 operated stores in cities with more than 100k
inhabitants.
• Opened outside Spain and invest in logistics and IT.

Early history
• End of 2002: 6 separate
chains (Zara, Massimo
Dutti, Pull&Bear,
Bershka, Stradivarius
and Oysho)
• They generated 82% of
Inditex’s net income
• Were organized as
separate business units.

Structure
• Inditex had sold 26% of the company’s shares
to the public, but founder Amancio Ortega
retained a stake of more than 60% percent.
• They generated a substantial free cash flow.
• In 2001 they implement a social strategy that
involved dialogue with employees, suppliers,
subcontractors, non-guvernamental
organizations and local communities
• Internal code conduct for external workshops
in Spain and Morrocco, pilot development
project in Venezuela and Guatemala
• Aimed to improve global companies social
performance

Recent Governance Changes

• Production took place in small batches with vertical integration

• Vertical integration helped reduce the bullwhip effect.

• Design finished goods in 4-5 weeks and redesign in 2 weeks.

• Zara produces and presents very limited volumes of new items

in certain key stores.
• They are produced in a larger scale only if consumer reactions
were unambiguously positive. Thus, failure rates on new
products were very low compares to competitors.
• Quick response was critical to Zara’s superior performance, the
connection between the two was not automatic.

Zara business system

• Each of Zara’s three product lines (For women, men and children)
had a creative team.
• Work on products for current seasn by creating constant variation
• Continue in-season development
• Select the fabrics and product mix for the following season and year
• The process of adapting the trends and differences across markets
was more evolutionary - they had frequent conversations with store
managers.

• The zara’s design team continuously track consumer preferences and

use this information about sales potential based on a consumption

• The Zara;s design teams transcended design, are bridge

merchandising and the back end of the production process.

Design
• Could Inditex cope with the complexity of managing
multiple chains without compromising the excellence of
individual chains, especially since its geographic scope
was also relatively broad?

• Looking farther out, should it start up or acquire

additional chains?

Questions
• If they change it: they need more innovation and new
perceptions, profitability of some brands is unequal, and
shall change to an easy managerial method.
• If they keep it as it is it save time and money, they know
what to do and how to keep their success, they shall avoid
risky unnecessary changes.

Change or keep?
• Zara need to focus on the different types of the business
integration processes and at the same time need to apply
certain useful and the modernized techniques to fulfill different
types of objectives patterns and the fulfillments.
• It needs to manage different multiple chain factors withous
compromising the available chain factiors which are there in
the organization.
• Need to be made so that the ultimate objective can be met
seriously. The margins at the same time need to be kept in the
preservation processes to satisfy all the upcoming demands of
the customers as well as all of the clients across the world.

What they should do?

• Female customers- be kept as main customers and target
to campaigns
• Quick response system – continuously improved
• Transfer of best practices and knowledge within the
whole chain of stores
• Expanse in Asian market – Japan, Korea
• Australia and New Zeeland
• Additional chain in that region

Suggestions – improvements