ITSDI

IT for Fashion – ZARA Case

Submitted By:
UM18116 - Saurabh Kumar Agarwal
UM18118 - Saurav Gera
UM18119 - Sawan Kumar Achary
UM18120 - Sayan Bose
UM18121 - Sayantan Bhattacharya
UM18122 - Sayantani Chakrabory
Introduction

• Industry: Retail (Clothing and Accessories)

• Founded in the year 1975 by Amancio Ortega Global Apparel retail industry
• Headquarter: Arteixo, Spain 1834
1735.7
1561.7 1645
• Revenue: $18.9 billion (2018) 1414.1 1485

• No. of stores: 10,000

• Important events (1985):
1. Holding Company: Inditex (Industria de Diseno 2017 2018 2019 E 2020 E 2021 E 2022 E
Textil) $ Billion Linear ($ Billion)
2. Jose Maria Castellano Rios joined the company
(became Inditex CEO in 1997) CAGR: 5.3%
Strategies

Speed and Decision Making:

• Respond quickly to demands of their young & fashion-conscious customers
• Fashion misses are very common as new styles can appear suddenly, surge in popularity and then
quickly fade
• Store managers have more authority in deciding the garments to be put on sale (Decentralized)
• ‘Commercials’ (Team of 2 Designers & 2 Product Managers) decide which garments to be
produced & sold
• Have great deal of autonomy as higher management doesn’t second guess their decisions
Strategies

Marketing, Merchandising & Advertising :

• Very low spending on marketing(0.3% of revenue) while heavy spending on stores (city’s prime
locations)
• Visual merchandising: store layouts changed every 4-5 years
• Prices were fixed for Spanish market first, then are generated for other markets as a fixed % of the
Spanish market
• “Clothes to be worn 10 times”: No ‘classics’ clothes but clothes with very short lifespan forcing
customers to buy it on the spot, visit stores often
• No online selling (online return rate 50-60% v/s store return rate 5%)
Strategies

Financials and Growth Opportunities:

• 550 ZARA stores part of Inditex chain of 1558 stores in 45 countries(2003)
• 46% of group’s sales were inside Spain (largest international market: France)
• Zara generated 73.3% of the group’s sales
• Huge growth opportunities in Italy & western European market SALES SEGMENTS

Kids
20%

Men Women
20% 60%
Strategies

Ordering and Fulfillment:

• Orders placed twice a week to La Coruna
• Manual inventory management based upon direct observation & store manager judgment
• Use of Personal digital assistants(PDAs), Infrared technology, dial-up modem for order
management
• Process is complicated & divided in various steps such as breaking order into segments and
beaming these segments to concerned person who then filled up their part
Strategies

Design & manufacturing:

• Maximum time from conception to distribution center is three weeks
• Vertically integrated supply chain ensured constant introduction of new items with short lead times
• Based upon commercials' guess which need not be accurate
Strategies

Information Systems:

• Highly customized information system is used to prepare orders, distribute them over internets &
collect them
• Factories had simple applications which provided information about order & due dates
• Distribution center had largest automation with complete tracking of SKU’s
(garment+fabric+color+size)
• Stores used PDA’s which communicate to La Coruna via modems every night
• PDA’s were upgraded constantly while POS terminals remained same for over decade
• POS used DOS as operating system(not supported by Microsoft from 2003 onwards)
• DOS installation & maintenance was very simple
• No real time feedback from stores to Zara’s headquarters
• Transmission required copying into floppy disc & then sending it using internet which happened at
the end of the day
• No dialogue between PDA & POS inside store or between two stores
SWOT Analysis

• Strong brand with global

•
presence
Exclusive and uniquely
S W • Generalized collection
designed products • Limited customer base
• Vertical integration of major Strengths Weaknesses • Lack of advertising
processes • Low Safety Stock
• Strong and efficient
distribution network

• Counterfeit products eroding

• Opening new distribution
brand image
centers
• Changing consumer behavior to
• Capture emerging markets
online channels Threats Opportunities • Investing in digital
• Intense competition from local
capabilities
and global players
• Venturing into online
• Adverse foreign currency
movements T O marketing
Porter’s 5 Forces Analysis

• High Setup Cost

LOW • Establishing Brand Identity
• Achieving Economies of Scale

LOW HIGH
• Globalization & Liberalization • High PPP
• Low Switching Cost • Low Switching Cost
• Standardized, Less • New Fashion/Product line
differentiated raw materials

• Basic Need/Personal Identity

• Duplicate products HIGH
• Online Shopping threat to
HIGH • Many direct rivals
Retail stores • Low Switching Cost
• Almost similar prices
• Operate in similar markets
Value Chain of ZARA

Source: Inditex Annual Report 2013

 Factors Conventional Business Model Zara’s Business Model
Marketing and advertising campaigns are effective in Consumers’ tastes in clothing is very hard to predict and also very
Core Belief convincing a customer to buy a product (Strong hard to influence (Strong focus on Designs)
focus on Marketing)
Fixed only to selected people in the organizations Decentralized with more responsibilities and autonomy to store
Decision Making (Centralized and relatively slow) managers, designers and product managers (Decentralized and
Fast)
Ads primarily for publicizing the assortment Virtually no advertising. Ads only for yearly sales and announce
Marketing
new store inauguration (0.3% of revenue)
Design conceptualized by specialized design team Dedicated teams for different segments.
Design Teams
for all segments e.g. Women-Night wear, kids-sports wear etc.
Automated systems to track real time inventory Manual recording of orders by store managers. Store personnel
Ordering and order generation could not look up their inventory balances. New product
information gathered manually each night (Semi-Automated)
Generally apparel firms produce Classic clothes. Short life span but increased launches of new style clothing.
Product Life Span Average new launches per year : 2000-4000 Average new launces per year : 11000

Comparatively high due to outsourcing. As Zara is vertically integrated lead times as well as time for
Design to Market
Industry average is 6 months new product launces are less(2-4 weeks)
Sales Forecast It is done to match demand Not done and respond “on the fly”
2% of revenue as IT applications are outsourced 0.5% of revenue as in-house applications were developed
IT Spending
to vendors
Root Cause Analysis

People Technology
No real time sales
updation: manual
Store managers unable Withdrawal of tracking and ordering
to track inventory in Microsoft support
from 2003 onwards Heavy reliance
nearby stores
on DOS for
POS terminals Lack of information
sharing between/
among stores
Product mangers help Store managers need to call
in relocating the slow the other store managers to POS machines gets
moving items get the info (Time upgraded to new OS
consuming and ineffective)

Process Environment
Issues Faced

• Zara is the only customer using the ancient OS-DOS by vendor

• Even in 2003, Zara is using DOS, which is no longer supported by Microsoft. And Microsoft in
1985 launched the Windows OS to replace DOS
• If Zara upgrade their POS machines or some peripheral for them, then it will no longer be
DOS-compatible anymore. Although the hardware vendor has given the assurance against this,
but not the POS terminal maker
• PDAs are time consuming to use with their small screens and styluses to accomplish returns
• Inventory management system is not real time
• Zara is dependent on product managers to get estimated demand
Issues Faced (contd.)

• Manual process for updating the inventory count

• POS terminals are not connected to one another via any in-store network, and so floppy
disks are used to update sales total into the system
• POS terminals and PDAs are not connected and hence could not share information
• Store personnel could not look up their inventory balances on any in-store computer, so
manual counting is the only way to learn about stock levels
• Stores are not connected to one another via Internet, and so they are not aware about the
inventory in all other stores, and so they telephone one another for this requirement.
Issues Faced (contd.)

Department Processes Issues

No Online Sales.
Sales Sales Reporting (POS)
Outdated OS in POS

Production Planning Minimal use of Technology in Production, Schedules & Plans.

Production
Demand Forecasting Scope for better use of Analytics to predict demand.

Supply Chain Not totally accurate Inventory data Recorded(Manually

Management
Inventory Management
Entered)

Information
Technology
IT Strategy Development Lack of Structured IT Department
Factors that have impacted the Decision Making Process

• Technology Upgradation(Operating System)

• Real time and Accurate availability of Inventory data across the stores

• Information Integration with Logistics Management system

• Accurate Estimation of Demand using Predictive Analysis

• Internet Foot-print and Online selling provisions

Solution

Issues: Inaccurate Sales Reporting, POS compatibility, Inventory Management, Information Sharing.

Solution:
 POS terminal machine upgradation to a latest Operating System like Windows/Unix/Linux. In a
Pilot basis (in a phased manner). This will reduce the transitional inconveniences, and we can learn
from the new issues (if any) before applying this throughout.
 With upgradation comes advanced features like real time and accurate availability of Inventory
Data that all stores and La Coruna can access anytime.
 Intra store machines can stay connected with one another, allowing information sharing avoiding
manual information sharing by floppy disks.
 Introduction of an integrated Logistic Information Management System thereby doing away with
the manual counting of replenishment quantities and stock level
Solution (contd.)

Issues: Designing a proper system so that data flows from stores till the production center

Solution:
 Recording of the sold items and inventory at the stores in proper IT system
 Data can be accessed by commercial, product manager and production team at La Coruna
 The data can be used by the distribution center team to accurately forecast and stock the apparels
 The system at the DC will help in comparing the supply and demand, and plan production
 The data must be entered from defined point, stored at a single point and shared across different
processes
Solution (contd.)

Issues: Marketing strategies, Online presence, Demand forecasting.

Solution:
 A proper predictive analytics based Marketing Strategy would ensure proper estimation of demand
across geographies, which in turn helps in making proper logistic decisions. (E.g. Setting up of
new stores at correct locations).
 Setting up more Internet foot-print with a well designed website and also setting up online selling
provisions.