The Phenomena of Fast Fashion Invented by Zara

free essayThe case study answers the question regarding the phenomena of fast fashion invented by Zara. In addition, the paper investigates how the distinctive features of Zara business model affect its operating economics. The case study provides the answer on the question about the ways Zara creates competitive advantages in the market due to the modern tendencies and in accordance to other approach retailers. Moreover, the paper provides author’s personal understanding of international strategy of Zara due to the market selection with the following description of the models used by the company while accomplishing the task. At last, it also investigates the best ways of development for the Zara chain, and provides some recommendations for Inditex’s CEOs.

1. The case study provides three companies, which are the key competitors for Zara on the international market. These companies are H&M, Gap, and Benetton (Chemawat & Nueno, 2006). However, all of them compared to Inditex have various business models. Thus, Inditex owns much of the production and the majority of the existing stores of the corporation. That proves the vertical integration of the company. Both these features provide Inditex a competitive advantage in the market, which is described by the possibility of quick response to the requirements of fashion industry and consumer desire. The Gap and H&M represent quite different models. These companies own most of their stores. Contrary to Inditex, they have outsourced the production. Benetton, however, follows a very different business model, having heavily invested in the production, but spends low budgets for its brand boutiques. Besides, Benetton prefers the licensees to run its stores.

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Financial results of Inditex should be compared to the results of Gap Inc, as these companies run different strategies, but gain economic stability in the market. The Gap has higher revenues than Inditex, which is 15,559 versus 3,250 accordingly (Chemawat & Nueno, 2006). However, Gap Inc. has suffered from the net loss, when Inditex has gained 23% return on investment (Chemawat & Nueno, 2006). The major problem of the Gap Inc. is its outsourcing of production, which resulted in the loss of control over the cost of production. Moreover, Inditex operates the stores in 39 countries, when Gap Inc has its stores opened only in 6 of them (Chemawat & Nueno, 2006). Therefore, despite the Gap still has a larger market share in comparison to Inditex, the last one provides much more profit. Inditex has a 13,433 market value, when Gap has a lower result of 12,687 (Chemawat & Nueno, 2006). One-year change in market value of Gap Inc. has been calculated as 60% of the domestic currency, when Inditex has 47% of the same index (Chemawat & Nueno, 2006). The Gap has the highest results, when results of H&M and Benetton are the average one, which are not interesting for the comparison. Therefore, the choice made has proven to be right.

2. Focusing on a small print run of each model and its rapid withdrawal from the market, Zara achieved a unique effect – daily the crowd storms the fashionista brand boutiques, knowing that if one does not take his/her favorite thing at once, tomorrow there will be no chance to buy it. An interesting feature of the brand marketing strategy is a complete lack of advertising. Zara prefers to invest profits in opening new stores and expanding the collection, considering that its models speak for themselves.

Zara uses its connection to the external suppliers for sourcing fabrics and other inputs for the designs. The purchasing offices are situated in two countries on different continents. There is the purchasing office in Barcelona, Spain, and Hong Kong (Chemawat & Nueno, 2006). Therefore, Zara has the possibility to buy both in Europe and Asia, and have the best prices. Moreover, the future buying options in China would benefit the company and reduce the price of goods sold.

It is notable that most of the fabrics bought from Zara are of gray color. Therefore, Inditex had to launch the company, which would manage patterning, dyeing and finishing of gray fabric. This company is Comditel, and it is fully owned by Inditex (Chemawat & Nueno, 2006). Thus, such situation is provided Zara with a competitive advantage in the market, mostly in terms of control and goods cost.

Internal manufacture is provided by 20 factories, which are owned by Inditex (Chemawat & Nueno, 2006). Moreover, 18 of them are located near Zara headquarters in Arteixo (Chemawat & Nueno, 2006). All of the Inditex factories for internal manufacture apply just-in-time production, which benefits the company compared to its competitors. This system started in 1980, and continued its development in 1990, when Inditex in cooperation with Toyota established a vertical integration in manufacturing, which was a big deal and experiment in Europe at the end of XX century (Chemawat & Nueno, 2006). The business model, which was chosen by Inditex for its main brand Zara, has proven to be the most profitable in comparison with other retailers. The possibility to combine the process of manufacture and retail helps to gain the company significant profits.

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3. Today, the global fashion industry has the rule to separate the stages of the technological process of garment production. Design, production, and distribution are controlled by different companies, which represent independent business areas. Zara Inc, contrary to the generally accepted norms and rules, controls all the stages of the technological process of the clothing production – design, actual production, and distribution. This corporation has learned to skillfully respond to the whims of fashion, updating its product range and offering its customers the fashionable clothing that meets the current global fashion trends at an affordable price. Therefore, Zara does not compete on price in the market. Hence, fashion is the key element of the competition in the market.

Due to the presence of fully owned factories, Zara has the possibility to gain control over all stages of its goods manufacturing. Moreover, this fact helps the company to react as fast as possible for the new trends in fashion. Both internal and external production was gathered in one operating center. Vertical integration has made it possible to reduce the “bullwhip effect” (Chemawat & Nueno, 2006). The effect is caused by the fact that the further the user, according to the supply chain, the greater the variability and uncertainty of receiving information on demand options. On the contrary, Zara has the possibility to go through the whole process, starting with design and ending with delivering the goods to the stores within four-five weeks. Moreover, the restocking and modification of the existing goods take only two weeks. The competitors have to take at least half a year for evaluation of the same ideas and bringing them to life.

These features have turned Zara into the most sensitive brand in the market. Despite the fact that it does not invent trends, but just follow them, has made this corporation as one of the most successful retailers. In fact, Zara Inc. does not try to guess the style, coloring, or type of fabric, which would gain popularity in the following season. Its managers just watch the market and try to satisfy the existing demand. This has brought the company to a level that the competitors would be very hard to reach.

4. The charges in the trendy copying are often addressed to Zara Inc, and thus, its brand representatives became persona non grata at the fashion shows of the leading players in the fashion industry. Each employee of the corporation signs a document banning the spread of what is happening within the walls of Inditex. Fast fashion implies a rapid adaptation to new trends, quick creation of successful models and supplying them to the market of mass production. The creativity of designers is manifested in the ability to quickly adapt the popular things, developed by someone else, for the brand collection which they work for. Considering the models of clothes and shoes in a variety of stores, it is quite difficult to differentiate where the source is, and where the replica is. Therefore, in recent years the market democratic fashion is becoming more of the same type. In addition, the problem of big range of fast fashion is changing, which means that the expectation to receive the amazing quality of the garment is simply naive.

The standardized production line could bring Zara to its failure in the future. Despite the fashion is a common language spoken by fashionistas all over the world, Zara does not take into consideration economic, social, and cultural peculiarities of different countries. Thus, some designs would never meet customer’s response in the Middle East due to the cultural and social norms of the region. Admittedly, it is advisable for Zara to invent different product lines in accordance with the demands of the particular market in each region. This would help to strengthen the positions of the brand in the modern, fashionable market without incurring additional budgets. The competitive advantage of the company is described with the help of high turnover of the products together with the efficient distribution system. The lowest level of inventory and fast reaction to the changes of fashionable trends is also increasing the level of company liability .

5. Manufacturers of fast fashion promptly update its product range and offer trendy clothes for a specific target audience at low prices, changing its range more frequently comparing to available classic seasonal collections. The costs range from the quick-change offset to the sales volume. Therefore, international strategy of Zara has appeared to be remarkable as it presents the combination of customization and standardization. The company has also made micro- and macro analysis in order to be sure in the selection of products on the particular market. The application for the market analysis had varied from country to country to assure the company management that the choice of products would suit the market perfectly. That was one of the best ideas provided by the marketing department of the company.

Zara follows standard procedures while entering the market, and these actions have helped to make the overall customization in the market easier. The company used the joint ventures in the market, which were considered the most significant for the future development of the brand. One of the barriers that company has overcome with the help of joint ventures was the problem of obtaining prime retail shops in the big malls and city centers. Moreover, the corporation used franchising for strengthening if its positions in the market. Franchised operations of the company faced a strict control held by the company’s authorities. All of these methods helped Zara to make its presence in the international markets stable and successful.

All the international activities were organized under a holding company, which was established in 1988 in the Netherlands (Chemawat & Nueno, 2006). While entering the international market, Zara has reflected all the challenges of the new market. The company has adopted for its use three models of entry, which focus on regulations, entry barriers, and economic complexities. Each of these models was used according to the demands of the market and local factors. As was mentioned earlier Zara Inc does not spend money on advertising – its founder relies on the famous method of “word of mouth,” that is, the clients will learn about the brand from their friends and colleagues, for example (Chemawat & Nueno, 2006). All these methods and steps, according to company executives, are quite manageable without additional advertising. Other chain stores selling clothes spend on average 3.5% on advertising revenues, whereas the Inditex corporation spends only 0.3% (Chemawat & Nueno, 2006). Due to all these marketing approaches, the customers of Zara nowadays are waiting near the entrance for shops to open in order to be the first one who sees the new collection of the brand. This fact proves the significance of the actions taken by the management of the company to establish its standardization.

6. Fast fashion is based on three pillars, which are the copy, speed, and price. Its strategy can be expressed in a simple formula to instantly respond to the demand, offering clothes at the height of fashion at an affordable price. Updating collections happen very often. Zara has proven to be the company with a high level of vertical integration with the international presence. Furthermore, it is in many ways a unique brand, with a special approach to the formation of collections: if the item is not sold, it will be withdrawn with high probability out of all the stores and sent back for revision, and something new will be delivered instead of this item. However, Zara is still not ready to enter such competitive markets like North America and Asia (Chemawat & Nueno, 2006). It is explained with high demands of the customers for the quality and unique items. Moreover, in North America practically all retailers use the strategy of discounts and sales, which is not the suitable marketing strategy for Zara. Therefore, Zara has to change its strategy of fast-fashion and produce the line of outstanding quality and design to finally enter the markets of Asia and North America. However, the Italian market still has the place for the retailer like Inditex, so Zara should use this territory for the future expansion.

Once McDonald’s Corporation has made a revolution in catering, offering fast service and low price for sufficient quality product and succeeded in this. ,Now Zara is making a great impact on fast fashion: first openly offering copies of the current trends and winning the love of fashionable young women who have a limited budget. For the only difference – in contrast to the McDonald’s, the fast fashion from Zara does not cause any damage to the figure and health, and brings only positive emotions. Besides, Zara has shown outstanding results while its expansion. Still, there is also a place for its development. For the future sustainability of the company, Jose Maria Castellano should stop expanding the economies of scope. The company should pay a major attention to expanding current operations. Moreover, the distribution center has to be removed at the more suitable geographical center, so there will be no problems in future logistics. The decentralization of products is also essential for Zara. If the company finds its way in creation goods suitable for a particular region, it could conquer new attractive markets.