Zara: A masterpiece business plan
When you go to Zara, you know you’re always going to find something right? be it for you or maybe your friends birthday gift, you don’t go home empty-handed.
I have heard people saying- oh I want something different, let’s go to Zara.
It’s not unusual to pass a Zara store and do a double-take – didn’t you just see that on the ramp walk in fashion week?
We all know Zara is all about staying and slaying on top of the hottest trends.
The middle-aged mother buys clothes at Zara because they are affordable, while her daughter aged in the mid 20’s buys Zara clothing because it is fashionable. Clearly, Zara is riding two of the winning retail trends firstly, being in fashion and secondly being affordable in price making a very effective combination out of it.
Zara’s business model is very well organized to serve its customers and establishes the standard within the industry.
Zara’s business model:
- Limited production
- Supply chain management
- High turnover of products
- Strong distribution network
- Deliver new fashion as soon as the trend emerge
- Beating out the competition
- No advertising cost
- Retail outlet in high end locations
- The stock delivered is strictly limited, ensuring that each store only receives just want they need. This goes towards the brand image of being exclusive while avoiding the build-up of unpopular stock.
- By reducing the manufactured quantity of each style, Zara creates artificial scarcity and lowers the risk of having stock it cannot sell.
- Zara has limited production so it manages to save on its warehousing and inventory costs in every shop worldwide. Those sorts of savings are very important for any business
Supply chain management:
- Zara produces around 450 million items a year. How can it stay so efficient with the sheer volume that passes through its supply chain? Ensuring all this runs smoothly is what Zara does the best.
- Zara has revolutionized the world of fashion by bringing out a large number of collections each season, instead of the same old two collections every year – one for spring-summer, and another for fall-winter – which has been the norm in the fashion industry.
- Zara has set the standard for the fashion sector because it manages to “design, produce, distribute and sell its collections in only four weeks.
- Zara’s success relies on keeping a significant amount of its production in-house and making sure that its own factories reserve 85 percent of their capacity for in-season adjustments. In-house production allows the organization to be flexible in the amount, frequency, and variety of new products to be launched.
High turnover of products:
- If a certain style or design becomes the new must-have on the street, Zara gets to work. Designers churn out the new styles and they’re fast-tracked to stores while the trend is still going strong.
- Store managers communicate customer feedback on what shoppers like, what they dislike, and what they’re looking for. That demand forecasting data is instantly funnelled back to Zara’s designers, who begin sketching on the spot.
- It adapts couture designs, manufactures, distributes, and retails clothes within two weeks of the original design first appearing on catwalks. This is in stark contrast to the average six months it takes to produces items in the fashion industry.
- The stock changes so quickly that shoppers are motivated with a “now-or-never” choice each time they try on a new top that won’t be in the store they next time they visit.
Strong distribution network:
- Zara is all about timing. Its products wind up on the shelves and clothing racks of its shops because Zara produces them by itself and only continues to manufacture those products that sell the best within its stores. As a result, “customers of Zara know that if they like a garment, they have to buy it right away because it can go out of stock and never come back
- Zara’s strong distribution network enables the company to deliver goods to its European stores within 24 hours, and to its American and Asian outlets in less than 40 hours.
Beating out the competition:
- As a brand, their speed and responsiveness to the latest fashion trends are key to Zara’s competitive advantage.
- Nowadays, it seems that none of its main competitors like Sweden’s H&M, Spain’s Mango and America’s The Gap – have a more flexible and efficient model than Zara when it comes to offering
- The latest fashion
- The lowest possible price
- The shortest possible time
No advertising cost:
- Zara spends no advertising cost rather spreading the word about the company depends on the word of mouth and on its landmark retail outlets in high-end locations
- Zara has used almost a zero advertising and endorsement policy throughout its entire existence, preferring to invest a percentage of its revenues in opening new stores instead
Retail outlet in high end locations:
- Zara invests a lot to get its retail outlet in high end locations such as Fifth Avenue in New York City, and Oxford Street in London.
- Instead of advertising, Zara uses its store location and store displays as key elements of its marketing strategy. By choosing to be in the most prominent locations in a city, Zara ensures very high customer traffic for its stores.
- A lot of time and effort is spent designing the window displays of the stores to be artistic and attention grabbing.
In nut shell: