Zara Case Study
Oct 2012
ZARA – Operations case study
Abhishek Dubey, Scott Striegel, Scott Huthmacher, Ankur Ahlawat, Annapurna Karicherla, Gaurav Bhatt
The problem
Zara is planning to open 100 new stores worldwide over the next two years.
Why it matters
Zara has gained competitive advantage by tight vertical integration of supply chain processes. As Zara gets bigger and spreads across distant locations, this type of integration may fail to scale up.
What to do about it
Zara needs to identify key stress points in its operations and adapt its strategy for large- scale expansion.
Zaras competitive advantage has been the ability to respond quickly and efficiently to the latest fashion trends and consumer preferences. Zara plans to open almost 100 new stores, a third of which will be joint ventures and franchises. In this case, we analyze the risks of expansion to determine whether Zara needs to loosen its policy of vertical integration. We start with the analysis of the companys strengths, customer preferences and competitive challenges that Zara faces. We look at a key financial measure of performance, return on assets, to analyze Zaras performance in past years. In particular, we benchmark Zaras current performance with the companys performance in 1991 – before the first wave of international expansion began. We look at key strengths in operations that made Zara successful from 1991 – 2001 and identify potential risks as we move beyond 2001.
Customer
Zaras customers are below 40 years of age (exhibit 2, Zara Case) and are conscious about the latest fashion trends. Over half of the customers are women. There are three primary sources of value for the customer – one, a sense of exclusivity and scarcity; two, new seasonal trends (page 5, Zara case); and three, affordable prices. Over three quarters of the customers are located in Europe, with almost half of the companys total sales coming from Spain. Thus regional fashion trends of Spain and Europe drive the primary preference of the customers.
Most of the customers make a decision to buy after trying out the clothes in stores (page 5, Zara case). Word-of-mouth recommendations play an important role in buying decisions. Customers like to shop in up-scale and prestigious shopping malls.
Company
Zara is valued at 12 Billion Euros and has grown sales by about 25% over the past 3 years (Figure 1). Zara is