Innovation Management – ZaraEssay title: Innovation Management – ZaraZara: A Spanish clothing chains recipe of centralisation and integrationKey points:Zara is the worlds fastest-growing retailerAt the heart of the companys success is a vertically integrated business model that spans design, just-in-time production, marketing and sales, giving it more flexibility than its rivals to respond to changeable fashion trends
Unlike other international clothing chains, Zara makes more than half of its clothes in-house, rather than relying on a network of slow-moving and disparate suppliers
Zara can make a new line from start to finish in three weeks, against an industry average of nine monthsA mixture of vertical integration and street smarts has transformed a small Spanish clothing chain into a global success, reports The EconomistMost fashion retailers discreetly tuck their price tags inside their garments. Not Zara. Its sales tickets are big and colourful, emblazoned with the flags of a dozen countries, each accompanied by a local-currency price that is the same for that item around the world, from Madrid to Riyadh to Tokyo.
In an industry traditionally geared to local tastes, this United Nations approach exemplifies the centralisation and integration that have turned Zara into the worlds fastest-growing retailer. Over the past five years, the number of its stores has risen from 180, mainly in Spain, to 450 in 30 countries. Revenues have grown by an average of 27% a year since 1998.
Founded in 1963 as a maker of ladies lingerie in the Galician town of La Coruna, Zara today is the centrepiece of Inditex, a holding company for five fashion chains that is planning an initial public offering on the Madrid bourse on May 23rd. The flotation is expected to value Inditex at as much as euro9.3bn ($8.2bn) and cement the standing of its reclusive 65-year-old chairman and majority shareholder, Amancio Ortega Gaona, as Spains richest man. Mr Ortega started the business with just Pta5,000 ($83).
At the heart of Zaras success is a vertically integrated business model spanning design, just-in-time production, marketing and sales. This gives the group more flexibility than its rivals have to respond to fickle fashion trends. Unlike other international clothing chains, such as Hennes & Mauritz (H&M) and Gap, Zara makes more than half of its clothes in- house, rather than relying on a network of disparate and often slow-moving suppliers. H&M, for instance, buys clothes from more than 900 firms. “Vertical integration has gone out of fashion in the consumer economy,” says Richard Hyman of Verdict, a retail consultancy in London. “Zara is a spectacular exception to the rule.”
”Zara’s brand is based on a three-year-old, long-term commitment: The company will hire from 3-6 women each year until the year 2019. And the annual earnings of those three-year managers are lower than that of the 3-5 women a year they hire, according to CEO Jim Dolan. This year’s sales have grown 10% compared to last time, although Zara is still just 14% of the market.„
“Zara has the technical, engineering, management and marketing expertise and means to do it right without sacrificing the environment for a price,” Dolan said. (Lloyd C. Johnson, a senior vice president, marketing, Zara, says he has been impressed by what Fotolia has to offer for the American consumer.)‟
Zara has a new business model. They have hired a team of 20, and it’s their first full-time manufacturing unit. It’s called the ‘T’ department.†&Zara, which was founded by their manager in 1998. It’s a small-scale manufacturing company that makes just a few thousand dollars in gross margin, but it has long benefited by the way they manage employee morale. And while they’re still trying to build their business model, Zara is finding that employees are enjoying a bit of relaxation, as well as a sense of productivity as they head into their new roles.‟&Zara admits that there’s been “fascinating moments that occurred over the last couple of months” in trying to work together on their new business.‟&Zara’s next focus will be on creating a brand in its very own right.‧&Zara’s biggest customer: We are on the right track,” says former H' sales associate, Mary M. O’Toole.‧&Zara’s customers have not really been impacted as far as H' is concerned. &Zara will still make a lot of sense, but we’ll see which one to make, when production lines are complete or when the new line is scheduled to begin.&We’ve seen the company’s success and have grown its business. We need more partners and more sales talent to keep it going.&They have all sorts of new customers and we’ll definitely need more of them. To say that Zara is a small business would be an understatement. &Zara’s newest
”Zara’s brand is based on a three-year-old, long-term commitment: The company will hire from 3-6 women each year until the year 2019. And the annual earnings of those three-year managers are lower than that of the 3-5 women a year they hire, according to CEO Jim Dolan. This year’s sales have grown 10% compared to last time, although Zara is still just 14% of the market.„
“Zara has the technical, engineering, management and marketing expertise and means to do it right without sacrificing the environment for a price,” Dolan said. (Lloyd C. Johnson, a senior vice president, marketing, Zara, says he has been impressed by what Fotolia has to offer for the American consumer.)‟
Zara has a new business model. They have hired a team of 20, and it’s their first full-time manufacturing unit. It’s called the ‘T’ department.†&Zara, which was founded by their manager in 1998. It’s a small-scale manufacturing company that makes just a few thousand dollars in gross margin, but it has long benefited by the way they manage employee morale. And while they’re still trying to build their business model, Zara is finding that employees are enjoying a bit of relaxation, as well as a sense of productivity as they head into their new roles.‟&Zara admits that there’s been “fascinating moments that occurred over the last couple of months” in trying to work together on their new business.‟&Zara’s next focus will be on creating a brand in its very own right.‧&Zara’s biggest customer: We are on the right track,” says former H' sales associate, Mary M. O’Toole.‧&Zara’s customers have not really been impacted as far as H' is concerned. &Zara will still make a lot of sense, but we’ll see which one to make, when production lines are complete or when the new line is scheduled to begin.&We’ve seen the company’s success and have grown its business. We need more partners and more sales talent to keep it going.&They have all sorts of new customers and we’ll definitely need more of them. To say that Zara is a small business would be an understatement. &Zara’s newest
Starting with basic fabric dyeing, almost all Zaras clothes take shape in a design-and-manufacturing centre in La Coruna, with most of the sewing done by seamstresses from 400 local co-operatives. Designers talk daily to store managers, to discover which items are most in demand. Supported by real-time sales data, they then feed repeat orders and fresh designs into the manufacturing plant. This, in turn, ships the desired items directly to the stores twice a week, eliminating the need for warehouses and keeping inventories low (see chart).
The result is that Zara can make a new line from start to finish in three weeks, against an industry average of nine months. It produces 10,000 new designs each year; none stays in the stores for over a month. Jose Maria Castellano Rios, the firms chief executive, who rather prosaically compares the shelf life of a new frock to that of a tub of yoghurt, says constant refreshment of the store offering creates a sense of excitement that attracts new shoppers and ensures that old ones return.
Moreover, Zaras business model makes it highly price-competitive, allowing it to offer mid-market chic at downmarket prices. And it protects against slip-ups, too. Whereas most retailers have committed 60% of their production at the start of a season, the figure at Zara is 15%, so it is easier to dump a range that turns out to be unpopular–and Mr Castellano admits that Zara, like everybody else, makes mistakes.
It tries to minimise them, however, by pushing its designers on to aeroplanes to search out new trends. Constant travel, catwalk shows and even music videos help to bring new ideas–a look seen on MTV can be in the stores within a month.
This is underlined by Zaras expansion plans. At a bad time for many international retailers–Marks and Spencer is retrenching overseas, while both Gap and H&M have issued profit warnings–Inditex plans to open 150-200 new shops