ZARA: IT For Fast

Fashion
Case Study

Introduction
Zara, one of the largest clothing retailers, was founded in 1975 by Amancio Ortega.
With its innovative strategy, it achieves global expansion and becomes one of the
most profitable brands. Zara is one of the largest international fashion companies.
The main product lines of Zara are Womens, Mens and Childrens clothing. Zara
stores are located in prime shopping districts and are known for bringing the latest
fashion trends from the runway to store shelves within weeks Mcafee, Dessain, &
Sjoman in 2007. It belongs to Inditex, one of the largest distribution groups in the
world. They have a customer centric business model, which integrates design,
manufacturing, distribution and sales through a wide network consisting of their
own stores. Inditex operated 1558 stores in 45 countries out of which nearly 550
were Zara stores. Zara generates a major portion of Inditexs sales accounting for
73.3%. It offers a great choice of new style clothes for Men, Women, and Children
along with moderate prices everytime. The women clothing account for 60% of
Zaras revenue. It has developed the business model to sell the garments by
following trends and styles, with virtually no advertising and trust the decision of a
group of employees called as commercials on what clothes should be in store.
Zara has pioneered the niche market and has presence in all continents: Europe,
America, Asia, Middle East, and Africa. Zaras core business model is vertically
integrated, it specializes in speed and efficiency and the fast fashion trend. Zara
prefers developing applications internally for its use, instead of buying the
commercial available software. The case describes this value, concentrating on its
operations and IT infrastructure.

Quantitative Facts

The first Zara store was opened in 1975 in La Coruna, Spain.

In 1985, a holding company named, Inditex was formed over Zara. The main
product lines of Zara are Womens, Mens and Childrens clothing.
Inditex operates 1,558 stores in 45 countries out of which 550 stores are a
part of Zara chain.
Zara generates a major portion of Inditexs sales accounting for 73.3%.
The women clothing account for 60% of Zaras revenue.
The net income of 438 Euro million about $502 million US dollars was spent
on revenues.
Zara introduces 11,000 new items in comparison to 2000-4000 of its
competitors. Zara treats the items as starting point instead of treating them a
send of its design and procurement efforts.
Zara uses only 0.3% of revenue for its marketing expenditure, instead of 3%4% used by its competitors.

Customers know that the store inventory changes frequently, about 75% of
the merchandise is changed three to four weeks, so they need to buy it on
the spot.
Even though Zara makes use of the internet, it does not sell merchandise
over the internet as the distribution centers are not configured for small sales
and the rate of return is as high as 50% - 60%.
Zara spends only 0.3% of its revenue on advertising as compared to 3%-4%
of those of its competitors

Qualitative statements

Zaras business model was quite simple to what other companies

normally have in order to respond to the demands
Link customer demand to manufacturing and link manufacturing to
distribution
When the company started off, it soon realized that retailing and
manufacturing needs to be closely linked in the apparel industry where
consumer demand forecast are hard to predict
Two important aspects of the companys business model were:
To be responsive, where the company can respond very quickly to the
demands to consumers who are fashion conscious people. To cope up
with the changing fashion trends and clothes that doesnt turn into
fade
Intuition was the one thing that senior managers wanted to take
advantage of the employees throughout the company, instead of
relying only on the small set of decision makers. All employees were
allowed to pool in their ideas and share what they thought the final
sales will be as they were catering to the customers on daily basis.
They placed orders only for the items they thought would sell rather
than relying on what the headquarters said about the orders. Zaras
collection was created and then modified over time by the teams of
commercials. A great deal of autonomy was given to store product
managers and employees. They decided which clothes each stores
would be able to order. Commercials gave the final decisions on
orders and no second guessing was practiced as that would increase
the response time and it emphasized on decentralized decision
making.
Zaras marketing and advertising was minimal. The company did no
advertising and spend more amount on its stores.
Zaras stores location was always in a citys prime retail district
often on the best street.
Prices were kept based on the distribution costs and the market
conditions which were determined by product mangers.

Zara provided clothes which had short life spans and dont go out of
fashion. Three approaches were implemented by Zara:
Zaras customers knew that they should buy cloth on spot or else they
wont get it next time
Shoppers knew they should visit the store more often in order to get
the new styles
Zara clothes were designed to be clothes that can be worn 10 times
and still look and feel the same
No internet selling was done by the company as the distribution
centers of the company were not configured for picking small orders
and shipping them to consumers as the transportation cost would
increase and the second reason was the problem of Returnability
which were the orders bought online.
The financials and growth of the company were subject for ample
growth and prosperity as the companies earnings has been tripled.

Minor Problem

Lack of Store Managers

Store managers are the key figure in retail stores. They oversee in-store personnel,
decide which merchandise to order and which to discontinue. Also they transmit
customer data and reflect own sense of designs to Zaras team. It is because of
store managers acute observations of the in-store demand that enable Inditex to
decide whether they will replenish or remove specific items. If Zara wants to expand
globally it has to make sure that there are enough innovative, strategic and
responsible store managers. The lack of Zaras store managers in the future global
expansion will become a limitation.

POS System

The POS system runs on DOS and Microsoft does not supports it. Also the POS
terminal wont be compatible with the current POS software. DOS operating systems
are now obsolete and in the future it will be hard to depend upon it.

PDAs

The PDAs used in Zara stores are not connected with their headquarters or with
other stores. There is no in-store connection to link employees with the database so
that they can check the inventories and daily sales.

Website

Zara was not selling clothes through its website. The website was used only as a
display window for clothes. There was no way of placing an order through their
website.

Core Problem
There were two systems operated in the Zara stores which were PDAs and POS
systems. There were various problems faced due to the decentralized IT systems. At
that time, many within the company thought it was taking too long and costing too
much to fax orders each time and forth to all stores around the meters long. The fax
machines were unreliable and there were some paper shortages and other similar
problems that cause delays. The company first begin using the handheld computers
and then switched to another PDA manufacturer. The POS terminals were not
connected to each other via any in-store network so, employees copied daily sales
totals from each terminal onto a floppy disk and then carry the disks to one modemequipped terminal to accomplish the transition. POS and PDAs could not share the
information and the stores didnt knew about other stores information when they
wanted to know if the other store had a particular SKU in stock. Store personnel
telephoned one another to answer such questions and get the required information.

Conclusion
Zara is a multinational retailer and people believe that it is brand with a strong
value chain that is a process of adding value to the product. Zaras production is
vertically integrated which helps them to bring newer fashions and designs to stores
in a small amount of time. Their IT infrastructure is getting obsolete day by day,
though it is efficient but would not be able to cope up with the growing technology.
Advancements are needed for a sustained growth.

Recommendations

Zara should upgrade its IT system according to the new and advance technology.
They should expand new distribution centers and application process to maintain
theyre competitive advantage in the changing environment.
Zara had developed their softwares internally. So they should focus more on its
softwares development according to the growing trends. Point of Sale should be
upgraded; they should be able to communicate with stores at any time. Packing
should be done automatically and single orders should be processed, as this is a key
feature for Zara to compete in the digital age. Due to the growing digital technology
adding value will get difficult. As information would be widely available and
decision-making would get easier, earning profits from these would also get difficult.
Therefore Zara need to upgrade their IT structure, which is very important for the
success of the company.