Strategic Management [MGT 425]

Asssignment-1

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 Fast Fashion
When Amancio Ortega, a former Spanish bathrobe maker, opened his first Zara clothing store, his
business model was simple: sell high-fashion look-alikes to price conscious Europeans. After
succeeding in this, he decided to tackle the outdated clothing industry in which it took six months
from a garment’s design to consumers being able to purchase it in a store. What Ortega envisioned
was fast fashion”— getting designs to customers quickly. And that’s exactly what Zara has done!
The company has been described as having more style than Gap, faster growth than Target, and
logistical expertise rivaling Walmart’s. Zara, owned by the Spanish fashion retail group Inditex
SA, recognizes that success in the fashion world is based on a simple rule—get products to market
quickly. Accomplishing this, however, isn’t so simple. It involves a clear and focused
understanding of fashion, technology, and their market, and the ability to adapt quickly to trends.
Inditex , the world’s largest fashion retailer by sales worldwide, has seven chains:

Zara (including Zara Kids and Zara Home), Pull and Bear, Massimo Dutti, Stradivarius, Bershka,
Oysho, and Uterqüe . The company has more than 6,340 stores in 87 countries, although Zara pulls
in more than 60 percent of the company’s revenues. Despite its global presence, Zara is not yet a
household name in the United States, with just 45 stores open, including a flagship store in New
York City.

What is Zara’s secret to excelling at fast fashion? It takes approximately two weeks to get a new
design from drawing board to store floor. And stores are stocked with new designs twice a week
as clothes are shipped directly to the stores from the factory. Thus, each aspect of Zara’s business
contributes to the fast turnaround. Sales managers at “the Cube”—what employees call their
futuristic-looking headquarters—sit at a long row of computers and scrutinize sales at every store.
They see the hits and the misses almost instantaneously. They ask the in-house designers, who
work in teams, sketching out new styles and deciding which fabrics will provide the best
combination of style and price, for new designs. Once a design is drawn, it’s sent electronically to
Zara’s factory across the street, where a clothing sample is made. To minimize waste, computer
programs arrange and rearrange clothing patterns on the massive fabric rolls before a laser-guided
machine does the cutting. Zara produces most of its designs close to home—in Morocco, Portugal,
Spain, and Turkey. Finished garments are returned to the factory within a week. Finishing touches
(buttons, trim, detailing, etc.) are added, and each garment goes through a quality check. Garments
that don’t pass are discarded while those that do pass are individually pressed. Then, garment
labels (indicating to which country garments will be shipped) and security tags are added.

The bundled garments proceed along a moving carousel of hanging rails via a maze of tunnels to
the warehouse, a four-story, 5-million-square-foot building (about the size of 90 football fields).
As the merchandise bundles move along the rails, electronic bar code tags are read by equipment
that send them to the right “staging area,” where specific merchandise is first sorted by country
and then by individual store, ensuring that each store gets exactly the shipment it’s supposed to.
From there, merchandise for European stores is sent to a loading dock and packed on a truck with
other shipments in order of delivery. Deliveries to other locations go by plane. Some 60,000 items
each hour—more than 2.6 million items a week—move through this ultra-sophisticated
distribution center. And this takes place with only a handful of workers, who monitor the entire
process. The company’s just-in-time production (an idea borrowed from the auto industry) gives
it a competitive edge in terms of speed and flexibility.

Despite Zara’s success at fast fashion, its competitors are working to be faster. But CEO Pablo Isla
isn’t standing still. To maintain Zara’s leading advantage, he’s introducing new methods that
enable store managers to order and display merchandise faster and is adding new cargo routes for
shipping goods. Also, the company recently announced that it’s developing a new logistics hub
that will be able to distribute almost half a million garments daily to its stores on five continents.
Zara’s CEO says that this new facility will lay the groundwork for continued rapid expansion
worldwide. And the company has finally made the jump into online retailing. One analyst forecasts
that the company could quadruple sales, with a majority of that coming from online sales.
Questions
1. How is strategic management illustrated by this case story?
2. How might SWOT analysis be helpful to Inditex executives? To Zara store
Managers?
3. What competitive advantage do you think Zara is pursuing? How does it
exploit that competitive advantage?
4. Do you think Zara’s success is due to external or internal factors or both?
Explain.
5. What strategic implications does Zara’s move into online retailing have?
(Hint: Think in terms of resources and capabilities.)