Zara

Zara’s quick response involves constant monitoring of what customers prefer, producing goods in small batches, keeping a centralized distribution center to allow for a bi-weekly delivery of products, displaying inventories in stores for no more than four weeks, and shorter stocking and restocking periods as compared to other companies in the industry.  As a result, Zara continually meets what its target market needs in the shortest time possible.  The twice-weekly deliveries ensure that its stores will not run out of items on display.  Customers are assured of the company’s timeliness and consistency in its deliveries.  At the same time, the fast turnaround eliminates the need for warehousing.  Zara’s designers are capable of churning out several designs in a day and manufacture them in small batches for display in its stores.  In this manner, design failure is very low since only those that receive positive customer feedback will be manufactured in bulk.  The inventories are often changed in three to four weeks, creating a feeling of freshness and scarcity among customers.  The company’s quick response translates to lower working and manufacturing capital needs, while keeping revenues high.

This type of business model has clearly worked for Zara.  However, it has its pitfalls.  For one, the design and manufacturing pace could result to very high selling and administrative expenses that could eat up a large part of the company’s revenues.  Also, keeping a central distribution center and making twice a week deliveries are only feasible in areas that are close to where the facility is located.  Once the deliveries are made outside of Spain, this could translate to very high shipping costs.

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Zara’s quick response business capability has proven effective as evidenced by the company’s continued growth.  To keep the company competitive, it has to modify its quick response to consider distance and market differences.

2.         Expansion is the obvious way for Zara to grow.  It has to expand in markets that have not been tapped yet.  For instance, Zara has very little presence in Asia.  Many countries in the region have become aware and receptive to global fashion trends.  Hong Kong is one of the fashion districts in Asia and people from all over the region visit Hong Kong particularly because of this.  The company has to be highly visible in this market.

As for Zara’s prospects in the Italian market, it can also be successful in the country given that the consumers here are the most fashion-forward in Europe.  Zara is already a brand equated with quality, style and class.  Italians would love Zara’s creations so long as they are accessible to them.

In terms of where the company should focus its expansion, as I’ve stated above, it has to be in markets where it doesn’t have a presence yet.  Although Europe is fashion-forward and not yet saturated with branded manufacturers, the real market to conquer are those of the developing and newly developed markets.  People in these markets are eager to keep up to date with fashion and are willing to spend money on branded items.

The company’s business model could work well globally provided that it adapt to the factors that are unique to a particular culture or market.  The problem with Zara’s centralized distribution system is on costs of shipment.  The farther a retail store is from where the facility is located, the more expensive shipment would be.  As a result, the prices of Zara’s goods will become higher, making them less affordable to a fashion-hungry market.  If the company can shift production in nearer countries, costs will significantly lower.  As a result, its products will become affordable to what is considered the middle-income group in any given market.

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