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11
Zara a Spain-based high-fashion, low-cost retailer, stunned investors and analysts by
revealing that its profits climbed 30% in the first quarter of this year along with an increase in
sales of 15%. Yet, 70% of its revenues come from Europe, and it is based in a country where
the macro economic situation is quite challenging. Zara is the flagship chain store of the
Inditex group and is considered a Spanish success story. How is Zara doing it so well while
other eurozone firms have stuggled?
Well, Zara has a unique business model. Innovation in business models does create value,
and is generally cheaper than product and technology innovations. Countless companies
such as IKEA, Dell and Zipcar are highly successful due to innovative business models.
Questions (2nd individual reflection for my 3810 students but open to all to comment):
1. What is unique about Zaras business model compared to more traditional fashion
retailers?
2. How does Zara create value to customers?
3. What do you consider Zaras competitive advantages to be?
4. What about its online strategy?
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Comments
1.
2014. Zara is hoping to see a 10% rise in revenue linked to its online store, theyve
even released an iPad & iPhone apps. (Don 03/09/2010). This demonstrates a great
understanding of societys use in communication and technology devices. Zara is truly
the innovator of fashion retailers.
Don, Tercio. AQNB, Zara bites the internet. Last modified 03/09/2010. Accessed
September 26, 2012. http://www.aqnb.com/2010/09/03/zara-bites-the-internet/.
Reply
2.
cant sell these items, they have to put them on sale, and this is when the majority of
customers purchase the product.
Zara, Company. Accessed September 26, 2012.
http://www.zara.com/webapp/wcs/stores/servlet/category/ca/en/zaraW2012/11112/Company.
Bryan, Borzykowski. Canadian Business, Zara escapes economic recession in
Spain. Last modified September 06, 2012. Accessed September 26, 2012.
http://citationmachine.net/index2.php?
reqstyleid=10&mode=form&reqsrcid=ChicagoWebsite.
How does Zara create value to customers?
Zara creates value to its customers in a number of ways. A few ways were discussed
above in the previous question. The first way that Zara creates value to their
customers is by being able to provide them with the newest and most up to date
fashions. Zaras distribution center is out of Europe and therefore the wait time is at
most two weeks compared to Chinas of two months. The customers of Zara are able
to wear the newest fashions as they enter the market. People are always trying to find
a way to be the first one representing the newest fashion. With Zara making this
possible, they have established a strong customer loyalty to the ones that always want
to be the first one wearing a new coat or shirt. Another way that Zara creates value to
its customers is by pricing clothes differently depending on the location. The cost of
clothing from Zara is cheaper in Europe and more expensive in Asia and North
America because the North American and Asian countries are able to afford the latest
clothing designs compared to Europe. This allows Zara to accommodate all customers
in every country. It doesnt limit the company to one country. The customer base can
range all over the world. The company has also cut costs on advertising and in other
areas of the company in order to maintain their high quality and low cost fashion
designs. If a company can produce a product at low cots and sell to all potential
buyers, they will generate a lot more revenue than a company that produces a product
at high cost and is forced to sell the product at a high cost.
What do you consider Zaras Competitive advantages to be?
I think Zaras competitive advantage is the fact that they are fresh. They have a
fast production and distribution strategy that allows them to offer the latest fashions in
less than two weeks. Also, with them being able to produce and distribute new
fashions in a short amount of time, it allows Zara to change over 75% of the
merchandise on display every 3 or 4 weeks. This increases the frequency of customer
visits. (Zara).
SlideShare, Zara. Accessed September 26, 2012.
http://www.slideshare.net/mericarla/zara1.
What about its online strategy?
After doing some research, it appears that Zara also has a strong online appearance
in the market. They have over six million facebooks friends that describe the company
as possibly the most innovative and devastating retailer in the world. Zaras online
strategy is the same as the stores. Its possibly even better as shoppers can purchase
products 24/7. They expect on-line retail to grow $144 billion in Western Europe by
2014. Zara is hoping to see a 10% rise in revenue linked to its online store, theyve
even released an iPad & iPhone apps. (Don 03/09/2010). This demonstrates a great
understanding of societys use in communication and technology devices. Zara is truly
the innovator of fashion retailers.
Don, Tercio. AQNB, Zara bites the internet. Last modified 03/09/2010. Accessed
September 26, 2012. http://www.aqnb.com/2010/09/03/zara-bites-the-internet/.
Reply
3.
Zara produces their clothing to have a short wear span (10 wears) forcing consumers
to need to purchase more designs sooner. This ensures a high competitive edge for
Zara in product development, strategic partnership and advertising and marketing. In
doing so, Zara has become much more efficient and is able to better serve their
clientele in providing additional value and profitability to the company (Borzykowski
2012). Having a quick distribution time of 3-4 weeks, a design team of 200 people
(compared to competitors who have significantly smaller design teams) there are
more options for new clothing lines and more efficient manufacturing times. This also
gives more options to store managers, who have more autonomy than their
competitors do, in what to stock, what to put on sale as well as store design and
layout. This allows managers to better serve customers who are more aware and are
listening to customer needs than the CEO and designers in the company who are not
always surrounded by customers (123HelpMe 2012).
Zaras online strategy is lagging behind other fashion retailers (Kenna 2011). In the
article found in the Bloomberg Businessweek, it states that Zaras move to the online
retail world was long over-due, although it is a great strategy for the company, as it
is much more cost effective for the company to launch a web-service as opposed to
opening and investing in 50 more malls in the U.S. (Kenna 2011). According to
Jesus Echevarria, a spokesperson for Zara, they will be effectively managing and
operating an online presence, however the company is not rushed, as there is no need
to rush expansion. Zaras strategic online presence will help in expansion and to
trump rival H&M in the U.S. market (Kenna, 2011).
References:
123HelpMe.com, 2012. Zaras Business Model, Information and Communication
Technologies, and Competitive Analysis. [Accessed September 28 2012]
Borzykowski, Bryan, 2012. Zara Eludes the Pain in Spain. Canadian Business 85,
no.14, p67: (September),
http://web.ebscohost.com.proxy.library.carleton.ca/bsi/detail?
vid=3&hid=111&sid=4afece85-a31b-48ef-baa17ad7eb57d193%40sessionmgr104&bdata=JnNpdGU9YnNpLWxpdmU
%3d#db=bth&AN=78584873.
Kenna, Armorel, 2011. Zara Plays Catch-Up with Online Shoppers. Bloomberg
Businessweek (August), http://www.businessweek.com/magazine/zara-plays-catchupwith-online-shoppers-08252011.html.
Reply
4.
1. Most retailers outsource production to low cost Asian countries, where as Zara is
vertically integrated with the majority of production carried out in owned and
controlled facilities in Spain. This allows a lot more flexibility and speed. Zara is able
to identify trends and have the clothes in the store within 30 days. Zara will catch
fashion while it is hot to attract more sales at full prices and fewer discounts. Most
retailers try and forecast what customers might buy in later months while Zara
supplies its consumers on demand. Trend identification comes with constant research,
thats why Zaras machinery can react to the reports of modification within 30 days.
Zara can offer more choices in more current fashion than its competitors because it
delivers products to its stores twice a week.
2. Zaras business is all about reducing response time, fashion stock is like food. It
goes bad quickly. Zara value proposition is concentrates on three winnings aspects.
-Short lead time= More fashionable clothes
Zara is continuously keeping up with fashion and ensuring consumers get what they
want. By keeping open dialogue with purchaser to receive a sense of what they want,
along with staying in line with latest trends.
-Lower quantities=Scare supply
Zara reduce quantity manufactured, to create a scare for its product and in fashion the
less availability, the more desirable. Also lower quantities create less risk if a style
does not work well because less will be exposed to its purchasers.
-More styles= More choice and more chances of getting it right
Zara produces more styles then more quantities per style on the bases that if one sells
out there are another style waiting to replace it. Fresh produce thats moving in step
with fashion trend and updated frequently will keep consumers happy.
3. Zaras competitive advantage is its ability to react to change in a short period of
time, rather than concentrating on forecasting for later seasons or trends. The only
forecasting efforts Zara implies is towards the kind and amount of fabric it will buy.
There is less risk and margins lost on fabrics than finished goods errors. Furthermore,
Zara has such flexibility which its production that some fabric are semi-processed or
un-coloured for any immediate product needs.
4. Information and communication technology is the heart of Zaras business. Zaras
success is based on collecting information on consumers needs, trends flows and
feeding the information to the database at head office for quick transitions. The online
strategy allows the warehouses to receive product information, to prepare quick and
accurate designs. Also, the distribution process does not waste time waiting for human
sorting, it ensure each orders reaches its right destination immediately.
http://thirdeyesight.in/articles/ImagesFashion_Zara_Part_I.pdf
http://www.inditex.com/en/who_we_are/concepts/zara
http://www.123helpme.com/view.asp?id=97642
http://www.businessmodelalchemist.com/2005/06/zaras-business-model.html
Reply
5.
Dishman, Lydia. 2012. The Strategic Retail Genius behind Zara. Forbes.
[Accessed September 28, 2012].
http://www.forbes.com/sites/lydiadishman/2012/03/23/the-strategic-retail-geniusbehind-zara/
Harbott, Arif. 2011. Analyzing Zaras business model. Business thoughts.
[Accessed September 28, 2012]
http://www.harbott.com/2011/03/03/analysing-zaras-business-model/
Burgen, Stephen. 2012. Fashion chain Zara helps Inditex lift first quarter profits by
30%. The guardian.
[Accessed September 28, 2012].
http://www.guardian.co.uk/business/2012/aug/17/zara-inditex-profits
Kenna, Armorel. 2011. Zara plays catch-up with online shoppers. Bloom berg
business week magazine.
[Accessed September 29, 2012].
http://www.businessweek.com/magazine/zara-plays-catchup-with-online-shoppers08252011.html
Reply
6.
With the unique business model that Zara operate with, it is clear that they have some
certain competitive advantages in the marketplace. One of the main points being that
they are able to differentiate their product line faster than any other close competitor.
As Charles Darwin once said, it is not the strongest of the species that survive, nor
the most intelligent, but the one most responsive to change. However, without a
doubt Zaras main competitive advantage is the fact that they have completely finetuned their supply chain. The majority of the aspects listed above that add to Zaras
business model are due to the fact that the company uses its supply chain as more than
just a strategic tool, but as a fundamental aspect of their company. Zara have shown
that in todays competitive environment, it is essential to do more than simply go for
the cheapest options. The supply chain has shown that if managed correctly, then it
can provide sustainable competitive differentiation and positioning, whilst also
reducing operating expenses and increasing throughput.
In terms of Zaras online strategy, they only began to sell their products over the
Internet in North America in September 2011. For a long time, the website was only
used for the promotion of their brand unlike their main competitors who were
receiving the main share of online sales. What is interesting about the strategy of Zara
is that when implementing the new online store, they sold to markets in Britain,
Spain, Portugal, France, Italy and Germany. These are places where the competitor
Gap was not shipping or ready to launch yet (Tercio, 2010). Zara also has a large
Social media following, and their Facebook page (with 14,738,872 likes as of
01/10/12) is one of the most followed clothing brands online. The Zara brand has
created more of an online community, and part of the reason that consumers shop at
Zara is for the enjoyment f seeing what clothes they have in stock. If a customer
purchases something that they believe not many others have, then it gives them the
sense of individuality. It is quite clear that Zara are to continue having their main
focus on their key competitive advantages in their retail outlets rather than putting to
much emphasis on online sales.
References:
Don Trecio, 2010.
Zara Bites the Internet
http://www.aqnb.com/2010/09/03/zara-bites-the-internet/
Accessed 01/10/12
Lydia Dishman, 2012
The Strategic Retail Genius Behind Zara, Forbes
http://www.forbes.com/sites/lydiadishman/2012/03/23/the-strategic-retail-geniusbehind-zara/
Accessed 01/10/12
Andrew Pearson, UBS
The Story Of Zara The Speeding Bullet
http://www.uniquebusinessstrategies.co.uk/pdfs/case
%20studies/zarathespeedingbullet.pdf
Accessed 29/09/12
Reply
7.
The team of designers will be another advantage for Zara compare with other fashion
retailers. The three lines of items help Zara achieve their different target market.
What about its online strategy?
Zaras online strategy helps them to shorter their turnaround time and increase their
flexibility. Also the online store helps Zara to create a high-virtualized sales network.
On the other hands, the online store will help them to deliver the new item
information to their customer in a shortest time.
Also the online store will enable the communication between Zara and customers
including the existing customers and future customer. The online strategy will let
people know Zaras latest news and status, and also people can find the newest
fashion item online and purchasing through online. Furthermore, the online store will
also help Zara to reduce their stock risk and increasing the freshness of their items.
Reply
8.
Zara gains local support based on their local supply of jobs to the community. To
enhance this further, prices are different based on the location and Zara has kept
Europe prices low in comparison to Asia and North America. Zara refrains from
advertising and instead focuses its capital on the creation of new stores. This in turn is
almost the best advertising as it places the brand in not just any ordinary mainstream
context.
4.) Zara launched the first online boutique on September 6, 2010. I was in some
senses late to the game but they wanted to ensure a strong online demand before
initializing it. The online service matches the level of service and quality that the real
stores posses. The site offers all the same selection as the stores and all at the same
prices. Free pick-up from the stores is available and so is paid delivery. Zara also
offers the same 30 day return policy as in-store with customer support workers
accessible through email and text. However after reading many customer reviews of
Zaras online service it seems to be very unreliable for customer service and delivery
times. Zara will have to ensure that their online quality lives up to their world wide
respected success.
References
1. Kenna, Amorel. Bloomberg Businessweek, Issue 4342. Zara Plays Catch-Up with
Online Shoppers. September 29, 2011. Accessed October 1, 2012
http://web.ebscohost.com.proxy.library.carleton.ca/bsi/detail?sid=e94a2867-bcd3469f-aa6a415de93a53f7%40sessionmgr112&vid=1&hid=108&bdata=JnNpdGU9YnNpLWxpd
mU%3d#db=bth&AN=65076276
2. Speer, Jordan K, Apparel Magazine, Aug2006, Vol. 47, Issue 12. Top 5 Sourcing
Strategies. Accessed October 1, 2012.
http://web.ebscohost.com.proxy.library.carleton.ca/bsi/detail?sid=c65b5e5e-ac2e4888-aeaf-9cf9613153ba
%40sessionmgr115&vid=1&hid=108&bdata=JnNpdGU9YnNpLWxpdmU
%3d#db=bth&AN=22112593
3. BORZYKOWSKI, BRYAN. Canadian Business, October 17,2012, Vol. 85, Issue
14. Zara Eludes the Pain In Spain. Accessed October 1, 2012
http://web.ebscohost.com.proxy.library.carleton.ca/bsi/detail?sid=fda2b969-43a34c46-9062-3fcbd5b1caca
%40sessionmgr114&vid=3&hid=108&bdata=JnNpdGU9YnNpLWxpdmU
%3d#db=bth&AN=78584873
Reply
9.
10.
References:
Kotler, P., G. Armstrong, P. H. Cunningham, and V. Trifts. Principles of marketing
8th Canadian edition. Toronto, ON: Pearson Education Inc.
Willems, Kim, Wim Janssens, Gilbert Swinnen, Malaika Brengman,
Sandra Streukens, Mark Vancauteren. From Armani to Zara: Impression formation
based on fashion store patronage. Journal of Business Research. 65.10 (2011): 1487
1494. Web. 1 Oct. 2012.
http://www.sciencedirect.com.proxy.library.carleton.ca/science/article/pii/S014829631
1003596#bb0355 .
Harbott, Arif, 2011. Analysing Zaras business model. [Accessed 29/09 2012].
http://www.harbott.com/2011/03/03/analysing-zaras-business-model/ .
OSTERWALDER, ALEXANDER, 2005. ZARAS BUSINESS MODEL.
[Accessed 01/10 2012]. http://www.businessmodelalchemist.com/2005/06/zarasbusiness-model.html .
Kenna, Armorel, 2011. Zara Plays Catch-Up with Online Shoppers. [Accessed
30/09 2012]. http://www.businessweek.com/magazine/zara-plays-catchup-withonline-shoppers-08252011.html
Zara Online Store. http://www.Zara.com
Reply
11.
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