Week 4 – Zara Case – Option 1:
This week we once again look at the apparel industry, this time the Zara case (see Course Notes). Please answer this question. Also, please check out the other posts and comment on one of them. If you’re first, please come back later!
The author describes Zara’s business strategy as “counter-intuitive” (p.2 line 4). Do you agree? Please explain why/why not. (If you use technical terms from the case, please ‘translate’ them into plain language)
A reminder about deadlines
Your blog comments are due at 12.00 on the day of the class (Mondays). The case mini-analysis assignment is due at the start of your tutorial. The Week 4 assignment is also about Zara – check Blackboard later today. The blog discussion should help you with the assignment, but the questions are different.
I do agree with the author’s description of Zara’s business strategy being counter-intuitive. I agree with it because Zara looked at the practices that were used by their competitors and realised with the integration of technology and intelligent use of staff they could improve the way the system operated.
ReplyDeleteThe usual way competitors simply tried to forecast what trends would be like Gap was doing was out dated and risky. By arming their staff with PDA’s and getting them to do some probing into what customers wanted, also using software that recorded and analyzed sales Zara was better at predicting what trends were emerging.
As it seemed obvious to most firms to outsourcing all of their manufacturing to developing countries so they could cut costs and offer low prices to customers, Zara went for a different option of doing mainly all of their manufacturing locally which meant they were able to have faster speed to market and do their twice weekly deliveries with new stock coming in. This meant they were no running less risk of being accused of having slave labour and tarnishing their brand.
As most firms stock a lot of really popular items Zara has created an impression that their clothes are more exclusive. This has helped them to have customers coming into stores on a more regular basis and means they do not over stock items. As the reading stated the saying in the fashion industry “Inventor = Death”.
Zara has integrated the use of technology well with the practices they use. The counter-intuitiveness of not following the common industry practices and using by not using similar strategies to its competitors has enabled them to be a game changer in the industry and create an organisational structure and system that is hard to replicate.
The author describes Zara’s business strategy as “counter-intuitive” (p.2 line 4). Do you agree? Please explain why/why not. (If you use technical terms from the case, please ‘translate’ them into plain language)
ReplyDeleteGAP started to decline in profit because of too much inventory held in stores. Having too much unwanted products forces the store to mark down or write off profits resulting in less profit or none at all. This happened because of bad design, Micky Drexler who was the CEO at the time started to guess what was the latest fashion and guessed wrong which resulted in closing down hundreds of stores.
I agree on why Zara’s business strategy is counter-intuitive because they didn’t guess what was the latest fashion like GAP did. Store managers would gather data by asking their customers questions and recorded to their PDAs. PDAs were linked to the store point-of-sales system, showing how garments rank by sales. Information would be sent to the headquarters of Zara and the design staff would design something new based on the information.
Backed up by such intense data gathering is their ability to create a new design and be in the stores in an average time of 15days compared to other rivals that receive new styles once or twice a season. 60% of Zara’s merchandises is produced in-house and is also vertically integrated by making their own fabrics and purchasing most of its dyes from its own subsidiary.
I totally agree that Zara’s business strategy is counter intuitive as compared to norms of retailing in the fashion industry. I know that technology plays a huge role in the success of this strategy but I would like to focus more on Zara’s deviance from the conventional fashion wisdom
ReplyDeleteFirst, Zara shuns advertisements. As compared to the industry average of spending 3.5% of a firm’s revenue on advertising, Zara spends only 0.3%. I guess, there would be a lot of word of mouth marketing and online advertising (its websites sends out online mailers about products according to you interests). It probably also saves on a lot of costs.
Second as mentioned in the first comment, most of the products manufactured by Zara are for a limited production run, which is truly considered unusual as running out of ‘best- sellers’ might be seen as a disaster in other fashion retail chains. This counter- intuitive strategy encourages customers to buy the products when they visit, at full price because they know that the next time they visit, chances are that the product will not be there. I totally agree with the first comment’s take on the promotion of “exclusive products” which contribute to customer sales and repeated visits knowing that each time they visit, they will find something different.
The third part of this strategy is the in- house production as compared to other giants in the industry who tend to outsource manufacturing to low cost countries. I think this is key to Zara’s success. By producing in-house, this is what allows the delivery of the “Zara Experience”- the delivery of a new range of clothes in only two weeks’ time. By producing in- house, not only do they save time in delivering the product, it also reduces the chances of making errors and at the same time allows them a huge degree of control over the designs through the data collected by managers. This degree of responsiveness if of course only made possible by its vertical integration and “technology orchestrated coordination of suppliers, just in time manufacturing …” E.g.: their highly automated factories can cut fabrics and dye them according to the design specification which I think is particularly amazing in terms of the time saved to focus on other important areas.
I don't believe that Zara's strategy is at all counter-intuitive. It is perhaps risky, and different to the what has become the norm in the industry, but this does not make it counter-intuitive in my opinion.
ReplyDeleteZara's information-based strategy was designed to increase their agility in the market, making them more sensitive to changes in preferences of their consumers, and give them the ability to react to such changes. They made massive investments in a vertically integrated information system and manufacturing and logistics technology to enable this, which at the time may have seemed unconventional to their competitors, but I would be more likely to call it a brave strategy rather than "counter-intuitive".
To say that being agile in the face of changing consumer preferences is counter-intuitive does not make a lot of sense to me. Zara made a bold move to invest in its vision of the future, and it paid off very well for them. The logic of their vision, however, was sound.