Zara Case Study

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4. Was Galicia a fertile ground for the emergence of an apparel retailing powerhouse? Why? Did the conditions in Galicia impact Zara’s business model? How?

It is difficult to say, as Galicia had the most tradition and thousands of small apparel workshops and tailors. But, based on certain factors, I would say that Galicia was not fertile grounds for emergence. Per the case, Galicia was the third-poorest of Spain’s regions with an unemployment rate of 17%. They also were in a corner with communication thread being more difficult – though, this was an advantage as well, as it lowered transportation costs as mentioned by Zara’s CEO.

This impacted Zara’s business model, as mentioned previously, as it constrains certain actions for Zara. The poor economic status of the country makes it difficult to upstart and create high quality resources and products without having to make a larger initial investment. Furthermore, high unemployment rate and economic downturn suggests there may not be enough spend per household to even purchase into this type of fashion, as Spain was more open to different kinds of apparel and fashion as is – their consumer may be more price sensitive. Lastly, the workflow and communication flow would also be slowed down, potentially creating longer lead times.

5. Consider Zara's vertical integration decisions with respect to (i) design, (ii) sourcing and manufacturing, (iii) marketing and retail. Do they pass the better‐off and ownership tests discussed in class?

Design

The design aspect for Zara was critical as the trends varied and changed so quickly. In order to be successful they needed to be positioned on knowing their customers and noting the changes that are happening in their landscape. Designs team ability to relay this type of information to their production teams allows for quicker turn around and faster turn rates. As they own this process completely and it is more beneficial to them to own this process from beginning to end, they pass both the better-off and ownership tests.

Sourcing and Manufacturing

Zara has purchasing offices in areas such as Barcelona and Hong Kong that connect their inputs and finished products from external suppliers. Even with any in-house production being made, a lot of garments and cuts were still being sent out externally. With their expansion being successful based these external moves and outside purchasing offices (as this allows faster production and cheaper costs as well in those certain countries), I believe they pass the better-off test and not the ownership test.

Marketing and Retail

Per the case, marketing efforts from Zara are extremely minimal, as they only spent 0.3% of revenue on any advertising, while other retailers utilized 3-4%. They essentially let their product speak for themselves. Their retail stores on the other hand allowed managers to set the store and decide what products were displayed. They also had control of which designs were deemed successes or not back to the design teams. There was hardly any turnover from these managers as they were the success driver for each store. Though, there are some opportunities, as this autonomy and control sometimes resulted in missed fashion trends and large markdown sales. Yet, it seems the internalized effort from both marketing and retail teams show benefit from this model – thus, they pass both tests.

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