Zara Case Study

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Continent design offices will serve two purposes. They will allow for flexibility in demographic and cultural

differences within clothing trends and enable new designs to be created specifically for the southern hemisphere where the season will be opposite to the northern hemisphere.

Franchising will only be utilized in markets that are geographically or culturally difficult to set up a directly owned retail store. For these instances where franchising is the best alternative for country entry, Zara will be better off formalizing their culture, practices and procedures through refined documentation ensuring a successfully repetitive retail image. Zara has a sound balance sheet with fair liquidity ratios showing that global expansions are being self-funded with low level of liabilities (Appendix E). To cover the expansion costs, Zara needs to explore financing options through debt.

In addition to franchising, an ambitious expansion plan will add a substantial number of new employees potentially might cause Zara and Ortega’s vision to get lost in transition. Zara should mitigate this risk by explicitly articulating the culture throughout the company. In line with Zara’s image, their marketing strategy will continue as is.

Long Term Recommendations

The long term strategy needs to maintain the differentiating values that have made Inditex, and more specifically Zara, a very successful company. Zara has set itself apart from the competition by staying on top of fashion trends with a turnaround time of 15 days as opposed to a nine-month average for the competition (Appendix C). Zara has also maintained their manufacturing facilities in Europe while the competition has outsourced this function to emerging countries with cheaper labor. This has boosted Zara’s reputation and increased control over their production. Another distinguished value is Zara’s focus on vertical integration and their ability to control all aspects of their business in the age of “economics of consumption”, where clothing firms are looking to reduce costs at all levels. Since Zara has been so successful to date, it is advisable to expand in a slow, controlled and calculated manner into the new markets of North and South America for the coming five years, after which they will be able to consider entrance into the Southeast Asia and Oceania markets.

The North American market is immediately attractive since they follow the same seasons as the core business in Europe and the local design hub will allow keeping up with local trends and preferences. Our analysis shows that once the North American market is fully realized, a distribution center needs to be constructed in the Eastern United States by 2010 (Appendix F). This will function as a secondary distribution center for all of North America. The Zara brand will need to be fully established and operating at their current 15% profit across North America before other Inditex brands are introduced to the market. This will ensure that the Zara brand is not cannibalized by other Inditex brands prior to getting a strong market share in North America. It is estimated that 50 Zara stores are needed to be opened in the North America over the next five years to continue to grow the brand in an efficient manner.

Finally, Zara needs to expand to the Southeast Asia and Oceania regions. This will take place once the stores in the Americas are operating efficiently in approximately five years. Based on the predicted store growth it is estimated that by 2007 the packing facility in Spain will need to be expanded (Appendix F). It is estimated that within 10 years the Zara brand will be successfully operating across the globe. This will stretch their centralized management system but the negative effects will be mitigated by strong communication ties between headquarters and localized distribution and design hubs on each continent. Leveraging off the core values that delivered immense growth to date, Zara will be worldwide leaders in the clothing industry from manufacturing to retail.