So they are encouraged to come into the stores instead and try on the unique fashions that Zara offers (screenshot below shows people at a Zara store in Madrid, Spain). Because their clothing designs change often, it is harder for people to see them clearly online. In Spain customers visit Zara stores 17 times per year on average compared to 3 times per year for competitors. Annually there is 10 percent of inventory unsold compared to industry averages of 17 – 20 percent. Zara sells 85 percent of its items at full price compared to the industry average of selling only 60 percent of items at full price. And that particular item or style may not be available again after it sells out. The short lead times for delivery of unique fashion items combined with short production runs enable Zara to offer customers more styles and choices, and yet still create a sense of urgency to buy because items often sell out quickly. Such short term focused order cycles make forecasts very accurate, much more accurate than competitors who may order every two weeks or every month.Ĭlothing items are priced based on market demand, not on cost of manufacture. Stores place orders twice a week and this drives factory scheduling. Zara has 12 inventory turns per year compared to 3 – 4 per year for competitors. As a consequence, Zara does not have lots of excess inventory, nor does it need to do big mark-downs on its clothing items. Short production runs create scarcity of given designs and that generates a sense of urgency and reason to buy while supplies last. They reach this market by locating their stores in town centers and places with high concentrations of women in this age range. The company’s core market is women 24 – 35 years old. New items can be designed and out to the stores in 4 – 6 weeks, and existing items can be modified in 2 weeks. When they see inspiring examples they quickly send design sketches to the garment designers at the Cube. Company Business ModelĪgents for the company are always scouting out new fashion trends at clubs and social gatherings. In 2020 Zara was ranked as the 41st most valuable brand in the world by Forbes (see bibliography below). It is the flagship business unit of a holding company called Inditex Corporation with headquarters in Arteixo, Galicia, a city in northwestern Spain near where Mr. The company was founded in Spain in 1974 by Amancio Ortega and his wife Rosalía Mera. The screenshot below shows a closeup satellite view of this facility. The heart of the Zara supply chain is a huge, highly automated distribution center (DC) called “The Cube”. Zara’s highly responsive supply chain is central to its business success. It carries about 11,000 distinct items per year in thousands of stores worldwide compared to competitors that carry 2,000 to 4,000 items per year in their stores. Zara changes its clothing designs every two weeks on average, while competitors change their designs every two or three months. Run simulations of the Zara supply chain to see how it works, and how to improve it. CASE STUDY CONCEPT: The Zara supply chain drives its successful business model.
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