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Zara Stores Business Model-Case Study

ZARA’S BUSINESS MODEL

ZARA’S BUSINESS MODEL-This is a Student Sample ORDER YOUR PAPER NOW
INITIAL COLLECTION AND PRODUCTS

Zara has dedicated teams of designers and product managers who conduct the design, production, sourcing, and production of particular fashions. They are responsible for the initial collection and in-season response to demand.

This reduces lead times for fashions by producing where it sells.

DESIGN

Zara determines new fashions in the market and offers unique clothing designs by regularly changing cuts, colors, fabrics and other details.

The clothes are mainly targeted to young women who are fashion sensitive. Hence it avails a little of its designs to the stores to facilitate a quick purchase.

 

STORES

Zara has 650 stores in 50 countries.

The stores record sales on the DOS-based POS terminals.

Orders for clothes are communicated by use of PDAs.

There are no PCs

COMMUNICATION

Stores record all the sales and then send the information to the head office using a POS with a communication link.

Floppy disks, attached to modems are used to track and transmit sales to the headquarters.

ORDERS

Store managers dictate what is to be ordered.

Commercials then prepare the orders

Stores send detailed orders to the headquarters using dial-up modems.

LOCATIONS

Zara has over 650 stores in 50 countries. Some of these countries include the USA, Canada, and the UK. The stores are centrally placed to allow customers to locate them and do self-service shopping easily.

FACTORIES AND DISTRIBUTION CENTERS

Zara distributes where it sells. It has over 650 Distribution centers in 50 countries.

SALES CHANNELS

Zara uses repetitive distribution processes- transmitting sales to the head office after every business day, ordering, allocating and shipping orders twice in each week. The clothes are distributed to its stores, using trucks and airfreight. Customers can pick the products quickly from the stores.

 

 

TARGET MARKET AND DESIRED CLOTHES

Zara targets young fashion-conscious customers worldwide. It offers new clothes to the young buyers whose taste change quickly, by giving a variety of designs with different colors, cuts, and fabrics.

COST STRUCTURE

Zara has to pay for:

Designs.

Logistics.

Materials.

Advertising and marketing.

REVENUE AND PROFITS

1991-2003, sales grew by 70% while net earnings grew more than 12 fold.

It sold shares worth 2.3 billion pounds to the public.

Most of its revenue is derived from in-store sales.

 

  1. How Zara’s business model differs from other large clothing retailers

Close communication Loop: The supply chain in the model is designed in a manner that it provides for the faster transfer of information from the customers, to the production staff and designers. This makes it able to produce quality design clothes in just 15 days, as compared to other companies which take months planning for the next season.

Low IT spending: The models organized in a way that the company installs only the type of IT needed in the firm. This enables it to avoid massive and unnecessary spending on IT as compared to other competitors, which spend heavily on automation.

Most production is kept in-house: By using the model, it does not rely on outside partners. It manages its design, distribution, logistics and warehousing functions. There is a rigid timetable for placing and replenishing orders. This helps to shorten lead times.

Stick to the rhythm:  It designs and distributes its clothes. A very small portion of its production is outsourced. It also owns nearly all of its retail shops.

Only a few clothes are put on display: This enables the customers to rush for the products thinking that they are about to be finished. It is different from other competitors who display a huge amount of products in the stores.

  1. a) Weaknesses of the Model

The model in Zara stores is not scalable. This is because most of its processes are not automated. It, therefore, requires employing more staff, which it calls commercials to handle its procedures. In case it needs to expand its stores, it has to employ more stores managers, who determine the orders. There is also a physical stock count conducted in the stores. This means that the company has to increase its expenditures on staff, to increase its sales.  It does not rely so much on technology, which may automate its processes like keeping track of stock balances, instead of counting them physically. The model has the following weaknesses.

There is less automation: Most of the processes such as counting stock are still handled manually which is tedious. This is a Student Sample ORDER YOUR PAPER NOW

It uses outdated IT: The PDAs are outdated. It also uses floppy disks and modems, which have small screens hence inconveniencing the users.

There is a poor communication channel between the headquarters and the stores and between stores:  There is still poor communication between the head office and the stores. The store managers use floppy disks and modems, to track and communicate orders to the headquarters, while there are other advanced communication channels they could use.

2) Information Zara needs to operate its business smoothly.

The level and changes in demand: The Company needs to know the level and changes in demand. This enables the company to schedule its production appropriately. Zara uses automated factories, which can operate extra hours to meet extraordinary changes I demand.

The new designs in the market: For the company to operate efficiently, it must be able to identify and produce the new designs in the market. Zara stores can determine this at the moment, by using its commercials. The commercials identify the new designs, which are then produced and availed in the stores. Most of the company’s products do not go out of fashion quickly since they avail just a small amount in the stores.

Competitors: For the company to operate effectively, it must know its competitors. Currently, its primary competitors are Benetton, Gap and H & M. The company knows its competitors and can devise unique ways of operation to beat them. For example, it scans its operational environment to identify its needs and install the IT which is required, and not that which is available as compared to its competitors.

Target Customers: For the company to be competitive, it must know its target customers. Currently, the company targets youths who are passionate about new designs in the market. It provides unique designs by constantly changing its styles, cuts, fabrics and other features in its clothes.

  1. Weaknesses in Zara’s IT strategy.

There is poor access to information: The store’s managers cannot view the stock balances in their stores. This means that they are not able to predict stock outs in time. They are also not able to identify the redundant designs to upgrade them. This also results into poor stock transfers between stores.

The high cost of information: The stores’ managers use phone calls. This can be automated using computer networks. The cost of phone calls can, therefore, be avoided.

Poor connectivity and information sharing: There is no network that connects the stores to the headquarters. The stores are also not interconnected. This means that the store’s managers have to use modems loaded with floppy disks to relay orders. This is time-consuming and inconvenient.

Poor inventory management: The stores are not able to identify the theoretical stocks for their SKUs and in other stores. They are therefore not able to compare the physical inventory count, with the analytical balances.

Poor automation: Stock is still counted physically. This may be tiresome. This process can be automated.

  1. Benefits of more IT functionality for the firm.

Increased automation: Most processes like counting of stock will be automated, hence saving time and energy of the staff.

Improved inventory management: The store’s managers will be able to view the general stock balances and compare them with the actual physical stock. This increases efficiency in inventory management.

Improved convenience: The commercials will no longer be moving with floppy disks around the stores at the end of each day tallying the sales. This will be done online. This is a Student Sample ORDER YOUR PAPER NOW

Increased networking: There will be a well-established network across the company and between the stores. This will make it easy for the stores to request for stock transfers.

  1. The downside of more IT functionality.

Cost: The cost of increasing IT functionality may be high, hence diluting the firm’s profits.

Diversion of objectives: If the employees are allowed to view stock balances, they may divert their objectives in finishing their inventory. They would, therefore, concentrate on viewing their stock levels and may be reluctant to make sales when they realize their colleagues have also not made sales.

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