Zara: Expansion Blues

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Case Details:

Case Code : MKTA023
Case Length : 16 Pages
Period : -
Pub Date : 2005
Teaching Note :Not Available
Organization : -
Industry : -
Countries : -

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

The origins of the Inditex group dated back to 1963, when Amancio Ortega Gaona (Ortega), chairman and founder, started his garments business. When a German wholesaler suddenly canceled a big lingerie order in 1975, Ortega thought his fledgling clothing company might go bankrupt as all his capital was tied up in the order. Since there were no other buyers, in desperation, Ortega opened a shop called Zara, near his factory in La Coruña Spain. The early scare taught Ortega that to ensure success, he needed to control what happened to his products until the customer bought it...

Business Model

Zara followed a highly price-competitive business model that was based on three winning formulae: short lead-time, lower quantities and more styles. It pursued a high degree of vertical integration which allowed it to set the pace of product and information flow. Zara could move from identifying a trend to having clothes in its stores within 14 days...

Zara and competition

Zara offered mid-market chic at down market prices. Zara compared favorably with its competitors when it came to turnaround time. For a typical retailer, the entire process starting from defining a concept to receiving goods in the retail store took anywhere from 9 to 12 months. As Zara geared up to enter the US in a big way, it was being compared to Gap (a leading fashion retailer in the US) and H&M (Swedish retailer who had also entered the US recently) more frequently. Of the three, Zara had the shortest turnaround time. Compared to Zara's turnaround time of 14 days, H&M took 21 days and Gap took 9-12 months to reach stores...

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