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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Introduction

In January 2005, Zara, the flagship brand of the Inditex group of Spain and the eighth most popular brand in Europe1, was finalising its modest expansion plans in the US. Zara planned to open 40 new stores by 2008, up from four stores in 2004. Zara had been growing from strength to strength in the last decade at an average annual rate of 20 %. When Inditex offered a 23 per cent stake to the public in 2001, the issue was over-subscribed 26 times raising Euro 2.1 billion for the company. At the heart of Zara's success was a vertically integrated business model spanning design, just-in-time production, marketing and sales.

The group believed that vertical integration gave it more flexibility than its rivals to respond to fickle fashion trends. With the European markets becoming saturated, Zara had been looking at stretching its product line and furthering its global expansion.

Since 2003, Zara's parent company, Inditex had invested in new retail formats and added experimental lines2. Jose Maria Castellano (Castellano), CEO Inditex admitted that Zara's strategy was hostage to its abundant cash flow.

He added, "We have to do something with the money."3

Despite Inditex's attempts to grow its other retail chains, Zara continued to remain Inditex's cash cow. As a result, Zara's success in the US had become even more crucial for maintaining Inditex's double-digit growth. Would Zara succeed in the US? Could the Spanish retailer replicate its successful vertically integrated model in a new geographic region?

About Zara

Based in northeastern Spain, Zara was a part of the publicly traded Inditex, which had recorded sales of $5 billion in 2003-2004. Inditex had used a powerful combination of sophisticated fashion, budget pricing, fast logistics, and unconventional marketing to build a chain of 650 Zara stores in over 50 countries. Inditex had tripled in size since 1998, with Zara accounting for close to 80% of its turnover.

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1] www.brandchannel.com
2] Extra large and extra large sizes among other things.
3] Dutta, Devangshu. "Retail @Speed of fashion,” www.3isite.com, 2002.

 

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