May 20, 2013

Table of Content

Summary 2 Introduction of Zara 2 Porter’s Six Forces model in Zara 3 Existing competitors 4 The bargaining power of suppliers 4 The bargaining power of customers 4 Potential competitors 5 Alternative products or services 5 The power of cooperative dealer 6 IT is the heart of ZARA mode 6 Track fashion with the information base 6 Information standardizing and optimizing design 7 Zara’s competitive advantage – based on value chain perspective 8 Design 8 Marketing 9 Conclusion 12

ZARA's Informational Rapid Response Mechanism and Fast Fashion

Summary
In recent years, with the unique marketing strategy, fast fashion apparel business has developed rapidly in the world. Some of enterprises engaged in the fast fashion business have obtained considerable sales and global business expansion, it can be said that fast fashion has been become one of the most valuable fields in the clothing industry, and carrying out fast fashion business has become an ideal choice for clothing enterprises to develop rapidly and create performance (Hayes & Jones, 2006). In this paper, it chose an international fast fashion clothing brand--ZARA of Spain, which is characterized on marketing and has won widely recognized worldwide, as the research object. Through the analysis of the brand's marketing strategy, it interprets the universal business model used the fast fashion clothing brand to do business. This paper adopts the method of case study, first makes detailed analysis on the research object –ZARA, then summarizes the operation mode of fast fashion brand, and based on this put forward recommendations on problems needed to pay attention when clothing enterprises develop fast fashion business.

Introduction of Zara
ZARA is a clothing and accessories retailer from Spain, is the fast fashion clothing brand currently ranks first in the world, and also is the backbone brand of the Inditex group, which was founded in Spain in 1975 by founder of Inditex group—
Amancio Ortega. ZARA's product prices are generally focused ranging from 99 Yuan to 599 Yuan, which at present has become the synonymous with fashion and cheap. Even in these fast fashion brands good at fast, the speed of ZARA also is the fastest—it only needs just two weeks to complete the process beginning from design to finished products be sold exclusive shop, and the average speed of this process in clothing industry is one year, and the average speed of most of the average speed of fast fashion brands to complete this process also needs three months. Moreover, ZARA has rejected the trend of the whole industry in the fast fashion industry to shift production to low-cost developing countries. Another unusual point is zero advertising strategy, instead of this is company pays more attention to part of income to invest in opening new stores rather than advertising. In addition, the design guidelines of ZARA, store display, promotion strategy and so on are very characteristic (Fraiman, Singh, Arrington & Paris, 2002).

Porter’s Six Forces model in Zara
Michael Porter (1980) put forward potter five forces model in 1980s, which had a profound impact on the enterprise strategy development. And former President of Intel Andrew S. Grove took Porter's five forces analysis as a starting point, and explored and defined the six kinds of influences of industry competition: the existing competitors, suppliers, customers, potential competitors, products or services, as well as cooperative dealer. Through the analysis of the six kinds of forces, it will help to understand the competition environment of fast fashion enterprises, and put forward innovation strategy for the strategy formulation and development of fast fashion enterprises.

Existing competitors
For "fast fashion" clothing industry, it mainly faces young people in pursuit of fashionable, trendy, personality, and carries out brand promotion and sales, which is different from other common apparel industries. Currently, this new market is still in the growth period of industry, its demand is beginning rise unceasingly which has been occupied most part of market by ZARA, H&M, GAP and other "fast fashion" brands (Cachon & Swinney, 2011).

The bargaining power of suppliers
The strength of suppliers’ competitive power mainly depends on the market situation of supplier industry and the importance of the items they provide. Clothing industry suppliers are mainly manufacturers of fabric and accessories. For ZARA, it adopts the operation mode of “market one's own products”, builds its own textile mills, garment factories and independent logistics transportation enterprises by spending large sum of money. And it purchases continuously, made 1200 production enterprises into its strategic alliance, which makes it become the world's only fashion company that can be completed from production to distribution to more than 850 shops in the world within 15 days. So ZARA suppliers’ bargaining power is weak.

The bargaining power of customers
"Fast fashion" clothing retail industry, like ZARA, belongs to the self-help service-oriented outlets; customers choose desirable clothing and pay to the front desk, possibility of bargaining is less. And the characteristics of "fast fashion" clothing is cheap, its prices usually are accepted by customers, so the customers’ bargaining power is weak.

Potential competitors
In terms of fast fashion apparel industry, aiming at fast fashion clothing enterprises having formed scale such as ZARA, the biggest potential entrants are divided into two groups: one is the existent apparel giants, such as international traditional fashion and high-end brand clothing enterprises represented by Chanel; the other is domestic mid-range clothing enterprises, such as Youngor, Firs, etc. But for new entrants, fast fashion giants such as ZARA has formed a whole set of perfect management sales model, made full use of advantages to promote consumers’ awareness to the brand, established industry barriers to prevent potential competitors from entering this industry. At the same time, for the above two entrants, the opportunity cost and conversion costs brought by changes of management and sales model are huge, the integration of supply chain, capital investment, and so on are all aspects need policymakers to reconsider (Financial Times, 2005).

Alternative products or services
Two enterprises in different industries may produce competition behaviors between them because the products they produce are substitutes to each other. For fast fashion clothing enterprises, their Core operation is "fast", and compared with the other clothing enterprises, their vertical integration, supply chain modes all have incomparable advantages, it is the difference from other fashion clothing enterprises in this aspect that embodies the "comparative advantage" of fast fashion clothing enterprises.

The power of cooperative dealer
Cooperative dealer refers to other enterprises having mutual support and complementary relationship with own business. In complementary relationship, the company's products are used by cooperating with another company’s products with each other, and can get better using effect. In ZARA's development course, cooperative dealer has played a key role: by forming the IT information systems, ZARA made 1200 production enterprises into their strategic alliance, recruited hundreds of fashion "buyers" and jointly built a ZARA fashion empire.

IT is the heart of ZARA mode
Track fashion with the information base
In ZARA Company, fashion information continuously inflows into the office database of ZARA headquarters from all corners of the world every day. The collection of the fashion intelligence information contains three clues. The first clue comes from fashion designers in ZARA design team. They often haunt all kinds of fashion shows held in by these fashion centers such as Milan, Paris, or go to fashion occasions, observe and conclude the latest design ideas and fashion trends. The second clue comes from fashion buyer and information gathering commissioner ZARA invites specially. With the sensitive smell, they report fashion they bought or the youth leaders’ clothing features they observe to headquarters located in Spain. The third clue comes from ZARA’s own stores (Ferdows, Lewis & Machuca, 2004).
The data staffs of ZARA stores report to the headquarters every day not only include hard data such as orders and sales trends, but also include soft data such as customers’ response and popular trend, etc. To facilitate every store manager immediately report to the headquarters the latest sales information and fashion information, ZARA specifically equip each general manager with special hand-held data transmission equipment. Designers also can hold conference calls with exclusive shop managers around the world in real-time, and timely understand sales and customer response in various regions, so as to adjust direction of product design (Ghemawat & Nueno, 2003).

Information standardizing and optimizing design
All kinds of information about fashion trends continuously is conveyed to ZARA headquarters office database every day from each store. After information being returned quickly to headquarters, professional fashion designers join unique Spanish style element, carry on design on revision of clothing design and style, and combine into a new series of products theme. ZARA well solves the problems of standardization of information, make its can easily integrate and use information. This is also a light spot of ZARA's IT systems. As ZARA adopts standardized information system, all the collected fashion information can be classified and stored in each module of headquarters database. And these fashion information databases are associated with raw material storage databases.
So, on the one hand, ZARA's design team can make use of all kinds of fashionable information standardized kept on file in fashion information database, so as to quickly and accurately improve and combine products, thus design new clothing styles and make clear of cutting, production instructions; on the other hand, designers also can refer to product information and inventory information, design clothing styles as far as possible which can make full use of the existing materials, so as to avoid the backlog of inventory. By means of standardized data, and on the basis of fully considering thousands of fabrics, accessories, design list and inventory information, ZARA’s designers can conduct any clothing design. Visibly, standardized information system guarantees the efficient operation of the ZARA design team, and provides strong support for them to continuously introduce new-fashioned clothing (McAfee, Dessain & Sjoeman, 2004).

Zara’s competitive advantage – based on value chain perspective
Design
Designers with an average age of only 25 years old. In order to avoid designers’ fantastical designs lead to extend of production cycle and production costs rise, Zara requires designers to work with buyers and manufacturing managers. Buyers often will go to travel around the world, so they more can grasp the trend, avoid designed products not being accepted by the market and result in cost increase. On the other hand, manufacturing managers guard from the perspective of production costs to ensure that designers try to select fabrics and raw materials easily to be manufactured and sourced, so as to shorten production cycle.

Marketing
The core of marketing is to meet customers’ demand. Marketing mix includes target market and 4p. The company's target customers are those urban fashionable youths. Then, how does Zara meet customers' needs through 4p?
First, product
If the product quality is defined as durability, Zara’s clothing is not high quality products. It is pointed out that Zara's products can only be worn for 10 times. But because the fashion products’ fashion cycle is often short, Zara's target customers do not care about how long clothes can be worn, but more concern about whether can keep up with the trend. This is the most important reason that Zara does not value durability. Thus Zara can reduce inputs in raw materials and manufacturing, and help reduce cost at the same time of providing low price products with customers.
Second, price
From the point of prices, Zara's products tend to be determined by the headquarters, and outlets have no pricing power. This guarantees control of price, reduces the occurrences of phenomena that outlets cut prices because of competition between stores and thus damage the products’ image.
Third, sales promotion
Due to the transience of fashion, Zara knows very well that it cannot influence customers through advertising, so less input are put in advertising. the number of same style product in each store is often only 1 or 2 pieces. Customer who love Zara will see, they may never could get the clothes they want to buy they do not start quickly. This also helps enterprises accelerate the turnover of inventory.
Fourth, distribution
Zara choose to control marketing channel itself, and build its own store system. 88% of the stores are directly operated by the company. By forming its own channels, Zara can not only better control the price, service levels, but also can better understand the demand of terminal customers. It is very difficult to accurately predict demands for fashion product. By requiring outlets placing orders twice a week, Zara can grasp the consumers' real demand more quickly and accurately, reduce the cost brought to the company by bulk order. Even if there has been mismatch between forecast and demand, only a few stores are affected because the order quantity of goods is controlled by all the store managers themselves (Rohwedder & Johnson, 2008).
Fifth, supply chain and operations
In spite that low cost is the core of Zara, Zara is willing to invest in terms of building supply chain. Zara's parent company—Inditex has built a series of factories network including cloth factory, which are responsible for dyeing fabric, cutting, ironing, inspecting of all the products. About 50% of the raw materials can be achieved through internal. Taking main material of clothes—cloth as an example, about 40% of the material supply comes from the inside. So Zara can have more discourse, and be more able to make rapid response to market demand. Due to master of part of production of cloth, Zara deal with this by the way of manufacturing delay. In Zara's factory, 50% of the fabric is not dyed, thus it can quickly deal with trend of seasonal color changing (Daily News Record, 2006).
External suppliers not only include the suppliers of raw materials, but also include manufacturer responsible for sewing. 70% of the suppliers are located in Europe. Taking sewing as an example, Zara chooses a series of small companies distributed in Spain and Portugal near the headquarters to be responsible for sewing of garments. In order to accelerate the velocity of the raw materials, semi-finished products and finished products, Zara even hollows out dozens of kilometers underground between headquarters and multiple vendors, and complete logistics transportation with day and night through automatic transportation.
It is because of flexible supply chain design that outlets usually will receive goods after sending order for 1-2 days. Almost no fashion companies can reach speeds of Zara. Most clothing companies choose to establish efficient supply chain, and take cost control as the focus of supply chain operation. But unfortunately, the efficient supply chain is only suitable for companies with long product life cycle and less product variety (Su, 2009).

Conclusion
With the "fast fashion" concept according with characteristics of era, fast fashion brand—ZARA, grows to a fashion model at an alarming rate under the informational rapid response mechanism. But before worshipping informational fast reaction mechanism, it must point out its limitations. Rapid reaction mechanism is neither equivalent to information management, nor is the direct product of information technology. Rely on or love information too much will be only putting the cart before the horse, because in the rapid reaction mechanism, both judgment of decision-making section and management of design department are important links cannot be ignored, and optimization of the entire process is the root of quick response (Birtwistle & Moore, 2007). In addition, any information processing and judgment after all is human’s processing and judgment, rather than the role of information systems, of course, the important role of informationization cannot be ignored, without its help people’s accuracy and timeliness of judgments will be discounted. ZARA’s sales quantity and order, etc. all cannot leave the support of information systems; reaction mechanism without informatization is far from being quick. In technological means at this stage, informatization must be in the core of the rapid reaction mechanism, and how to improve reaction speed by combining the actual situation is both a challenge and also let people be full of expectations.

Reference list

Birtwistle G. and Moore C.M.. 2007. Fashion clothing – where does it all end up? International Journal of Retail & Distribution Management. Vol. 35 No. 3, pp. 210-216.
Cachon Gérard P.and Swinney Robert. 2011. The Value of Fast Fashion: Quick Response, Enhanced Design, and Strategic Consumer Behavior. Management Science. Vol. 57, No. 4, pp. 778–795.
Daily News Record (2006) Inside the Zara business model; fast fashion Spanish retailer churns out 11,000 new items every season and delivers new goods twice a week. March 20, p. 11.
Ferdows Kasra, Lewis Michael A. and Machuca Jose A.D. 2004. Zara's Secret for Fast Fashion. Harvard Business Review, Vol. 82, No.11.
Financial Times (2005) A brand tailored for fast-fashion. Growth strategy: Zara’s furious pace of expansion may be checked by the abrupt exit of one of its pioneering executives. December 29, p.10.
Fraiman, N., Singh, M., Arrington, L. C. Paris. (2002) Zara. Columbia Business School research paper. Available at www.gsb.columbia.edu/divisions/marketing/research/columbia research.
Ghemawat, P. and Nueno J. L. 2003. ZARA: Fast fashion. Case study, Harvard Business School, Boston.
Hayes S.G. and Jones Nicola, (2006). Fast fashion: a financial snapshot. Journal of Fashion Marketing and Management, Vol. 10 Iss: 3, pp.282 – 300.
McAfee, A., Dessain, V. and Sjoeman, A. (2004), Zara: IT for Fast Fashion, Harward Business School Publishing, Cambridge.
Porter EM. 1980. Competitive Strategy. The Free Press/Macmillan: New York.
Rohwedder, C. and Johnson K. 2008. Pace-setting Zara seeks more speed to fight its rising cheap-chic rivals. Wall Street Journal (February 20) B1.
Su, X. 2009. Consumer returns policies and supply chain performance. Manufacturing Service Oper. Management. 11(4) 595–612.