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ZARA

Discussion Question 1:
Why does Zara's business model appear to be better adapted to the recession than Gap's? Why and how does Zara's business model make it more resilient to business cycles?

Zara’s business model is better adapted to the recession than Gap’s because of its lean inventory system. Firstly, the lean system allows Zara to offer a much more up to date line of fashions. With its lean inventory and its fast and effective logistics system, Zara is able to avoid the profit damaging markdowns that Gap constantly battles with due to its high inventories. Gap struggles in this aspect since they have large inventories and are forced to store much of their inventory in warehouses. This forces Gap to offer generic products that are less susceptible to changes in customer demands. The lean system that Zara practices also enables the company to quickly and easily adjust to seasonal fads and fashions that continuously occur in this industry. From the article it sounds like Zara practices an international strategy. Zara focuses on centralizing its core activity of providing the most up to date fashions at a low cost, and decentralizing its operation. Zara has effective mechanisms for diffusion and adaptation, which are the required assets and capabilities for this strategy.

Discussion Question 2:
By the same token, what kinds of business conditions might expose hidden weaknesses in Zara's business model? The article mentions the issue of Zara's complexity. When would this or other aspects of Zara's business model become strategic liabilities? Overall, what should Zara worry most about beyond the current business cycle?

By having a lean inventory system, conditions of higher than expected demand could easily expose Zara’s hidden weakness in its business model. If sales exceeded the companies expecations, they could easily run out of inventory.

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