Zara Case Study
Huge rolls of fabrics are moved into the factory and placed on tables. Then a laser-guided machine cuts the fabrics according to the pattern. The cut textile is bagged and distributed to local sewing cooperatives. They return the finished garments to Zara’s factory within a week. After that, workers handle finishing touches to the clothes, such as adding buttons and details. Each garment is checked for quality. Once the checking is complete, the clothes are individually ironed. Then labels for each country are attached. After tagging, the garments are sent to Zara’s nearby distribution centre via a tunnel.
At the massive centre all clothes are allocated first by country, then by individual store. This is done by a moving carousel of hanging rails. Using electronic bar codes each shop’s orders are carefully placed on the appropriate moving rail. Zara transports its products to the United States and Asia by plane in 48 hours. In Europe garments are distributed with trucks within a day. Finally, clothes are placed on show windows in elegant and spacious stores in the world’s ritziest shopping locations. (source: Capell, 2006) 2. Which type of vertical marketing system does Zara exhibit?
List all the benefits that Zara receives by having adopted this system. As Kotler (2008) states a vertical marketing system (VMS) is a distribution channel system in which manufacturers, wholesalers and retailers have contracts between each other and one of them dominates the whole VMS, or in other words, they act as a unified system. A vertical marketing system consists of three main types: corporate, contractual and administrated. Zara uses corporate VMS – the entire distribution chain is under the control of the company. Zara has tight control over every aspect of the company’s supply chain – from designs to distribution.
By adopting this system the company is able to move designs from sketch pad to stores in only two weeks (Capell, 2008). This system makes Zara not only fast but also quite flexible. It can easily change its products (clothe lines) in response to changing fashion and customer wants. Moreover, Zara’s corporate VMS makes the company more efficient and profitable than its competitors. By shipping products directly to its stores, Zara saves time, eliminates the need of warehouses and keeps the inventory to minimum. 3. Does Zara incur disadvantages from its “fast-fashion” distribution system?
Are these disadvantages offset by the advantages? By using ‘’fast-fashion’’ distribution system, Zara faces both advantages and disadvantages. On the one hand, according to Tiplady (2006) Zara’s „fast fashion” distribution system helps the company to reduce the exposure to fashion faux pas. Zara produces small quantities of new clothe lines, so that if no one wants to buy them, it can cut its losses quickly and move on to another trend. Such an example occurred in 2003, when because of unseasonably warm autumn, people didn’t want to buy warm clothes.
Another advantage of Zara’s fast VMS is that the company does not need to spend a lot on advertising (Tiplady, 2006). Zara introduces new lines every week, which keeps customers coming back again and again. Moreover, as Capell (2008) states, by adapting „fast fashion” distribution system Zara does not have to cut prices to mass quantities of out-of-season stock. The company can even charge more, because its clothe lines are adjusted to the most current looks. On the other hand, Zara’s distribution system has some disadvantages, too.
As Capell (2008) states, Zara spends more money on workers’ salaries than its competitors. Because its clothe lines are produced mainly in Europe, the company has to spend more on European labour wages than, for example, on Asian. For instance, an average salary for worker in Spain is about $1,650 whereas in China is approximately $206. Another disadvantage of „fast-fashion” distribution system is the high cost of transportation (Capell, 2008). In order to keep up with deadlines, Zara has to use airplane shipment which is one of the most expensive means of transport.