Zara Fast Fashion
Financially, both companies are profitable and both have around 10% of profit margin. However, looking at the structure of the companies, Clearly Inditex out performs H&M due to it also operates manufacturing, R&D and value added facilities. This indicates that besides the retail front, the company is also doing well in its overall portfolio. 2. How specifically do the distinctive features of Zara’s business model affect its operating economics? Specifically, compare Zara with an average retailer with similar posted prices.
In order to express all advantages/disadvantages on a common basis, you may find it convenient to assume that on average, retail selling prices are about twice as high as manufacturers’ selling prices. In terms of Zara’s business model, it focuses on the fast moving cycle of its product rather than creating a line of product that is modified over time. Zara’s operating model allows it employees to actively engage it product designs, this bridges the gap between consumers and designer and also able to fast track the fashion trend to the production line.
Due to Zara’s operate their production on their own facility, they are able to maintain a fast manufacturing time, easier access to change and properly manage the product’s quality. Also due to its more flexibility in the manufacturing model, Zara is able to leverage from a lower inventory, lower order lead time and faster shelf life for its product. Thus, although the manufacturing costs are the same, it saves a bundle of cost in terms of warehousing, logistics and inventory costs that directly benefit its profit margin. 3.
Can you graph the linkages among Zara’s choices about how to compete, particularly ones connected to its quick-response capability, and the ways in which they create competitive advantage? What does the exercise suggest about such capabilities as bases for competitive advantage. The linkage to Zara quick response capability is of follows. Zara stocks new sku in stores regularly, commercials feed field information to design teams. Decentralized design team continuous output, has flexible production system for changing SKU mix.
It has local factories and workshops with fast cycle in dye/ cut/ sew and finish. The distribution center consolidate skus and ship to stores same day. The short lead time make order able to reach stores within 2 days and twice per week, store managers decide what item to order. The exercise clearly allows customer’s input to be processed and within no more than a few weeks, the final product comes out of the shelf. Thus, customers coming in the stores every time are able to expect new product that attracts them to go into the store again. 4. Why might Zara “fail”?
How sustainable would you calibrate its competitive advantage as being relative to the kinds of advantages typically pursued by other apparel retailers? Zara focuses itself on catching up with the retail trend where consumer’s and store managers decide what to produce and how to product. This is up and down such that it does not create a fashion trend of its own, but rather, it follows the trend only of what others has created. Clearly, the comparative advantage is the linkage between the customer and designers that Zara was able to bridge the gap.
But the comparative advantage is based on hiring people with self-motivation and taking on ownership of the business. This is an issue that is both beneficial and can also undermine the entire business process. It is easily to assume that organization behavior changes can be duplicated at H&M given the right resources. H&M can easily duplicate the model purely by investing or acquring manufacturing plants and R&D facilities. For its people, it can simply invest more in human capital to copy what Zara has done.