Zara Business Model

1. What do you think of Zara’s performance?

Performance:

- 2001: ebit 441 mln euro + revenue of 2,477 million euro

- stores outside Spain accounted for 54% of total revenue

- 78% were women

- high margins (though not the highest in the industry), though their earnings were very stable

- approximately 80% of Zara stores were slated to be opened outside of spain

2. Compare Zara and H&M, What do you see?

- Zara owned much of its production and most of its stores, H&M’s vertical scope was narrower

- H&M had longer lead times than Zara (still considered average by industry standard)

- H&M had been quicker to internationalize

- H&M had been more focused in internationalization (one country at a time and a distribution center at each one)

- H&M had lower prices than Zara, employed fewer designers (60% less than Zara though Zara was 40% smaller), engaged in extensive advertising and refurbished its stores less frequently

- H&M operated a single format, although it marketed its clothes under numerous labels or concepts to different customer segments

3. How consistent is Zara’s business model in terms of its value proposition, value chain, and competitive advantage?

Inditex

- Location: HQ and most upstream in Galicia  corner of Europe from perspective of transport costs, which important given their business model

- Spain: quickly opening up to the rest of the world: low prices and less fashion sensitive than Italy

- retailing generated 82% of Inditex’s net income, roughly in line with its share of the group’s total capital investment and employment

- increasing (though still limited) coordination and resource sharing amongst chains

Zara

Value Chain:

- owning production and own stores

- early major investments in manufacturing logistics and IT

- establishment of JIT warehouse close to HQ

- creation of financial/merchandising and other information systems

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