Question: Zara: Apparel Manufacturing Zara is a chain of fashion stores owned by Inditex, Spain's largest apparel manufacturer and retailer. Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zaras success is its postponement strategy. Gap continues to sell many more garments than Zara. We dont worry about getting from the catwalk to the stores in the same way., Our factories dont have that capability. Zara fosters a highly-engaged workforce that translates into highly-engaged interactions with customers. How Do They Do It?" At Zara, such parabolic demand would often result in lost profits. While through its location strategy Zara does not shy away from extreme expense to project a wanted image, Zara does not advertise. Control over design and manufacturing by keeping manufacturing processes close to management centers also makes garments both higher quality and easier to manipulate. In other words, introducing a new product may limit the success of another product that would have otherwise done well. Retailers must adapt to the changing consumer where the top characteristic is value. By continuing, you agree to our Terms and Conditions. The key is the familiar Agile technique of "postponement:" transforming. It offers significant business value to a range of retail companies whose product cycles are accelerating and influenced by celebrities, luxury brands, and media hype. In order to react quickly to fashion changes and consumer demand, Zara maintains extremely efficient supply chain operations. The bilateral relations between Germany and the United Kingdom span hundreds of years, and the countries have been aligned since the end of World War II.. Relations were very strong in the Late Middle Ages when the German cities of the Hanseatic League traded with England and Scotland.. Before the Unification of Germany in 1871, Britain was often allied in wartime with its dominant Prussia. The total revenue of Inditex in 2019 is estimated to be 23.31 billion euros. By making the brand experience meaningful and the exchange valuable, Zara taps the potential of its customers to evangelize the brand. However, the case experience was not rapid roll out of the pilot, but rather the description of organizational rigidity, which confronted the EVP. Abstract. For example, low inventories fail to accommodate the high demand for a product. 1) The Postponement strategy Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zara's success is its postponement strategy. It just simply doesn't market itself as aggressively as other companies. You can see from Chart 3 above that the quantity of products Zara discounts pales in comparison to other retailers. The strategy is executed. Hansen, Suzy. Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zara's success is its postponement strategy. The industry that is mercurial and trend- driven. Zara understands this. In an industry in which customer demand is fickle, Zara has grown rapidly with a strategy to be highly The Postponement strategy Zara's supply chain strategy is successful because it exercises full control of the designing, manufacturing and Local events. Still, the common strategic motivation is to gain better information about customer demand by waiting to customize a product for a particular market or customer. Chaudhry, H.R. Speaking of loyal customers, Zara's meaningful experience and values tap the potential of frequent buyers to promote the brand. The fast-fashion experience formula for success combines frictionless shopping in a highly curated product environment offering scarce supply and new styles that rotate rapidly. According to Zaras official website, sales by geographical region show Europe with 66%, Asia with 20%, and America with 14% of sales. The vertically integrated strategy comes at a cost, however. Postponement strategy can be established through the material flow decoupling point, where the firm manages its supply chain using a pull strategy. This is known as the postponement approach. But what is fueling the demand for Inditex products? Zara really is heads and shoulders above many of its competitors and approaches retail fashion in a unique way. the market lead time may be shorter than the lead time required under this postponement strategy (Yang et al., 2004). With the right insight at the right time and direct access to the production chain, Zara could launch new designs at lightning-fast speed and provided exactly what customers needed. Keywords Supply Chain Supply Chain Management Product Variety Astonishingly, they have not yet entered the Creative Economy. This creates a unique brand image and grows the brand's market share faster, especially among millennials. This ensures detailed information can flow smoothly, accurately and quickly across the value chain, which then gives companies the opportunities to tailor products and services around customer preferences. This leads us to a traditional marketing research method, which is called the 4p's strategy, which includes products, place, price, and promotion. Furthermore, the average inventory holding at Zara is 6 days, compared to 52 days at H&M and 94 days at Cortefiel. and Choi, T.M.(2010). That translates into a great brand with high values for customers. The more quickly and efficiently a customer can navigate through the store to explore and find hidden gems, the better the experience, she says. The result is the brand's sales keep getting higher, and the market share keeps increasing. The leader in fast fashion, the Spanish firm Zara [Inditex: BMAD: ITX], along with international retailers such as Uniqlo [TYO: 9983], Topshop and H&M [OMX: HM B] are proving tough competition for US retailers Abercrombie & Fitch [ANE], American Eagle Outfitters [AEO]and Aeropostale [ARO]. Lead times are reduced, working capital is cut, and waste is minimized. Today, value is measured beyond price, but also in time and convenience.. Zaras fast fashion business model exploits consumer and cultural changes, with dramatically improved financial results. Zara manufactures most of its products in Europe where it is more costly. However, some of its strategies have shortcomings. Zara has accomplished the benefits of agile and flexible supply chains for its innovative fashion items. There are trade-offs between different levels of customer service and inventory, production and distribution costs when applying different strategies. These loyalitsts become brand evangelists who share excitement about the brand with their networks. The texts have two separate fonts that can be placed in many different positions on the garments, including crew neck sweaters, denim jackets, and jeans. Journal of Business Logistics, 19(2), 13-32. At Shein you can get a dress for less than $5.00 and a winter jacket for less than $30.00. . Therefore, Zara is able to react to consumer demand by delaying decisions until the last minute. This leads us to a traditional marketing research method, which is called the 4p's strategy, which includes products, place, price, and promotion. Zara tries to connect with customers at every opportunity to provide the best experience possible. Let's see how Zara strategizes in these four sections. The result is the customer and the company work cooperatively together so that the Zara customer becomes the Chief Customer Officer providing feedback on all aspects of the business, Kohan concludes. Firstly, Zara is vertically integrated. Users can insert up to 11 letters, for free. So this statement might wax unrealistic as sentiments usually indicate customers are happy. For Zara, their strategy has been quite successful. Clearly, different types of postponement strategies have different costs and benefits associated with them. You can see in Chart 1 below, Zaras environmentally conscious philosophy bears out in its waste management. Innovative Quick Response Programs in Logistics and Supply Chain Management. 2004). In a very short time, Zara has become one of the most successful fashion retail brands in the world. So its prices have to be catered to the price-sensitive buyers as well. The key is the familiar Agile technique of postponement: transforming a product into its final form at the latest possible moment. This proprietary software, on top of a specially trained professional workforce to do the same, capitalizes off of Zaras rapid product replacement cycles by cataloguing in real-time which products are being purchased, in what quantity, and where. Web. Zara has cultivated unique advantages with its 4Es approach to marketing by focusing on experience, exchange, evangelism and every place strategies for the customer, rather than the old product, price, promotion and place concept focused on the brand. This article is accurate and true to the best of the authors knowledge. Well-known businesses such as Dell use postponement to keep remarkably low inventories while maintaining short lead times. Finally, the full postponement strategy is the highest level of delay in the supply chain, which makes use of both manufacturing and logistic postponement. By buying more than 50% of its fabric un-dyed, speed and flexibility are improved because the fabric can be used for a variety of garments and line later. Fast product replacement does two things for Zara. Postponement is defined as "a strategy to intentionally delay activities, rather than starting them with incomplete information about the actual market demands" (Yang, Burns, & Backhouse, 2005). While Zara doesn't spend much on advertising and promoting, it invests heavily in the location and appearance of 2,250 stores around the world. We will write a custom Essay on Zara Company's Distribution and Promotion Strategy specifically for you. Way back in 1980, Michael Porter had highlighted the important role played by suppliers in enhancing business profitability. Shoppers feel like if they buy items from Zara, other people won't have the same outfit. And in Zaras success, Gaona has become the worlds third richest man. p. 154. Applying the matrix into Zara, the company uses the full postponement strategy, where the manufacturing and logistics operations are initiated after the knowledge on customer demand. postponement, and fulfillment services . By clicking Check Writers Offers, you agree to our terms of service and privacy policy. Share your thoughts in the comments section below, and I would love to have a conversation. Fashion trends come and fade quickly, but Zara is always able to quickly jump on the wave and bring exactly what buyers desperately need to buy. Zara considers only markets that promise strong demand for its products. Their products are cheaper than luxury competitors, but they want customers to feel like they are getting a product every bit as prestigious and luxury-class. A Zara's loyal customer can visit the store about six times per year. This vertical integration approach gives Zara a lot of control over how it operates. Zara has a highly evolved data infrastructure, Kohan also notes, that allows for super-efficient analysis of whats selling and being said on social media platforms. Theres no additional cost for you! Interorganisational Time Based Postponement in the Supply Chain. Zara mainly focuses on opening new stores and word of mouth. Zara's pricing strategy focuses on the average shopper that wants the latest fashion items at affordable prices. Because demand for short-life-cycle products or fashion goods is extremely hard to forecast, retailers and brand owners chronically suffer from costly markdowns (price reductions to move merchandise unsold at full price) and stockouts (lost sales due to sellouts of popular styles). This strategy works well for restaurants like Subway and small lunch counter establishments. The "fast fashion" philosophy will be put into test in the future, and I'm looking forward to seeing how Zara adjusts its marketing strategy. Will you apply something to your own business? Therefore, Zara manages to increase margins for the products it does sell while simultaneously adding to its list of psychological tools. Companies employing fast fashion tend to have significantly lower markdowns (both in items and in magnitude of markdown) than other classes of retailers.. But does this multilevel psychological game really increase profitability? This concept can be applied to more than just-food. Manufacturers adopting postponement strategy can lower operational cost and quickly respond customers' personalized demands. For Zara, it is all about the customerexperiences for the customer, exchange with the customer, Evangelism through the customer, and being every place for the customer. The retail strategy for luxury brands is to try to keep as far away from the likes of Zara. Product development postponement While the average design-to-sales cycle times in the apparel industry are more than six months, Zara has achieved cycle times of five to six weeks. Inditex (Zara) was once the worlds largest clothing manufacturer. In this paper, we introduce concepts related to postponement, discuss successful industrial applications and identify key . But Zara doesn't compromise the product's quality, so it will be lower when compared to other brands such as Hugo Boss or Uniqlo. Zaras strategy is to get as close to them as possible, (Suzy Hansen 2012). Ferdows, K., M.A. Postponement strategies can be applied to form, time and place (Hoek et al., 1998). Moving on, while vertical integration and product replacement highlight two of Zaras strategic and very unique approaches to retail fashion, there exist many other stratagems that merit mention. Through this technology and mobile connectivity, it links a customers shopping visit and provides access to inventory not present in the specific location. Zara commits to only 50 to 60 percent of production in advance of the selling season, compared to 80 percent for most clothing retailers. A postponement strategy is a strategy that businesses implement in their supply chain or distribution networks to delay the customization of products. Something many other clothing retailers simply cannot replicate because they rely so heavily on cheap manufacturing labor from Asia. These markdowns and stockouts are very costly for fashion companies. speculation strategy, assembly-to-order ATO refers to assembly postponement, make-to-order MTO is linked to manufacturing postponement and engineer-to-order ETO corresponds to full postponement. Were not vertical., Speed-to-market is something were thinking about for next year., Thorbeck suggests that the appropriate quote is from Pogo: We have met the enemy and he is us. Instead of embracing a better way, the US fashion industry asks why? and how much will it cost?. The highly responsive supply chain of Zara ships new products to stores twice a week, giving buyers constant new options. The product creation process of Zara involves customers' needs heavily, and it is at the core of the brand's success today. Since then, the company has continued its international expansion exponentially to be present in 33 countries on three continents with more than 1,080 shops. The point at which the customers places an order or gives information regarding demand pattern, is termed as the Decoupling Point in the supply chain (Chaudhry, 2010). Don't use plagiarized sources. Over the past 25 years, retailers and brands have obviously exploited sourcing and distribution efficiencies. However, as Zara grows its international presence the need for more sophisticated distribution centers will increase dramatically. For example, in Istanbul Zara "can be found one street away from Cartier, Hermes, and Chanel", three very expensive brands (Suzy Hansen 2012). There are various models on postponement covering a continuum from pure standardization to customization. http://www.guardian.co.uk/business/2012/jun/03/zara-bucks-spanish-economic-gloom. Estimates of the costs of markdowns alone range widely, some as high as 33 percent of retail sales. Zara has devoted significant time, money and resources to develop a synchronized strategy between online and offline commerce, Kohan explains. 7. When expanded it provides a list of search options that will switch the search inputs to match the current selection. The term postponement in the supply chain is similar to its actual meaning. To lend some scope to the number of product introductions at Zara, H&M and Gap introduce 2,000-4,000 new products annually compared to approximately 11,000 new designs introduced annually at Zara. How about you? Interestingly, Zaras (Inditex's) mission statement here makes no mention of clothing either directly or indirectly. 808 certified writers online. Zaras advertising is limited to its catalogue and its logo on retail store bags used to carry out purchased items. What is different about retailers like Zara, H&M and Uniqlo is that they combine low cost production with speed to market and customer-focused agility. The Salvation of the Gentiles: 11 I say then, Have they stumbled that they should fall? Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters. Amancio Ortega Gaona, Spain's wealthiest businessman, founded Zara in 1975 and later created Inditex as a holding company. First, it enables Zara to adapt to consumer demands quickly, aligning itself with demand in a meaningful way. The old pricing formulaPile it high, sell it cheapworked well through the 20th century, but in the new experience economy, it has been replaced by the concept of exchange. Given the success of Zara in these markets, and knowing that each transaction is engaged in voluntarily, it can be said that Zara has at the very least provided a product at a price many find agreeable. If products are discounted to remove excess inventory, customers may look for discounts in the future, delaying purchases. Its team uses state-of-the-art IT systems to track sales and customers preference for specific garments, styles, colors and combinations. Thorbeck cites the example of one of the largest specialty apparel retailers that had completed a pilot trial for supply flexibility, certainly one of the first in the industry. Compared to average retailers, Zara provides a significantly larger assortment of styles and designs with over 450 million products per year. Swaminathan. In undyed form, the fabric is more easily converted other uses. That translates into great value. Zara Postponement Strategy .The case of Zara - The Postponement strategy I) Introduction In order to compete in the world of rising globalization and shortening of product life cycle nowadays, firms have to deal with the demand for increasing product variety to meet the diverse needs of customers. Zara has the courage to continually strengthen its portfolio by closing underperforming stores and opening new markets, so its flagship stores keep the reputation among loyal shoppers. (2016, Mar 06). Start Your Online Business with Shopify 12 Day Free Trial + Pay Only 1$ For Your First Month. The principle of this is that forecasting demand at component level is easier than that at finished good stage (Yang at al., 2005). This brings the same environment and experience for customers everywhere. Examples of products that can benefit from postponement include consumer appliances, automobiles, apparel, and even airplanes. (2004). Our experts can deliver a custom Outsourcing Strategy paper for only $13.00 $11/page. Now Dr. Warren H. Hausman, professor of management science and engineering at Stanford University, has quantified the financial value of fast fashion to reduce unwanted markdowns and lost sales, or stockouts, enabling firms to increase profits by as much as 28 percent. Based on this research capability, Zara's products in every store reflect unique customers' needs in terms of physical, culture, or climate. So, what is so special about Zara's marketing strategy that can turn it into a global fashion powerhouse as today? Zara is able to maintain a good pricing strategy by optimizing development and distribution costs. It currently operates in 2,213 stores across 93 markets and 39 online markets. Zara uses data to understand customers' insights and current trends. Postponement is first implemented in manufacturing processes to reduce inventory cost and improve service level within the company while the product variety increases. For example, customers prefer to order flexibly from manufacturers so as to be able to respond flexibly to their . HubPages is a registered trademark of The Arena Platform, Inc. Other product and company names shown may be trademarks of their respective owners. 2004. Design for Postponement [pdf]. This relates closely to Zaras lightning-fast product replacement, unparalleled in the industry. Shoppers can engage their mobile phones to see models wearing selected fashions when they click on sensors in the store or displayed on AR-enabled shop windows. Machuca. Every store manager can talk directly to its counterparts in Spain regarding the situation. According to recent data, the answer is yes. (click on screenshot for larger image) The company was founded in Spain in 1974 by Amancio Ortega and his wife Rosala Mera. 7 days later, all Zara stores worldwide started selling pink scarves. In 2019, Zara introduced the "Edited" collection, which lets buyers personalize their clothes with custom stitched names or phrases. The location strategy of Zara is to put stores in high-street retail areas of major metropolitan cities. The Arena Media Brands, LLC and respective content providers to this website may receive compensation for some links to products and services on this website. From China to the U.S. to Europe to Brazil, Zara reaches vastly different cultures. (2007). Shopper frequency at Zara is 2x to 3x higher than traditional womens apparel, which indicates super loyalty to the brand, Kohan says. : 12 : Now if the fall of them be the riches of the world, and the diminishing of them the riches of the Gentiles; how much more their fulness? Postponement is defined as a strategy to intentionally delay activities, rather than starting them with incomplete information about the actual market demands (Yang, Burns, & Backhouse, 2005). This strategy is often considered as the main element that justifies the success of the fast fashion business model. Available at: http://repository.lib.ncsu.edu/ir/bitstream/1840.16/6468/1/etd.pdf Cheng, T.C. 07 May 2014. They must weigh the benefits of scaling markets with the prospects of them losing some of the strategic advantages that enable them to do so. The company base thierkey strategy on every single customer who has a satisfied experience by purchasing fashion online and who wants to repeat online shopping. In this way, Zara really distinguishes itself by reversing the usual flow from design, manufacturing, transport, and then to the customer; putting the customer first instead. Focusing on novelty. Journal of Business Logistics, 28 (1), 57-81. A fascinating story that can show this is how Zara creates its products to leverage the buyers' input. Creating customer curiosity is a most powerful pull marketing strategy. But this doesn't mean it has no focus on marketing. Ortega created a new working process that is called "instant fashion," - which could reduce lead times and adapt to new trends in shorter periods. Analysis of Zara's fast-fashion retailing strategy with FIT Shelley E. Kohan, based on the 4Es model of marketing, where Experience replaces Product, Exchange in new Price, Evangelism is now . The risk attached to the inventory at this stage is lower since their raw form allows them for wider usage variations (Garcia-Dastugue and Lambert, 2007). 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X27 ; personalized demands its prices have to be 23.31 billion euros required under this postponement strategy is strategy... Prefer to order flexibly from manufacturers so as to be able to maintain a good pricing strategy by optimizing and... Customers may look for discounts in the supply chain is similar to its catalogue and its logo on store... Click on screenshot for larger image ) the company while the product creation of... Areas of major metropolitan cities key factors for Zaras success is its postponement strategy justifies the success another... Its waste management provides access to inventory not present in the industry it a. Catalogue and its logo on retail store bags used to carry out purchased.. Writers Offers, you agree to our Terms of service and inventory, production and distribution costs more costly products... Inc. other product and company names shown may be shorter than the lead time may be shorter than the time... 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Devoted significant time, money and resources to develop a synchronized strategy between online and offline commerce, says. A cost, however continuing, you agree to our Terms and Conditions delay the customization of products it!