engineering management 462

draft-zara_international.doc

Kaan Over

James K. Lill, Adriana Gil-Matos

Introduction to Engineering Management

October 30, 2016

Zara International: Fashion at the Speed of Light

This study analyzes the status of Zara International taking a broader look at the apparel industry where it operates and the competitive factors, its current operational performance, its market competiveness and its response to the new trends such market globalization. The study also stretches to find out whether Inditex is still providing worthy management benchmarks that firms such as Zara could follow.

Apparel Industry and Its Competitive Factors

The global apparel industry continues to grow healthily into the future. This is attributed to the absence of switching costs for consumers and great product differentiation which has resulted into moderate competition rate. Apparel industry is important to all the economies across the globe as it contribute immensely to trade, employment, investment and revenue all over the world. The industry has vast product differentiation, short product life cycles, and is characterized by great pace of demand change that is coupled with rather long and fixed supply processes.

According to statista.com, the US Apparel industry is estimated to be around $225billion with the women accounting for the largest sales volume at $110,826 million. As of 2015, the market was valued at approximately 343 billion U.S. dollars. Price per apparel article in US was estimated to be about $19. The clothing stores sales in the industry was also estimated to about $183.01bn. The U.S. Apparel Manufacturing was reported to have employed about 89,588 people as of 2014. At the retail level clothing store sales in U.S. was estimated at $183.01bn while the U.S. apparel and accessories retail e-commerce revenue was reported to be about $63.5 Major retail and discount stores are the likes of Target, Wal-Mart, and Kohl's; these firms operate by keeping profit margins thin at stores which sell moderately priced apparel.

As seen in the figure below, the market value of the apparel industry in the United States has been on the increase since 2011. In 2011 the market was valued at $309.98 billion, in 2012, this increased to $316.92 and in 2013 it reached $323.75 billion. In 2014, the market again recorded an increase standing at $331.49 billion. In 2015 it increased to $342.94 billion and currently it stands at $358.88 billion.

Fig1: Market value of apparel and footwear in the United States from 2011 to 2016 (In $billion)

The major competitive factors in the apparel industry include the cost of labor, cost of raw materials and the shipping costs (Lu 32). Besides these, in order to remain competitive within the apparel industry, firms must updated on the latest trends in the market. As such, firms must ensure that at each and every moment they are in the market, they remain updated on the consumer tastes, preferences and demands. This is very important when it is remembered that the apparel industry is characterized by short product life cycles. Product differentiation is another factor that is essential in this industry; in order to remain relevant in this industry, a firm must strive to be innovative and come up with products that are unique and different from those offered in the market (Kim, Ann, and Hyejeong 153). Apparel industry is about fashion and trend and the better a firm can keep up with the emerging trends and fashions while still maintaining quality and proper customer service, then such a firm is likely to be competitive enough to remain in the market.

As suggested above excellent customer service is another competitive factor that firms in this industry must focus on. Consumers in these industry are agile as such they expect agile services. A firm must thus employ a supply chain and logistic system that will ensure that products are delivered fast and in time. This has seen many firms including Indext to employ just in time approach in the production process and inventory management. The lead time in this market must be short and the stores must be updated frequently. Customers expect to walk into the apparel store and get the latest garments on fashion or trend. Stores that are known to stock latest apparels are the most frequented by the customers.

Zara International Currently

The firm is currently doing well noting that it has showed improved performance even during economic downturns. It was able to defy recession by its Cheap and Chic Zara Clothing chains which allowed it to record strong sales gains. The firm has also managed to maintain its agility to the market trend adaptation; this has given it a competitive edge with some participants in the industry describing it as the most innovative and devastating retailer in the world ().

In order to record such good results, Zara has learnt from its parent firm, Inditext and has tried to internalize most of its operations in order to improve efficiency and optimize profit. The firm has an effective logistic system that allows it to achieve these objectives. Zara has logistical centers across the world to which its finished garments are shipped to after each and every two weeks; upon receiving the garments, these logistical centers ship them simultaneously to all the stores across the world. This smooth flow of goods has allowed them to ensure continuous replenishment and update of the stock in its various stores worldwide. This has ensured that, the firm remains on top of the trending fashions in the market and that customers visit its stores all the time (Lutz).

In order to remain relevant in the market, Zara has continued to maintain its strong design and fashion identity that runs through both its clothes and the stores they are sold. Zara has come up with new styles that combine fashionable designs with a strong link to current high fashion themes; it offers these products at fairly moderate prices that has kept customers trooping in its stores worldwide (Tidd, Bessant and Pavitt 2). Zara makes over 10,000 clothing models that are created and sold every year; the firm has also been successful because of its string commitment to quality in designing. The firm employs over 200 designers who are dedicated at making these wonderful garments. Zara Success is also attributed to its amazing flexibility; the firm uses a different manufacturing model that employees over 2500 employees who are working directly in manufacturing operations and much larger workforce working outside the manufacturing zones spread across the small villages in Spain and northern Portugal (Tidd, Bessant and Pavitt 2).

With all these innovations and expansions, Zara is doing well generally; the firm is valued at $10.7 Billion and was listed as one of the world’s most valuable brand by Forbes in 2016. In order to deal with the pressures that come with globalization, Zara has expanded its operations to the international markets adding 77 stores in 2015 alone and expanding to countries such as Taiwan, Hong Kong, and Macau (Lutz). It is also vastly present in the U.S cities such as Los Angeles, New York, San Diego, Houston and Las Vegas. Zara has also effectively adopted e-commerce that has allowed it to tap into the online retail market that has expanded with the business globalization. It has retail websites where customers get to order their goods and organize for the delivery of the orders.

Status of Inditex as Management Benchmark Firm

Inditext is indeed still considered to be one of the industry best firms to benchmark on. The firm has continued to post strong sales gains even during economic recessions. It has managed to maintain its prices low enough for its target customers. The firm also has maintained rapid response to fashion trends and managed to top the industry as one of the best global clothing vendors beating many other strong firms including Gap Inc. Inditex is active in more than 70 countries and offers over 8 key brand groups with each targeting a particular segments or product types (Tidd, Bessant and Pavitt 2). Inditext has also invested heavily on the complex system of just-in-time production and inventory management technique that has allowed it to shorten the lead time of its orders and generally keep the firm a head. With its lead times of 24hrs to 48hrs in its European and American stores respectively, the firm has been a lesson to many firms on how products can be gotten to the stores in time. Inditext has also maned to internalize many supply chain operations which has helped it in saving cost and enhancing general effectiveness within the firm; it does this by fully controlling the design, production, distribution and retail sales. This has allowed the firm to optimize the flow of goods without having to share its proceeds with the intermediaries. With such amazing performance records, many apparel firms still view Inditext as the yard stick when it comes to measuring economic performance, customer service and innovation.

Works Cited

Global apparel market size projections from 2012 to 2025, by region. Statista.com. 2016. Accessed October 31, 2016 from statista.com

Forbes. The World's Most Valuable Brands. Forbes, 2016. Accessed on October 31, 2016 from www.forbes

Kim, Eundeok, Ann M. Fiore, and Hyejeong Kim. Fashion Trends: Analysis and Forecasting. Oxford: Berg, 2011. Print.

Lu Sheng. 2016 Fashion Industry Benchmarking Study. United States Fashion Industry Association, 2016. Print.

Tidd Joe, Bessant, John and Pavitt Keith. Exploring Innovation in Action: Sewing up the Competition - Innovation in the Textile and Clothing Industry. Innovation Portal, 2013. Print