Zara: An Integrated Store and Online Model

Zara Case Analysis
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Zara Case Analysis
Zara, a global brand in the fashion industry, is an example of an organization that has advanced market shares due to its understanding of the market and adapting to the required changes. Zara, a subsidiary of Inditex Group, started in 1963 in Coruna (Moreno, 2021). Its operations advanced quickly to the extent of having 9 stores in Spain after 20 years of operations. By 2018, Zara was a notable brand with its parent company operating 7,490 stores in 96 markets (Moreno, 2021). Traditionally, Zara scaled the market leadership ladder through efficiency in lead time management. However, the adoption of e-commerce and online shopping at the height of the technology era has meant that Zara thinks about reorganizing its business model to fit the operational environment. In this analysis, emphasis is put on Zara’s transition through exploring the company’s profit margins relative to competitors, assessment of store aggregation, and advancements of RFID technologies in its supply chain.
Comparing the Profit Margins
Zara’s market position can easily be explored using its profitability data relative to close competitors such as Gap and H&M. in the financial year 2018, Zara had revenues of more than $26 billion. That number was high compared to H&M’s $21 billion, and Gap’s $15 billion. According to Moreno (2021), the total net income in the same financial year was $3.448 billion for Zara, $1.709 billion for H&M, and $848 million for Gap. Also worth noting is that at the time, Zara had a total of 7,490 stores compared to H&M’s 4,739 and 3,594 stores Gap. At the same time, Zara’s return on capital employed (ROCE) was higher than the competitors’ at 24% relative to H&M’s 19.3% and Gap’s 20.9% (Moreno, 2021).
Based on the above data, it is there can be multiple reasons drawn to explain Zara’s exemplary performance relative to the competitors’. First is the business model that Zara has exploited through its tradition: lead time management. Zara was able to run with modest, quickly moving shop inventory thanks to its quick filling of store orders. Stores sent information on the products to the corporate office, including order and sales data, customer feedback, and predictions of future trends. According to the information and anecdotal reports, store managers transmitted orders to the corporate office 2 times a week, and the goods arrived in the store within 2 days (Moreno, 2021). The merchandise would subsequently be displayed on the shop floor to the satisfaction of customers. Zara’s inventory management model was different from competitors such as Gap and H&M. Gap, for instance, had an average production cycle of 10 months, which is too long for an industry that changes quickly (Moreno, 2021).
The second reason why Zara’s profitability is high is the company’s sales strategy. In 2010, Zara, strategically, launched Zara online, which has contributed significantly to the company’s sales growth. The launch of zara.com triggered the development of online distribution centers. By 2018, Zara had physical stores in 96 markets as opposed to its 156 markets served by online operations (Moreno, 2021). Additionally, by 2018, the number of countries in which one can access Zara products had increased to 202. At the same time, online sales were growing steadily for Zara (Moreno, 2021). There was a 27% growth in online sales from the 2010 data leading to a 12% contribution of online sales to the total sales. Zara’s smooth integration of online operations into its physical store chains increased its profits relative to competitors.
Zara has also showcased steady growth in its sales indices. The evolution of revenues at Inditex brands shows that Zara has showcased a steady growth in sales, something that the competitors have failed to match. In 2018, the number of new sales had grown to $26,145 million from $25,336 in the previous year (Moreno, 2021). The growth in the 2017/18 financial year stood at 4%. The trends of new sales have been positive for Zara since 2014 with its highest peak grossing at a 10% growth index in 2016 (Moreno, 2021). A high growth rate for Zara in new sales implies steady profitability, for an organization with swift lead-time management if compared to the competitors.
Ultimately, Zara bears better interactions with consumers compared to its competitors. Part of the reason why Zara is more profitable is its motivation to achieve the best sales in every operational environment. Throughout its life, Zara has worked to improve the number of people who can access its products. In 2014, Zara operated in 88 markets with all those markets having stores for a total number of 6,683 stores (Moreno, 2021). That number has since grown considerably with the company operating in 202 markets in 2018, 96 markets with stores, a total of 7,490 stores with 156 of the 202 operational markets having online sales. The numbers recorded by Zara are high relative to comp...