Competing on Capabilities Professor S. Lioukas 2016 Update:

Zara is the world's largest fashion retailer, present in 88 countries, with a network of over 5.000 stores in privileged locations of major cities 66 % international sales Its international presence is a testament to the idea that national borders are no impediment to “sharing a single fashion culture”.

Retail shops 2015 2014 2013 2012 2011

Zara- important events (1975-2014) 1975: Amancio Ortega opens the first Zara store in a central street of La Coruña (Spain) 1988: Opens the first Zara store outside Spain, in Porto (Portugal). 1989-1994: Opens stores in other countries New York (1989), Paris (1990), Mexico (1992), Greece (1993), Belgium & Sweden (1994). 2001: Inditex group is listed in the stock market 2013: Zara opens its first store in Algeria. The Group continues to expand its brands online in new markets such as Canada and Russia. 2014: Global online sales launches reach 27 markets.

Zara’s Value Chain Vertically integrated The tight integration of design, planning, merchandising and production in La Coruna enables the company to respond quickly to any market need more integrated than others manufacturers, who are “highly-labor” intensive Manufactures 60% of its own products Zara has resisted the industry-wide trend towards transferring fast fashion production to low-cost countries Only garment making is sub-contracted in 350 small sewing units in Spain

Distribution & Logistics A central distribution center channels all production to all stores worldwide Distribution takes place twice a week Each consignment always includes new designs Stores are constantly renewing their offer The time between receiving an order in the distribution center to the delivery of goods in the store is on average 24-36 hours for European shops 48 hours maximum for American or Asian shops

“ZARA reacts to revealed demand immediately” Zara’s Business Cycle Daily analysis of product sales and company’s performance. Customer feedback Information from stores is constantly transmitted to a design team ( 200 professionals, 20.000 new designs per year) “ZARA reacts to revealed demand immediately” Small production-Scarcity effect. Extremely small lead times Central distribution, shipment to all store 2ice per week, 24-48hr delivery

ZARA’s strategy: hybrid and focused ? Differentiates from traditional garment making. Instant fashion at rather low prices Targeted at young people Mission “Give customers the fashion they want” Global reach Standardized fashion Economies of scarcity Continuous shelf renewal No traditional advertising Dependent on word of mouth

Economies of Scarcity Strengthen the sense of “now-or-never’” Regular customers know that the new products are introduced every two weeks and most likely would not be available tomorrow Selling more items at full price (little left over for sales) Increase of visits a typical ZARA customer visits the store 17 times per year (c.f. 3 time/year for a high-street store in Spain) Better stock management

Key Capabilities Recognition and identification of fashion on demand- latest trends Ability to react quickly rather than predict 85% of the production is done through the season Unmatched speed from design to stores Between 2 weeks (modified design) and 5 weeks (new design) Abundance of choices for customers 11.000 designs per year Quick product life cycle, greater customer satisfaction through high turnover in offerings

Key Capabilities Renewal of store layout (every three-four days) Accurate demand forecasting Accurate demand forecasting enables mass production leading to well managed inventories, lower markdowns, higher profitability and value creation for shareholders in the short and long term

“Zara is a fashion imitator” (Businessworld magazine ). Accusations Although the firm does not admit it, a lot of its products’ design is “strongly influenced” by very expensive brands A team of 200 designers creates versions demanded “Zara is a fashion imitator” (Businessworld magazine ).

Zara’s Capabilities Which cannot be imitated? Which of them add value? are “dynamic”? Zara …“possibly the most innovative and devastating retailer in the world” Daniel Piette, Fashion Director, Louis Vuitton

Distinctive Capabilities Key capabilities (according to J. Kay) Distinctive elements Architecture Relations with stores Relations with 200 designers Relations with 350 small sewing units to which garment making is sub-contracts Reputation Fashion clothes at affordable prices Technical scarcity: “now or never” Innovation 11000 designs per year (competitors: 2000 – 4000) 85% are designed during the season (competition 6 months in advance) Strategic assets Location of stores in central positions 5 4

Dynamic Capabilities Categories of DC Distinctive elements Reconfigure / recombine resources Reconfigured value chain: a central distribution center (1986) and two new ones (2002 and 2003) Even manufacture on shore (in a ship)…Kept speed of delivery despite addition of outlets Integrate / coordinate Integrates design, manufacture, distribution and sales at high speed  the cycle from design to store between 2 (modified design) to 5 weeks (new design) Learning Capability to recognize trends in fashion, interpret, adapt and satisfy fashion needs of millions (unmatched by competitors) Stores become a source of information for new designs 5 4

The INDITEX Group (1991-2014)

Zara is the leader in the group

INDITEX Group 2015

Performance data

Financial results of the Inditex Group

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