1.1 Zara Fashion Shop Background information
The textile and clothing industry continues to develop since the earliest days because people will always be in need of something to cover their nakedness. Zara Fashion Store started in 1975 as a small store in Spain. Presently the business has ventured into 77 countries and owns more than 1,700 stores worldwide. In the year 2010, Stores accumulated profit amounting to 8 billion Euros. The business model adopted by zara is different from others since it composes of several sectors and sub-sectors. It comprises of the manufacturing unit, the design sector, distribution unit and sales sector. In addition, Zara has many profession designers with good customer knowledge, and are capable of accessing all customer needs and adhere to their requests. This enables the company manage more than 18,000 different models each year (Westfield 2010). Figure 1 represents some of the fashions designed in Zara factories.
1.2 Opportunity for innovation in Zara fashion Stores
In reference to the above the store has managed to increase its sales capacity through innovation and proper management skills. The need for innovation in Zara was stimulated by the presence of company owned factories, combined with external suppliers with excellent experience in the textile industry. In addition, Zara had a team of professionals in the management sector who ensured all the available models got customers all over the world within a span of two weeks. With the current business environment, organization managers have a duty to come up with crucial decisions on how to carryout their business operations. There is a challenge on the high growth rate of the business environment due to globalization the advancement of technology. According to Daft & Marcic (2008), managers face challenges on daily bases since once they come up with a strategy it gets overtaken by another one within a short time.
Another opportunity for innovation in Zara was the development of textile operations that ensured the colours and material used to manufacture clothes were of the best quality. This ensured that the company offered exciting cloth designs and gave a better quality control of its products. The company now has 18 textile-designing-and-finishing operations combined with cloth manufacturing factories. In addition, Zara fashion company is more concerned with design than any other operation. Most customers prefer shopping from Zara stores since they offer different and quality designs thus meeting their demands (Tidd, Bessant, and Pavitt, 2005). Customers get satisfied from the services offered they in return bring about rewards to the business resulting to company growth. On the other hand, business managers should approach customers and make them like fashions, brands and designs offered in their organization. Creating customer value enabled the company retain most of its consumers and also acquire more. Zara Fashion Store undertook a number of processes in a bid to attain competitive advantage while serving its customers. Of great importance to them, is ensuring customer satisfaction because satisfied customers most often purchase again and tell other people about it (Kotler & Armstrong 2011).
2.0 Zara Fashion Store recognizes the opportunity for innovation
2.1 How the opportunity was recognized
Gaona developed a modernized management rationality that enabled him maintain the long-term survival for his company. According to Nalbuff/Brandenburger (1996), companies should always diversify their operations through sourcing out their services in order to maintain their competitive advantage, and avoid relying on only one line of production. Zara developed an in-house manufacturing strategy that ensured all the designs were developed and manufactured within the company. This prevented other textile industries from stealing their designs since Zara had patented its designs. Moreover, the use of in-house manufacturing system made the company manufacture old design models, but using the modern technology thus, maintaining culture, religion, and customers’ traditions. When it came to sourcing out the services, Gaona sent almost complete designs to other factories who could add some materials, like buttons and zips. Through this, the company had the opportunity of doing all the manufacturing and assembly of garments in its factories. In addition, while competitors like H & M and Gap developed their new designs in more than four months Zara spent only three weeks (Tidd, Bessant, and Pavitt, 2005).
2.2 Who recognized the opportunity
According to Tidd, Bessant, and Pavitt (2005), after working in a Spain textile company for many years without any success, Ortega Gaona came up with a decision to start his own fashion store in the year 1963. Gaona had invested a sum of 25 U.S dollars, which he used tom start a small company specializing in thes manufacture of pyjamas and lingerie. Years later the small shop expanded into a retail shop and later developed into a big fashion store called Zara. Another individual who recognized the opportunity was Lotte Freddie, the fashion designer who gave the company credit for its determination in creating designs featuring current styles, and sold at affordable prices. Freddie claimed that the successful growth of the company was due to innovation, but not the issue of low prices and standardization of operations. On discovering the opportunity in developing a fashion store Gaona first concentrated on one store in North Western Spain and developed it before opening up stores in other areas. According to Baden-Fuller, and Pitt (1996), developing innovations require an entrepreneur to have the capability of seeing connections and taking advantage of the available opportunities. Baden_Fuller and Pitt further argues that innovations does not only involve moving into new areas, but also designing perfect ways of offering the services required to the targeted groups (1996).
3.0 Zara Fashion Store innovation process
Zara Fashion Store developed very rapidly from a single factory manufacturing pyjamas and lingerie to big industry with fast turnaround clothing processes and managed more than 2000 stores in 52 countries. Zara’s innovation process ensured once a fashion was ready it was only allowed to stay in the display for only three weeks. The innovation started with the establishment of experienced managing team who possessed the necessary knowledge in the clothing and textile industry. Secondly, Zara developed an international business model that enabled it invest in other countries across the globe. In addition, the innovation process involved the purchase of high class, and technologically advance machines. This gave the company an opportunity to develop many garments within a short duration, which also adhered to the current fashion and style. Finally, the management made exclusive use of information and communication technologies in all parts of their operations. Customers could shop their fashions online and also place orders while in their homes. Also, most of communication was wireless whereby the company sales group could place the inventories on the internet for customers to view(Tidd, Bessant, and Pavitt, 2005). Figure 2 shows the change of allocation processes from the former to the new method.
4.0 Implementation of the innovation
4.1 involved teams
After realizing the need to offer more for his customers, Guona created a team made up of all the senior managers in the company. Each manager was responsible for a given department, but the most sensitive areas were on manufacturing, finance, and sales. The team held several meeting to discus the way forward whereby every staff member was given a chance to suggest an implementation that could assist the company succeed on the innovation process. Appendix I shows the company’s management structure lead by the founder as the chairman.
4.2 Critical areas for the innovation commercialization.
4.2.1 market selection and market entry
The management team at Zara recognized a need to expand their operations internationally as from 1988. The company opened new stores in Portugal, and New York in 1988 and 1990 respectively. Within six years the company had opened 225 stores in Europe, 406 in America, and 66 in Middle East/Asia. Appendix II shows the full details of the number of stores in each country. On the other hand, the selected team were on the keen look out for any market entry opportunity in a certain region and assessed means of getting there (Ghemawat and Nueno 2003). The company made use of demographic marketing selection strategy whereby fashion was used as the parameter. The market segment was developed in order to increase sales of products like, dresses, and handbags. The company management realized that most young people like such products and to attract them, they developed some promotions programs that made them purchase more of these brands. According to Lewis and Slack (2003), a business organization should aim at achieving high profits, but use cost effective ways that creates good customers’ value.
4.2.2 Sourcing and manufacturing
In order to concentrate on manufacturing quality designs Zara bought some of its fabrics, inputs and finished products from the external suppliers. In addition, the company sourced some of its work force from other companies where it owned stores. Zara opened a manufacturing firm in Hong Kong since they produce best fabrics and other raw materials. While the company manufactured about 40 percent of its products, the remaining 60 percent were sourced the suppliers in different countries. This enabled the country implement its innovations within a short duration since all the processes run as speculated and less was time taken to create designs. Most manufacturing processes took place internally since the company has 20 factories within Zara’s headquarters. The company had also a lot of expansion space to cater for future innovations (Ghemawat and Nueno 2003). According to Gereffi, outsourcing services enables an organization compete extensively in the international market since it reduces work load, and cost of production also lowers (2002).
Zara innovation strategy was promoted through offering designer-style garments at low prices in many different stores. The retailing department that consisted of merchandisers and store operators ensured customers always received the latest designs at all times. Merchandisers liaised more frequently with buyers to ensure that the purchased products achieved the targeted sales plan. This involves devising the necessary techniques by delivering the production plan to buyers, who in turn, come up with decisions on the products to buy, styles, and colors depending on customer needs. The merchandiser makes decisions on the amount of money to spend, the number of different lines to purchase together with their qualities, and setting selling prices that conforms to the expected profits (Retail Human Resource, 2011). Store operations played a part in maintaining the company’s face, while at the same time acquiring the necessary information. In order to achieve the innovations set, Zara located its stores in visible areas that included; shopping streets in busy markets, and upscale areas occupied by rich people. Over the years, relocation of stores occurred depending on customer availability.
5.0 Why the innovation was successful
Several reasons contributed to the success of Zara’s innovation process. The company was led by a team of determined people right from the corporate departments, business units, and business support areas. The team had a better understanding of the business environment and responded to all issues for the growth of the organization. Organizational environment consists of threats and opportunities that determines the success of any organization strategic plan (Future Seekers 2007). Moreover Zara had a perfect supply chain management that enabled it achieve all its endeavors without much delays, as is the case with other companies. H & G is among the many competitors that use a service system that is close to the Zara. Therefore; Zara evaluated its system and come up with an effective mechanism for achieving the competitive advantage. To achieve this means putting customer satisfaction ahead of any other activity in the system operations. Customer feedback helps significantly in identifying loopholes and areas of concern to customers (Moore and Pereek 2010).
The ability of organizations to adopt current Information Technology and use it effectively determines the success and future of the organizations (Bocij 2008). Zara, on the other hand, kept the spirit of undertaking extensive innovations on the side of IT in all its processes within and outside the manufacturing units. Finance department in a company assisted in giving the necessary funds for improvement of activities that aid in increasing profits. ICT defines the kind of market modality that exists in a given business environment by influencing the market forces of supply largely. This occurrence finds basis on organization, and effective coordination in the utilization of the kind of information gathered. Hence, fashions created had a healthy completion among suppliers, which made them concentrate on production of high-quality products, and carry out extensive innovations on the same. This ensures that consumers get quality goods and services.
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