Chapter 14   Competing on Marketing and Supply Chain Management…

JusticeRedPandaPerson687 Chapter 14   Competing on Marketing and Supply Chain Management…Chapter 14   Competing on Marketing and Supply Chain ManagementZara is one of the hottest fashion  chains.  Founded  in   1975,   Zara’s   parent,   Inditex,   has   become   a   leading    global    apparel    retailer.  Since  its  initial  public   offering   (IPO)   in   2001,  Inditex  quadrupled  its profits and its sales (to US$19.1  billion  or  €13.8  billion).   It   doubled   the   number  of  its  stores  of  eight brands, of which Zara contributes two-thirds of total sales. In this intensely competitive industry, Zara excels  in  both  marketing  and  supply  chain  manage-ment. Zara succeeds by first breaking and then rewrit-ing industry rules—also known as industry norms.Rule  number  one:  The  origin  of  a  fashion  house  usually carries some cachet. However, Zara does not hail from Italy or France—it is from Spain. Even within Spain,  Zara  is  not  based  in  a  cosmopolitan  city  like  Barcelona or Madrid. It is headquartered in Arteixo, a town of only 25,000 people in a remote corner of north-western  Spain  that  a  majority  of  this  book’s  readers  would have never heard of. Yet, Zara is active not only throughout Europe, but also in Asia and North America. Currently,  the  total  number  of  stores  is  more  than  2,000 in 88 countries. Zara stores occupy some of the priciest  top  locations:  Champs-Elysées  in  Paris,  Fifth  Avenue in New York, Galleria in Dallas, Ginza in Tokyo, Queen’s  Road  Central  in  Hong  Kong,  and  Huaihai  Road in Shanghai.  Rule number two: Avoid stock-outs (a store run-ning out of items in demand). Zara’s answer? Occa-sional  shortages  contribute  to  an  urge  to  buy  now.  With  new  items  arriving  at  stores  twice  a  week,  experienced  Zara  shoppers  know  that  “If  you  see  something  and  don’t  buy  it,  you  can  forget  about  coming  back  for  it  because  it  will  be  gone.”  The  small  batch  of  merchandise  during  a  short  window  of  opportunity  for  purchasing  motivates  shoppers  to  visit  Zara  stores  more  frequently.    In    London,    shoppers  visit  the  aver-age  store  four  times  a  year,  but  frequent  Zara  17 times. There is a good reason   to   do   so:   Zara   makes     about     20,000     items   per   year,   about   triple what Gap does. “At Gap,   everything   is   the   same,”   according   to   a   Zara fan, “and buying from Zara, you’ll never end up looking like someone else.” Rule number three: Bombarding shoppers with ads is a must. Gap and H&M spend on average 3% to 4% of their sales on ads. Zara begs to differ: It devotes just 0.3% of its sales to ads. The high traffic in the stores alleviates some need for advertising in the media, most of which only serves as a reminder to visit the stores.Rule  number  four:  Outsource.  Gap  and  H&M  do  not own any production facilities. However, outsourc-ing  production  (mostly  to  Asia)  requires  a  long  lead  time,  usually  several  months.  Again,  Zara  has  deci-sively deviated from the norm. By concentrating (more than half of) its production in-house (in Spain, Portugal, and Morocco), Zara has developed a super-responsive supply chain. It designs, produces, and delivers a new garment to its stores worldwide in a mere 15 days, a pace that is unheard of in the industry. The best speed the  rivals  can  achieve  is  two  months.  Outsourcing  may not necessarily be “low cost,” because errors in prediction can easily lead to unsold inventory, forcing retailers  to  offer  steep  discounts.  The  industry  aver-age is to offer 40% discounts across all merchandise. In contrast, Zara sells more at full price and, when it discounts, it averages only 15%.  Rule  number  five:  Strive  for  efficiency  through  large  batches.  In  contrast,  Zara  intentionally  deals  with  small  batches.  Because  of  its  flexibility,  Zara  does  not  worry  about  “missing  the  boat”  for  a  season.  When  new  trends  emerge,  Zara  can  react  quickly. It runs its supply chain like clockwork with a fast but predictable rhythm: Every store places orders on  Tuesday/Wednesday   and   Friday/Saturday.  Trucks  and cargo flights run on established  schedules—like a  bus  service.  From  Spain,  shipments  reach  most  European stores in 24 hours, US stores in 48 hours, and Asian stores in 72 hours. Not only do store staff know exactly when shipments will arrive, but regular customers also know that too, thus motivating them to  check  out  the  new  merchandise  more  frequently  on  those  days,  which  are  known  as  “Z  days”  in  some cities. Zara has no shortage of competitors. Why has no one  successfully  copied  its  business  model  of  “fast  fashion”? “I would love to organize our business like Inditex [Zara’s parent],” noted an executive from Gap, “but  I  would  have  to  knock  my  company  down  and  rebuild it from scratch.” This does not mean Gap and other rivals are not trying to copy Zara. The question is how long it takes for rivals to out-Zara Zara.  QUESTIONS  1. Using  the  four  Ps  of  marketing,  explain  what  is  behind Zara’s marketing. 2. From a VRIO standpoint, identify the features of Zara’s supply chain management that contribute to its performance.  3. Visit  a  Zara  store  in  (or  near)  your  city.  Does  it  meet your expectations for a successful firm?BusinessBusiness – Other