1) Which of the following statements are true of Zara\'s pricing/cost structure?
ID: 354333 • Letter: 1
Question
1) Which of the following statements are true of Zara's pricing/cost structure? (select all that apply)A) Zara prices its products about 15% lower than their competitors B)Zara locates its stores away from luxury brands to save on location costs C) Zara outsources the manufacturing of the majority of their products to low-cost countries D) Zara manufactures clothes of lesser quality than their luxury peers 2) Which of the following are key strengths of Inditex/Zara? (select all that apply) A) The supply chain could respond to new needs very quickly, going from concept to market in as little as two weeks B) Zara entices its customers to return more frequently than competitors by introducing C) Zara is able to manufacture clothes more cheaply than competitors because they make them in large batches D) Store managers and employees have the ability to communicate customer needs and desires to the central design teams, resulting in a lower failure rate for new items 3) Despite historical success, Inditex's revenues have decreased in the several years leading up to 2014 A) True B) false 4) Topshop, a relatively new competitor to Zara, has created a fast supply chain that produces more new fashions than Zara, though for a higher price. A) True B) false For the exclusive use of Y. Sherhan, 2018. ?VEy Publishing W15431 WHAT BUSINESS IS ZARA IN? wrole this case sokely to provide material for dlass discussion The auhor does not intend to ustrate eher ivormation to profeer conideniality This puélaication may not he transmited photocopied dipitized or otherwine reproduced in any form or by any meana without te Univeraity, London, Ontario, Canede NSG ONt: (59 661320 (e) casea@ivey.ca: www. contect vey Publishing hey Business What would 2016 have in store for Inditex and its flagship brand Zara with its "fast fashion" basiness model? It had taken ycars for new compctitors to build business models that could effectively compete with Zara's approach. Many would recall the early deference many had towards Zara and its counter-intuitive business model. Why would anyone invest in a fashion manufacturer and retailer who produced their clothes in the high- cost labour market of Spain (versus Asia), spent very little on advertising, ostensibly overspent on positioning high-end stones in chic retail districts across Europe, carried substantially less inventory than competitors, manufactured clothes that were, arguably, of a lesser quality and finally, charged 15 per cent less at the cash register. By all accounts, this approach was viewed as a formula for disastcr in the highly competitive retail fashion industry At the time, most observers were just not forward thinking enough to soc the value in Zara's approach. And, over time, Inditex took great pride in proving them wrong. By 2014, Zara was, by far, the number one fashion retailer in the world by many mcasures. It really was its unique business model that enabled this astounding success. Inditex, however, could not dwell on past successes, as the future was full of significant challenges associated with the many new upstart and copycat competitors who had infiltrated the market. These new firms would, more than likcly, also enjoy a good degrcc of success. Disruptive innovations, such as Zara's business model, inevitably were copied. Examples of how industries evolved around disruptive business models included Southwest Airlines kcading the discount airlinc industry and Wal-Mart dominating the discount department store industry Perhaps it was time for Inditex to reinvent the industry busincss model, once again.
Explanation / Answer
1. (A), (D)...... It has been mentioned in the introduction section itself that Zara product offerings are based on latest fashion, with 15% less margin than competitors and they compensate it with slightly lesser quality.
2. (A), (B) and (D).... Zara manufactures the products in small batches and the manufacturing is done in Spain itself and then it is sent o the central distribution center and from there the final product is sent to the store and all this happens within 14 days. Also, the store manager interacts directly with the customers to understand the latest desire of the customer which is communicated to the central design team.
3. FALSE...it can be seen in the exhibit 1 that the revenues have continuously increased. Also, in the case study, it is mentioned that the revenues have increased from 5.67 Billion Euro in 2004 to 18.1 Billion Euro in 2014.
4. TRUE... Topshop, a UK based brand has adopted the business model of Zara and launches 300 products per week which is 100 more than Zara but the products are priced higher as compared to Zara
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