The Unconventional Business Strategies of Zara: A Case Study
Informational Technology and E-Business
At first glance, La Coruna, Spain is a small, poor ship-building town in northern Spain; however, it houses a company, Inditex Corporation, which is a technological leader within the fashion industry. This small town houses “The Cube,” which is the command center for the fashion giant, Zara. Zara has distanced itself from conventional methods of the fashion retail model by utilizing a technology-enabled strategy that influenced design, manufacturing, and the marketing of products. Today, Zara ...view middle of the document...
Retailers have always looked for the fastest and cheapest way of making a product. This has entitled leveraging cheap, contract manufacturing in developing countries in order to keep production costs low. Firms are able to keep lower prices and sell more product; thereby, maintaining a higher profit margin. The most profit depends on the economics of scale of a firm. So under this situation, the conventional fashion industry could not achieve incredible profit though small scale of manufactory. Unfortunately, competition among retailers increases as companies constantly try to get the lowest cost of goods, which can create an environment of unsafe working conditions, dangerous environmental concerns, and unethical labor practices. These companies have to deal with being accused of degrading human conditions and allowing unsafe working conditions to make a bigger profit, which eventually affects advertising and an unwanted tarnish to the company’s brand.
Lastly, retail companies have invested large amounts of money in big advertising campaigns. These companies have relied on big-budget television promotions, advertising, and sales to lure customers to their products. Some retailers have had to invest in an advertising campaign to counteract the unwanted media attention surrounding the inhuman working conditions from contract manufacturing. However, Zara’s founder has referred to advertising as a “pointless distraction” and Zara, as a company, spends almost no money in advertising. Compared to many fashion retailers that spend an average of 3.5 percent of revenue promoting their products, Zara spends only 0.3 percent of their revenue.
These conventional practices rarely utilize technology. Technology is able to improve many aspects of the fashion industry and has changed how the retail industry is measured by sales, profitability, and growth. Companies that are reluctant to incorporate technology into their business plan will remain stagnant; whereas companies, like Zara, that embrace technology within their strategy will continue to grow and remain profitable.
ROLE OF INFORMATION TECHNOLOGY (IT)
Information Technology (IT) plays an extremely important role in the success of Zara's retail stores. Even though Zara’s methods are considered unconventional compared to its competitors in the fashion industry, their methods are incredibly successful. Zara’s store managers lead the effort in deciding what ends up on the store’s racks by utilizing personal digital assistants (PDAs) to gather customer input and provide direct feedback about what customers what to see in the store. This information is collected right outside the store, so the information is coming directly from the store’s local customers. Staffs routinely analyze unsold items in order to determine customers’ preferences in fabric, color, and style. Staffs are motivated because they are rewarded for success, with as much as seventy percent of salaries...