Essay on Economics and Zara

1403 Words 6 Pages
Case Analysis of ZARA: Fast Fashion
Challenges

a. Limitations of Vertical Integration
Vertical integration, a distinctive feature of Zara’s business model, has allowed the company to successfully develop a strong merchandising strategy. This strategy has led Zara to create a climate of scarcity and opportunity as well as a fast-fashion system. However, Zara’s strategy creates some weaknesses. Their vertical integration has more advantages than drawbacks but it is important to recognize its limitations. Vertical integration often leads to the inability to acquire economies of scale, which means Zara cannot gain the advantages of producing large quantities of goods for a discounted rate. Higher costs are then incurred for the Inditex
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Zara will need to continue to ship product from its European distribution center. Leveraging the fact that Zara’s shipments will grow as they continue to expand can help them renegotiate overseas shipping costs and terms to reduce overall costs.

Internet Retailing (America)
With an existing website in place, Zara can easily add the e-commerce feature to its website. Although 80% of trends and styles are common across all countries, there is still some variation in preference and taste from country to country. Zara can reach consumers faster and easier in the countries they are trying to expand into. This method can also help gauge consumer preferences from country to country.

Long Term
Build a central regional distribution center in America and smaller/satellite distribution centers in other countries
Zara maintains its competitive advantage in Europe through its fundamental concept to maintain design, production, and distribution processes that enable quick response to customer demand. Global expansion means that Zara needs to carry its business model to America in order to maintain short production and lead times. Building a central distribution center in America will help Zara decrease logistics and help maintain Zara’s model of fast fashion and economies of scale. Zara can strategically locate its central distribution center in or near countries where manufacturing can be done with cheap labor cost (i.e. Mexico or Carribeans). Smaller

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