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Diseconomies of scale: Zara has not invested in distribution facilities to support their global expansion. As a result, although it is aware of how to quickly supply 1,000 stores, they may not be able to supply more retail locations due to their “centralized logistic” model.
Even though Zara has been successful at scaling up its distribution system, the centralized logistics system might eventually be subject to diseconomies of scale as Zara continues to open stores all around the world and ships product from its single Distribution Center in Europe. This system may work well with the current number of stores because majority of the stores are centralized in Europe. However, Inditex won’t be benefiting from short lead times and low operational cost with a single central Distribution Center model as they are branching out into other countries.
c. Fast and recurring introduction of new products in different countries increase …show more content…
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 distribution centers or satellite centers should be built in countries where expansion will proliferate in order to shorten lead times. The close proximity of the distribution center to the American market will allow Zara to effectively interpret the particular American …show more content…
In the long run, build a central distribution center in Texas. This provides U.S. stores with shorter lead time.
Sourcing & Manufacturing – Use suppliers in the Mexico and Caribbean Basin to achieve lower labor cost. Further, Mexico and Caribbean Basin’s geographic location allows Zara to receive inventory within reasonable lead time.
Risks
Financial Risk – Investing in new stores, in house manufacture, and distribution center increases the risk of low working capital. External funding is also a risk Zara has to assume in order to expand. Currently, Inditex’s current asset to total liability ratio is .76, which is not too appealing as compare to H&M at 2.76. When compared to industry at .87, Inditex is also below the average.
Direct Competition – Expanding into new territories will pose new competitors. Because Zara offers such a wide variety of products (men, women, maternity, children, & baby) almost any apparel retailer can be a threat.
Although financial and direct competition are major risks facing Zara’s expansion, Zara’s ability to maintain short lead time, low production cost and fast fashion would mitigate the risk of failure in its efforts of global
Even though Zara has been successful at scaling up its distribution system, the centralized logistics system might eventually be subject to diseconomies of scale as Zara continues to open stores all around the world and ships product from its single Distribution Center in Europe. This system may work well with the current number of stores because majority of the stores are centralized in Europe. However, Inditex won’t be benefiting from short lead times and low operational cost with a single central Distribution Center model as they are branching out into other countries.
c. Fast and recurring introduction of new products in different countries increase …show more content…
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 distribution centers or satellite centers should be built in countries where expansion will proliferate in order to shorten lead times. The close proximity of the distribution center to the American market will allow Zara to effectively interpret the particular American …show more content…
In the long run, build a central distribution center in Texas. This provides U.S. stores with shorter lead time.
Sourcing & Manufacturing – Use suppliers in the Mexico and Caribbean Basin to achieve lower labor cost. Further, Mexico and Caribbean Basin’s geographic location allows Zara to receive inventory within reasonable lead time.
Risks
Financial Risk – Investing in new stores, in house manufacture, and distribution center increases the risk of low working capital. External funding is also a risk Zara has to assume in order to expand. Currently, Inditex’s current asset to total liability ratio is .76, which is not too appealing as compare to H&M at 2.76. When compared to industry at .87, Inditex is also below the average.
Direct Competition – Expanding into new territories will pose new competitors. Because Zara offers such a wide variety of products (men, women, maternity, children, & baby) almost any apparel retailer can be a threat.
Although financial and direct competition are major risks facing Zara’s expansion, Zara’s ability to maintain short lead time, low production cost and fast fashion would mitigate the risk of failure in its efforts of global