Featured case: Zara in China and India

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The case

Who – the protagonist

Amancio Ortega, founder, Inditex – owner of the retail giant Zara.

What?

Zara is the world-famous fashion chain known for its frequent introduction of new collections, closely monitoring consumers’ buying preferences.

Selling high quality clothes at a competitive price, the Spanish label makes a significant contribution to Inditex’s worldwide sales, which stood at $24.9billion in 2016.

Why?

Inditex’s regional sales contributions were skewed, as Asia Pacific, despite being the fastest growing and largest market with 36% share of the global apparel market, contributed only 23.9%. And Zara’s decision to manufacture 60% of its merchandise in the ‘near markets’ of Europe and North Africa, meant any new stores in Asia Pacific would be located far away from factories and distribution centres.

Meanwhile, Zara lags way behind rivals such as Gap and Walmart when it comes to online sales, so would the brand’s reliance on stores and impulse buys succumb to the e-commerce phenomena?

OrtegaWhen?

Asia Pacific, the most promising retail apparel market in the world grew by 26% from 2011 to 2016, and Zara was keen to strengthen its presence in both China and India.

Where?

Zara was originally founded in the 1960s in the Spanish city of La Coruna by Ortega, but, today, the brand can be found worldwide.

Key quote

“Flogging fashion is like selling fish. Fresh fish, like a freshly cut jacket in the latest colour, sells quickly and at a high price. Yesterday’s catch must be discounted and may not sell at all.” – Amancio Ortega, founder, Inditex.

flagsWhat next?

With Zara’s factories and distribution centres based far away from China and India, how would newly opened stores in those countries be supplied quickly enough?

And how would Zara grow its online presence and ensure it wouldn’t dilute its ‘impulse buys’ ethos?

 
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Zara in China and India
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Teaching note

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The author
author

Nirmalya Kumar

Nirmalya discusses Zara as a case subject and how his case differs from other Zara related cases.

Zara’s popularityzara

“The popularity of Zara cases has both demand and supply factors associated with them,” said Nirmalya.

“From a demand or student perspective, it is a company that all students are familiar with, as well as having a high interest in the company as a brand and the category of fashion.

“From the instructor perspective, Zara is truly unique on multiple dimensions of marketing, strategy, operations, retailing, and international business. This allows faculty from all these functional disciplines to adopt a Zara case, which of course increases adoption.”

Case with a twist

Nirmalya explained: “While covering the uniqueness of the Zara business system like all other cases, our twist to the case was three-fold:

“First, we focussed on two competitors, H&M and Uniqlo, both of whom pursue distinct strategies and are also successful (each owner of the three companies is the richest person in their respective country). This allows students to appreciate that multiple strategies are possible within an industry. Most Zara cases relatively ignore Uniqlo.

Case with a twist“Second, we present the global footprint of Zara, which allows students to compare potential versus actual sales and see the misfit and the growth opportunities for Zara. And, the challenge this puts on the successful Zara business system. Students are then able to reflect on when core capabilities become core rigidities.

“Third, Zara began operations in China and India at almost the same time. While the two countries are spoken in similar terms with respect to opportunity for global companies, the results demonstrate Zara has been far more successful in China than India. If this result is contrasted with the experience of other global companies, either where both countries are relatively equally successful (e.g. aircraft manufacturing, consumer packaged goods) or India has been far more lucrative (e.g. technology companies), it leads to a more nuanced understanding of the potential of the two countries across industries, especially when used in concert with Amazon vs Walmart.”

Students’ expectations

Nirmalya added: “This case engages students as they know these (China and India) are the two big opportunities for them to consider in the future as potential countries to work in or trade with, so they expect to learn about them. But also, because Chinese and Indian students are a significant population in any global MBA program.”

About the authors

Nirmalya Kumar is Lee Kong Chian Professor of Marketing at Singapore Management University.
e nirmalyak@smu.edu.sg

 

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