A review of Zara's international retail expansion.

1. International Expansion
Presented by: Neha Randhawa, Alivia Ye, Arjun Pisharody

2. 2Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale
Agenda For Today’s Meeting
Current situation overview at ZARA1
Identifying ZARA’s core problem2
Recommendations & rationale3
Risks & mitigation4
Implementation plan5

3. Executive Summary
3Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale
Highly competitive, fragmented $900Bn global apparel industry
ZARA performing well, but Inditex challenged with high growth expectations
Situation
Which market should ZARA enter next and how?Problem
Pursue Asian market, starting with Shanghai, China
Setup JV with local partner, “oil stain” approach, new distribution centre
Source from China & Bangladesh
Reco
Large market opportunity; population, disposable income growing, trendy fashion
Fast fashion garments at lower price points popular in China
China and Bangladesh has lower labour inputs and rents, cost to manufacture low
Rationale

4. Situational Analysis – Highly competitive, fragmented
$900 Bn global apparel industry (Year 2000)
• Buyer-driven apparel global chain – fragmented, research & design
important
• ZARA is highly profitable; primary driver of Inditex’s positive results
• Inditex (ZARA) challenged by investors expecting high future growth
• Many global competitors competing on price/fashion (ex. 1)
• GAP
• H&M
• Benetton
4Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale

5. Situational Analysis – Industry trends
• 30% of worldwide apparel production is exported
• 50% from developing countries (lower labour costs)
• Per capita spending on apparel fairly inelastic as per capita income
grows
• Significant local variation in customers’ attributes and preferences
• Within a region
• Within a country
• Differences between regions is greater
• Richer communication links affect global and local trends (pop culture)
5Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale

6. Core Issue – Marketing and Sales Problem
As ZARA grows internationally…
Which market should it enter and how?
6Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale

7. Situational Analysis – Key Criteria
7
Market selection
Population and market
opportunity, per capita spend
on apparels, design
alterations, local preferences
Logistics /
Proximity to suppliers
Reduce shipping costs and
lags, QR practices, landed
costs, labour input costs, rent
expense
Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale

8. Recommendations
8Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale
Where to Expand? Shanghai, China
How to Expand? JV with local partner, “Oil
stain” approach
Where to Source? Bangladesh
How to Distribute? New DC in China
Timeframe? 3 years

9. Why China - The Golden Opportunity
9Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale
• 2001: China became an official WTO member
• Lowered tariff rates
• opened its domestic retail and distribution market to foreigners
• granted access to funds for new foreign retailers
• Shifting towards a market-based economy
• rural to urban migration increasing
• market segregated into first-tier, second-tier, and third-tier cities
• first-tier cities are most attractive → metropolises located along
coast-line
• Proximity of cities easy for the Oil Stain strategy
• Why Shanghai? Shanghai sets the fashion trend in China

10. 10
Shopping is very important for Shanghai residents
Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale
Beijing and Shanghai rank
Shopping as the most important
leisure activity
Shanghai pays more attention
to fashion information

11. Shift in Consumer Trends
11Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale
• Significant increase in individual’s disposable income
• Fast fashion with lower price points becoming extremely popular
• Rising number of working women → significant increase in demand for
womenswear
• Estimated that women’s office wear and business casual wear will be
the fastest growing segments
Total Annual Savings (1 RMB = 0.14 EU)
Year 1990 2000 2001 2002 (projected)
Total (RMB Billion) 712 6,433 7,376 9,000
Total (EU Billion) 100 901 1,033 1,260

12. How to move forward
12Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale
Joint Venture Strategy
• Only 2 types of department stores in China
• State-owned
• Joint venture
• Land is very expensive in China  hard to secure prime retail space
Source from Bangladesh
• Cheaper labour
• Looser legislations
Plan to set up new DC in China
• Lower costs and ensures JIT
• Foundation for Asia expansion

13. Risks & Mitigation
13Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale
RISK:
Zara products entering
the black market
MITIGATION:
Hard to imitate trends
and low price points
HIGHLOW
HIGHLOW
RISK:
Failure to create an
impact in China
MITIGATION:
Starting with major
cities. Starting with
Shanghai minimizes
risk
RISK:
Quality of the material
used for production
and risk of ‘sweatshop
trade’ and Multi Fiber
Agreement
MITIGATION:
Develop strong
relationship with
suppliers and have strict
regulations against wrong
practices
RISK
MITIGATION

14. Implementation
14Agenda
Executive
Summary
Situation
Analysis
Core Issue
Recommend
ations
Risks &
Mitigation
Implementa
tion
Rationale
Search and finalizing the
location of the flagship
store in Shanghai –
Nanjing Road
Find a Joint
Venture
Partner
Change in marketing
plan depending on
results
Years 1 2
Evaluate the success of
the first store
Find the supplier in
Bangladesh
Advertisements using
European Models
Store launch
Depending on the
success, plan out store
launches in other cities
(SuZhou) or others in
Shanghai
3
Plan to set up a
distribution center
Find distribution
centers to support the
next phase of
expansion
Market Research -
Have people on
the ground to
know the latest
trends

15. ANY QUESTIONS?
…
THANK YOU!
15

16. 16
Exhibit 1: Product Market Positioning Map
Fashion - Fashion +
Price -
Price +
Benetton
GAP
H&M
ZARA
ZARA: Medium quality fashion
clothing at affordable prices

17. 17
Exhibit 2: ZARA vs. Key Competitors
GAP H&M Benetton ZARA
Production Outsourced Outsourced In-House
40% In-House
60% Outsourced
Production
Lead Times
High High High Low

18. 18
Exhibit 3: ZARA’s Business System
ZARA
Design
Sourcing
&
Manufac
turing
Distributi
on
Retailing

19. 19
Exhibit 4: ZARA Competitive Advantages
• Strong business model integration
• Decentralized store management; managers determine products to sell
and return or re-distribute
• Returns from other stores quickly re-routed
• Quick Response (QR pull demand system)
• Small batch production due to low product pre-commitments vs.
industry (short forward order book)
• High product turnover, limited quantities reinforce “buy now or lose it”
• Central DC with strong IT system

20. 20
Exhibit 5: Product Pre-commitments; ZARA vs. Industry
S
A
L
E
S
M
A
R
K
D
O
W
N S
S
A
L
E S
15%INTERNAL MANUFACTURING 85%
SEASON
ZARA
M
A
R
K
D
O
W
N S
65% 35%
55%
DESIGN AND RAW MATERIAL
SOURCING
EXTERNAL MANUFACTURING 40-50%
SEASON
DISTRIBUTION AND SALES
Traditional
Industry VISIT TO
EXHIBITIONS
DESIGN
INTRODUCTION
TO COLLECTION
MANUFACTURING
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 5TH QUARTER