{"id":106,"date":"2018-06-14T19:04:23","date_gmt":"2018-06-14T19:04:23","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/bus3060\/chapter\/ch03-3\/"},"modified":"2026-02-03T15:39:45","modified_gmt":"2026-02-03T15:39:45","slug":"ch03-3","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/bus3060\/chapter\/ch03-3\/","title":{"raw":"3.3 Moving Forward","rendered":"3.3 Moving Forward"},"content":{"raw":"
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Learning Objectives<\/span><\/p>\r\n\r\n<\/header>\r\n

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After studying this section you should be able to do the following:<\/p>\r\n\r\n

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  1. Detail how Zara\u2019s approach counteracts specific factors that Gap has struggled with for over a decade.<\/li>\r\n \t
  2. Identify the environmental threats that Zara is likely to face, and consider options available to the firm for addressing these threats.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n

    The holy grail for the strategist is to craft a sustainable competitive advantage that is difficult for competitors to replicate. And for nearly two decades Zara has delivered the goods. But that\u2019s not to say the firm is done facing challenges.<\/p>\r\n

    Consider the limitations of Zara\u2019s Spain-centric, just-in-time manufacturing model. By moving all of the firm\u2019s deliveries through just two locations, both in Spain, the firm remains hostage to anything that could create a disruption in the region. Firms often hedge risks that could shut down operations\u2014think weather, natural disaster, terrorism, labor strife, or political unrest\u2014by spreading facilities throughout the globe. If problems occur in northern Spain, Zara has no such fallback.<\/p>\r\n

    In addition to the operations<\/a><\/span> vulnerabilities above, the model also leaves the firm potentially more susceptible to financial vulnerabilities during periods when the euro strengthens relative to the dollar. Many low-cost manufacturing regions have currencies that are either pegged to the dollar or have otherwise fallen against the euro. This situation means Zara\u2019s Spain-centric costs rise at higher rates compared to competitors, presenting a challenge in keeping profit margins in check. Rising transportation costs are another concern. If fuel costs rise, the model of twice-weekly deliveries that has been key to defining the Zara experience becomes more expensive to maintain.<\/p>\r\n

    Still, Zara is able to make up for some cost increases by raising prices overseas (in the United States, Zara items can cost 40 percent or more than they do in Spain). Zara reports that all North American stores are profitable, and that it can continue to grow its presence, serving forty to fifty stores with just two U.S. jet flights a week (Tagliabue, 2003). Management has considered a logistics center in Asia, but expects current capacity will suffice until 2013 (Rohwedder & Johnson, 2008). Another possibility might be a center in the Maquiladora region of northern Mexico, which could serve the U.S. markets via trucking capacity similar to the firm\u2019s Spain-based access to Europe, while also providing a regional center to serve expansion throughout the Western Hemisphere.<\/p>\r\n

    Rivals have studied the Zara recipe, and while none have attained the efficiency of Amancio Ortega\u2019s firm, many are trying to learn from the master. There is precedent for contract firms closing the cycle time gap with vertically integrated competitors that own their own factories. Dell (a firm that builds its own PCs while nearly all its competitors use contract labor) has recently seen its manufacturing advantage from vertical integration fall as the partners that supply rivals have mimicked its techniques and have become far more efficient (Friscia, et. al., 2009). In terms of the number of new models offered, clothing is actually more complex than computing, suggesting that Zara\u2019s value chain may be more difficult to copy. Still, H&M has increased the frequency of new items in stores, Forever 21 and Uniqlo get new looks within six weeks, and Renner, a Brazilian fast fashion rival, rolls out mini collections every two months (Pfeifer, 2007; Rohwedder & Johnson, 2008). Rivals have a keen eye on Inditex, with the CFO of luxury goods firm Burberry claiming the firm is a \u201cfantastic case study\u201d and \u201cwe\u2019re mindful of their techniques\u201d (Rohwedder & Johnson, 2008).<\/p>\r\n

    Finally, firm financial performance can also be impacted by broader economic conditions. When the economy falters, consumers simply buy less and may move a greater share of their wallet to less-stylish and lower-cost offerings from deep discounters like Wal-Mart . Zara is particularly susceptible to conditions in Spain, since the market accounts for nearly 40 percent of Inditex sales (Hall, 2008), as well as to broader West European conditions (which with Spain make up 79 percent of sales) (Rohwedder, 2009). Global expansion will provide the firm with a mix of locations that may be better able to endure downturns in any single region . Recent Spanish and European financial difficulties have made clear the need to decrease dependence on sales within one region.<\/p>\r\n

    Zara\u2019s winning formula can only exist through management\u2019s savvy understanding of how information systems can enable winning strategies (many tech initiatives were led by Jos\u00e9 Maria Castellano, a \u201ctechnophile\u201d business professor who became Ortega\u2019s right-hand man in the 1980s) (Rohwedder & Johnson, 2008). It is technology that helps Zara identify and manufacture the clothes customers want, get those products to market quickly, and eliminate costs related to advertising, inventory missteps, and markdowns. A strategist must always scan the state of the market as well as the state of the art in technology, looking for new opportunities and remaining aware of impending threats. With systems so highly tuned for success, it may be unwise to bet against \u201cThe Cube.\u201d<\/p>\r\n\r\n

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    Key Takeaway<\/span><\/p>\r\n\r\n<\/header>\r\n

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