An analysis of market-orientated supply chain management in the retail fashion industry with particular reference to the case of Zara

Bachelorarbeit von Carmen de la Cruz Iglesias

Introduction:

A glance at today’s financial pages shows the consequences of economic recession. More and more retailers, such as Woolworth and Montgomery Ward, have become bankrupt as they were no longer good enough to compete for a customer’s business. Or how Ander and Stern describe it ‘They fell into the Black Hole of Retailing, the place where losing retailers go to die’.

However, it has been widely acknowledged that an effective downstream-orientated supply chain, focused on cost reduction, can avoid this fate. Reduced costs lead to reduced prices and thus to satisfied customers. But that is only half the truth. There are other factors than stringent cost control that ensure business success. Supply chain management is not only about cost-efficiency rather than flexibility and adaptability. The faster a supply chain is able to respond to a market, the better the company’s chances to achieve a competitive edge.

A paradigm for a company that manages to combine these aspects and to align its vertically integrated supply chain to the demands of its customers is Europe’s fastest expanding international fashion retail group Industria de Diseño Textil with its workhorse Zara. Its unique integrated business model permeates the whole organization and provides evidence that market orientation paired with an outstanding supply chain management can be viewed as a key factor for success.

Aim and objectives:

The aim of this report is to examine Zara’s unique business model in relation to its market-orientated supply chain. In this framework certain questions are raised. For example, which elements of Zara’s supply chain make it so unique? And related to this, how manages Zara to compete with other vertically integrated fashion retailers such as H&M and Benetton that use aggressive advertising to entice customers in their stores? Also, how does Zara integrate its market orientation in its supply chain? The present study will attempt to answer these and other questions. Research the success of Zara’s market-orientated strategy as well as of its unconventional supply chain will help to figure out how they managed to become pioneer of fast fashion. To conclude, an outlook in Zara’s future as well as the US market is provided.

Table of Contents:

Text Sample:

Chapter 3, Literature Review:

The global fashion industry:

In recent years, fashion retailers have proved to be the most promising and successful segment of international retailers. However, the other side of the coin is that the clothing sector is also an extremely dynamic market. This can be traced back to the fact that the global fashion industry has changed considerably during the past decades. According to Mazaira et al. a ‘democratization process of fashion” took place which made the market highly competitive. While fashion formerly used to be an elite consumption article, often linked with haute couture brands such as Gucci and Dior, it is now mass product like everything else. Mazaira et al. consider this broadening of the target market as the main reason for increased expectations of fashion retailers. According to them, fashion retailers have to maximize their speed and at the same time keep prices low. Walters argues contrariwise, blaming fast fashion retailers for this ephemerality. He states that the fast fashion retailers ‘[…] have influenced consumer expectations for speed, variety and style at low prices and have found it necessary to make changes to speed up the production cycle’.

No matter who is taken into account, fact is that today’s consumers are more demanding and fashion-conscious than they were before. The fashion market therefore is not only characterized by non-influenceable factors such as weather and seasonal variation, but also by an ever-changing taste of customers who always want to be in vogue. This is confirmed by the definition of fashion that describes the fashion industry as a very volatile one: Fashion is ‘[..] a broad term that typically encompasses any product or market where there is an element of style that is likely to be short-lived’. For the companies this entails difficulties in making reliable forecasts. They have to develop flexible business models that enable them to react quickly to emerging trends.

Due to this fact, fast fashion retailers such as Custo Barcelona or Caramelo, spring up like mushrooms. And also more established fast fashion retailers such as the Swedish Hennes & Mauritz (H&M), the Spanish Mango or the Italian Benetton expand with vertiginous speed. Tokatli observes that ‘[T]there is now a race between a significant number of ‘fast fashion’ retailers to increase the number of their stores while maximizing the speed, synchronicity and responsiveness of their supply chains’. Thus, the question with regard to an adequate business strategy, that is able to withstand or even better adjust to these market turbulences, arises.

Market orientation:

There are several options for a company to succeed in business. However, one of the most promising ones is to pursue a market-orientated strategy. According to Singh and Ranchhod market orientation can be defined as a ‘set of activities coordinated in such a way that derives customer satisfaction through superior performance of products […] while still being competitive […] in the market place”. A company implementing a market-orientated approach gives the customer’s interests and the fulfillment of them top priority. The market orientation theory suggests that the efficient and effective creation of superior value for customers through understanding and satisfying their needs is the only way to achieve a competitive edge.

And although there are several studies that examine the impact of market orientation on business performance only few explain how to implement a market-orientated approach. Besides, most see the responsibility of the execution of marketing goals in the marketing department alone. However, as market orientation is more than a simple marketing strategy, every department should be involved. Therefore, a clear focus on creating superior value for the customer should permeate the entire company.

The merger of market orientation and supply chain management:

To achieve an organisation-wide customer focus, the company needs to integrate all market-orientated activities adequately in its supply chain. Thereby, logistics are a crucial factor to create a market-orientated firm and can be viewed as an advocate of cross-functional supply chain activities. Fernie argues that also quick response within supply chain management has gained much attention to realize a firm’s market-orientated strategy. However, as a conclusion one can say that only an integrated market approach that synchronizes supply chain management with the entire process in the supply chain is able to deliver flexible response to customers’ needs and wants. Notwithstanding such logical fit between supply chain management and market orientation, it is still a big challenge for fashion companies to gain a sustainable competitive advantage within their limited scope of possibilities within the fashion process. However, the Spanish fashion retailer Zara demonstrated that this is not impossible. Their whole business system is characterized by highly vertically integrated activites and extremely short lead times. And although Zara does not even have a ‘formalized’ marketing department, they are nevertheless - or perhaps for exactly that reason - often taken as an example for a market-orientated company.