Zara Pos System Case Study
Case Study: Zara: IT for Fashion
Background
Zara, high fashion clothing producer and retailer, opened its first store in Galicia, Spain in 1975, and by 2003, had grown to 550 stores worldwide. Zara is the largest holding of its mother company, Inditex, and is evaluating whether to invest in modernizing its IT infrastructure, specifically its in-store Point-of-Sale (POS) terminals which are running a DOS Operating System that is now EOL.
Business Model
Zara has a unique and very effective business model; it operates with a philosophy to give customers what they want faster than its competitors. It produces “short life span” apparel and can quickly adjust its supply and designs to meet current customer demand, contrary to traditional fashion retailers, who design season-long apparel and then promote it through heavy advertisement. Zara introduces around 11,000 new items per year while investing only 0.3% of its revenue on marketing, compared to industry competitor averages of just 3,000 new items per year with a heavy 3.5% marketing expenditure.
Unparalleled speed in their design and production cycle is Zara’s key business success strategy, taking as little as three weeks from design concept to store delivery. Zara’s retail stores do not carry ‘back room’ inventory, all items are placed on store shelves or sales floor. On average, 75% of its merchandise is changed in three to four weeks, so customers tend to buy products they like right away (without waiting for discount sales) since stock may not be replenished when the product runs out in the store. This helps Zara have a higher inventory turnaround ratio and increases their revenue margin by selling more products at original retail prices.
Another key strategy for its success is decentralized decision making. Zara allows its store managers to decide which items will be on sale in their store at any given time based on current trends in their local community. They believe in fast decision making without
Background
Zara, high fashion clothing producer and retailer, opened its first store in Galicia, Spain in 1975, and by 2003, had grown to 550 stores worldwide. Zara is the largest holding of its mother company, Inditex, and is evaluating whether to invest in modernizing its IT infrastructure, specifically its in-store Point-of-Sale (POS) terminals which are running a DOS Operating System that is now EOL.
Business Model
Zara has a unique and very effective business model; it operates with a philosophy to give customers what they want faster than its competitors. It produces “short life span” apparel and can quickly adjust its supply and designs to meet current customer demand, contrary to traditional fashion retailers, who design season-long apparel and then promote it through heavy advertisement. Zara introduces around 11,000 new items per year while investing only 0.3% of its revenue on marketing, compared to industry competitor averages of just 3,000 new items per year with a heavy 3.5% marketing expenditure.
Unparalleled speed in their design and production cycle is Zara’s key business success strategy, taking as little as three weeks from design concept to store delivery. Zara’s retail stores do not carry ‘back room’ inventory, all items are placed on store shelves or sales floor. On average, 75% of its merchandise is changed in three to four weeks, so customers tend to buy products they like right away (without waiting for discount sales) since stock may not be replenished when the product runs out in the store. This helps Zara have a higher inventory turnaround ratio and increases their revenue margin by selling more products at original retail prices.
Another key strategy for its success is decentralized decision making. Zara allows its store managers to decide which items will be on sale in their store at any given time based on current trends in their local community. They believe in fast decision making without