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Question

You have to write in essay form (introduction, paragraphs, and conclusion). I need sub-heading for the question answers as long with the introduction and conclusion headings, any information should be related to the “Kuwait industry market” as much as it is possible.

Arab Open University

Faculty of Business Studies

Business Functions in Context I

B203A — Second Semester 2023-2024

Tutor Marked Assessment

Managing Marketing Channels: Zara
II. Discussion Questions

Question 1 (300 words, 30 marks)

As described by the case study, explain the supply chain for Zara from raw material to consumer purchase.

Question 2 (300 words, 30 marks)

What are the disadvantages of Zara’s “fast fashion” distribution system? Are these disadvantages offset by the advantages?

Question 3 (500 words, 40 marks)

Define vertical integration and horizontal integration and then discuss how these activities have allowed Zara to gain a competitive advantage.

General instructions for students:

This TMA should be written by students individually.

TMA weight: 20% of the total course grade.

Cut-off date: Check LMS

Plagiarism: It’s imperative that you write your answer using your own words. Plagiarism will be penalized depending on its severity and according to the AOU plagiarism policy.

Format:  you are expected to write your answer in an essay format: introduction, body paragraph(s) and a conclusion. Failing to do so could result in the deduction of up to 4 marks from your total TMA mark.

Word count: your answer is expected to be within the specified word count range. Not adhering to specified word count could result in the deduction of up to 4 marks of your total TMA mark.

Referencing:  You are expected to use the Harvard referencing style for in-text referencing and list of references at the end. Failing to do so could result in the deduction of up to 4 marks of your total TMA mark.

E-library:  You are expected to use E-library sources to support your answers. A minimum of 3 sources is required. Failing to do so could result in the deduction of up to 4 marks of your total TMA mark.

Answer

Zara Clothing Retail Company

Introduction

Zara is a clothing retailer from Spain that was founded in 1975 by Rosalia Mera and Amancio Ortega. The company recorded steady growth during its formative years. It adopted intensive manufacturing and distribution strategies that led to its growing brand strength alongside expansion into both local and international markets. It was among the first fashion retailers to incorporate computer technology into their operations and to adopt a localized manufacturing strategy (Badia 2009). The company offers a wide range variety of products for men, women, and children in over eighty stores worldwide. Its international expansion has traditionally been targeted at European countries and the United States. Currently, Zara is expanding its operations by venturing into the Asian and Latin American markets.

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Zara’s Supply Chain

            Most clothing companies rely on low-wage Asian countries for manufacturing and distribution. However, Zara chose a different approach by setting up its own factory in the city of La Coruna. This move played a vital role in outlining the company’s business model, popularly known as fast fashion, which involves self-containment in terms of material sourcing, production, and distribution. Under this approach, designers identify trends as soon as they emerge and then create products inspired by the resulting phenomena. The company has emerged as a leader in the design, manufacture, and distribution of products in as little as two weeks. In other words, Zara is able to produce new items faster than other clothing retailers due to its quick design and production process.

Additionally, it produces items in small batches which is advantageous to both the retailer and its customers. Using this approach, the company is able to regulate losses and risks that may arise in case some of its batches do not sell. On the other hand, customers get to benefit from the aspect of exclusivity through the trendy batches products that are accessible only to a few buyers at a time. To enhance exclusivity Zara rarely restocks any design that has been bought out (Bruce 2006). The retail company was initially reluctant to venture into online stores, but it has recently adopted this mode of shopping due to public demand. Furthermore, it has overcome the challenge of synchronizing its physical stores with their online versions in terms of price, sales, and delivery.

Disadvantages of Zara’s “Fast Fashion” Distribution System

            The fast-fashion system’s main disadvantage is that it relies on imitations of trendy products. Thus, Zara’s products lack authenticity and originality. This problem has led to growing competition from luxury brands which seem to be doing surprisingly well despite their high prices due to their strong element of originality. Evidently, many people have become fashion-sensitive and aware. Clothing has become a way of life and a way of personal identification for today’s population (Tungate 2008). Consumers tend to prefer items that are original and unique in order to portray authenticity and class. By imitating these original designs, Zara fails to attract many affluent customers seeking authenticity. Luxury brands have taken advantage of this market gap by providing couture products that match the exclusive preferences of individual customers (Okonkwo 2008). An example of this situation is a case of growing competition between Zara and other local and international brands in Kuwait.

            Moreover, the company’s control over its supply chain during its formative years made expansion very difficult and costly (Marzieh & Zbigniew 2014). Even though Zara ultimately succeeded in its expansion strategy, the major supply-related barriers still exists. This problem has been worsened by growing competition from other fast-fashion retailers who have minimized their production costs. At the same time, Zara’s business model faces far-reaching sustainability problems. For example, some trends are too short-lived for its fast-fashion model to facilitate appropriate responses. The short life cycles of these fads often lead to irrecoverable losses that have far-reaching financial consequences for the company.

            Finally, Zara has encountered many difficulties in its efforts to adopt certain trends due to differences in style. This is a major drawback because many of the designs that fast-fashion retailers ride on may be popular in one region but unpopular in another. An example is the differences in style between various European countries, which has become a major barrier to the company’s business activities in the continent. Another example is Zara’s current struggle to venture into various countries of the Middle East such as Kuwait.

Vertical and Horizontal Integration: Definition and Impact on Zara’s Competitive Advantage

            Vertical integration is a business process in which a company seeks to control some of the stages in production and distribution in order to strengthen its market presence. The latter strategy is more common in today’s business environment than the latter. It involves take-overs of competing or related firms through mergers and acquisitions. On the other hand, vertical integration involves takeovers that enable a company to take control of unrelated businesses that operate within the supply chain. Thus, it is a major driver of rapid business growth. Zara’s founders had a wealth of experience in clothing, retailing, and textiles. Ortega understood the role of wholesalers and retailers in textiles; made sure that he had control over these basic functions. Even before its adoption of information technology, Zara maintained well-organized synergies between its distribution and production functions. This system has only been optimized by a highly effective information technology system that links designers with distribution teams (Loeb 2013). 

            Accordingly, Zara’s business process is a back-and-forth system that involves consultation between designers and distribution teams. Interestingly, the process is always started by designers and not the distributors. Distribution teams have specific trend spotters whose sole responsibility is to detect viable trends as early as possible. In consultation with the marketing, finance, and resource team, these trend-spotters proceed to relay the information to designer teams (Ferla 2014). The latter, comprising about three hundred professionals, then designs small batches based on this trend. This communication is a daily process aimed at providing space for adjustments and improvements to these batches. The managers also team up with personal digital assistants to check on new and available designs based on their popularity with potential customers.

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Through vertical integration, the company has achieved tremendous success in coordinating these interactions. It has undoubtedly given Zara a competitive advantage over other clothing retailers (Keeley & Clark 2008). Unlike other retailers whose production process is central Asia, Zara has modeled its supply chain around European countries, Primarily Spain. While Asian countries such as China may obviously be seen to hold a competitive advantage in the textile industry, Zara has been able to achieve greater financial leverage than its competitors who outsource most factors of production from these low-wage countries. The main reason competitors face difficulties is the existence of long lead time (between three and six months). Therefore, such retailers stock their premises seasonally, about three or four times a year. Zara has carved out a niche in the market by eliminating these long lead times in a way that provides diversity in terms of product variety and exclusivity. Furthermore, textile production in Europe is is associated with top-quality fabric clothing design teams’ penchant for detail. This combination of factors has set Zara apart from its competitors, leading to its rapid growth.

Conclusion

            Zara has rightfully earned its place as the top retailer in the world of fast fashion. Despite the drawbacks it faces in the market in terms of distribution and originality, it’s signature fast fashion model will continue to be a dominant theme in fashion and clothing. The company has properly leveraged major supply and distribution process in the industry, and this has greatly contributed to its rapid growth in different markets. Moreover, it has proceeded to tailor its strategies to suit the changing needs of today’s consumers. To succeed in new cultural environments such as the Kuwaiti market, Zara’s distribution and design teams should adopt a more aggressive approach in identifying the most preferred designs.

Reference List

Badia, E 2009, Zara and her sisters: The story of the world’s largest clothing retailer. London: Palgrave Macmillan.

Bruce, M 2006, ‘Buyer behavior for fast fashion’, Journal of Fashion Marketing and Management: An International Journal, vol. 3, pp. 329-344.

Ferla, R 2014, ‘Zara, where insiders look for an edge’, The New York Times, June 4, 2014.

Keeley, G & Clark, R 2008, ‘Zara overtakes Gap to become the world’s largest clothing retailer’, The Guardian, August 11, 2008.

Loeb, W 2013, ‘Zara’s Secret to success: The New Science of Retailing’, Forbes, October 4, 2013.

Marzieh M & Zbigniew Z 2014, ‘Impact of product variety on the supply chain in fast fashion apparel industry’, Procedia CIRP, vol. 17, pp. 296–301.

Okonkwo, U 2008, ‘The luxury brand strategy challenge,’ Journal of Brand Management, vol. 16, pp. 287-289.

Tungate, M 2008, Fashion brands: Branding Style from Armani to Zara, Kogan Page, London.

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