Clothing Manufacturer Zara
Executive Summary
Clothing manufacturer Zara has taken the fashion industry by storm and has quickly become a global leader. It has been able to do this because of its aggressive use of technology and its just-in-time manufacturing system which creates fashionable items for less. However, its Spain-centric approach is creating problems for the company. The problems could be addressed if it decides to open new plants outside of Spain as well as lower its retail costs in stores.
With operations centered in Spain, Zara is faced with challenges in getting items to stores around the world. The transportation dilemma has forced rising costs for the company as well as higher prices for its customers. A stronger Euro has also been challenging for Zara because it has been growing its business around the world. Despite the global recession Zara has been able to expand. However, Zara realizes the recession has hurt its customers who may look elsewhere to find cheaper options.
Zara should attack its problems before they grow unmanageable. It should consider creating plants outside of Spain to help with its rising costs. Opening plants in new countries comes with a high-cost and a lot of research is needed in order to make the plan work. However, in the long-term Zara should see more value added to its operations and its company as a whole. By expanding, Zara could also lower costs at retail locations outside of Zara. If customers outside of Spain find less-expensive options at Zara than what they find now, then Zara could become their go-to clothing store.
Zara has proven that its enterprise systems and manufacturing operations are effective and better than what other companies use. In order to continue making a mark in the fashion industry and take the next step Zara should expand its operations outside of Spain. The decision should not be taken lightly but it could help Zara remain a key player for many years to come.
Problem Identification
Zara at the moment is a leader in Europe in the fashion industry but it is less competitive in other parts of the world. Part of the reason why is because Zara has decided to maintain all of its operations in Spain. Because its operations are solely in Spain, Zaras “costs rise at higher rates compared to competitors, presenting a challenge in keeping profit margins in check” (Gallaugher, pg. 14). As a result, Zaras prices are higher in the US than in Europe, putting the company in a disadvantage compared to its competitors. The higher prices have led to another challenge for Zara, having difficulty meeting the expected profit margin.
Causes of the problem
One of the reasons Zara is having trouble meeting the profit margin is the way the Euro has strengthened against the dollar. Since Zara only manufactures in Spain, the company has to deal with the currency