Study
Zara Case Case
Product Design and Operation Strategies in Global Environment
Group 1
Sze Ka Scarlett Chan
Long Fung Aaron Chan
Chun Hei Fung Rufus
Lam Man Kit Kidman
Nga Ki Pandora Cheung
Product Design and Operation Strategies in Global Environment
Group 1
s106406, s106407, s106420, s106412, s106428
1.0 Introduction
Zara is flagship chain store clothing from Spain while Hennes & Mauritz AB (H&M) is a
Swedish clothing company. These two companies are successful in fashion field. Both of
them claim that their successful strategy is fast. We are going to examine product design
strategies and operation strategies on each company. We notice that they are using different
operation strategy. For Zara, it uses vertical integration, changing product line frequently
while H&M usually purchases from supplier and renew the store inventory frequently. After
that, we compare the advantages in different aspects, such as, quality and production cost.
2.1 Product Design Strategy
For production line of Zara, there are women, men and children. There are 1000 new styles
every month managed by its design and development team. H&M caters to women, men,
teenagers, and children, and provides them with new fashion items every day in each of 2,000
retail locations. Offering a varied selection of clothing, it has recently launched new lines in
cosmetics, accessories, and footwear.
The creative team of Zara, including designers, sourcing specialists, product development
personnel, works on creating constant variation, expanding on successful products,
continuing in-season development and selecting the fabrics and promoting mix. In order to
keep streaming up-to-date trend information, the product design team refers the fashion
shows, catwalks of luxury brand collections and visiting university campuses to observe what
youngsters are wearing. To track customer preferences, the design team has frequent
conversations with store managers, discussing which items are most in demand and which are
not, and use the information about sales potential based. And the designs are accepted only if
customers reactions are positive. Since all the products are designed in Spain, it can build up
a luxury image. For H&M, it sometimes designs products with celebrities, such as Madonna,
Karl Lagerfeld and Victor & Rolf. H&M also coordinates with other brand names, for
example, Comme des Garcons and Jimmy Choo (accessories) and Lanvin ( men series). It
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Product Design and Operation Strategies in Global Environment
Group 1
s106406, s106407, s106420, s106412, s106428
understands youngsters like fashionable brand names, which fulfills different customers
needs.
The product design of Zara is made in the general office which is in Spain. The decision is
hence made by the general office too. The design process and decision are centralized. Thats
why the product designs are standardized in all Zara shops. H&M adopts another strategy in
product design. Different countries have different patterns. Product design is based on
different countries to have different patterns and the decision is made by country offices,
which is not centralized. Products in H&M are robust design. It changes due to the local
culture.
For the frequency of releasing new products, Zara creates two basic collections each year,
which are fall/winter in January and Spring/summer in July. The products of H&M are
extensive and new items come into the stores every day.
2.2 Operation Strategy
2.2.1
ZARA Strategy
Vertical Integration
ZARA uses backward vertical integration to link with the manufacturing and retailing. It does
not adopt outsourcing strategy. No matter the external or internal production flows, they are
distributed to the distribution center and then transfer to warehouse. After that, the finished
goods will be directly transferred to the store. The production process in Zaras factories is
automation. Also, they will focus on different aspects such as pattern design, cutting and
inspection during the production.
In views of ZARAs distribution centers, it has an approximately 20 400,000-square-meter
center which 18 of them in Arteixo and some small centers in other countries. A
130,000-square-meter warehouse is established near the distribution center in Arteixo. It is
convenient to transport the products from the distribution center to warehouse. Owing to this
strategy, it can meet the response to the market much faster.
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Product Design and Operation Strategies in Global Environment
Group 1
s106406, s106407, s106420, s106412, s106428
Changing product line frequently
Zara divides the product line into three categories: male, female and children. Under a few of
advertisements, Zara uses this strategy instead.
Zara believes clothes to be worn 10 times. So, it provides the latest clothes with only a few
amounts. The products turnover increases because customers know that there are lacks of
clothes for each season. In order to buy their favor, they have to go to Zara frequently. This
strategy is successful that the inventories can be reduced and the advertisement cost is saved
because the shipment of the new products is short. Customers can easily to follow and know
the arrival of the next products. Therefore, it neednt make too much advertisement each
season.
2.2
H&M Strategy
Outsourcing
Zara owns its production line and factories and adopts the backward vertical integration. In
views of its competitor, H&M, it does not own any factories because it adopts another
strategy, outsourcing production to other independent suppliers. There are almost 700
suppliers providing their products to H&M worldwide. Most of the suppliers come from
low-cost Asian countries such as China. Therefore, this strategy can effectively control or
reduce the cost of merchandizing. To operate the loads of contracts of the suppliers, H&M
has 16 production offices around the world.
Does H&M outsource its design to other suppliers only? The is answer definitely no.
Although H&M does not have own production line, there are still a team of 100 in-house
designers designing the clothing to H&M. With the bulk of internal and external designers,
that is why it can provide different style, high-quality and low-cost products.
Frequently renewing store inventory
H&M does not have any factories but it has loads of suppliers to provide it products.
In order to attract the customers and let them come again, H&M adopts renewing store
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Product Design and Operation Strategies in Global Environment
Group 1
s106406, s106407, s106420, s106412, s106428
frequently strategy. It means that H&M renews the store inventory every day. When
customers enter the shop each time, they feel fresh and surprised for the new location of the
products. The freshness cause the customers will return to the store again within a short
period.
3.1 Comparison of product design
There are 16 country offices of H&M distribute in different countries. The products are
different in different countries. The products will be changed depend on the local demand,
culture and condition. Some store will be distributed high fashion garments and some will be
distributed modern basics garments. There is extremely different in Zara. In any Zara store,
you can see the same products even the same decoration.
This strategy of H&M can attract a wide range of customers because H&M tries to fulfill
different customers need. And Zara provides a luxury image because people generally think
that made in Spain is always better than made in China.
3.2 Comparison of operation strategy
Quality
Zara is using the backward integration strategy to produce its own products, it can be ensure
that the quality of the products. However, H&M can also maintain its quality at a standard
level even it outsourcing it manufacturing to 700 suppliers. H&M establishes a close and
good relationship with its suppliers, H&M sends some staff to the supplies factories to teach
the workers how to use the machines and how to make a good product. Also, some H&M
staff often go to the factories to observe and fill in a questionnaire to make sure that these
suppliers are met the requirements of H&M. Moreover, the 16 production offices of H&M
order raw materials from the suppliers and when the new products deliver to these offices,
they will check the qualities very details. These quality checking are including checking for
shrinkage, twisting and colourfastness, etc.
Production cost
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Product Design and Operation Strategies in Global Environment
Group 1
s106406, s106407, s106420, s106412, s106428
Zara purchases its raw materials in Europe and mass produce their products at the 20 fully
owned factories, most, if not all, of them are located around Zaras headquarters in Spain.
Whereas, H&Ms department of purchasing designs and organizes the whole production line
for what materials to be used, but the materials are ordered by 16 production offices. These
production offices choose the suppliers with the most suitable quality and cost in nearby area.
Since most of these 700 suppliers are located in some low-cost countries, such as China, and
the raw materials and manufacturing suppliers are both around the offices which take the
order. Therefore, the production cost can be lowered as the offices can buy the raw materials
at a lower price. Moreover, the labor wages in these 700 suppliers are low, and it also lowers
the direct cost of production. Since, H&M has many suppliers, H&M have a large bargaining
power to order in a good price and quality raw materials and producers, H&M could produce
more types of products with a good price.
4.0 Findings and Conclusion
Actually, there are similar between Zara and H&M. They are both fast fashion producers,
which means the time between design and the final goods being produced is short. There is
no inventory in Zara and low quantity in H&M.
There, however, are some differences which are mentioned in the former section between
those two companies. They cause some effects on the business performance.
According to the H&M Annual Report (2010), the net profit of H&M in 2009 was 16,384M
SEK, which means about 1,800M EUR. Meanwhile, Inditex Group Consolidated Annual
Accounts (2010) pointed out that the net income of Inditex, the parent company of Zara, in
2009 was 1,322,137 k EUR, which means 1,322 M EUR.
Since the annual report of inditex is a consolidated account, it combined many different
companies financial repost which including Zara, therefore, we cant directly compare the
findings with H&M probably. But it still has value as a reference.
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Product Design and Operation Strategies in Global Environment
Group 1
s106406, s106407, s106420, s106412, s106428
Reference
About H&M. (n.d.). Retrieved 2010, December 2, from http://www.hm.com/hk_en/
abouthm__abouthm.nhtml
Dutta, D. (2002). Retail at the speed of fashion. Retrieved 2010, December 2, from
http://www.3isite.com/articles/ImagesFashion_Zara_Part_I.pdf
H&M. (2010). Annual Report, p10.
Inditex. (2010). Inditex Group Consolidated Annual Accounts, 5-9.
Kim, J. (2010, July 8). Hennes & Mauritz (H&M). Retrieved 2010, December 2, from
http://bruinbusinessreview.com/hennes-mauritz-hm
Vincent van W. (2008). Some initial impressions about Zara & H&M. Retrieved November
18, 2010, from http://foodandretail.blogspot.com/2008/04/some-initial-impressionsabout-zara-h.html
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Product Design and Operation Strategies in Global Environment
Group 1
s106406, s106407, s106420, s106412, s106428
Work distribution
Member
Student ID
Distributed Works
Long Fung Aaron Chan
S106406
Introduction
Sze Ka Scarlett Chan
S106407
Product design strategies
Chun Hei Fung Rufus
S106420
Operation Strategies
Nga Ki Pandora Cheung
S106412
Comparison of operation Strategies
Lam Man Kit Kidman
S106428
Comparison of product design
Findings and Conclusion
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