To what extent is Zara's vertically integrated approach something that clothing retailers in the UK could successfully adopt? [16 marks]

Case study 4: Vertically integrated Zara In the distant past, it made more sense for clothing and The company manages all design, warehousing, fashion retailers to make their own clothes. Labour distribution and logistics functions itself with highly was cheap, the high street was not so competitive sophisticated technological and capital-intensive and merchandising was less of an art form. How that systems to ensure maximum efficiency. Owning its has changed. The days when UK clothing retailers in-house production means Zara can be flexible in manufactured their own garments are long gone. the variety, amount and frequency of the new styles it The UK textiles industry crumbled because of high produces. Its in-house production enables it to have production costs and increased competition. Today, a rapid product turnover because its production runs vertically integrated retailing is seen as detrimental to are limited and its inventories are strictly controlled. flexibility, in terms of the cost of the supply chain and Zara makes its most fashionable items - about half of adapting quickly to new styles. Apart from the cost of all its merchandise - at a number of company-owned labour, when a business owns its own factories, it also factories in Spain, Portugal, Turkey and Morocco, has to worry about keeping the factories and the staff where labour is cheaper than in the UK and most occupied during quiet periods. of Western Europe. Clothes with a longer shelf life, In Europe there is one exception to the rule that such as basic T-shirts, are outsourced to low-cost vertically integrated retailing does not work - Zara, suppliers, mainly in Asia. the cutting-edge Spanish fashion chain and the In contrast, because production is highly labour major division of the Spanish retailer, Inditex. Like intensive, most of its competitors outsource all their many UK retailers. Zara was a clothing producer production, usually to Asia, and focus on distributing long before the first store opened in 1975. But, and retailing those goods. unlike its UK rivals, Zara managed to transform its manufacturing arm into a highly efficient machine, Zara has become the leader in the rapid development able to cater to the needs of customers. of 'fast fashion' - a strategy that revolves around19 designing and manufacturing trendy fashion items to encourage frequent access online by potential es quickly and inexpensively to allow the average customers, to engage them with images and videos, consumer to purchase the latest styles. Designers and to encourage them to make instant purchases. develop new models daily - sometimes three or four a For a brand that prides itself on turning around key day - which are then reviewed and put into production. fast fashion trends quickly, printed and broadcast New fashion designs are shipped at a rapid rate. Zara es media lead times would be too slow. It needs claims that it can translate a catwalk design into quality the immediacy and the impact of the Instagram as high-street fashion within three weeks, which means ese influencer to reach its audiences, while items are that the company does not have to second-guess what still in stock. Creating seasonal 'must-have items will be fashionable up to nine months ahead. in this way creates a scarcity effect that encourages The secret of its fast fashion retailing is its ability almost immediate sell-out of these items. an be to generate a quick turnover of merchandise in its Horizontal integration is more common in the stores - of which it has over 2,200 located across clothing retail sector. Examples include the Arcadia news 96 countries. Customers know they should buy an Group and Gap Inc. The Arcadia Group is the result item they like when they see it in store - because of a series of horizontal integrations, bringing it will not be there for long - part of the company's together Burton, Topshop, Miss Selfridge, Evans, arks approach is to create a climate of scarcity and Dorothy Perkins and Wallis. The GAP Inc. retail opportunity for the clothes in its stores. clothing corporation integrated horizontally to arks) This approach is also evident in its online sales. Zara control three distinct companies, Banana Republic, makes very good use of social media. It was one Old Navy and the GAP brand itself. Both of these of the first in the fast fashion industry to invest in horizontally integrated businesses have been building a sizeable online fan base and was a pioneer struggling in recent years. Some commentators in influencer marketing. It currently boasts over 30 suggest they have been too slow to adapt to million Instagram followers and 28 million Facebook changing market conditions, have been supporting fans. This social media activity enables it to tick all too many brands and have failed to match the the boxes - to reach a huge potential customer base, competition provided by smaller and more flexible online businesses. Total: 30 marks hly 3 To what extent is Zara's vertically integrated its approach something that clothing retailers in the in UK could successfully adopt? (16 marks)