Case Questions:

1. How specifically do the distinctive features of Zara’s business model affect its operating economics?

The main concepts that can be taken away from Zara’s business model, which directly affect its operating economics, is low cost, high control, and quick turnaround. Zara is just one of six retail stores operated by, Inditex, the parent company. Inditex owns Comditel, a subsidiary, which manages the dyeing, patterning, and finishing of gray fabric and supplied finished fabric to external as well as in-house manufacturers. By owning this company, Zara is able to maintain low cost production while being able to finish fabric in a week. Zara has the ability to obtain its main raw materials as well as the final product from external suppliers. With company having purchasing offices in Hong Kong and Barcelona, it gives them a considerable advantage with regards to their cost of goods sold as they can choose where to purchase based on the given prices. Considering how low the cost of labor is becoming in China, Zara may want to focus on buying more from China further reducing their cost of goods sold. Also, the current structure of the distribution warehouse allows for just-in-time production as they are closely connected with the retail stores. Using the sales information recorded by the stores, Zara is better able to recognize the customer’s needs and therefore can react quicker to their demands. With frequent shipments to the stores to restock stores, Zara is able to turnover their inventory at faster rates then their competitors while implementing high levels of control. As a result of Zara’s business model, there is no reason to wonder why they are more profitable than any of their main competitors (Gap, H&M, & Benetton). Zara’s ability to be both a retailer and manufacturer gives them a substantial advantage in