Zara Business Plan
A few broad questions related to the finance sector of the franchise are: Do you
have the financial resources or means to get the resources required to buy a franchise?,
will your capital provide you with a cushion for at least one year after you have paid for
the franchise, allowing a one-year period of time to break even?, what is a high estimate
of your fixed expenses such as rent and your variable and operating expenses such as
wages and stock?. When buying the Zara franchise rights, the franchise fee typically
varies between 5% and 10% of the franchise store’s sales. Included in that fee, Zara
offers franchisees full access to corporate services, such as human resources, training,
and logistics at no extra cost. They also allows them to return up to 10% of purchased
merchandise, which is a higher level than many other franchisers permitted. This will cut
down on the sunk cost that is purchased stock.
Then, breaking down the previous questions further, we have to ask ourselves
more specific financial questions before buying the franchise. How much initial
investment will you need to buy the franchise? We figured that the startup costs would
include the franchise fee, employee training, operating licenses, equipment, and the
expenses involved in running a retail space, such as moving expenses, furnishings,
equipment, décor, signs, and landscaping. The employee training, however, is included in
the franchise fee and the landscaping expenses are covered by the rent expense by the
University Village complex owner. The franchise fee was estimated to cost from $20,000
to $30,000. The licensing, furniture, and equipment costs were estimated at $50,000.
Franchise Fee Estimate $20,000-$30,000
Employee Training Included in franchise fee
Equipment & Furnishings Estimate $50,000
The next question we developed was, what are your ongoing expenses until the
business starts showing a profit? Ongoing expenses generally include paying royalties to
the franchiser, advertising fees, equipment maintenance, employee costs, rent, and
inventory. According to Zara, they charge 5% to 10% percent of the franchise stores sales
as a royalty cost based on a yearly revenue amount of 1.5 million dollars a year (based on
a goal of sales equaling $300 per square foot). The rent cost of the retail space is $30.00
per square foot times the 5,000 square feet in the store. Following Zara’s business plan of
limited advertising; they calculate that it should cost no more that 0.3% of the stores total
sales. When calculating employee costs, we based our calculations on have 2 store
managers and 10 associates. The managers will be paid fixed incomes of $40,000 with
incentive bonuses up to an additional one-half. The associates will be paid $10 an hour.
All of our employees will get benefits, equaling 40% of their wages.
Royalties 5% - 10% of Sales $75,000 - $150,000 *
Rent $30/ft2 * 5,000 ft2 $150,000
Advertising 0.3% of total sales $4,500
2 * $40,000 +
Manager Wages Bonuses up to
one-half of salary $80,000 - $160,000
10 People + $10/
Associates Wages hr. * 2000 wrk
Benefits 40% of salary $32,000 - $80,000
Inventory Estimate $50,000
Total $541,500 - $744-500
* Based on a yearly revenue equaling $1.5 million.
The next question we came up with was how much available cash do we have to
put towards the franchise? We knew that we needed to evaluate the assets we have
available to meet our initial and ongoing expenses. This was a difficult question for us to
consider since we do not know what kind of financial standing we will be in when we
reach the time in our lives when we are to make the decision whether or not to buy the
rights to the Zara franchise.
The last financial related question that we struggle with was what financing can
we get to make up the difference between our expenses and cash investment? Once we
determine how much we can personally contribute toward paying our expenses, then we
need to look at ways of financing the remainder. Because we are beginning a new
franchise, we discovered that lenders would want the loan backed by collateral or
guaranteed by an agency such as the Small Business Administration. Thus, we decided
that we would pursue a SBA loan since the SBA is a government entity and we would be
more likely able to receive a loan.
What do customers want?
- High quality fashions, at reasonable, prices. This clothing we provide must
be cutting edge and exactly what people are buying in Europe.
Like every good marketing company, they must understand what the customer values and
wants, not what the company wants. This must be realistic and effective. We want to
know and understand the customer so well, that the clothes literally sell without
advertisement needed. Zara will see a lot of its results through its marketing.
When it comes to customer service, the goal is to put customer satisfaction as the
highest priority. To build good customer relationships that keep them returning. This is
the foundation for many successful clothing retailers, and will be our prime goal. We
have examined several other successful fashion retailers, like Nordstrom, and looked at
their customer service, this is the type that we hope to impersonate.
When it comes to the customer market, Zara will really research its customers
thoroughly, such as asking for customer zip codes at checkout, and optional surveys. This
typical market might not be the younger designer market that wears brands such as Rock
and Republic, True Religion, and Sevens. Zara’s clothing is more European and mature,
and not quite aimed at a younger designer market around here, but we are hoping to
appeal to a crowd from their mid to late 20s to late forties primarily, with a cunning edge
for fashion and what people are wearing in the world’s fashion capitals, for a decent
price. We also hope to attract more of a male market as well. We are finding that men
now days are becoming more and more fashionable than before and also want to wear
designer clothing. This would be a good secondary market.
Zara aims to provide current European fashions at reasonable prices. It is a huge
success in Europe and Asia, with over 400 stores worldwide, and 32,000 employees,
becoming an international enterprise. Zara has grown 25% over the past 5 years to
become one of the world’s fastest growing retailers. Zara will communicate directly with
its stores of what they sell and do not sell, and replace them in a matter of weeks, versus
the nine-month average for most of the fashion industry. We will be geared around speed
and responsiveness and use daily sales data to replenish the small inventory, and
customer needs. The lower inventory levels and frequent line changes give the customer a
sense of luxury and exclusivity. Zara will compete with quality brands such as Gucci,
Dolce and Gabanna, and Louis Vuitton, at affordable prices. The customer market may
not be the same, but clothing ideas and exclusivity will be. Since inventory is altered and
changed frequently, it is likely that the next time you come in; there will not be the same
merchandise, due to the change in fashions. This will inspire customers to buy a garment
while its there.
Zara’s advertising philosophy is that they will market its fast-moving fashions and
trends, and not ever be behind them. Normally Zara’s policy is zero advertising, because
they preferred to invest a certain percentage of their revenues into opening stores,
however, since the fashions are very European, the Zara's in the US will really need to
market and advertise this European style, since it is not exactly what you find in
American retailers. We will market the idea that this is cutting edge, up-to-date, straight
from Europe’s fashion capitals. This will require MORE marketing, than Zara marketing
in Europe and Asia, since everyone there already is familiar with Zara. Fashion typically
moves from Europe to the coasts of the US and inward, making Seattle a prime location.
The latest designs in Europe will not hit here until a matter of months, but Zara will
provide what is in now. It will advertise with runway shows at the stores, grand openings,
ads in local magazines, such as Seattle magazines, and national magazines such as Vogue
and Harper’s Bazaar.
As stated above, Seattle is a prime location for Zara because of how fashion
moves. We plan to locate our Zara in University Village in Seattle, to aim at a mid to
upper twenties market (older students) to a mid to upper forties market. There are several
other fashion retailers in the area, so this will hopefully bring in these types of customers.
Zara will have a unique store, with lots of personal attention, and a large, attractive, well
thought layout, to allow the customer to feel the pleasure of buying fashion.
Management and Operations How will the business be handled?
The operations of this store are very important. In order to receive support for the
opening of this store, knowledge of how the store will operate is a key concept. Our Zara
store will be run by a partnership; three partners to be exact. This will stimulate different
but congruent ideas to make operations run smooth without complications. However, the
store cannot be run by three people alone. Employees and staff will be hired to help
customers with their purchases. All employees will attend 15 days of training to
understand the Zara customer value. The training will ensure that employees know their
way in the store and be able to answer customer questions. At least one manager will be
present during store hours to ensure that staff and employees are working properly and on
The store is a retail system, so billing customers will occur by cash, credit, or
checks. Also, all merchandise, excluding sale items, will contain a 30 day return policy if
the price tag is still in contact, to ensure the clothes were not worn at any time. Computer
cash registers will be used to control inventory and to gain customer loyalty. Also,
security cameras will be set up around the store to ensure shoplifting does not occur. In
addition, magnetic strip sensors will be at the exit to alarm the managers if someone is
stealing. Security is a big priority to the extent that thievery will create an imbalance in
inventory. Keeping count in inventory is very important to understand so the Zara
Company can keep the styles to what the customers want to purchase. Lastly, most
budgets will be handled by sales, if everything should work correctly.