Should Zara open New warehouse? If yes Why?

Yes, I believe that Zara should open a warehouse outside Spain. The best location based upon their current competitive position for the warehouse is Myanmar.

Zara is not just a Spanish or European retailer anymore and its expanding global presence requires a support structure closer to its operations in Asia and the Middle East.  Whilst Spain has always been Zara's biggest market, in 2013 China overtook France as the country with the highest number of stores outside Spain (Berield and Baigorri, 2013). Since 2007 Zara has focused its expansion on Asia and their growth rate in Asia has been double that of the rest of the World (Caro, 2011). This looks set to continue with Zara's CEO Pablo Isla stating that India is one of Zara's next top priorities (Caro, 2011). Shipments to Zara's stores in China and Asia travel over 5000 miles - a warehouse in Asia to match the production facilities already in place there would be a lot more effective and efficient than the current operation.

Another strong argument for creating a distribution warehouse outside Spain is that Zara is coming under increasing attention and criticism for the price differentiation strategy it employs in different markets. Consumers outside Spain are paying a higher premium for the same garments as Zara's Spanish customers and with the transparency that online shopping and social media now offers consumers there is a question of how long consumers will tolerate this. A 2006 study by Ghemawat and Nueno found that consumers in Japan are paying as high as 131% more than Spanish shoppers see figure 2 below.

Figure 2: Price differences in Zara stores in different continents for the same T-Shirt

Legend Colour	Country	Price Difference from Spain
	America	70% Higher
	Europe	10% Higher
	Northern Europe	40% Higher
	Asia especially Japan	131% Higher

Figure 1: Zara's trading regions

The strongest argument against building a second distribution centre is that centralisation and control of all operations from Arteixo have been key to Zara's success to date. However we feel that Zara and Inditex have always shown themselves to be progressive and eager to adapt technology to improve efficiency and drive sales. There is no doubt that the drive and commitment that pushed Zara to be the No1 fashion retailer in the world will enable them to overcome the challenge of dual distribution centres.

Location

We have argued that a second distribution centre is required by Zara, in order to position that centre correctly we need to understand the global spread of Zara's stores. In 2012 there was a total of 1925 Zara stores around the world,67% of which are in Europe and well serviced by Spain. 219 stores are in the Americas and efficiently serviced by established trade routes between Europe and America. As we highlighted earlier Asia is the focus of intense Zara expansion. In 2012 121 new Zara stores were opened in China alone.

Based on the current and proposed level of expansion in Asia and the strong level of supply from Spain already servicing Europe and The Americas, Asia presents the best opportunity for the second Zara distribution centre. We have selected Myanmar as the ideal place for Zara to open its warehouse because Myanmar shares borders with Bangladesh, India and china. Myanmar is a growing manufacturing hub in Asia. Myanmar is strategically located centrally to many of the largest emerging markets for Zara e.g. China, India, Hong long and Australia. It is also located close to the manufacturing stronghold of Bangladesh. It is ideally located to both receive and ship stock to service Asia, Far East and Australia.

 Some of the advantages of a distribution centre in Asia are listed below:

Advantages	Explanation
Cheaper Labour	The cost of labour in parts of Myanmar is significantly cheaper than Spain.
Close proximity to manufacturers	From the case study it is very clear that Zara already manufactures price sensitive goods in Asia. This area is rich in clothes manufacturing and further links could be developed.
Connects to far western countries	A distribution centre in Asia would enable a further expansion in to the far East and Australia.
Reduce the supply lead time to Asia based stores.	Zara’s lead time to supply Asian factories is around 38 to 48 hours, a warehouse in Asia helps to reduce this time drastically.
Low cost of living in Myanmar	The Myanmar currency rate compared to euro is very low “1 Euro = 1350 MMK”. This will make construction and development relatively inexpensive.