case study of zara a better fashion business model

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Case Study of Zara: A Better Fashion Business Model

Zara is one of the most well known brands in the world and is also one of the largest international fashion companies. They are the third largest brand in the garment industry and are a unit of Inditex . It their flagship range of chain stores and are headquartered in Spain. Zara opened its first outlet in Spain in 1975. The headquarters of the company is based in Galicia. There are more than 2600 stores across 73 countries in the world. The Zara clothing line accounts for a huge bulk of its parent group’s revenues. There are other clothing brands owned by Inditex such as Kiddy ´s Class (children’s fashion), Pull and Bear (youth casual clothes), Massimo Dutti (quality and conventional fashion), Bershka (avant-garde clothing), Stradivarius (trendy garments for young woman), Oysho (undergarment chain) and Zara Home (household textiles). Inditex owns all Zara outlets except for places where they are not allowed ownership of stores (that’s where Franchises step in).

Zara is renowned for coming up with products on a short timescale instead of taking forever. They are known for taking around 2 weeks to develop products and have been known to come up with around 10,000 new designs every year (which is an industry record). They have bucked the trend by making productions in Europe instead of shifting their entire production to Third World or Developing countries. However some of their clothes are manufactured in parts of Asia due to the fact that they have a longer shelf life. They make most of their own products inside Spain or other European Countries as they own a large number of factories in both Spain and Portugal. They also don’t have to depend on anyone else as they can get everything done by themselves.

Zara is unique in the way that it does not spend money on marketing and instead concentrates on opening new stores instead. Their brave experiments have led them to be labeled as one of the most innovative retailers in the world.

Zara started out with low priced products which were pale imitations of high end fashion products. This move led to Zara being a smashing success and allowed them to expand by opening more stores in Spain. The company management also managed to reduce the time it took to create new designs and came up with the term “instant fashions” which allowed them to capitalize on new trends really fast. Zara is known to use teams of designers instead of individuals.

Zara has to face a lot of competition from H&M, Gap and Benetton internationally. Fortunately Zara is considered to be more fashionable than the rest of the brands despite the fact that its price is less than Benetton and Gap. H&M is still cheaper than Zara but is equally fashionable as Zara. Gap and Benetton are less fashionable and more pricy.

Zara’s ‘Fast Fashion’ Business Model

Zara’s business model is basically based on the principle that it can sell “medium quality fashion clothing at affordable prices”. Basically vertical integration and the ability to come up with a quick-response is a key factor to Zara’s successful business model otherwise they would be no where without it. The process for Zara has been designed in such a way that it has the various functions within the business system such as designing, sourcing and manufacturing, distribution and retailing. They do all of these themselves and that is one reason why their growth is at a good rate. However what goes up must come down and Zara is not immune to the problems in the world. The way they operate can also prove to be their undoing due to the model they are currently utilizing. The fact that they have their own distribution center and manufacturing unit is a very weak point. This can be discussed further in this document.

The management at Zara have come up four fundamental success factors: short cycle time for creation of product, small quantity per product (and not too much of the same stock), extensive variety of product every season (so that users can choose easily) as well as a huge investment in information and communication technology to allow them to stay on track .

Zara knows what its customers want by tracking their preferences on a year round basis. They have their own team of designers who have been recruited fresh out of fashion school. It is not a tough job to tell them what they want based on the input they receive. They make around a limited quantity of clothes based on the 11000 various items designed by its in-house staff. Zara does not make any losses as they only order a limited quantity of each item which they believe is stylish and will be more restricted season wise. For example if they have miniskirts in design they will only be available for a short time due to the short summer period in Europe. Other clothes which can work the year around and for which the trend does not change are outsourced to Asia as the cost won’t be so high. The outsourcing operation is very handy mainly because these clothes have a longer shelf life. It does not take a long time for the clothes to be prepared as it merely takes around 4 weeks total for the whole process: from design to the finished product in the stores.

The fact that Zara knows what sort of trends are there in the market and are quick enough to change their strategy to match the trends in the fashion industry gives them a huge advantage. They are able to modify their timetable easily to adjust for a change in the trends in the market. Normally it takes around 8 to 12 months for any normal retailer to forecast trends and come up with a style and send it for production. They are unable to match what Zara does and they end up losing big time. Even if a style fails to sell much, Zara can easily sell the clothes on a discount. The fact that they quantity of clothes manufactured was so low that they lose much. Their low volume strategy has helped them have a very low number of discount sales every year as compared to a high rate for the rest of the industry.

However this leads to higher costs which is a disadvantage but then they don’t have to worry about having higher inventories. This method allows for a low inventory and high profit margins. They don’t save any money here with costs but then they get the maximum out of their clothing line. A problem they face is the fact that since Zara controls everything it is not easy for them to expand or relocate as they have to stay put in one place or the whole operation will suffer and the goods will cost more to distribute.

Zara’s business model is wonderful in the sense that it has a very fashion forward line as they know which trends to cash in on. They seem to have the midas touch of turning everything into gold. Their policy is to have a mostly young and fashion conscious staff so that they will also be able to double as trend setters. If for instance a certain item in a store sells well then the management decides to sell the same item in other locations as well. The key is that most of the items are in short supply and people presume that there is a shortage of items which ends up making consumers want to buy more.

A key factor in Zara’s success is the fact that it has sourced its products from the right places. They have based their procurement offices in a couple of fashionable cities in the world. This allows them to witness the trends first hand and then to quickly come up with a solution of their own. They don’t buy all the raw products on their own as they use one of their parent group’s procurement units to do all it’s purchasing. One clever move on their part is that they buy most of their fabric in grey so that there is greater flexibility. It doesn’t take long for the fabric to be prepared.

The main distribution artery is in Spain where they have their biggest distribution center. They also have some smaller distribution centers in countries such as Argentina, Brazil and Mexico. The problem with the distribution center is that it is purely based in Spain and does not have the capacity for a heavy load. It is a huge distribution center and occupies around 500,000 square feet in total. They only have the capability of processing around 60,000 folded garments in an hour. They need to find a new distribution center or increase their operations so that they can save more time. However the biggest advantage for them is the fact that they have vertical integration which allows them to manufacture and distribute their own stuff without having to be at the mercy of any supplier. It is not tough to move any of their products as they have their own railway network which allows them to move goods easily to its distribution center. Once the goods are ready they are shipped out immediately though the shipping schedule is only twice a week. European stores get their goods early (around 24-36 hours) while other destinations get them within 2 days. This system has allowed them to achieve a very high level of accuracy in its shipments. The other good thing is that the outlets don’t take long to display the new outfits once they reach their destination and this allows them to show new stock to their customers. The clothes are also coded according to their color so that the staff knows where to place them. This makes it easier for the customers to go around color matching the items they want to buy.

Problems with Zara’s Business Model

Zara is facing a large number of issues which can cause them a number of problems in the future. Despite the fact that Zara has a consistent business system which gives them a competitive advantage it is always in the danger of tanking badly. Zara’s biggest advantage is the fact that its economies of scale are really good and that they have been able to ramp up their distribution system. The continued growth is good for them in every way. They have been helped a lot by their expansion in the international market . However their growth in the international market will be curtailed due to the reason that Zara has a very centralized logistics model. It is understandable that Zara has to expand its distribution centers and to increase its capacity. Zara has its main distribution center in Spain and it won’t be easy going trying to expand when their base is only in Spain.

This will affect their plans to go international and to target more regions. They can’t simply survive with a European presence alone. It is true that they do have a presence in other countries but then it is not as much as it should be. They have a huge presence in Spain but quite limited when it comes to other countries. They can easily target the North American region where they don’t have much of a presence compared to the huge size of the region. The problem is that there are a lot of outlets there and a lot of competition coupled with the need for plus sized clothing, high cost of operations and a very mature market. Zara needs to come up with a strategy so they can compete very aggressively over there. They can also target South America but the problem is that it is not a very stable region and any geopolitical problems can lead to profits being low. A good market would be the ever reliable Middle East where Zara already has a small presence. However with talks of revolution in the air and other geo political problems it can be a risky bet. There are a few countries in the region which will lead it to be profitable but then the market is small compared to other regions. They can easily opt for countries such as the South East Asian markets and South Asia which have a lot of potential.

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2 thoughts on “ Case Study of Zara: A Better Fashion Business Model ”

Dear Abey, Many thanks for your continuing efforts to help learners. I’ve just come across your website and really amazed at the wealth and variety of topics which are covered in your business cases. Very helpful, indeed. God bless you for all the kind things you are doing. Alex

Thank you for this valuable insight. Quite informative. Helped me a lot.

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Zara Case Study: How Zara Lead The Fast Fashion Market?

Supti Nandi

Updated on: April 8, 2024

You asked, and we listened! Get ready to dive into the fascinating world of Zara with our highly requested Zara Case Study. 

Recently, Zara has been trending in Instagram reels and YouTube shorts for its funky model poses. You must have seen it too! Have you wondered what made this Spanish brand so famous?

You may say that Zara works on the concept of fast fashion, which makes it win in the competitive market. 

Well, that’s true but it is not the only reason. Let’s uncover the secrets behind Zara’s success through the Zara Case Study.

Let’s begin!

(A) Zara: A Brief Overview

Zara, a notable name in the fashion industry, is a Spanish retailer known for its distinctive approach to clothing and accessories. Operating on a fast fashion model, Zara excels in swiftly adapting to evolving fashion trends, setting it apart in the market. With a vertically integrated process, the brand manages everything from design to production in-house, allowing for efficient and responsive operations.

You’ll find Zara stores globally, each offering a diverse range of trendy and affordable clothing for men, women, and children. The brand’s commitment to delivering fashion-forward pieces at accessible prices caters to a broad audience, reflecting its significance in the industry.

Do you know what is fast fashion?

Fast fashion is a business model characterized by quickly producing affordable, trendy clothing items to meet rapidly changing consumer demands.

Zara works in the same way. We will look into its details in the upcoming section. Before that, let’s go through the profile of Zara-

What makes Zara stand out is its ability to balance responsiveness in manufacturing, a well-structured supply chain, and a keen understanding of consumer preferences. This combination has established Zara as a trendsetting and influential player in the fashion landscape. Its adaptability and dedication to making fashion trends accessible have solidified Zara’s place as a recognizable and influential name in the fashion industry.

(B) Zara Case Study: History & Evolution

Zara’s journey began with a dress-making factory called Inditex, established by Ortega in 1963. Over the years, Zara expanded its presence from Spain to Portugal and eventually to other European countries, the United States, and France.

Today, Zara boasts nearly 6,500 stores across 88 countries worldwide.

Let’s dive into the history of Zara in detail-

Zara is the flagship brand of the Inditex group, which is one of the world’s largest fashion retail conglomerates.

The head office of Zara is located in Arteixo, in the province of A Coruña, Galicia, Spain. Inditex also owns other popular brands like Massimo Dutti, Pull&Bear, Bershka, and Stradivarius.

(C) Brand Philosophy of Zara

Do you know why Zara stands out among its competitors? Due to its brand philosophy! Sara’s success hinges on several key principles-

Zara’s strategy is strikingly different from traditional fashion retailers. Reason? Fast fashion concept and in-house production of clothes! Go through the next section for detailed information.

(D) Zara Business Model: Effective Working Strategies

In this section, we will dive into the business model of Zara to determine its working strategies that played a huge role in its success-

Let’s dive into the details-

(D.1) Fast Fashion Model

Zara is known for its “ Fast Fashion ” approach. It releases new collections frequently, sometimes launching over 22 new product lines per year. This agility allows Zara to respond swiftly to changing trends and customer preferences.

• Rapid Trend Replication: Harnessing cutting-edge information technology, Zara excels at swiftly replicating prevailing fashion trends. This enables the brand to stay ahead of the curve, delivering the latest styles to customers promptly.
• Group Design Approach: Departing from the conventional individual designer model, Zara adopts a collaborative approach. Teams of designers work in synergy, fostering enhanced creativity and efficiency in product development. This collective effort ensures a diverse range of products aligned with dynamic market demands.
• Cost-Effective Materials: Zara strategically utilizes affordable materials without compromising on quality. This approach allows the brand to maintain competitive pricing while delivering products that meet or exceed industry standards. The focus on cost-effective yet quality materials contributes to Zara’s accessibility and broad customer appeal.
• Competitive Pricing: Zara optimizes its production costs by outsourcing to countries with cost-effective labor. This global approach not only supports competitive pricing but also facilitates the brand’s ability to swiftly adapt to market demands. The combination of efficient production and competitive pricing reinforces Zara’s position as a leader in the fast fashion landscape.

(D.2) Product Range

Let’s briefly look at its product range too-

• Clothing: From chic dresses and tailored suits to casual wear and activewear.
• Accessories: Including bags, shoes, belts, and jewelry.
• Beauty Products: Fragrances and cosmetics.
• Perfumes: Zara has its line of fragrances.

(D.3) Vertical Integration: In-House Operations & Logistics

Zara’s way of doing business centers on something called vertical integration. Here is how it works-

• Design: Zara takes charge of creating its designs, meaning it controls how its clothes look and stay on-trend. This ensures that what you find in Zara stores reflects the latest fashion trends.
• Manufacturing: Zara doesn’t just design; it also makes its clothes in-house. This is a big deal because it lets Zara make changes to its products fast. If there’s a new trend or customer feedback, Zara can respond quickly, which is pretty cool.
• Shipping and Distribution: Zara doesn’t stop at making the clothes; it handles everything from getting them to the store to making sure they’re sent to the right places. This full control of the supply chain ensures that the clothes you see in Zara are not only stylish but also reach the stores efficiently.

In short, the fast fashion concept, vertical integration, and supply chain efficiency helped Zara to achieve impressive milestones.

(E) Revenue Model of Zara: How does Zara make money?

Do you know Zara earned Rs.2,562.50 crore in India? That’s not all. It earned over 23 billion euros from its stores worldwide.

That’s quite amazing! Isn’t it?

But how does Zara earn such a whopping amount of money? Due to its impressive revenue model.

Let’s go through them one by one-

Let’s briefly dive into Zara’s finances for the years 2022 & 2021-

That’s how Zara is going through its purple patch in terms of revenues!

(F) Zara Marketing Strategies

Zara, the renowned Spanish fashion retailer, has crafted a distinctive marketing strategy that contributes to its global success. In this section, we will delve into the key elements of Zara’s marketing approach-

(F.1) Fast Fashion Strategy

The fast fashion model functions as a highly effective marketing strategy for Zara in several ways. First and foremost, the rapid turnover of collections, with over twenty product lines per year, creates a sense of urgency and novelty for customers. This continual introduction of fresh styles not only keeps Zara top-of-mind but also fosters a dynamic shopping experience, encouraging frequent visits to discover the latest trends.

Moreover, the quick response to changing trends and customer preferences positions Zara as a trendsetter, appealing to fashion-conscious consumers. The ability to swiftly translate runway trends into accessible and affordable pieces reinforces Zara’s image as a go-to destination for staying in vogue.

Additionally, the limited production batches contribute to an atmosphere of exclusivity, prompting customers to make timely purchases to secure unique and in-demand items. This scarcity-driven approach enhances the perceived value of Zara’s offerings.

In essence, the fast fashion model serves as a powerful marketing tool for Zara by creating a sense of immediacy, exclusivity, and trend relevance, fostering customer loyalty and consistently attracting a diverse audience seeking the latest in fashion.

(F.2) In-Store Experience

Zara places a strong emphasis on crafting an exceptional in-store experience, carefully curating showrooms to exude an atmosphere that is both exclusive and professional. The meticulous design choices contribute to an ambiance that goes beyond a mere shopping space, creating an environment where customers feel engaged and inspired. 

The meticulous attention to detail is aimed at ensuring that every aspect of the in-store setting is carefully considered, from layout to lighting.

This focus on the in-store ambiance goes beyond aesthetics—it becomes a vital part of Zara’s marketing strategy. The thoughtfully designed physical stores act as powerful marketing tools in themselves, drawing in customers by providing a memorable and immersive shopping environment. 

By enticing shoppers to explore the latest trends in this carefully curated setting, Zara not only enhances the overall customer experience but also reinforces its brand image as a trendsetting and sophisticated fashion destination!

(F.3) Affordability & Differentiation

Zara strategically positions itself by prioritizing affordable pricing while maintaining a commitment to quality. This dual emphasis allows the brand to resonate with a wide range of customers. By providing stylish clothing at reasonable prices, Zara ensures accessibility, making fashion-forward designs attainable for a diverse audience.

The effectiveness of this marketing strategy lies in Zara’s ability to differentiate itself in the market. The brand stands out not only for its trendsetting designs but also for its adept balance of fashion-forward aesthetics and accessible costs. 

This unique blend positions Zara as a go-to destination for those seeking both style and value, enhancing the brand’s appeal and solidifying its market presence. The affordability and differentiation strategy contribute to Zara’s ability to capture a broad customer base and maintain its status as a leading player in the competitive fashion landscape.

(F.4) Word of Mouth and Limited Advertising

Zara strategically leverages the power of word of mouth and customer recommendations as primary drivers of its marketing efforts. In a departure from traditional advertising-heavy approaches, Zara relies on the subtlety of customer satisfaction and positive experiences to promote its brand.

This unique strategy involves cultivating a strong and positive buzz around Zara’s collections, encouraging customers to share their experiences and recommendations. The reliance on word of mouth creates an authentic and organic promotion of the brand, fostering a sense of trust and credibility among potential customers.

The limited advertising approach doesn’t diminish Zara’s impact; rather, it aligns with the brand’s commitment to providing an outstanding in-store experience and quality products. The positive buzz generated by satisfied customers becomes a powerful force, driving foot traffic to Zara’s stores and contributing to the brand’s sustained success in the competitive fashion market.

(F.5) Social Media Marketing

Zara actively embraces social media platforms as a crucial component of its marketing strategy. The brand leverages platforms like Instagram, Facebook, and Twitter to engage directly with its audience, creating a dynamic online presence.

The strategy involves regular updates across these platforms, keeping followers informed about the latest arrivals, ongoing trends, and behind-the-scenes glimpses into Zara’s fashion world. By maintaining an active and visually appealing presence, Zara not only stays connected with its audience but also cultivates a sense of anticipation and excitement around its offerings.

In addition to direct engagement, Zara strategically collaborates with influencers. These collaborations amplify Zara’s reach, tapping into the influencers’ follower base and creating a ripple effect of brand awareness. 

Through this multi-faceted approach, Zara effectively utilizes social media not just as a promotional tool but as a means to foster a dynamic and interactive relationship with its audience, contributing to the brand’s overall success in the digital landscape.

(F.6) Personalization & Community Engagement

Zara adopts a customer-centric strategy by customizing its offerings to cater to local tastes and preferences. This personalization ensures that Zara’s collections resonate with diverse communities, creating a more inclusive and relatable shopping experience.

Community engagement takes center stage in Zara’s approach. Events like fashion shows or store openings play a pivotal role in fostering a sense of belonging among customers. By actively involving the community in these events, Zara goes beyond being a retailer and becomes an integral part of the local fabric.

Crucially, Zara prioritizes customer feedback. Actively listening to what customers have to say, the brand adapts and evolves its offerings based on this valuable input. This responsiveness not only enhances the overall customer experience but also reinforces a sense of collaboration between Zara and its community. 

In essence, Zara’s commitment to personalization and community engagement contributes to a brand image rooted in customer satisfaction and a genuine connection with the diverse communities it serves.

(G) Sustainability Efforts: Crucial Part of Zara Case Study

Do you know what Zara is famous for apart from fashion? Its sustainability efforts to preserve mother nature! Let’s look at the sustainability efforts of Zara-

Thus, Zara is increasingly conscious of sustainability. The brand aims to reduce its environmental impact by using eco-friendly materials and promoting recycling. Such initiatives resonate with socially aware consumers.

(H) Challenges Faced by Zara

The journey of Zara was not free of challenges. Let’s look at some of the major challenges of Zara- 

Zara brilliantly addressed those challenges to produce effective results that ultimately helped them grow their business.

(I) Summing Up: Zara Case Study

Zara’s remarkable success in leading the fashion market can be attributed to its unique blend of rapid fashion cycles, vertical integration, and a customer-centric approach. By staying ahead of trends with its fast fashion model, ensuring control over the entire production process, and tailoring offerings to local tastes, Zara captures a diverse and loyal customer base. 

The brand’s commitment to affordability, engaging in-store experiences, and strategic use of social media further solidify its market leadership. Zara’s story showcases the power of adaptability, responsiveness, and a strong connection with customers in navigating the dynamic landscape of the fashion industry!

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How Zara’s strategy made her the queen of fast fashion

Table of contents, here’s what you’ll learn from zara's strategy study:.

• How to come up with disruptive ideas for your industry.
• How finding the right people is more important than developing the best strategy.
• How best to address the sustainability question.

Zara is a privately held multinational clothing retail chain with a focus on fast fashion. It was founded by Amancio Ortega in 1975 and it’s the largest company of the Inditex group.

Amancio Ortega was Inditex’s Chairman until 2011 and Zara’s CEO until 2005. The current CEO of Zara is Óscar García Maceiras and Marta Ortega Pérez, daughter of the founder, is the current Chairwoman of Inditex.

Zara's market share and key statistics:

• Brand value of $25,4 billion in 2022
• Net sales of $19,6 billion in 2021
• 1,939 stores worldwide in 2021
• Over 4 billion annual visits to its website
• Inditex employee count of 165,042 in 2021

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Humble beginnings: How did Zara start?

Most people date Zara’s birth to 1975, when Amancio Ortega and Rosalia Mera, his then-wife, opened the first shop. But, it’s impossible to study the company’s first steps, its initial competitive advantage, and strategic approach by starting at that point in time.

When the first Zara shop opened, Amancio Ortega already had 22 years of industry experience, ten years as a clever and hard-working employee, and 12 years as a business owner. Rosalia Mera also had 20 years of industry experience.

As an employee , Ortega worked in the clothing industry, first as a gofer and then as a delivery boy. He quickly demonstrated great talent for recognizing fabrics, understanding and serving customers, and making sound business suggestions. Soon, he decided to use his insights to develop his own business instead of his boss’s.

As a business owner , he started  GOA Confecciones  in 1963, along with his siblings, his wife, and a close friend. They started with a humble workshop making women’s quilted dressing gowns, following a trend at the time Amancio had noticed. Within ten years, that workshop had grown to support a workforce of 500 people.

And then, the couple opened the first Zara shop.

Zara’s competitive positioning strategy in its first year

The opening of the first Zara shop in 1975 wasn’t just a new store to sell clothes. It was the final big move of a carefully planned vertical integration strategy.

To understand how the  strategy was formulated , we need to understand Amancio’s first steps. His first business, GOA Confecciones, was a manufacturing business. He was supplying small stores and businesses with his products, and he wasn’t in contact with the end customer.

That brought two challenges:

• A lack of insight into market trends and no direct consumer feedback about preferences.
• Very low-profit margins compared to the 70-80% profit margin of retailers.

Amancio developed several ideas to improve distribution and get a direct relationship with the final purchaser. And he was always updating his factories with the latest technological advancements to offer the highest quality of products at the lowest possible price. But he was missing one essential part to reap the benefits of his distribution practices:  a store .

So, in 1972 he opened one under the brand name  Sprint . An experiment that quickly proved unsuccessful and, seven years later, was shut down. Although it’s unknown the extent to which Amancio put his ideas to the test, Sprint was a private masterclass in the retail world that gave Amancio insights that would later turn Zara into a global success.

Despite Sprint’s failure, Amancio didn’t abandon the idea of opening his own store mainly because he believed that his advanced production model was vulnerable and the rise of a competitor who could replicate and improve his system was imminent.

Adding a store to his vertical integration strategy would have a twofold effect:

• The store would operate as a direct feedback source. The company would be able to test design ideas before going into mass production while simultaneously getting an accurate pulse of the needs, tastes, and fancies of the customers. The store would simultaneously reduce risk and increase opportunity spotting.
• The company would have reduced operating costs as a retailer. Since the group would control all aspects of the process (from manufacturing to distribution to selling), it would solve key retail challenges with stocking. The savings would then be passed on to the customer. The store would have an operational competitive advantage and become a potential cash cow for the company.

The idea was to claim his spot in prime commercial areas (a core and persistent strategic move for Zara) and target the rising middle class. The market conditions were tough, though, with many family-owned businesses losing their customer base, giant players owning a huge market share, and Benetton’s franchising shops stealing great shop locations and competent potential managers.

So the first Zara store had these defining characteristics that made it the successful final piece of Amancio’s strategy:

• It was located near the factory = delivery of products was optimized
• It was in the city’s commercial heart = more expensive, but with access to affluence
• It was located in the city where Ortegas had the most customer experience = knowing thy customer
• It was visibly attractive = expensive, but a great marketing trick

Amancio’s team lacked experience and expertise in one key factor:  display window designing . The display window was a massive differentiator and had to be bold and attractive. So, Amancio hired Jordi Bernadó, a designer with innovative ideas whose work transformed display windows and the sales process.

The Zara shop was a success, laying the foundations for the international expansion of the Inditex group.

Key Takeaway #1: Challenge your industry’s conventional wisdom to create a disruptive strategy

Disrupting an industry isn’t an easy task nor a frequent occurrence.

To do it successfully, you need to:

• Understand the prominent business mode of your industry and the forces that contributed to its development.
• Challenge the assumptions behind it and design a radically different business model.
• Develop ample space for experimentation and failures.

The odds of instantly conquering the industry might be low (otherwise, someone would have already done it), but you’ll end up with out-of-the-box ideas and a higher sensitivity to potential disruptors in your competitive arena.

Recommended reading:   How To Write A Strategic Plan + Example

How Zara’s supply chain strategy is at the core of its business strategy

According to many analysts, the Zara supply chain strategy is its most important innovative component.

Amancio Ortega and other senior members of the group disagree. Nevertheless, the Inditex  logistics strategy  is extraordinarily efficient and plays a crucial role in sustaining its competitive advantage. Most companies in the clothing retail industry take an average of 4-8 weeks between inception and putting the product on the shelf. The group achieves the same in an average of two weeks. That’s nothing short of extraordinary.

Let’s see how Zara developed its logistics and business strategy.

Innovative logistics: how Zara’s supply chain evolved

The logistics methods developed by companies are highly dependent on external factors.

Take, for example, infrastructure. In the early days of Zara, when it was expanding through Spain, the company considered using trains as a transportation system. However, the schedule couldn’t keep up with Zara’s needs, which had the goal of distributing products twice a week to its shops. So transportation by road was the only way.

However, when efficiency is a high priority, it shapes logistics processes more than anything else.

And for Zara, efficient logistics was – and still is – of the highest priority.

Initially, leadership tried outsourcing logistics, but the experiment failed and the company assigned a member of the house with a thorough knowledge of the company's operating philosophy to take charge of the project. The tactic of entrusting important big projects to employees imbued with the company’s philosophy became a defining characteristic.

So, one of Zara’s early strategic decisions was that each shop would make orders twice a week. Since the first store was opened, the company has had the shortest stock rotation times in the industry. That’s what drove the development of its logistics methods. The whole strategy behind Zara relied on quick production and distribution. And the proximity of manufacturing and distribution was essential for the model to work. So Zara had these two centers in the same place.

Even when the brand was expanding around the world, its logistics center remained in Arteixo, Spain, despite being a less-than-ideal location for international distribution. At some point, the growth of the brand, and Inditex as a whole, outpaced Arteixo’s capacity, and the decentralization question came up.

The debate was tough among leadership, but the arguments were strong. Decentralization was necessary because of:

• Safety and security.  If there was a fire or any other crippling disaster there (especially on a distribution day), then the company would face serious troubles on multiple fronts.
• Arteixo’s limitations.  The company’s center in Arteixo was reaching its capacity limits.

So the company decided to decentralize the manufacturing and distribution of its brands.

Initially, the group made the decision to place differentiated logistics centers where the management of its chain of stores was based, i.e. Bershka would have a different logistics center than Pull&Bear, although they were both part of the Inditex Group. That idea emerged after Massimo Dutti and Stradivarius became part of Inditex. Those brands already had that geographical structure, and since the group integrated them successfully into its strategy and logistics model, it made sense to follow the same pattern with its other brands.

Besides, the proximity of the distribution centers to the headquarters of each brand allowed them to consolidate them based on the growth strategy and purpose of each brand (more on this later).

But just a few years after that, the group decided to build another production center for Zara that forced specialization between the two Zara centers. The specialization was based on location, i.e. each center would manufacture products that would stock the shelves of stores in specific locations.

Zara’s  supply chain strategy  is so successful because it’s constantly evolving as the group adapts to external circumstances and its internal needs. And just like its iconic fashion, the company always stays ahead of the logistics curve.

Zara’s business strategy transcends its logistics innovations

Zara’s business strategy relies on four key pillars:

• Flexibility of supply
• Instant absorption of market demand
• Response speed
• Technological innovation

Zara is the only brand in the Inditex group that is concerned with manufacturing. It’s the first brand in the clothing sector with a complete vertical organization. And the production model requires the adoption or development of the latest technological innovations.

This requirement is counterintuitive in the clothing sector.

Most people believe that making big investments in a market as mature as clothing is a bad idea. But the Zara production model is very capital and labor intensive. The technological edge derived from that investment gave the company, in the early days, the capability to manufacture over 50% of its own products while maintaining an extremely high stock rotation frequency.

Zara might be one of the best logistics companies in the world, but that particular excellence is a supporting factor, or at least a highly contributing factor, to its successful business strategy.

Zara’s business strategy is so much more than its supply chain strategy.

The company created the “fast fashion” term and industry. When other companies were manufacturing their collections once per season, Zara was adapting its collection to suit what people asked for on a weekly basis. The idea was to offer fashionable items at a fair price and faster than everybody else.

Part of its cost-cutting strategic priority was its marketing strategy. Zara didn’t – and still doesn’t – advertise like the rest of the clothing industry. Its marketing strategy starts with choosing the location of the stores and ends with advertising that the sales period has started. In the early years of the brand’s expansion, Amancio would visit potential store locations himself and choose the site to build the Zara shop.

The price was never an issue. If the location was in a commercial center, Zara would build its store there no matter how high the cost was because the company expected to recoup it quickly with increased sales.

Zara’s marketing is its own stores.

The strategy of Zara and her Inditex sisters

Despite Zara’s success (or because of it), Amancio Ortega created – or bought – multiple other brands that he included in the Inditex group, each one with a specific purpose.

• Zara  was targeting middle-class women. ‍
• Pull&Bear  was targeting young people under twenty-five years old with casual clothing. ‍
• Bershka  was targeting rebel teens, especially girls, with hip-hop-style clothing. ‍
• Massimo Dutti  was targeting both sexes with more affluence. ‍
• Stradivarius  was competing with Bershka, giving Inditex two major brands in the teenage market. ‍
• Oysho  was concentrating on women's lingerie. ‍
• Zara Home manufactures home textiles and decor.

Pull&Bear  was initially targeting young males between the ages of 14 and 28. Later it extended to young females of the same age and focused on selling leisure and sports clothing. It has the slowest stock turnaround time in the group.

Bershka’s  target group was girls between 13 and 23 years of age with highly individualized tastes. Prices were low, but the quality average. Almost a fiasco in the beginning, it underwent a successful strategic turnaround becoming today one of the biggest growth opportunities for the group. And out of all the Inditex chains, Bershka has the most creative designs.

Massimo Dutti  was the first retail brand Amancio bought and didn’t create himself. Its strategy is very different from Zara, producing high-quality products and selling them at a high price. It’s an extension of the group’s offer to the higher end of the price spectrum in the fashion industry. It’s also the only Inditex chain brand that advertises regularly.

Stradivarius  was the second acquired brand, with the purchase being a defensive move. The chain shares the same target group with Bershka, making it, to this day, a direct competitor.

Oysho  started as an underwear and lingerie company. Its product lines evolved to include comfortable night and homewear along with swimwear and a very young children’s line. The brand’s strategy was aggressive from its conception, opening 286 stores in its first six years of existence.

Zara Home  is the youngest brand in the Group and the only one outside the clothing sector, though still in the fashion industry. It was launched with the least confidence and with immense prior research. An experiment to extend the Zara brand beyond clothing, it was based on the conservative view that Zara could extend its product categories only to textile items for the home. But it turned out that customers were more accepting of Zara Home selling a wide variety of domestic items. So the brand made a successful strategic pivot.

Key Takeaway #2: The right people are more important than the best strategy

It might not be obvious in the story, but a key reason for Zara's and Inditex’s success has been the people behind them.

For example, a vast number of people in various positions from inside the group claim that Inditex cannot be understood without Amancio Ortega. Additionally, major projects like the development of Zara’s logistics systems and the group's international expansion had such a success precisely because of the people in charge of them.

Zara’s radically different model was a breakthrough because:

• Its leadership had a clear vision and a real strategy to execute it.
• People with a deep understanding of the company’s philosophy led Its largest projects.

Sustainability: Zara’s strategy to make fast fashion sustainable

Building a sustainable business in the fast fashion industry is a tough nut to crack.

To achieve it, Inditex has made sustainability a cornerstone of its business model. Its strategy revolves around the values of  collaboration ,  transparency,  and  innovation . The group’s ambition is to make a positive impact with a vision of prosperity for the planet and its people by transforming its value chain and industry.

Inditex’s sustainability commitments and strategy to achieve them

Inditex has developed a sustainability roadmap that extends up to 2040 with ambitious goals. Specifically, it has committed to

• 100% consumption of renewable energy in all of its facilities by 2022 (report pending).
• 100% of its cotton to originate from more sustainable sources by 2023.
• 100% of its man-made cellulosic fibers to originate from more sustainable sources by 2023.
• Zero waste from its facilities by 2023.
• 100% elimination of single-use plastic for customers by 2023.
• 100% collection of packaging material for recycling or reuse by 2023.
• 100% of its polyester to originate from more sustainable sources by 2025.
• 100% of its linen to originate from sustainable sources by 2025.
• 25% reduction of water consumption in its supply chain by 2025.
• Net zero emissions by 2040.

The group’s commitments extend beyond environmental issues to how its  manufacturing and supplying partners conduct their business . To bring its strategy to fruition, it has set up a new governance and management structure.

The Board of Directors is responsible for approving Inditex’s sustainability strategy. The  Sustainability Committee  oversees and controls all the proposals around the social, environmental, health, and safety impact of the group’s products, while the  Ethics Committee  makes sure operations are compliant with the rules of conduct. There is also a  Social Advisory Board  that includes external independent experts that advises Inditex on sustainability issues.

Finally, Javier Losada, previously the group’s Chief Sustainability Officer and now promoted to Chief Operations Officer, will be leading the sustainability transformation of the group. Javier Losada first joined Inditex back in 1993 and ascended its rank to reach the C-suite.

Inditex is dedicated to its commitment to reducing its environmental impact and seems to be headed in the right direction. The only question is whether it’s fast enough.

Key Takeaway #3: Integrating sustainability with business strategy is a present-day necessity

Governments and international bodies around the world are implementing more stringent environmental regulations, forcing companies to commit to ambitious goals and developing a realistic strategy to achieve them.

The companies that are impacted the least are those that always had sustainability as a  high priority .

From the companies that require significant changes in their operations to comply with the new regulations, only those who  integrate  sustainability into their business strategy and model will succeed.

Why is Zara so successful?

Zara is the biggest Spanish clothing retailer in the world based on sales value. Its success is due to its fast fashion strategy that is based on a strong supply chain and quick market feedback loops.

Zara's customer-centric approach places a strong emphasis on understanding and responding to customer needs and preferences. This is reflected in the company's product design, marketing, and customer service strategies.

Zara made fashionable clothes accessible to the middle class.

Zara’s vision guides its future

Zara's vision, as part of the Inditex Group, is to create a sustainable fashion industry by promoting responsible consumption and production, respecting the environment and people, and contributing to the communities in which it operates.

The company aims to offer the latest fashion trends to its customers at accessible prices while continuously innovating and improving its operations and processes.

Growth by numbers (Inditex)

How Zara became the undisputed king of fast fashion?

Zara is one of the biggest international apparel brands. Zara invites customers from around 93 markets to its organization of 2000+ stores in upscale markets on the planet’s biggest urban communities. With these stores, Zara generates 18 billion Euros annually.

The brand has been fruitful in keeping up its central goal to give quick and reasonable designs in the world of fashion. Zara’s way to deal with configuration is firmly connected to its clients. This story is about how Zara became the undisputed king of Fast fashion.

Fashion is the imitation of a given example and satisfies the demand for social adaptation. . . . The more an article becomes subject to rapid changes of fashion, the greater the demand for cheap products of its kind. — Georg Simmel, “Fashion” (1904)

History of Zara: The Long Story Cut Short

Amancio Ortega launched the first Zara store in 1975 in Central Street in downtown A Coruna, Galicia, Spain. The main Store included low-value look-a-like designs of famous and better-quality dress styles. The store ended up being a triumph and Ortega Began opening more Zara stores throughout Spain.

During the 1980s, Ortega began changing the plan, assembling and dissemination cycle to diminish lead times and respond to new patterns in a snappier manner in what they called “Moment Fashions”.

In 1980 the company started its international expansion through Porto, Portugal in the 1990s, with Mexico in 1992. Since then Ortega has continued to grow and create brands such as Pull & Bear, Bershka , and Oysho . It has acquired groups like Massimo Dutti and Stradivarius . Even though these brands have been contributors to their parent group Inditex’s success, Zara is still the principal growth driver.

Zara’s Customer-driven Value Chain

Product line-up:.

Unlike other Inditex chains, Zara has focused on manufacturing fashion-sensitive products internally. The latest designs were continuously in production as per changing customer’s preferences. Many competitors were producing just a few thousand SKUs whereas Zara was producing several hundred of thousands of SKUs in a year. These SKUs varied as per color, size, and fabric.

Zara’s designs are not dependent on design maestros. Instead, its designers carefully observe the catwalk trends and try to implement them for the mass market. The design team continuously creates variations in a particular season. Thereafter expanding on successful designs.

Fast Supply Chain:

Zara’s flexible supply chain allows it to dispatch new ranges to shops two times per week from its central distribution center that is an approximately 400,000-square-meter facility located in Arteixo, Spain. This kind of business system called vertical integration eliminated the need for local warehouses. The strategy here was to reduce the “bullwhip effect”. Let’s see what the bullwhip effect is:

The bullwhip effect is a distribution channel phenomenon in which demand forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in consumer demand as one moves further up the supply chain. Wikipedia

It was a matter of a few weeks and a new design was on the shelf for the customers. Isn’t cool? These designs of clothes and accessories were quickly moved to fancy stores in prime locations but at a cheap price. This strategy has attracted a lot of fashion yet money conscious customers.

We want our customers to understand that if they like something, they must buy it now because it won’t be in the shops the following week. It is all about creating a climate of scarcity and opportunity. Luis Blanc, one of the former Inditex’s international directors

Zara’s Retailing Strategy

Zara instead of focusing on improving its manufacturing efficiency focused on improving its retail strategy. This retailing strategy was about following fashion trends quickly even it means there is an unmet demand. As was previously discussed, this also helped Zara in creating a FOMO for its products. The two components of its retailing strategy were dependent on its upstream operations: Merchandizing and Stores.

Read: The Torchbearers of Sustainable Fashion

Merchandising.

Merchandising is the promotion of goods and/or services that are available for retail sale. It includes the determination of quantities, setting prices for goods and services, creating display designs, developing marketing strategies, and establishing discounts or coupons. Investopedia

• Zara placed emphasis on the freshness of its designs. It wanted to create a sense of exclusivity. It never focused on creating bulk items of one design. Zara had confidence in its fast supply chain of twice a week shipment to the store with the latest designs. Thre quarter of its merchandise gets replaced in just a month. How about that?

The success of your business is based in principle on the idea of offering the latest fashions at low prices, in turn creating a formula for cutting costs: an integrated business in which it is manufactured, distributed, and sold. Amancio Ortega

Fun Fact : An average customer visits a Zara store 17 times in a year where the number is 3-4 times for its competitors.

• Zara understood the importance of store locations very well. Zara prices are not expensive but its store location and design made its products look expensive. The brand wanted its customers to have a premium feel at a reasonable price.

We invest in prime locations. We place great care in the presentation of our storefronts. That is how we project our image. We want our clients to enter a beautiful store, where they are offered the latest fashions. Luis Blanc, one of the former Inditex’s international directors

Store Operations

Zara has stores in most upscale markets and shopping centers in the world. You name it and they have a store there. Champs Elysées in Paris, Regent Street in London, and Fifth Avenue in New York to name a few. As per its latest annual report the value of these properties is valued at almost 8 billion Euros. But the way these stores are managed is a strategy to learn for all retailers.

• We all love grand stores with a lot of variety. Zara has emphasized on creating a grand image of its stores. Imagine a big store at a posh location. How much impressed you would be. The average size of Zara stores has continuously increased over the years. In 2001 the average store size was 910 sq.m whereas in 2018 the size has more than doubled.

Zara’s average store size has increased by 50%: from 1,452m2 in 2012 to 2,184m2 in 2018. That growth has been driven by new store openings – larger flagship stores – as well as the fact that many of the new openings have entailed the absorption of one or more older, smaller units in the same catchment area. Inditex Annual Report

• Zara has tried to standardize the in-store experience with its store window displays and interior presentations. As the season progresses, Zara consistently evolves its interior themes, color schemes, and product placements. All these ideas come from the central team in Spain and regional teams implement with necessary region-based adaptations. So much so that the uniforms of the staff were selected twice in a season by a store manager from the latest collection.

Anti-Marketing Approach of Zara

Zara has able to maintain profitability ~13% whereas its major competitor like H&M is at 6% . This has been possible not only because of its efficient supply chain we discussed above but also because of its no advertising or limited advertising policy.

This is what makes Zara really one of a kind. The organization just spends about 0.3% of deals on promoting and does not have a lot of advertising to discuss. The usual trend in the industry is to spend 3.5% on advertising. Zara never shows its clothes at expensive fashion shows also. It first shows its designs at stores directly. But why does not Zara believe in advertising? There are primarily two reasons:

• First, as we discussed it saves Zara a lot of money. So much so that it has now one of the highest profitability.
• Second, it brings exclusivity and prevents overexposure of a design. Customers feel like if they purchase a shirt at Zara, five others won’t have that equivalent shirt at work or school.

Read: Viral Marketing over the Long-Haul ft. Burger King

Zara is a perfect case study to learn the perfect operations strategy, perfect marketing strategy, perfect pricing strategy, and whatnot. It’s all strategies are so perfect. It is also a perfect example to understand how a traditional brand is evolving itself with time to stay relevant.

As per its annual report , In 2018, Zara launched its global online store, marking a milestone in its commitment to having all of its brands available online worldwide by 2020. Zara continued to earn global accolades for its collections and initiatives, its integrated shopping experience, and its commitment to sustainability, with over 90 million garments put on sale under the Join Life label.

Zara is just not a brand of fast fashion. Its much more than that now. And that’s why it’s actually the true king of fast fashion.

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The Nuts and Bolts of Fast Fashion

The secret to Zara's success? The fast-fashion business model is explained by two operations experts — including its operational pillars and fundamental long-term concerns. And now that fast fashion has revolutionized the apparel industry, what is next? The professors look to music, movies, food and even consumer electronics.

How do retail success stories like Zara and H&M manage to constantly refresh their selections and keep prices low? The answer lies in the fast-fashion business model — a way of selling clothes that takes advantage of Quick Response (QR) production and dynamic assortment planning, shrinking the time it takes to go from design to distribution (and back again).

Felipe Caro, professor at UCLA Anderson School of Management, and Victor Martínez de Albéniz , professor at IESE, provide an illuminating look at the business model from an operations standpoint. In their chapter for the 2015 textbook titled Retail Supply Chain Management (published by Springer), they explain the nuts and bolts of the business model and describe untapped areas for future research.

Why is fast fashion worthy of close study? For one thing, it is growing faster than the traditional apparel market. Just think: The two largest clothing retail companies in the world — currently Spain's Inditex (owner of Zara) and Sweden's Hennes & Mauritz (owner of H&M) — rely on the fast-fashion business model. Together, these two apparel makers are responsible for about 10,800 stores in around 87 markets, employing more than 273,000 people.

Also, the fast-fashion business model may enter into the realms of food, music and other areas where trends matter or consumer fatigue is an issue.

What is Fast Fashion?

First, the professors spend some time defining their terms. After all, the fast-fashion business model can only be understood in terms of fast fashion itself.

Fast fashion is not Chanel, Prada or similar high priced, luxury brands on the catwalk. Fast fashion is, by definition, much more affordable for frequent shoppers. Also, fast fashion is not the Gap, Uniqlo or similar suppliers of affordable staple items. Solid-colored t-shirts and denim jeans may stay on the shelves season after season, while fast fashion offerings ride trends, like surfers catching waves.

So, fast fashion is always about fashionable designs at affordable prices. Its value proposition is based on both product freshness and bargain prices. In a competitive fast-fashion landscape, optimizing operations to provide frequent assortment changes and a low price is key. To that end, fast fashion is supported by two operational pillars: Quick Response (QR) production and dynamic assortment planning.

Quick Response

Quick Response (QR) was originally developed in the textile and apparel industry as a set of standards for information exchange and supply chain management that shortened lead times and increased supply chain efficiency. Over time, the use of the term QR has evolved to indicate a simple concept: postpone all risky production decisions — e.g., commitments to purchases that may not be needed in case of low sales — until there is enough evidence that the market demand is there. QR thus allows a reduction of excess inventory, although per-unit costs related to manufacturing and shipment may increase.

Information is a key driver of QR decisions. Demand forecasting in fashion works best when early sales data are used to predict subsequent sales more reliably. New designs are quickly produced in small batches to collect data early and often.

Along with information, production factors are fundamental for QR. Eschewing seasonal collections and working item by item allows fast-fashion companies to accelerate lead times across the board. Importantly, the seasonal bottlenecks of traditional production processes are avoided.

In addition, production schedules may be sped up through the use of near-shore suppliers, located close to the main target market. For U.S. companies, near-shore suppliers may be located in Mexico and various countries of Central America. For European companies, factories may be located in Portugal, Morocco, Romania, Bulgaria or Turkey. Fast fashion companies try to anticipate how much of what goes where at the last minute, to send inventory where it's needed most.

Dynamic Assortment

The second operational pillar for fast fashion is the use of frequent assortment changes throughout the season. Store offerings are updated as often as daily — not just a few times a year, as in the traditional model. These constant changes have been proven to increase store traffic.

To optimize the timing of new products into the mix, "dynamic assortment planning" is required. The co-authors note that demand for any new product will typically decrease over time as newer products tend to get better displays and generate more interest, all else remaining equal.

The co-authors continue to work on formulas for finding the best time to introduce a new product and then the next one, typically just as soon as any drop-off in demand is detected.

Note that frequent assortment changes work when apparel makers control their own stores. In the wholesale business model, preorders are key, so the timing is different.

And so, constantly changing inventory in stores works well in combination with QR production, controlling inventory and keeping margins healthy. Fast fashion becomes a truly compelling business model when solidly resting on both of these pillars.

Sustainability as a Fundamental Concern

Is fast fashion sustainable over the long term? What might its global impact be? Critics of fast fashion tend to point to three fundamental challenges: waste, working conditions and local consequences for a global supply chain. In their chapter overview, Caro and Martinez de Albeniz note that companies are starting to respond to these challenges.

1. Waste . In response to outcries over waste, H&M, for one, is offering a recycling program. Old clothes brought in by customers then reduce the waste of making new designs.

2. Worker conditions. Offshoring based on economic motives and considerations may ignore ethical elements, like safety conditions and living wages. Accords and codes of conduct are being introduced to help regulate the industry and protect vulnerable workers. For example, since over a thousand people died in the Rana Plaza factory collapse in 2013, about 170 brands and retailers have signed the Accord on Fire and Building Safety in Bangladesh to improve conditions in the country's garment factories. More safety standards and other worker protection steps are needed.

3. Global industry, local consequences. In the face of global demand, fast-fashion companies should remain mindful of the fact that their sourcing and production strategies may end up shaping a particular region's capabilities. To this end, Inditex's "Working in Clusters" program is starting to bring together local unions, NGOs, trade associations, governments, international purchasers and members of civil society to promote a "sustainable productive environment," as the company explains. Inditex currently has clusters in Spain, Portugal, Morocco, Turkey, India, Bangladesh, China, Vietnam, Brazil and Argentina, representing more than 91 percent of the company's total production.

For future research opportunities, the co-authors look to other industries where products rotate frequently and consumers are searching for novelty. Food, consumer electronics, books, music and movies are a few areas mentioned. For example, dynamic assortment planning can help music executives decide when to release new songs for radio play. By detecting immediately when demand starts to wane, new releases could be better timed to engage new customers. Could "fast" operational strategies change your industry next?

MORE INFO: " How fast fashion works: can it work for you, too? "

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Zara’s ‘Fast Fashion’ Business Model

In honor of New York Fashion Week, KWHS explores the business model of one of the world's most successful fashion retailers. … Read More

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A few weeks back, the publication Business Insider ran a story that had two intriguing themes: money and mystery. The headline: “Inside the World of Amancio Ortega, a Spanish Billionaire You’ve Probably Never Heard of Who Is Actually Europe’s Richest Man.” Who is this magnate whose net worth of more than $65 billion tops even Berkshire Hathaway’s Warren Buffett? He is the founder of Zara, a worldwide seller of clothing that has been described as a company that is “changing retail forever.”

From a business perspective, that is truly saying something. Of course, teens like Leticia Sáez Viadero, a third-year student at the Colegio San Agustin secondary school in Santander, Spain, are fans of Zara less for its business strategy and more for its fashion appeal. Sáez Viadero, who is 15, likes to shop at Zara with her mom because the store gets new merchandise every two weeks. “When you go to Zara, you know you’re always going to find something. You don’t go home empty-handed,” says Sáez Viadero. These days, she goes to Zara whenever she needs to buy birthday presents for friends. Most of them like clothes – especially from Zara.

Still, Sáez Viadero is curious about why and how Zara is transforming the world of retail. To better understand the business behind the fashion, she needs to consider a key business concept that helps drive success at companies like Zara: the business model . A business model, offers Sáez Viadero, refers to “a business that is very well organized [to serve its customers], and establishes the standard [for quality] within the industry .” She is correct in thinking that companies with a business model, especially in retail, have a plan that takes their customers’ needs into consideration. What’s more, a business model is the strategy that a company uses to generate revenue and make a profit from operations . In other words, a strong business model will help a company use the resources it has to make money.

Zara’s business model – which retail analysts say has to do with two fundamental strategies: stocking less merchandise and updating its collections often – seems to be working. Since it was founded in 1975 in the city of Coruña in northeast Spain, Zara has managed to win over new customers of practically ever age on every continent around the world. Nowadays, the chain operates a network of more than 2,000 retail outlets in 88 markets located in the central shopping districts of large cities.

Zara has revolutionized the world of fashion by bringing out a large number of collections each season, instead of the same old two collections every year – one for spring-summer, and another for fall-winter – which has been the norm in the fashion industry. Zara has, in effect, set the standard for the fashion sector because it manages to “design, produce, distribute and sell its collections in [only] four weeks; a record-brief period if you take into account that its competitors take several months to complete this same process,” notes José Luis Nueno, professor of commercial management at the IESE Business School in Spain.

The key to the process lies in Zara’s skill at tuning into the personal tastes of its customers so that it can give them what they want even before they ask for it. To do that, more than 200 designers located at the company’s central headquarters in Spain constantly collect information about the decisions made by consumers in each of the chain’s stores. They also probe the latest trends, which their own scouts observe in the streets and malls around the world, for inspiration when they are designing their latest creations. Beyond the process of design, the production and logistics of Zara’s products also take place inside the company. The advantage of that approach is that it gives Zara a lot of flexibility to adapt to the changing tastes of fashion consumers.

In reality, Zara is all about timing. Its products wind up on the shelves and clothing racks of its shops because Zara produces them by itself and only continues to manufacture those products that sell the best within its stores. As a result, “customers of Zara know that if they like a garment, they have to buy it right away, because it can go out of stock and never come back,” says Nueno. Sáez Viadero is well aware of that fact, so she likes to go shopping “quite frequently, in order to look at the newest items.” She does that in an effort to differentiate herself from others in a world of fashion that is becoming more and more uniform and globalized. “I look for something different, so I don’t have the same clothing as the rest of the girls my age; that’s because all fashions are generally quite similar.”

Another one of Zara’s business-model strengths is that it has limited production seasons and a high turnover of products; they change every 15 days. So Zara manages to save on its warehousing and inventory costs in every shop worldwide. Those sorts of savings are very important for any business, not just because of the savings themselves but because if the business knows pretty much which items it is going to sell, it manages to reduce its business risks. These days, Zara’s continued record of success is conveyed by its sales figures. In 2014 – the latest published figures – Zara’s sales reached 11.594 billion euros, or 13.073 billion [U.S.] dollars, an increase of 7% over the previous year.

The extraordinary thing about all this is that Zara’s success has been achieved without resorting to any advertising campaigns. To spread the word about the company, it depends on word of mouth and on its landmark retail outlets in high-end locations, such as Fifth Avenue in New York City, and Oxford Street in London. It depends a great deal on getting people to talk about its brand . When it comes to beating out the competition , Zara believes that it is vital to have your ears wide open to listen to the needs and perspectives of your consumers.

The greatest risk for Zara is that the products that it creates more quickly than other retailers do not find a market; that they do not fit in with shoppers’ current tastes. Nevertheless, Nueno stresses that the advantage that the company has is “its capacity for adaptation.” For example, he explains that “before getting into a market, [Zara] analyzes the tastes of people, along with current trends, and adapts the fundamentals of its style to each country.” This approach has enabled Zara to become a winner in the Near East (Western Asian countries like Armenia, Iran and Iraq), where it has adapted its offerings to a different culture, in which long skirts and luxurious garments are appealing.

Nowadays, it seems that none of its main competitors – the manufacturers of so-called ‘fast fashion’ items that are quickly designed and sold mainstream from the latest high-fashion trends — including Sweden’s H&M, Spain’s Mango and America’s The Gap – have a more flexible and efficient model than Zara when it comes to offering the latest in fashion, at the lowest possible price, and in the shortest possible time. How long will that last? The crowded world of retail can be fickle. Zara will no doubt continue to assess its business model and, if needed, adjust it to meet the changing needs of its customers.

Related Links

• New York Times: How Zara Grew into the World’s Largest Fashion Retailer
• Business Insider: Inside the World of Amancio Ortega
• New York Fashion Week Live
• Inc.: How to Know When to Change Your Business Model
• NPR: In Trendy World of Fast Fashion, Styles Aren’t Made to Last

Conversation Starters

What is a business model? How does Zara’s business model set it apart from other retail competitors?

Zara does not use advertising to promote its brand, which is uncommon in the retail world. How, then, might it get people to “talk about its brand?”

Think about your favorite restaurant or retail store. What is that company’s business model? What are some aspects of the business that set it apart? Now research the actual business model for that company. What did you learn?

4 comments on “ Zara’s ‘Fast Fashion’ Business Model ”

I believe that this is such a creative way for the company to go about budgeting. They are able to keep the public’s attention with ever changing clothes, while still keeping the money the intake as #1. Even though they don’t use advertisement, they still must get people’s attention via deals. Fashion is heavily communicated through word of mouth, as people constantly ask about where they shop at or where they found a certain article of clothing. With Zara constantly updating, their newest pieces would constantly be in the spotlight.

Zara definitely implements a wise business model “Fast Fashion”. What I am more interested in is the idea behind the model. Instead of following the trend, they are actually creating a trend. This is not only about inventing a new business strategy, but also showing the company’s objective. This novel idea demonstrates that Zara does not only want to be the top, but also the unique one. Its perseverance and determination are the elements that truly make the company successful.

It has been four years since the publication of this article, and now more than ever topics such as sustainability are concerning the world. It’s estimated by Forbes’ study “The State of Consumer Spending: Gen Z Shoppers Demand Sustainable Retail,” that about 62% of Generation Z that’s entering the work force this year prefer to buy from sustainable brands in comparison with their parents, Generation X, 34% result. This information regarding the change of paradigms that generations are going through right now, should make INDITEX (Zara’s owner firm) to reconsider their business model approach in order to still be the top of mind for Generation Z.

Based on their business model, they should definitely aim to maintain the quick response and creation of fashion trends, but also find a better way of handling the production of scrap and unsold stock resultant of this high product turnover. An innovative possible solution would be the implementation of an online pre-order retail system. This strategy would Zara to keep designing new clothes every two weeks, but will encourage them to only produce the items that they will actually sell. The weakest point of this strategy would be that Zara’s competition will be able to see the designs they’ll offer, and will have the possibility of copying and distributing them before they do. On the counter part, each day eCommerce is growing more and more, being an enormous opportunity area for Zara.

In conclusion, Zara should maintain its business model essence, but redirect it towards a more environmental-friendly in order to keep being competitive brand in the retail industry. As Mia Hamm once said, “it is more difficult stay on the top than to get there”.

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Zara: A Case Study in Fast Fashion Revolution

Stepping into the world of fashion resolution is a young designer, excited to share her designs with the world. However, she is faced with the challenge of an industry that is unpredictable, a market where trends quickly come and go. The tie-dye print could be all the rage one day, and suddenly out of fashion the next. How can she plan her collections and design processes in a way that can adapt to these ever-changing dynamics?

This was something faced by the fashion giant Zara. It emerged as a leader providing innovative solutions in the erratic world of fashion, marking the revolution of fast fashion.

The Zara Model

Instead of following the traditional fashion season cycles, Zara adopted a new approach—Fast Fashion. The core principles of Zara's model are:

• Speed & Flexibility: Zara's supply chain is designed to bring a design from the sketchbook to the store in just two weeks, compared to the six-month industry average.
• Frequent Inventory Turnover: By regularly refreshing its inventory, Zara can keep up with the most recent fashion trends, making consumers come back regularly to check for new items.
• Limited Supply: By limiting the stock on each design, they create a sense of urgency for the consumers to buy and also reduce inventory risk

Lessons for Fashion Entrepreneurs

The success of Zara sheds light some on, not just fast fashion, but also the important elements of understanding the market and consumer trends. Such as:

• H&M picked on the benefit of constantly evolving its product range to keep up with quick-changing consumer trends.
• Forever 21 understood the advantage of maintaining low inventory for each style, reducing the risk of outdated stock.

Activity Challenge: Adapting Fast Fashion Model

• Identify Your Niche: What's your fashion domain? Evening wear, casual, or sportswear? Understand the trends and demands in your chosen category.
• Quick Inventory Cycle: Develop a system that supports quick inventory cycling. Partner with local suppliers/manufacturers for speed and flexibility.
• Limited Edition: Try out the 'Limited Edition' strategy. It creates urgency among your customers and can help boost your sales.

Zara's fast-fashion ethos has certainly redefined how fashion businesses operate. Although not without its drawbacks—mainly around sustainability—it demonstrates the power of adaptability and responsiveness to the rapidly changing market. For our young designer, and other aspiring fashion entrepreneurs, adapting to this fast fashion model can be a game-changer. Their journey can start by observing market trends, adopting a flexible supply system, and generating demand through limited supply strategies.

Practice Decision-Making

A clothing retailer is struggling to compete with faster brands. After learning about Zara's success, the retailer decides to:

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Zara: An Integrated Store and Online Model (A)

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Zara: An Integrated Store and Online Model (A) and (B)

• Zara: An Integrated Store and Online Model (B)  By: Antonio Moreno
• Zara: An Integrated Store and Online Model (A) and (B)  By: Antonio Moreno and Anibha Singh
• Zara: An Integrated Store and Online Model (A)  By: Antonio Moreno

Zara's Secret for Fast Fashion

by Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca

Editor's note: With some 650 stores in 50 countries, Spanish clothing retailer Zara has hit on a formula for supply chain success that works by defying conventional wisdom. This excerpt from a recent Harvard Business Review profile zeros in on how Zara's supply chain communicates, allowing it to design, produce, and deliver a garment in fifteen days.

In Zara stores, customers can always find new products—but they're in limited supply. There is a sense of tantalizing exclusivity, since only a few items are on display even though stores are spacious (the average size is around 1,000 square meters). A customer thinks, "This green shirt fits me, and there is one on the rack. If I don't buy it now, I'll lose my chance."

Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Zara's designers create approximately 40,000 new designs annually, from which 10,000 are selected for production. Some of them resemble the latest couture creations. But Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower prices. Since most garments come in five to six colors and five to seven sizes, Zara's system has to deal with something in the realm of 300,000 new stock-keeping units (SKUs), on average, every year.

This "fast fashion" system depends on a constant exchange of information throughout every part of Zara's supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy that can bog down communication between departments. But Zara's organization, operational procedures, performance measures, and even its office layouts are all designed to make information transfer easy.

Zara's single, centralized design and production center is attached to Inditex (Zara's parent company) headquarters in La Coruña. It consists of three spacious halls—one for women's clothing lines, one for men's, and one for children's. Unlike most companies, which try to excise redundant labor to cut costs, Zara makes a point of running three parallel, but operationally distinct, product families. Accordingly, separate design, sales, and procurement and production-planning staffs are dedicated to each clothing line. A store may receive three different calls from La Coruña in one week from a market specialist in each channel; a factory making shirts may deal simultaneously with two Zara managers, one for men's shirts and another for children's shirts. Though it's more expensive to operate three channels, the information flow for each channel is fast, direct, and unencumbered by problems in other channels—making the overall supply chain more responsive.

In each hall, floor to ceiling windows overlooking the Spanish countryside reinforce a sense of cheery informality and openness. Unlike companies that sequester their design staffs, Zara's cadre of 200 designers sits right in the midst of the production process. Split among the three lines, these mostly twentysomething designers—hired because of their enthusiasm and talent, no prima donnas allowed—work next to the market specialists and procurement and production planners. Large circular tables play host to impromptu meetings. Racks of the latest fashion magazines and catalogs fill the walls. A small prototype shop has been set up in the corner of each hall, which encourages everyone to comment on new garments as they evolve.

The physical and organizational proximity of the three groups increases both the speed and the quality of the design process. Designers can quickly and informally check initial sketches with colleagues. Market specialists, who are in constant touch with store managers (and many of whom have been store managers themselves), provide quick feedback about the look of the new designs (style, color, fabric, and so on) and suggest possible market price points. Procurement and production planners make preliminary, but crucial, estimates of manufacturing costs and available capacity. The cross-functional teams can examine prototypes in the hall, choose a design, and commit resources for its production and introduction in a few hours, if necessary.

Zara is careful about the way it deploys the latest information technology tools to facilitate these informal exchanges. Customized handheld computers support the connection between the retail stores and La Coruña. These PDAs augment regular (often weekly) phone conversations between the store managers and the market specialists assigned to them. Through the PDAs and telephone conversations, stores transmit all kinds of information to La Coruña—such hard data as orders and sales trends and such soft data as customer reactions and the "buzz" around a new style. While any company can use PDAs to communicate, Zara's flat organization ensures that important conversations don't fall through the bureaucratic cracks.

Once the team selects a prototype for production, the designers refine colors and textures on a computer-aided design system. If the item is to be made in one of Zara's factories, they transmit the specs directly to the relevant cutting machines and other systems in that factory. Bar codes track the cut pieces as they are converted into garments through the various steps involved in production (including sewing operations usually done by subcontractors), distribution, and delivery to the stores, where the communication cycle began.

The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supply chains (and all open-loop information systems) to amplify small disturbances. A small change in retail orders, for example, can result in wide fluctuations in factory orders after it's transmitted through wholesalers and distributors. In an industry that traditionally allows retailers to change a maximum of 20 percent of their orders once the season has started, Zara lets them adjust 40 percent to 50 percent. In this way, Zara avoids costly overproduction and the subsequent sales and discounting prevalent in the industry.

Excerpted with permission from "Rapid-Fire Fulfillment," Harvard Business Review , Vol. 82, No.11, November 2004.

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Kasra Ferdows is the Heisley Family Professor of Global Manufacturing at Georgetown University's McDonough School of Business in Washington DC.

Michael A. Lewis is a professor of operations and supply management at the University of Bath School of Management in the UK.

Jose A.D. Machuca is a professor of operations management at the University of Seville in Spain.

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Zara: Fast Growth through Fast Fashion

How Zara has leveraged its operational structure to drive a competitive advantage in fashion retail

The Importance of Newness

It doesn’t take much time in any shopping center or mall to realize the importance of ‘newness’ in today’s retail fashion environment.  The word ‘NEW!’ is displayed across virtually all retailer-to-customer touchpoints, from store signage to communication emails to sales associate training guides.  In today’s highly competitive fashion economy, the ability to frequently introduce new products to consumers can be an extremely beneficial point of differentiation, driving customer traffic across the lease line into the store or onto a retailer’s website.  While speed-to-market is something most vertically-integrated fashion retailers strive for, perhaps no one rivals Spain-based group Inditex, and specifically, its specialty apparel retailer Zara, on this dimension.  Since its inception in 1975, Zara has done an incredible job aligning its internal operations to support its fast-fashion business model, which focuses on driving mass consumer sales via a merchandise portfolio of new on-trend, designer-inspired pieces at affordable prices.

This model has ultimately allowed Zara to grow to be one of the world’s most successful retailers: in fiscal year 2014, Zara had sales of $19.7 billion (compared to Gap’s $16.4 billion or Abercrombie and Fitch’s $3.7 billion) [1].  While it takes apparel retailers approximately 9 months on average to bring a concept into stores, Zara is astonishingly able to do so within just 10-15 days [2].     Zara’s ability to produce newness allows the retailer to secure a global average of 17 store visits per customer versus the industry average of 3 visits per year [3].

Doing Things Differently

Pathways to Just Digital Future

Apparel retailers have traditionally developed designs based on trend predictions and forecasts months in advance of bringing them to the physical or online store, causing them to possess a relatively static product assortment throughout the season.  Zara, however, operates on a much more rapid, customer response-oriented production model to allow for the flexibility and speed to incorporate the newest trends into its designs.

To do so, Zara has instituted a number of operational enablers that help it secure shorter lead times:

• Production Decisions: Zara chooses to keep a significant amount of its production in-house, as this allows the firm to maintain flexibility in the quantity, frequency, and variety of new products to be produced.  Design decisions are delayed as long as possible to allow for maximum incorporation of ongoing trends.  In fact, Zara pre-commits only 50-60% of its line at the start of the season, with the remainder being designed and manufactured in the middle of the season [4].  Zara even has reserved mill capacity to ensure production facilities so that if a certain style gains popularity, Zara is able to design and get it into stores while the trend is still peaking.  Most traditional clothing retailers commit 80-90% of their assortments to manufacturing prior to the season, so they have much less flexibility in product adjustments [5].
• Enhanced Technological Capabilities:   Zara has invested in a number of in-house technological capabilities to support its short lead times. For instance, it has purchased high-tech equipment that allows its factories to adjust for sudden increases or changes in production.  Moreover, store managers also use electronic ordering devices that help relay order information directly to Zara’s headquarters.  This real-time information flow helps the business update and shift spare transportation abilities, warehousing, and production capacity as needed.
• Real-Time Communications : Zara puts the ‘customer in control’ by maintaining strong communication ties with its in-store sales force. Store managers are expected to constantly record customer feedback on current products, which is relayed back to Headquarters on a daily basis [6].  Such communication allows for real-time inputs to be conveyed to Zara’s designers, who can then respond quickly with new style adjustments to the assortment.  Most traditional retailers do not possess the operational capacity and functionality to facilitate such frequent and productive information flows.
• Centralized Decision-Makin g : Zara centralizes its designers, buyers, and planners within the same location at its Headquarters.  This allows for the product team to make quick changes in a coordinated manner: designers can make adjustments to store items, buyers can order more of them, and planners can decide how to distribute everything across stores [7].
• Distribution Investments : Unlike many retail competitors who choose to save on distribution costs (shipping via truck or boat), Zara invests in air transportation to ship their products to foreign markets, which – while more costly – allows them to secure their industry gold-standard 2 week concept-to-store turnaround time [8].

It is clear that Zara has taken major steps to align its operational model with its fast-fashion business model.  In doing so, Zara has built a foundational structure to support rapid and flexible production of product newness – allowing the retailer to capitalize on and develop much more on-trend merchandise than its more traditional retail competitors.  Based on recent sales performance, it is clear that such efforts have not only resonated strongly with the consumer – in many ways, these ‘fast-fashion’ methods have revolutionized the apparel industry overall.

• Zara Leads in Fast Fashion (2015) http://www.forbes.com/sites/walterloeb/2015/03/30/zara-leads-in-fast-fashion/
• Zara’s Unique Supply Chain Management (2015)  https://smbp.uwaterloo.ca/2015/10/zaras-unique-supply-chain-management/
• Zara: The Speeding Bullet (2008) http://www.uniquebusinessstrategies.co.uk/pdfs/case%20studies/zarathespeedingbullet.pdf
• Principles of Supply Chain Management (2015) http://www.ftpress.com/articles/article.aspx?p=2359420&seqNum=12
• Zara’s Unique Supply Chain Management (2015) https://smbp.uwaterloo.ca/2015/10/zaras-unique-supply-chain-management/
• Outlook: Zara’s Fashion Supply Chain Edge (2014) http://www.bloomberg.com/bw/articles/2013-11-14/2014-outlook-zaras-fashion-supply-chain-edge

Student comments on Zara: Fast Growth through Fast Fashion

Zara has undoubtedly been able to deliver a high growth model (same store sales growth of 5% in 2014) in an industry (traditional department stores in the US) that has struggled to deliver even single digit same store sales growth over recent years. I had a few two questions regarding how they operate their business model:

• As you mentioned, the company can respond real-time to customer feedback. However, customer preferences must vary by store and even more, by country. How does Zara manage diverse demands across stores (localization)—does their centralized development team design market-specific products? How are product allocation decisions made and how is inventory managed in-season? • Zara is known to only have two major sale periods a year. Given the demand for consistent newness, how does the company clear out of old stock/ product lines throughout the year that don’t resonate with customers?

More importantly, with the growth of online-only retailers who can more easily deliver this same value proposition without the overhead costs of running stores, how will Zara evolve its model to sustain its competitive advantage?

Lillian, I think you nailed it on Zara’s success. The flexibility that they have built into the design process has allowed them to remain on trend.

My first question on Zara’s future success is to Trang’s last point above. How will Zara maintain success in the presence of such rapid growth in online sales? However, I think this may be a strong opportunity for Zara. This online presence may align with their strategy of flexibility. We are starting to see brands have “online exclusive” inventory and if Zara adopts this approach they may be able to get a pulse early for which niche items will sell through in-store. The underlying data on purchase location that is fed from web and mobile shopping can also be used to inform decisions on inventory management in-season.

Secondly, with design based in-house, Zara can follow trends, but it still has a certain style guide season to season. This differentiates it from some of the larger department stores who buy from outside designers. We have seen J. Crew and American Apparel struggle as of late. Both of these companies were once praised for their in-house design team’s ability to connect with its customer. Will Zara be able to maintain its core customer and still stay on trend once the overall style trend moves further from its beginnings?

Lillian, thank you for your post!

I would like to know your opinion about another critical element of the operating model of Zara – its advertising.

Unlike most fashion brands, Zara does not invest in advertising (magazines, TV ads…). The way to attract customers is the beauty and location of its stores in high-traffic areas of major cities, and usually near luxury brands such as Dolce & Gabbana and Prada. Thinking in terms of Marketing Mix, its Place is also its Promotion.

Also, Zara does not put its logo on its clothing to promote the brand like companies such as Tommy Hilfiger or Gap. How could such a shy brand become so successful?

Thank you for the post, Lillian.

1. Most vendors have many brands so that the production lines are never dry. Since Zara owns the factory do they produce other brands at their factories to make sure capacity is always full? 2.For specialized products, do they outsource the production? If not, how do they accommodate for keeping up with changing trends in the same factories?

Thanks for a great read!

One element of Zara’s business model that I always found fascinating was their approach to sales and discount pricing. Instead of having a small subset of their inventory on sale at any given point in time with larger subsets discounted during special times in the year (as is the case with most retailers), Zara has virtually no discounted merchandise throughout the year except during their two annual sales, at which point ALL of the merchandise goes on sale. Why do you think they’ve taken on this approach, and drawing on your industry expertise, do you think this is a winning strategy? How (if at all) do you think this biannual “cleaning house” ties in with the “newness” factor you discussed and Zara’s strategy of always being very current and on-trend?

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Case Flash Forward: Zara: Fast Fashion

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Each Case Flash Forward provides educators and students with a brief, 2-3 page update of key changes at a particular company covered in a related case study. It is a compilation of…

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Each Case Flash Forward provides educators and students with a brief, 2-3 page update of key changes at a particular company covered in a related case study. It is a compilation of publicly-available content prepared by an experienced editor. This Case Flash Forward provides an update on Inditex and Zara, including significant developments, current executives, key readings, and basic financials.

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