Fast-Fashion, Slow Risk Mitigation
Season after season, Inditex has delighted consumers by passing on the benefits of its compressed production cycle in the form of just-in-time, hot-off-the-runway-style clothing at a fraction of runway prices. Inditex’s Zara brand offers 24 new clothing collections per year and delivers inventory to stores twice per week to cater to consumer demand .
Across the apparel industry, consumption is predicted to increase by 63% to 102 millions in 2030 with demand driven by developing markets . Despite continuous improvements in its supply chain, even the largest fashion retailer still relies heavily on suppliers using low-tech production systems that have adverse effects on the environment contributing to climate change. Per a McKinsey study, “making one kilogram of fabric generates an average of 23 kilograms of greenhouse gases” . Clothing production most significantly contributes to greenhouse gas (CO2) emissions resulting from:
- Material processing and production that is heavily reliant on fossil fuels
- Waste disposal in landfills or incinerators 
Beyond the reputational risk, Inditex faces the risk of increased material and energy costs that could directly impact its profit margins. Furthermore, potential governmental regulations on its key inputs could be detrimental to operations . These risks will only be exacerbated by increased production. As a global industry leader, it is in Inditex’s best interest to mitigate these risks and adapt its model for sustained growth.
Rising to the Challenge, Ideally Faster than Sea Levels
Inditex has initiated efforts to combat its own impact on the environment, but the results these initiatives raise doubts about scalability. Pablo Isla, the company’s CEO and HBR’s Top-Performing CEO for 2017, stated the company’s public commitment to tackling environmental issues in a recent HBR interview and specifically highlighted that “all our stores will be eco-efficient, to use 40% less water consumption, 20% less energy consumption” . This may feel like a drop in the bucket as the retail industry increasingly shifts from brick-and-mortar to online.
The company has laid out a Strategic Environmental Sustainability Plan 2016-2020 with elements to improve reduction of GHG emissions listed below .
- Promote use of fibers that are more energy efficient.
- Pioneer commercialization of recycled textiles that are on par with quality of new materials.
- Collaborate with various sector organizations to share and adopt best practices in energy management.
- Contribute to the 2030 Sustainable Development Goals (SDGs) put forth by the UN:
- “Corrective Action Plan” to advise suppliers not in compliance with its targets and allows for 6-24 months to achieve compliance .
- “Green to Pack” program leverages thinner packaging to allow for more packages to be loaded onto one shipment, requiring fewer shipments .
- “Closing the Loop” upcycling initiative with a focus on circular economy by distributing clothing collection bins in store.
- Collaborating with various research universities and business organizations to develop innovative materials and technologies that allow for recycling of textile waste.
Catwalk the Talk
Inditex is still hindered by a lack of standardized, quantifiable metrics to measure progress towards increased transparency, GHG reductions and associated costs at each step of the supply chain. It may benefit from adopting an Environmental Profit & Loss (EP&L), a tool developed by Kering to improve visibility, measurability, and comparability of its supply chain and can serve as basis for dialogue and accountability with suppliers and other stakeholders . Metrics from the EP&L can also be factored into performance evaluations of senior management.
Better integration of suppliers into internal control systems supports transparency. In 2016, Inditex’s internal team made 619 on-site factory visits to offer advice to non-compliant factories, yet 1,367, or one-fifth, of its active factories were only within 51-70% compliance of its own environmental standards, consistent with the prior year . This suggests that there is an opportunity for Inditex to be more stringent in its auditing and training of suppliers. To truly move the needle, Inditex must adopt a 100% renewable energy policy and may need to move to a system-wide zero tolerance policy among suppliers for less than 100% environmental compliance.
Inditex could further champion second-life retail through buy-back programs, entering the sharing economy via clothing libraries (think Rent-the-Runway type subscription wardrobe services), and offering services to extend garment life similar to Patagonia. The risk of cannibalization, decreases in purchase frequency, or further negative environmental impact from shipping should be evaluated before implementing these recommendations.
How might the other two SCM megatrends, isolationism and digitization, play a role in Inditex’s sustainability efforts? Would they help or hinder progress?
How important is it for Inditex to communicate its environmental efforts to consumers? Can Inditex shift consumer behavior and convince them to pay a premium such efforts?
Perhaps Inditex’s fashion forecast should be “green”house gas is the new black.
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 “Looking Good can be extremely bad for the planet.” The Economist, April 8, 2017. https://www.economist.com/news/business-and-finance/21720200-global-clothing-production-doubled-between-2000-and-2014-looking-good-can-be, accessed November 2017.
 Inditex, 2016 Annual Report, https://www.inditex.com/en/investors/investor-relations/annual-reports, accessed November 2017.
 “Pulse of Fashion Industry 2017,” Global Fashion Agenda and The Boston Consulting Group, Inc., May 2017, https://www.copenhagenfashionsummit.com/wp-content/uploads/2017/05/Pulse-of-the-Fashion-Industry_2017.pdf, accessed November 2017.
 Nathalie Remy,Eveline Speelman, and Steven Swartz. “Style that’s sustainable: A new fast-fashion formula,” October 2016, https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/style-thats-sustainable-a-new-fast-fashion-formula, accessed November 2017.
 Duygu Turker and Ceren Altuntas. “Sustainable Supply Chain Management in the fast fashion industry: An Analysis of Corporate Reports,” April 14, 2014, European Management Journal.
 McGinn, Dan, “2017’s Top-Performing CEO on Getting Product Right,” October 24, 2017, https://hbr.org/ideacast/2017/10/2017s-top-performing-ceo-on-getting-product-right, accessed November 2017.
 “Environmental P&L,” Kering, http://www.kering.com/en/sustainability/epl, accessed November 2017.