When we think of the fashion industry, we tend to think of long lead times and two annual designer lines or collections: Spring/Summer and Fall/Winter. Designing each of these lines often takes place a full year before launch. Thus, if a retailer misidentifies customer demands and has a “miss” with its designs, it would lose sales, face markdowns and miss targets.
Zara is a small clothes manufacturer in the north west of Spain and a pioneer of the “Fast Fashion” business model which eliminates “fashion misses” risk. The company’s strategy involves stocking very little inventory and updating collections often to deliver the latest emerging fashion trends. This means fast manufacturing, fast shipment, and thus fast purchase; the fast delivery and turnover of apparel creating a sense of scarcity and urgency. Customers understand that most items will be sold-out or replaced within a week or two so they are confronted with quick buying decisions and are encouraged to visit stores often. Case in point, Zara customers visit its store 17 times per year in contrast to The Gap whose customers visit just four times (Fashion: A better business model, 2014). The limited supply of merchandise thus allows Zara to achieve quick sales, no markdowns and limited wastage.
To effectively deliver on its business strategy and differentiate itself from other retailers, Zara has invested heavily in its IT infrastructure and has succeeded in implementing a nimble supply chain. Its operating model covers all stages of the fashion retail process: stores, design, manufacturing, and distribution.
Figure 1. Zara’s Operating Model Components
Source: Company Website, http://www.inditex.com/en/our_group/business_model, accessed December 2015
Design and Stores
Instead of designing a collection long ahead of its release, Zara tries to continuously recognize emerging fashion and incorporate them in its designs and products. Through sales data capture and shopper anecdotal feedback, store managers daily report tens of thousands of customer reactions to design teams. Sale trends are analyzed along to runway releases and quickly incorporated into the next line of production, creating a cycle of iteration and innovation. Once designed, new fashions are produced in relatively small quantities, so “misses” can be quickly identified and discontinued and “hits” built-upon and re-released.
One of Zara’s core competencies is its ability to apply “just in time” manufacturing to fashion production. Most of manufacturing is done close to its home base, in and around the Iberian Peninsula. Garment making is subcontracted to specialists whose automated factories constantly create unfinished colorless (“greige”) goods. As soon as Zara decides on a new design, the “greige” goods are sent into Zara’s own finishing shops where they are turned into marketable products. High European manufacturing costs are offset with cost savings associated with fast turnarounds (e.g. less inventory in warehouses, less discounts and markdowns, etc.)
Distribution takes place twice a week to ensure store inventories are constantly kept fresh and unique. The logistics system, based on proprietary software, ensures that the time between receiving an order at the distribution center to the worldwide delivery of the goods in the store is between 24 and 48 hours. Zara adopts a centralized distribution system with every single item of clothing coming through its distribution center in Spain, ensuring consolidation of orders to individual stores.
Zara has thus far been extremely successful, with sales growing approximately 10% year on year and reaching $19.7 Bn. in fiscal 2014. Its performance puts it ahead of other “fast fashion” retailers such as Uniqlo and Gap and only second to H&M (Zara leads in fast fashion, 2015). Part of this success comes from its rapid growth in emerging markets (over the past few years, 50% – 60% per cent of new store openings were in China, Russia, Poland, Mexico and a few other markets (Fashion: A better business model, 2014)). It will be interesting to see whether its winning centralized operating model will stand the strain of its global expansion.
Fashion: A better business model. (2014, June 18). Retrieved from Financial Times: http://www.ft.com/intl/cms/s/2/a7008958-f2f3-11e3-a3f8-00144feabdc0.html#slide0
Zara leads in fast fashion. (2015, March 30). Retrieved from Forbes: http://www.forbes.com/sites/walterloeb/2015/03/30/zara-leads-in-fast-fashion/
How Zara became the world’s biggest fashion retailer (2014, October 20). Retreived from The Telegraph:
The future of fashion retailing revisited (2015, July 23). Retrieved from Forbes: