Zara: Fast Fashion

Zara: Fast Fashion

Zara is one of the six brands of the Spanish Inditex Group owned by Amancio Ortega. It was first opened in 1975 in La Coruna, Galicia, Spain. From the beginning, Zara was positioned as a store selling "medium quality fashion clothing at affordable prices. Ortega's keen interest in Information Technology (IT) brought him in to contact with Jose Maria Castellano who had a doctorate in Business economics and experience in IT. Under Ortega and Castellano, Inditex spread nationally and the international pursuit began in 1988, they opened the first foreign store in Portugal. The international expansion was done, as company owned, joint ventures or franchises depending on the country. They preferred franchises in countries that were small, risky and culturally different. They used joint ventures in larger more important markets with barriers to direct entry and owned stores in high profile, high growth and low risk countries. Zara was the largest and most internationalized of Inditex's chain. By the end of year 2001, Zara operated 507 stores around the world with massive sales of 2477 million Euros.

Zara had unique supply chain management practices that enabled it to gain a competitive advantage over other fashion retailers in the industry. Zara's designers continuously tracked customer preferences and placed orders with internal and external suppliers. The production was done in small batches and with vertical integration into manufacturing. For the most time sensitive items the response time was super fast 4-5 weeks for new products and 2 weeks for modifications, which enabled the firm to quickly respond to changing fashions. Zara had also invested in installing Just In Time systems in there vertically integrated manufacturing plants to save on inventory costs. Zara has central distribution center from where the products were shipped directly to the stores twice a week again resulting in low inventory costs. Also, vertical integration helped reduce the bullwhip effect and keep the inventory costs low. This strategy, which was supported by proficiency in design and information systems, allowed the company to maintain less inventory and higher profit margins and was the key factors of Zara's success.

But while quick response was critical to Zara's superior performance the crucial connection was emphasis on design, which brought the real value to the customer. There were dedicated creative teams that attended trade fairs and ready to wear fashion shows around the world and worked with store managers to design interpretation of catwalk trends suitable for mass market. The trend adaptation was a done by conversations with store managers, sales data captured by the IT system, TV, internet, Movie contents and trend spotting at universities. This allowed them to have a particularly appealing value proposition that was, a collection that was in line with the very latest fashion.

Zara targeted a broad market without restricting itself to specific target segments.

The prices were lower than competition but percentage margins were held up because of vertical integration and low advertising costs (0.3% of revenues). Zara's main investment was in the store location and its presentation. The rapid turnover of items and the store presentations created a climate of scarcity and opportunity, which accounted for Zara customer visiting the store 17 times as compared to 3-4 times a year for competitors. Also, the store managers played an important role is deciding which merchandize to order and which to discontinue and gave inputs to the designing team. Store managers had variable compensation primarily based on their store's performance; it was as if they were running their own small business.

Zara used an "oil stain" pattern for international expansion