ZARA: A LEADER IN FAST FASHION & GLOBAL
RETAILING
Rachel Aihara
Diana Argueta
Lindy Arn
Brianne Bart
California State Polytechnic University, Pomona
May 25, 2012
AMM 457: Dynamics of the Global Apparel Complex
Zara: A Leader in Fast Fashion and Global Retailing
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INTRODUCTION
The fashion world is ever changing and the challenges of keeping up with trends and
forecasting only continues to grow. Zara however, has found a way to bridge the gap
between producer and consumer in a way that the industry has never seen before. The fast
paced, on-trend fashion company prides itself on bringing the most relevant fashion trends
at affordable price points, and in less time than any other competitor. Based out of Coruna
Spain, Zara has found itself reinventing the supply chain. They are setting new supply
standards, and changing the way mainstream trend chasers function. So what is it that
makes Zara so different? For starters, Zara is able to quickly design, produce, and ship the
most recent and on-point fashion trends in less time and for less cost than their
competitors. Zara is able to do this by taking a hands-on approach which allows them to
influence the entire garment supply chain from design, to purchasing, to production, to
distribution, and finally to retailing.
ZARA AND GLOBALIZATION
Zara is a globally recognized brand. The company is known for providing consumers
with the latest fashion goods while keeping the items at a reasonable price. While most
brands today are accustomed to releasing a line according to seasons, Zara constantly
provides new garments to today’s consumers. Zara has been rapidly evolving because the
company strives to keep up with the ever-changing fashion industry. Author David
Birnbaum states that Zara has responded well to globalization because they are the first to
provide “the latest fashion items at a competitive price, they operate a true speed-tomarket, they make full use of test orders, and lastly they were the first company to move to
Zara: A Leader in Fast Fashion and Global Retailing
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a three-dimensional globalization. It is three-dimensional globalization, which may prove
to be Zara’s most important innovation, but which, paradoxically, may also be the greatest
challenge facing the company” (Birnbaum, 2012).
The three-dimensional globalization includes vendor globalization, consumer
globalization, and design globalization. Zara undergoes vendor globalization because they
have ongoing production around the world. Consumer globalization is seen in how the
company will market their brand worldwide. Lastly the company undergoes design
globalization because they have no local design identity (Birnbaum, 2012). The fashion
industry is constantly changing and because of this, Zara is faced with many obstacles. The
company must ensure that their products will sell while also providing new innovative
products before many other retail stores will have them in stock.
ZARA’S CURRENT ACTIVITIES
At the heart of any successful company’s business model lays the target consumer
and Zara is no different. Zara is a part of the Inditex Group (one of the world’s largest
distribution groups). The vertically integrated Zara company combines the aspects of
design, production, distribution, and sales in such a knowledgeable way that they are
widely thought of as the world’s number one global retailer. Zara is famous for claiming
that their product life cycle is only 15 days long, from design to distribution. In this way,
they can capitalize on the concept of fast fashion. Around 40,000 design concepts are
introduced. On average, about 10,000 of those products see completion each year. (Scribd,
2003).
Zara: A Leader in Fast Fashion and Global Retailing
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Only 0.3% of Zara’s profits are devoted to advertising. This is considerably less than
the industry average of 3%-4%. This is partly because Zara’s inventory is kept at an
extremely low rate. This leads customers to making purchasing decisions based on whether
they think they will have another chance to buy the product. Zara customers visit stores
more frequently and this lessens the need for outside advertising. (Scribd, 2003).
In order to attain an international advantage over competitors, Zara has a broad
target market consisting of a Men’s, Women’s, and Children’s departments. In addition,
Zara has a single, centralized location in Spain which allows for easy communication
between departments. There are three halls in the location, each hall for a different
department. The design department for each line is also located in each of these halls. This
allows the designers to be a part of each portion of production and allows for a streamlined
process. (Scribd, 2003).
Zara aims to be an environmentally conscious member of the retail sector through
saving energy in their eco-friendly shops, producing less waste, recycling, and extending
commitments to all of their staff through educating their team to become environmentally
aware. In their eco-friendly shops, the company aims to decrease their usage of lighting,
cooling, and heating in order to reach a total reduction of energy consumption by 20%.
Hangars and alarms are recycled and processed into other plastic products. Cardboard is
recycled, too. Zara takes a multimedia-based approach to educate their employees on the
importance of being environmentally conscious. ("Company - zara," 2010)
The company also has products that are made of ecological fabrics. This means that
there are no pesticides, chemicals, or bleach used. These products are comprised of organic
Zara: A Leader in Fast Fashion and Global Retailing
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cotton. In addition, all of Zara’s footwear is PVC free. This means that no petroleum-based
or non-biodegradable products are used. Transporting products is another consideration
Zara takes seriously. They have reduced their CO2 emissions by 500 tons through using 5%
biodiesel fuel. ("Company - zara," 2010)
STRATEGY AND PHILOSOPHY OF THE ZARA COMPANY
Zara’s company strategy begins with their core philosophy to supply on-trend
fashions at affordable prices and in less time than their competitors. A strategy that sets
them apart from major competitors is the fact that they don’t focus on advertising or
branding but rather on the fashions. Zara’s customers don’t shop there for the brand name
but simply because they like the clothes regardless of the label. (Scribd, 2003). The
corporate strategies used at Zara are very different than that of a typical fashion brand.
The design teams do not solely work on the upcoming season, they continually update and
revamp current trends that will be designed, produced, and shipped in a matter of just
weeks from the initial concept. This fast-paced and unique system requires a business
strategy that uses similar management models for all brands within the company in order
to control the total supply chain and maximize the speed to the market. (Scribd, 2003).
Zara’s unique business model allows them to work with “negative working capital” which
means that Zara is able to collect money faster than they actually have to spend money.
This is done through fast fashion, controlling of cost and the supply chain, and franchising.
(Scribd, 2003).
SALES/PROFIT
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Zara is a company that is designed to be involved in all stages of the fashion process
(Inditex, p. 9). The company is in charge of everything from design, manufacturing and
logistics, to sales in stores (Inditex, p. 9). Zara is part of the Inditex Group, therefore the
company follows Inditex’s business model. There are five keys to the business model,
which are customers, store, design/production, logistics, and teams (Inditex, p. 9). The way
Zara is organized and managed is what makes it possible for the company to produce new
merchandise to bring into stores every two weeks (Inditex). Zara’s retail stores are
geographically based in 82 countries, with approximately 1,631 stores strategically placed
in the world’s largest cities (Inditex). The fact that Zara remain connected with its
customers is what fuels the company’s 200- person strong creative team. Non-stop
information from Zara’s stores is used to convey shoppers’ desires and demands to form
ideas, trends, and tastes in the world considering a wide range of people, cultures, and
generations (Inditex).
Zara’s main office is located in A Coruna, Spain, with departments in finance and
administration, international management, legal, capital market, internal auditing,
corporate social responsibility, human resources, communication, architecture and
construction, systems, property expansion, and exports-imports (Inditex). Logistics
operators and delivery sales people organize the logistics department. This is Zara’s key
factor in reaching customers in any part of the world with teamwork, agility, precision and
responsibility in controlling product destination (Inditex). Products are handled by fashion
designers, buyers, sales executives/product managers, stylist, and graphic designers
(Inditex). Stores are organized by sales, cashiers, coordinators/merchandisers, managers,
window dressers, and regional managers (Inditex).
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Zara is part of the Inditex Group, which is also part of seven other commercial
concepts. Zara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home, and
Uterque are all part of Inditex Group (Inditex, p.21). In 2010, Zara accounted for 64.6% of
the total sales for the Inditex Group (Inditex, p.21). Zara’s sales were 8,088 in millions of
Euros, selling in 1,723 stores, with three being new markets, and having a presence in 77
different countries (Inditex, p.21). Compared to statistics in 2009, Zara showed a 14%
increase in sales from the previous year of 7,077 in millions of Euros (Inditex, p. 192). In
terms of net sales and gross profit, Zara files under Inditex’s overall performance. During
2010, the Inditex Group saw net sales of 12,537 in millions of Euros and a gross profit of
7,422 in millions of Euros (Inditex, p. 195). In the previous year, 2009, the Inditex Group
had net sales of 11,084 in millions of Euros and a gross profit of 6,328 in millions of Euros
(Inditex, p. 195).
Overall, Zara is a company that contributes to most of the Inditex Group sales, since
Zara is the founding commercial concept of the Inditex Group. Indication shows that future
growth in sales and net profit are already set in place for the global company.
Shown in the table below, net sales by commercial concepts in the Inditex Group
indicates that Zara accounts for most of the total sales in both 2010 and 2009.
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Source Inditex p. 192
In the table below, net sales and gross profit for the entire Inditex Group can be seen
for both 2010 and 2009.
Source: Inditex, page 195
SWOT ANALYSIS
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Like any other company, Zara is a company that has many strengths and
weaknesses. Some of Zara’s many strengths include being highly innovative, which allows
for growth. However, along with such innovation comes a great deal of risks and
weaknesses.
Strengths
-
Provides consumers with new and
innovative products
Provides goods at a reasonable and
competitive price.
They target women, men, and children as
well
The company has become global
Opportunity
-
To create more basic goods that will
always be in demand
Wider expansion with retail stores and
online store
Weakness
-
Zara does not have a strong brand image.
Does not provide consumers with basic
goods
Hard to distinguish among the crowd.
Threats
-
Companies such as H&M and Forever 21
Retail locations are not readily available to
many
As shown in the SWOT analysis, Zara has many strengths such as their ability to
provide new and innovative products before many other retailers can. They also offer these
goods at competitive price points. The company has utilized globalization and targets men,
women, and children. Some weaknesses of the company are their weak brand image and
their lack of basic goods in their inventory. Zara has a weak brand image and so their
clothing is difficult to distinguish among the crowd compared to brands with a stronger
branding. They also don’t provide basic goods in their stores. However, these areas are
both opportunities for the future and show that Zara does have room for growth. Some
threats to the company are other price competitive brands such as H&M and Forever 21.
Zara’s lack of expansion in the United States is also a threat because many are unaware of
the company that is very well known in other parts of the world.
Zara: A Leader in Fast Fashion and Global Retailing
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COMPETITIVE ADVANTAGES
When companies are competing in the same market or towards the same
demographic they need to establish what is referred to as a competitive advantage in order
to set them apart from the competition. “Competitive advantage is a core competency that
creates a sustainable advantage for the organization over the competition. Its sets the
organization apart but can easily and quickly be lost.” (Heimler, 2012). Porter’s Generic or
Traditional competitive advantage theory states that competitive advantage only comes
from having the lowest cost, and possessing desirable differences from competitors.
Porter’s strategies for gaining the competitive advantage include a multitude of strategies
such as: cost of leadership, differentiation, focus, and market segmentation for both
product differentiation and cost. (Heimler, 2012).
So what gives Zara their competitive advantage? For starters, Zara is able to quickly
design, produce, and ship the most recent and on-point fashion trends in less time and for
less cost than their competitors. Zara is able to do this by taking a hands-on approach
which allows them to influence the entire garment supply chain from design, to purchasing,
to production, to distribution, and finally to retailing. (Scribd, 2003). All of Zara’s designs
are done in-house and they manufacture more than 50% of their products within their own
facilities. After production, products are shipped through their own distribution center
using a highly refined operating schedule tailored specifically for their needs. Retailing
also plays a big part in Zara’s competitive advantage. Zara’s retail model focuses on low
inventory with all stock on the floor. This allows Zara to constantly replace merchandise
with newly designed and on trend shipments on a daily basis. This keeps a continual flow
Zara: A Leader in Fast Fashion and Global Retailing
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of merchandise, turnover, and customer traffic, which in turn keeps cost down, and
customer interest up. (Scribd, 2003).
CONCLUSION
Through innovation and the support of investors Zara has been able to
simultaneously grow a globally successful fashion company and create a business model
that just might change the future of fast, trend based fashion as we know it. Zara has
created a new meaning to fast pace. Companies no longer need to worry solely about what
is next, but must also react to what is now. As Zara continues to bridge the gap between
consumer and supplier, their supply chain shows just how much potential this type of
business model has in an industry so driven by schedule.
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GLOSSARY
Competitive Advantage: The core competency that creates a sustainable advantage for
the organization over the completion. Its sets the organization apart but can easily and
quickly be lost. (Heimler, 2012)
Core Competency: An organization’s major value creating skills and capabilities that are
shared within the organization. (Heimler, 2012)
Porter’s Competitive Advantage Theory: Traditional competitive advantage theory
which states that competitive advantage only come from having the lowest cost, and
possessing desirable differences from competitors. (Heimler, 2012)
Three-dimensional globalization: includes vendor globalization, consumer globalization,
and design globalization. (Birnbaum, 2012)
WORKS CITED
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http://www.fashiondex.com/howtos/Zara_2.php
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http://www.scribd.com/doc/20559313/Case-Study-Zara
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