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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.

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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.

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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.

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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?

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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)

The Secret of Zara’s Success: A Culture of Customer Co-creation

The Secret of Zara’s Success A Culture of Customer Co-creation - Martin Roll

Zara is one of the world’s most successful fashion retail brands – if not the most successful one. With its dramatic introduction of the concept of “fast fashion” retail since it was founded in 1975 in Spain, Zara aspires to create responsible passion for fashion amongst a broad spectrum of consumers, spread across different cultures and age groups. There are many factors that have contributed to the success of Zara but one of its key strengths, which has played a strong role in it becoming a global fashion powerhouse as it is today, is its ability to put customers first. Zara is obsessed with its customers, and they have defined the company and the brand’s culture right from the very beginning.

The Zara brand offers men and women’s clothing, children’s clothing (Zara Kids), shoes and accessories. The sub-brand Zara TRF offers trendier and sometimes edgier items to younger women and teenagers.

The Zara brand story

Zara was founded by Amancio Ortega and Rosalía Mera in 1975 as a family business in downtown Galicia in the northern part of Spain. Its first store featured low-priced lookalike products of popular, higher-end clothing and fashion. Amancio Ortega named Zara as such because his preferred name Zorba was already taken. In the next 8 years, Zara’s approach towards fashion and its business model gradually generated traction with the Spanish consumer. This led to the opening of 9 new stores in the biggest cities of Spain.

In 1985, Inditex was incorporated as a holding company, which laid the foundations for a distribution system capable of reacting to shifting market trends extremely quickly. Ortega created a new design, manufacturing, and distribution process that could reduce lead times and react to new trends in a quicker way, which he called “instant fashion”. This was driven by heavy investments in information technology and utilising groups instead of individual designers for the critical “design” element.

In the next decade, Zara began aggressively expanding into global markets, which included Portugal, New York (USA), Paris (France), Mexico, Greece, Belgium, Sweden, Malta, Cyprus, Norway and Israel. Today, there is hardly a developed country without a Zara store. Zara now has 2,264 stores strategically located in leading cities across 96 countries. It is no surprise that Zara, which started off as a small store in Spain, is now the world’s largest fast fashion retailer and is the flagship brand of Inditex. Its founder, Amancio Ortega, is the sixth richest man in the world according to Forbes magazine.

Today, Inditex is the world’s largest fashion group with more than 174,000 employees operating more than 7,400 stores in 202 markets worldwide including 49 online markets. The revenues of Inditex was USD 23.4 billion in 2019. The other fashion brands in the Inditex portfolio are:

Zara Home: Home goods and decoration objects founded in 2003. Operating in 183 markets, 70 of them with stores.

Pull & Bear: Casual laid-back clothing and accessories for the young founded in 1991. Operates in 185 markets, 75 of them with stores.

Massimo Dutti: High end clothing and accessories for cosmopolitan men and women acquired in 1995. Operates 186 markets, 74 of them with stores.

Bershka: Blends urban styles and modern fashion for young women and men founded in 1998. Operates in 185 markets, 74 of them with stores.

Stradivarius: Casual and feminine clothes for young women acquired in 1999. Operates 180 markets, 67 of them with stores.

Oysho: Lingerie, casual outerwear, lounge wear and original accessories founded in 2001. Operating in 176 markets, 58 of them with stores.

Uterqüe: High-quality fashion accessories at attractive prices founded in 2008. Operating in 158 markets, 17 of them with stores.

Apart from fashion brands, Amancio Ortega has also set up a global real estate investment fund, Pontegadea Inversiones, which manages corporate offices across 9 countries including United States (Seattle), Britain (London), France (Paris), Canada, Italy, South Korea. These corporate properties house large companies including Facebook, Amazon and Apple, and prestigious luxury and retail brands.

The Zara brand strategy

In 2019, Zara was ranked 29th on global brand consultancy Interbrand’s list of best global brands. Its core values are found in four simple terms: beauty, clarity, functionality and sustainability.

The secret to Zara’s success has largely being driven by its ability to keep up with rapidly changing fashion trends and showcase it in its collections with very little delay. From the very beginning, Zara found a significant gap in the market that few clothing brands had effectively addressed. This was to keep pace with latest fashion trends, but offer clothing collections that are a combination of high quality and yet, are affordable. The brand keeps a close watch on how fashion is changing and evolving every day across the world. Based on latest styles and trends, it creates new designs and puts them into stores in a week or two. In stark comparison, most other fashion brands would take close to six months to get new designs and collections into the market.

It is through this strategic ability of introducing new collections based on latest trends in a rapid manner that enabled Zara to beat other competitors. It quickly became the people’s favourite brand, especially with those who want to keep up with fashion trends. Founder Amancio Ortega is famously known for his views on clothes as a perishable commodity. According to him, people should love to use and wear clothes for a short while and then they should throw them away, just like yogurt, bread or fish, rather than store them in cupboards.

The media often quotes that the brand produces “freshly baked clothes”, which survive fashion trends for less than a month or two. Zara concentrates on three areas to effectively “bake” its fresh fashions:

Shorter lead times (and more fashionable clothes): Shorter lead times allow Zara to ensure that its stores stock clothes that customers want at that time (e.g. specific spring/ summer or autumn/ winter collections, recent trend that is catching up, sudden popularity of an item worn by a celebrity/ socialite/ actor/ actress, latest collection of a top designer etc.). While many retailers try to forecast what customers might buy months in the future, Zara moves in step with its customers and offers them what they want to buy at a given point in time.

Lower quantities (through scarce supply): By reducing the quantity manufactured for a particular style, Zara not only reduces its exposure to any single product but also creates artificial scarcity. Similar to the principle that applies to all fashion items (and more specifically luxury), the lesser the availability, the more desirable an object becomes. Another benefit of producing lower quantities is that if a style does not generate traction and suffers from poor sales, there is not a high volume to be disposed of. Zara only has two time-bound sales a year rather than constant markdowns, and it discounts a very small proportion of its products, approximately half compared to its competitors, which is a very impressive feat.

More styles: Rather than producing more quantities per style, Zara produces more styles, roughly 12,000 a year. Even if a style sells out very quickly, there are new styles waiting to take up the space. This means more choices and higher chance of getting it right with the consumer.

Zara only allows its designs to remain on the shop floor for three to four weeks. This practice pushes consumers to keep visiting the brand’s stores because if they were just a week late, all the clothes of a particular style or trend would be gone and replaced with a new trend. At the same time, this constant refreshing of the lines and styles carried by its stores also entices customers to visit its shops more frequently.

In the following sections, the key components of Zara’s winning formula in the fashion retailing industry are illustrated.

Customer co-creation: Zara’s principal designer is the customer

Zara’s unrelenting focus on the customer is at the core of the brand’s success and the heights it has achieved today. There was a fascinating story around how Zara co-creates its products leveraging its customers’ input. In 2015, a lady named Miko walked into a Zara store in Tokyo and asked the store assistant for a pink scarf, but the store did not have any pink scarves. The same happened almost simultaneously for Michelle in Toronto, Elaine in San Francisco, and Giselle in Frankfurt, who all walked into Zara stores and asked for pink scarves. They all left the stores without any scarves – an experience many other Zara fans encountered globally in different Zara stores over the next few days.

7 days later, more than 2,000 Zara stores globally started selling pink scarves. 500,000 pink scarves were dispatched – to be exact. They sold out in 3 days. How did such lightning fast stocking of pink scarves happen?

Customer insights are the holy grail of modern business, and the more companies know about their customers, the better they can innovate and compete. But it can prove challenging to have the right insights, at the right time, and have access to them consistently over time. One of the secrets to Zara’s success includes using Radio Frequency Identification Technology (RFID) in its stores. The brand uses cutting-edge systems to track the location of garments instantly and makes those most in demand rapidly available to customers. Additionally, it helps to reduce inventory costs, provides greater flexibility to launch new designs, and allows fulfillment of online orders with stock from stores nearest to the delivery location thereby reducing delivery costs.

Another secret of Zara’s success is that the brand trains and empowers its store employees and managers to be particularly sensitive to customer needs and wants, and how customers enact them on the shop floors. Zara empowers its sales associates and store managers to be at the forefront of customer research – they intently listen and note down customer comments, ideas for cuts, fabrics or a new line, and keenly observe new styles that its customers are wearing that have the potential to be converted into unique Zara styles. In comparison, traditional daily sales reports can hardly provide such a dynamic updated picture of the market. The Zara empire is built on two basic rules: “to give customers what they want”, and “get it to them faster than anyone else”.

Due to Zara’s competitive customer research capabilities, its product offerings across its stores globally reflect unique customer needs and wants in terms of physical, climate or cultural differences. It offers smaller sizes in Japan, special women’s clothes in Arab countries, and clothes of different seasonality in South America. These differences in product offerings across countries are greatly facilitated by the frequent interactions between Zara’s local store managers and its creative team.

In the fashion world, a trend starts small, but develops fast. Zara employees are trained to listen, watch and be attentive to even the smallest seismographic signals from their customers, which can be an initial sign that a new trend is taking shape. Zara knows that the quicker it can respond, the more likely it is to succeed in supplying the right fashion merchandise at the right time across its global retail chain. Zara has set up sophisticated technology driven systems, which enable information to travel quickly from the stores back to its headquarters in Arteixo in Spain, enabling decision makers to act fast and respond effectively to a developing trend. Its design teams regularly visit university campuses; nightclubs and other venues to observe what young fashion leaders are wearing. In its headquarters, the design team uses flat-screen monitors linked by webcam to offices in Shanghai, Tokyo and New York (the leading cities for fashion trends), which act as trend spotters. The ‘Trends’ team never goes to fashion shows but tracks bloggers and listens closely to the brand’s customers.

The fact that Zara’s designers and customers are inextricably linked is a crucial part of the brand strategy. Specialist teams receive constant feedback on the decisions its customers are making at every Zara store, which continuously inspires the Zara creative team.

Zara’s super-efficient supply chain

Zara’s highly responsive, vertically integrated supply chain enables the export of garments 24 hours, 365 days of the year, resulting in the shipping of new products to stores twice a week. After products are designed, they take around 10 to 15 days to reach the stores. All clothing items are processed through the distribution center in Spain, where new items are inspected, sorted, tagged, and loaded into trucks. In most cases, clothing items are delivered to stores within 48 hours. This vertical integration allows Zara to retain control over areas like dyeing and processing and have fabric-processing capacity available on-demand to provide the correct fabrics for new styles according to customer preferences. It also eliminates the need for warehouses and helps reduce the impact of demand fluctuations. Zara produces over 450 million items and launches around 12,000 new designs annually, so the efficiency of the supply chain is critical to ensure that this constant refreshment of store level collections goes off smoothly and efficiently.

Here are some of the characteristics of Zara’s supply chain that highlight the reasons behind its success:

Frequency of customer insights collection: Trend information flows daily into a database at head office, which is used by designers to create new lines and modify existing ones.

Standardization of product information: Zara warehouses have standardised product information with common definitions, allowing quick and accurate preparation of designs with clear manufacturing instructions.

Product information and inventory management: By effectively managing thousands of fabric, trim and design specifications and their physical inventory, Zara is capable of designing a garment with available stock of required raw materials.

Procurement strategy: Around two-thirds of fabrics are undyed and are purchased before designs are finalized so as to obtain savings through demand aggregation.

Manufacturing approach: Zara uses a “make and buy” approach – it produces the more fashionable and riskier items (which need testing and piloting) in Spain, and outsources production of more standard designs with more predictable demand to Morocco, Turkey and Asia to reduce production cost. The more fashionable and riskier items (which are around half of its merchandise) are manufactured at a dozen company-owned factories in Spain (Galicia), northern Portugal and Turkey. Clothes with longer shelf life (i.e. the one with more predictable demand patterns), such as basic T-shirts, are outsourced to low cost suppliers, mainly in Asia. Even when manufacturing in Europe, Zara manages to keep its costs down by outsourcing the assembly workshops and leveraging the informal economy of mothers and grandmothers.

Distribution management: Zara’s state-of-the-art distribution facility functions with minimal human intervention. Optical reading devices sort out and distribute more than 60,000 items of clothing an hour.

In addition to these supply chain efficiencies, Zara can also modify existing items in as little as two weeks. Shortening the product life cycle means greater success in meeting consumer preferences. If a design does not sell well within a week, it is withdrawn from shops, further orders are canceled and a new design is pursued. Zara closely monitors changes in customer preferences towards fashion. It has a range of basic designs that are carried over from year to year, but some in-vogue, high fashion, inspired by latest trends items can stay on the shelves for less than four weeks, which encourages Zara fans to make repeat visits. An average high-street store in Spain expects customers to visit thrice a year, but for Zara, the expectation is that customers should visit around 17 times in a year.

This expectation for such a high frequency of repeat visits is evidence of Zara’s confidence that it is keeping on top of changing consumer needs and preferences and is helping them shape their ideas, opinions and taste for fashion. In reality, Zara is also helping in giving birth to new trends through its stores or even helping in extending the longevity of some seasonal styles by offering affordable lines.

Sustainability at the core of Zara’s operations

Sustainability has been a hot topic in business for the last decade and is now quickly becoming a must-have hygiene factor for companies that want to resonate with and win the loyalty of its global customers. For Inditex, this means having a commitment to people and the environment.

Commitment to people: Inditex ensures that its employees have a shared vision of value built on sustainability through professional development, equality and diversity and volunteering. It also ensures that its suppliers have fundamental rights at work and by initiating continuous improvement programs for them. Inditex also spends over USD 50 million annually on social and community programmes and initiatives. For example, its “for&from” programme which started in 2002 has enabled the social integration of people with physical and mental disabilities, by providing over 200 stable employment opportunities across 15 stores.

Commitment to environment: Being in a business where it taps on natural resources to create its products, Inditex makes efforts to ensure that the environmental impact of its business complies with UNSDGs (United Nations Sustainable Developmental Goals). Inditex has pledged to only sell sustainable clothes by 2025 and that all cotton, linen and polyester sold will be organic, sustainable or recycled. The company also runs Join Life, a scheme which helps consumers identify clothes made with more environmentally friendly materials like organic cotton and recycled polyester.

Additionally, Inditex takes wide-ranging measures to protect biodiversity, reduce its consumption of water, energy and other resources, avoid waste, and combat climate change. For example, it has outlined a Global Water Management Strategy, specifically committing to zero discharge of hazardous chemicals. It has also been expanding its waste reduction programme through which customers can drop off their used clothing, footwear and accessories at collection points in 2,299 stores in 46 markets today.

Zara’s culture: The word “impossible” does not exist

Zara has a very entrepreneurial culture, and employs lots of young talent who quickly climb through the ranks of the company. Zara promotes approximately two-thirds of its store managers from within and generally experiences low turnover. The brand has no fear in giving responsibility to young people and the culture encourages risk-taking (as long as learning happens) and fast implementation (the mantra of fashion).

Top management gives its store managers full liberty and control over their store’s operations and performance with clearly set cost, profit and growth targets with a fixed and variable compensation scheme. The variable component amounts to up to half of the total compensation – making store level employees heavily incentive-driven.

In addition, once an employee is selected for promotion, his or her store develops a comprehensive training program for that individual with the human resources department, which is followed up by periodic supplemental training – reflecting Zara’s commitment to talent development. The organizational structure is also flat with only a few managerial layers.

Customers are the most important source of information for Zara, but like any other fashion brand, Zara also employs trend analysts, customer insights experts, and retains some of the best talents in the fashion world. The creative team of Zara comprises of over 200 professionals. They all embody and enact the corporate philosophy that the word “impossible” does not exist in Zara.

For example, while many companies struggle with long lead times in discussions and decision making, Zara gets around this challenge by getting various business functions to sit together at the headquarters and also by encouraging a culture (through structures and processes) where people continuously talk to each other. The sales and marketing teams who receive trend feedback talk regularly with designers and merchandisers. It is important that there is constant two-way communication so that sales and marketing teams can talk about new lines to customers and designers / merchandisers have a strong visibility of customers’ needs and preferences enacted at a store level. The production scheduling is also closely coordinated so that there is no time wasted on approvals. The design team structure is very flat and focuses on careful interpretation of catwalk trends that are suitable for the mass market – the Zara customer. The design and product development teams, who are based in Spain, work closely to produce 1,000 new styles every month.

Besides being customer centric, another important reason why Zara’s employee strategy is so successful is the fact that it empowers its staff to make decisions based on data. Zara has no chief designer. All its designers are given unparalleled independence in approving products and campaigns, based on daily data feeds indicating which styles are popular.

Due to the unwavering focus on the customer, the entire business model is designed in such a way that the pattern of needs for the finished goods dictate the terms of the production process to follow, instead of having the raw materials determine the nature of the production process – something that is very rare in multinational companies of similar scale.

In sum, the entire brand culture is extremely customer-centric, which has been and continues to be a significant contributor to Zara’s success.

The Zara brand communication strategy

Zara has used almost a zero advertising and endorsement policy throughout its entire existence, preferring to invest a percentage of its revenues in opening new stores instead. It spends a meager 0.3 per cent of sales on advertising compared to an average of 3.5 per cent by competitors. The brand’s founder Amancio has never spoken to the media nor has in any way advertised Zara. This is indeed the mark of a truly successful brand where customers appreciate and desire the brand, which is over and above product level benefits but strongly driven by the brand experience.

Instead of advertising, Zara uses its store location and store displays as key elements of its marketing strategy. By choosing to be in the most prominent locations in a city, Zara ensures very high customer traffic for its stores. Its window displays, which showcase the most outstanding pieces in the collection, are also a powerful communication tool designed by a specialized team. A lot of time and effort is spent designing the window displays to be artistic and attention grabbing. According to Zara’s philosophy of fast fashion, the window displays are constantly changed. This strategy goes down to how the employees dress as well – all Zara employees are required to wear Zara clothes while working in the stores, but these “uniforms” vary across different Zara stores to reflect socio-economic differences in the regions they were located. This effectively communicates Zara’s focus on the mass market, yet another detail that reflects its close attention on the customer.

To tap into the emerging e-commerce trend, Zara launched its online boutique in September 2010. The website was initially available in Spain, the UK, Portugal, Italy, Germany and France, and was extended to Austria, Ireland, the Netherlands, Belgium and Luxembourg. Over the next 3 years, the online store became available in the United States, Russia, Canada, Mexico, Romania, and South Korea. In 2017, Zara’s online store launched in Singapore, Malaysia, Thailand, Vietnam and India. More recently in March 2018, the brand launched online in Australia and New Zealand. Today, its online store is available in 66 countries. As of 2019, online sales grew to constitute 14% of Zara’s total global sales.

As a fast fashion retailer, Zara is definitely aware of the power of e-commerce and has built up a successful online presence and high-quality customer experience.

Zara’s future brand and business challenges

Charting a new digital strategy in the COVID-19 crisis: With its primarily offline shopping experience, Zara has been hard hit by global store closures amid the COVID-19 crisis in 2020, with sales falling 44% year-on-year in Q1 2020 and the company reporting a net loss of USD 482 million. Inditex has announced that it will be closing between 1,000 to 1,200 stores worldwide, focusing on smaller ones in Asia and Europe. While online sales have been encouraging – Zara’s online sales for Q1 2020 grew 50% – it is not enough to mitigate the damage.

Amancio Ortega plans to spend USD 1.1 billion scaling up its digital strategy and online capabilities by 2022 and a further USD 2 billion in stores to improve integration between online and offline for faster deliveries and real-time tracking of products. Its goal is for online sales to constitute at least 25% of total sales. To achieve this goal, Zara will need to think of new ways to engage its customers digitally, not just through its online store, but through online communities and social media.

Mobile commerce: Zara woke up late to the potential of mobile commerce and needs to catch up fast with competitors. Different forms of market analysis strongly point towards a scenario wherein spends on mobile commerce will overtake desktop based ecommerce by 2021. On an average, most brands currently get about 15-20% of their website traffic via mobile devices and this is growing rapidly. With the deluge of investments planned in the mobile commerce space and Zara’s competitors already having an advantage on the mobile front, Zara needs to quickly make mobile shopping not only an effortless experience but also a delightful one.

Price is not an advantage anymore: Offering the latest fashion lines at affordable prices continues to be a strategic advantage for Zara, but cannot continue to be the only one. Across the world, and closer to home in Europe, competitors are cutting prices and refining their business models to cut the competitive advantage that Zara has. Swedish fast fashion retailer H&M, which is placed #30 just behind Zara on Interbrand’s list, launched an online store in Spain in 2014 to take own Zara in its home turf. Again in its home market, it now faces increasing competition from brands like Mango, which cut prices and started focusing on fashion segments in which Zara enjoyed popularity. In addition to H&M and Mango, other competitors like Gap and Topshop are all fighting for a share of the fast fashion retail market pie. Also with the rise of e- and m-commerce, the number of indirect competitors has mushroomed. We now have online fashion aggregators that bring in multiple brands under one single online platform and cut through borders and price segments. Some examples of such aggregators who are doing well include Lyst, Farfetch, Spring and Yoox Net-a-Porter.

For Zara to effectively compete and maintain its strategic advantage, the focus needs to shift away from price but towards quality. Even today the Zara brand enjoys high levels of appeal, which is evident by the serpentine queues outside its stores when it launches in new markets. There is a need for Zara to start investing in building a strong brand positioning and aggressively communicate it. Additionally, Zara needs to adopt, imbibe and leverage social media and digital platforms in its advertising and communication strategies deeper going forward.

Need for marketing strategy to evolve: As discussed above, Zara does not engage in advertising and instead uses its store locations as a marketing strategy. However, brand communication is crucial in attracting new customers to the brand to support its growth. Without advertisements, Zara relies heavily on word of mouth or social media. This causes the perception of potential customers towards Zara to be heavily shaped by family and friends, which may not be accurate. In addition, Zara’s social media platforms such as Facebook and YouTube exists merely as a feed for updates rather than a platform that consumers can interact with. Its videos on YouTube are also seeing very low viewership in comparison with its follower count, which is not ideal as videos are a powerful medium for brands in the fashion industry. This is a gap that Zara needs to plug immediately as the reach and impact of social media marketing gets stronger. As Zara’s target customer segments start using more social and digital platforms for communication and for sharing their lives, it is important for Zara to have a strong presence on such platforms.

Family business planning and succession: With various technological and business disruptions in the past decade, leadership in the 21st century will be influenced by constant change, geopolitical volatility, and economic and political uncertainty. For Zara’s first 36 years in business, the brand has been controlled by its founder Amancio Ortega, who is currently 85 years old. In 2011, Ortega passed the chairman title on to Pablo Isla, Zara’s Deputy CEO since 2005.

Succession is currently taking place at Inditex and generational transfer will empower the next generation in one of the wealthiest business families in the world. Pablo Isla, chairman of Inditex since 2011, steps down in April 2022, and 37-year-old Marta Ortega will take over as chair in the company that her father Amancio Ortega started with his ex-wife Rosalia in 1975 in Galicia, Spain. Marta Ortega is the youngest of Amancio Ortega’s three children.

Marta Ortega will become a non-executive chair, and will head the Inditex group, the portfolio of companies including supervision of strategic operations. She has been with Inditex for over 15 years, starting out working in a Zara store at King’s Road in London, and as an assistant at the portfolio brand Bershka. In recent years, Marta Ortega has been involved in strategy, brand building and fashion proposals for the Inditex portfolio of brands.

Marta Ortega will not be involved in daily management of the financial performance to shield her and the family from too much public exposure. Amancio Ortega has always been known for appearing less in public and avoiding any media exposure. His photo did not appear in the Inditex annual report until 2000. Marta Ortega seems to be more open to media interviews and public appearance, and granted her first interview with Wall Street Journal in August 2021.

Óscar García Maceiras will be appointed CEO of Inditex in April 2022 and will run the daily business. He joined Inditex in March 2021 and is currently general secretary of Inditex and secretary of the board.

The sharing of executive powers between the chair and the CEO to enhance corporate governance has historically been less common in the corporate world in Spain but is often seen in Europe and elsewhere. Inditex will therefore return to dual leadership in April 2022 with Marta Ortega as chair and García Maceiras as CEO, the very same structure that ran for six years with Amancio Ortega as chairman and Pablo Isla as CEO until 2011.

Despite working at Inditex for over 15 years, Marta Ortega Pérez does not hold an office. Her father, Amancio Ortega, never had an office either and always preferred to work in an open space in the fashion design department to be close to teams around him.

To effectively manage the above changes, Zara’s next generation leadership needs to step up to the succession planning challenge by being resilient in staying true to the brand promise to consistently produce “freshly baked clothes” for its fashion-forward consumers, and by balancing both short-term (profitability) and long-term goals (growing the business and reaching more consumers).

More importantly, despite Zara’s global reach and consequent product standardization, it needs to constantly find new ways to serve local fashion needs and preferences of its consumers across the globe. This will be a challenge for the brand’s leadership in the next decade.

Conclusion: Take Zara’s cue and listen to your customers

The Zara brand was born with a keen eye on its customer – its ability to understand, predict and deliver on its customers’ preferences for trendy fashion at affordable prices. In addition to its effective supply chain, the brand’s ability to have its customers co-create designs is unique and provides it with a competitive advantage. Most fashion trends often start unexpectedly, originate from uncommon places and grow out of nowhere. With reference to the pink scarf trend mentioned above, it could have been that Hollywood actress Scarlett Johansson had worn a pink scarf to a charity gala the evening before in Los Angeles, or golf star Michelle Wie had showcased a pink scarf at a celebrity tournament in Asia. The fact that Zara was able to quickly jump on to this trend and provide hundreds of customers with the pink scarves they desperately wanted to buy.

In a world swamped with Big Data, and yet more collected at an even more rapid pace than before, brands still need to be careful and observant. Big Data does not provide answers to all business challenges, and it may be too hyped to be considered as the Holy Grail.

One of the secrets behind Zara’s global success is the culture and the respect for the fact that no one is a better, authentic trendsetter than the customer himself or herself – and this philosophy needs to be continually reflected in all its business strategies going forward.

So, why not consult your customers for a start? Zara always does.

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Zara is one of the most successful clothing companies of all time. What exactly does it do to succeed?

Learn more in Michael Porter’s case study of Zara. We’ll discuss how Zara’s unique choice of activities gives it such a large advantage in getting fast fashion to its stores in record time.

The Zara Case Study and the Activity System Map

The Zara case study shows how Zara’s different activities fit. To visualize the strength of fit between activities, place the activities on a map.

  • Start by placing the key components of the value proposition.
  • Make a list of the activities most responsible for competitive advantage
  • Add each activity to the map. Draw lines wherever there is fit: when the activity contributes to value proposition, or when two activities affect each other

Here’s an example for IKEA:

case study of zara

A densely interconnected activity map is a good sign. A sparsely connected map shows weak strategy.

The activity map isn’t useful just for description of your current strategy. It can also be used for ideation for new strategies . Can you see how Porter’s Zara case study applies to these strategies?

  • Can you improve fit between activities? 
  • Can you find ways for an activity to substitute for another?
  • Can you find new activities or enhancements to what you already do?
  • Are there new products or features you can offer because of your activity map, that rivals will find difficult to emulate?

Case Study: Zara

Porter’s Zara cast study examines the strategy of Zara. Fast fashion brand Zara is another strategy powerhouse. It aims to get styles from runway to store within weeks, price affordably, and refresh its stores’ inventory every 2 weeks. The Zara case analysis shows that to achieve this, it shows tailored activities and strong fit:

  • A larger design team (double that of H&M’s) quickly translates innovative fashion seen in high fashion and clubs into affordable designs. This reduces time from inspiration to production. 
  • It does its own manufacturing in Europe, instead of outsourcing to Asia. This reduces shipping time and allows for tighter control of quality.
  • It owns its own delivery trucks, optimized for frequent shipments to stores.
  • Garments are delivered ticketed and hung on racks (instead of folded and boxed), costing more to deliver but reducing time to hitting the store floor.
  • It rents large stores in high-traffic places, attracting natural foot traffic. This also reduces normal advertising costs.
  • It adds new styles to stores in limited quantities every 2 weeks, encouraging a high rate of return and compulsive shopping to buy before they’re gone.

Once again, observe how a rival clothing brand would find it very difficult to compete in fast fashion without adopting the whole set of activities. It might try to design clothes quickly, but without all the reinforcing activities in manufacturing and logistics, its new inventory would arrive in stores ready to sell far later than Zara. The Zara case analysis proves why outsourcing works for them.

Implications for Outsourcing

The philosophy of core competences has led companies to focus on one key activity and outsourcing many others, without thinking through the strategic consequences.

Instead, the activities that have fit and are tailored to the company’s position should not be outsourced. The fewer elements that are in the company’s value chain, the fewer opportunities there are to establish tailoring, trade-offs, and fit, meaning the less defensible the competitive advantage. 

(Shortform note: this contributes to how manufacturing becomes a commodity – there are few value added activities beyond pure production, which then becomes a competition on price.

Continuity of Strategy

The last component of strategy is continuity. Companies need breathing room to hone their activities and develop competitive advantage over time. Strategy isn’t a stir fry, it’s a stew – it takes time for the flavors and textures to develop.

  • The richly developed strategies of IKEA or Southwest took years, decades to hone. 
  • Strategies often begin with 2 or 3 essential choices, then adding additional activities to extend the fit.

Continuity strengthens a company’s position in three ways:

  • Branding and customer relationships: customers will know what the company stands for, and what needs they can and can’t meet.
  • Dell had suppliers co-locate warehouses nearby
  • (Shortform example: Amazon works with manufacturers to repackage goods in shipping-friendly forms)
  • Team and internal culture: hiring for cultural fit and training employees improves. People make better decisions that fit company strategy

It takes years to implement a strategy. Switching strategies too often is value destroying, causing whiplash in the org and dismantling of value chains.

M aintaining Strategy

Continuity doesn’t mean an organization should stand still. As long as there is stability in the core value proposition, there should be innovation in how it’s delivered. The consistency of delivery and supply shown in the Zara case study proves how important this is.

First, companies must stay on the frontier of operational effectiveness. You must assimilate best practices that do not conflict with your strategy or cause negative trade-offs. Think about how Zara might accomplish a faster supply chain than competitors in the Zara case analysis.

  • BMW embraced OE improvements to decrease design time, but stopped short of steps that would remove its unique design language.

Second, you must change whenever there are ways to extend your value proposition or better ways to deliver it .

  • Reuter started with spreading market information through pigeons, then moving onto telegraph and the Internet.
  • Netflix began with direct to customer movie DVDs, then switched to Internet streaming as soon as it became feasible.

The Zara case study can help you understand the implications of outsourcing, and weigh costs and benefits to your plan. If outsourcing or manufacturing questions are a part of your business strategy, Porter’s Zara case study is a great example.

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Fast Fashion Mobile

Zara needs no introduction as it dominates the fashion world and is one of the most prominent international fashion brands. With more than 2000 stores in the upscale market, Zara caters to approximately 93 markets in the world’s urban communities. With these many stores, Zara manages to hit 18 billion Euros of surplus annually. 

The renowned fashion brand has successfully maintained its central goal of delivering quick, elegant, and reasonable designs in the fashion industry. Zara’s approach of configuration dealing is firmly associated with the clients. This case study is all about Zara and how it became the phoenix of the fast-fashion world. 

“Fashion is nothing but an emulation of any given example and meets the demand of social adaptation. The more the article becomes subject to rapid fashion changes, the more will be the demand for cheaper products of the same kind.” 

- Georg Simmel, on ‘Fashion’ in 1904.

Zara’s History: Excerpts of a Long Tale 

The first Zara store was launched by Amancio Ortega in 1975 in Central Street, Galicia, Spain. The first store stocked low-price look-alike designs of popular and rich-quality dress styles. 

The store soon became a hit, and Ortega opened more Zara stores all around Spain. It was the 80s (1980) when Ortega had a change of plan. He began assembling and distributing cycles to decline the lead times and react to new patterns in a snappy and concise manner, what they popularly called ‘Moment Fashions.’ 

The same year, Ortega and his company took their first step toward international expansion. Their international entries were made through Porto, Portugal, in the 1990s and Mexico in 1992. This international expansion was the turning point for both Ortega and Zara. Ortega continued to grow with new brands like Bershka, Pull & Bear, and Oysho and acquired groups such as Stradivarius and Massimo Dutti. These brands have been the key contributors to the success of the parent group - Inditex. Zara still boasts of being the primary growth driver. 

Zara - The Undisputed Fashion Brand: Customer-Driven Value Chain 

Zara - The Undisputed Fashion Brand: Customer-Driven Value Chain

For Product Line-Up: 

Unlike the other chains of Inditex, Zara focuses on manufacturing and delivering fashion-sensitive products. Following the changing customer preferences, its latest designs stay in production continuously. 

When several competitors were focused on creating only a few thousand store-keeping units (SKUs), Zara ensured producing hundreds of thousands of stock-keeping units in only a year. However, these SKUs varied largely depending on the fabric, size, and color. 

Zara and its products are not dependent on the design experts. Rather, its designers cautiously observe the latest trends and try blending and implementing them for the market. The designer groups keep on creating variations in a specific season, leading to expansion to successful designs. 

For Fast Supply Chain: 

Zara ensures a flexible supply chain, which enables it to deliver new ranges to store outlets two times a week from its central distribution center, which is a 400,000 sq m facility situated in Arteixo, Spain. This is a type of business system called ‘ vertical integration ’ that Zara adapted to eliminate the need for local warehouses. Here, Zara’s marketing strategy was reducing the ‘ bullwhip effect .’ 

Zara: Retailing Strategy 

Zara: Retailing Strategy

Instead of just enhancing manufacturing efficiency, Zara paid close attention to its retail strategy. It adopted the retailing strategy that would help it follow the fashion trends as quickly as possible, even if it involves some unmet demands. 

Also, this helped Zara to create a FOMO for its products. However, the two significant components of Zara’s retailing strategy rely on its upstream operations: Stores and Merchandising. 

Zara’s Anti-Marketing Approach

Zara successfully retained a profit of 13%, whereas its significant competitors like H&M have only 6% of profitability. Apart from the efficient supply chain management, it was possible due to the no-advertising or limited marketing policy that Zara follows. 

This is what makes Zara one of a kind in the fashion industry. The brand spends only 0.3% of its budget on promotion and advertising. The typical trend in the fashion industry is to spend about 3.5% on marketing and promotion. The brand doesn’t believe in marketing as it saves them a lot of money and helps them with exclusivity. 

Through this article, you’ll get valuable insights into the journey of Zara - one of the biggest international apparel brands. You’ll learn all about its history, retailing strategy, value chain, and more.  Zara is the ideal case study for those who want to start their own apparel brand. Success is a ladder, and you have to take every step patiently and efficiently. However, if you’re planning to build something as colossal as Zara, you must source your clothing appropriately from the right manufacturer. For instance, top fashion brands trust the Fashinza platform to connect with clothing fabric manufacturers for their needs. Connect with Fashinza today!

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Operations Transformation & Decentralization: ZARA Case Study

Introduction, identification, analysis and evaluation, recommendations, works cited.

Zara is a global retail brand that designs and sells clothes, shoes, and accessories for men, women, and children. The brand is a part of Inditex, a retail corporation that also features other clothing brands, such as Pull and Bear, Stradivarius, and Massimo Dutti. Zara was initially developed as an affordable brand with a strong focus on fashion. Most of its operations, such as production and distribution are based in Spain and the nearby European countries.

However, as the brand has developed a strong presence in the global research market, it might be beneficial to transform operations and allow for a significant degree of decentralization. The present paper will seek to provide an analysis of the case study by identifying and assessing the key issues affecting Zara, as well as providing recommendations for future development.

Zara was created in Spain, which remains the principal location of its operations. However, the company has also developed a truly global image, with thousands of stores all over the globe. The retailer operates both online and offline and has a robust supply chain with well-established suppliers. The company’s main strategy is to remain flexible in its operations, promote sustainability, and deliver excellent value to customers all over the globe. However, the implementation of this strategy is affected by several important issues.

Zara has three large distribution centers in Spain, which arrange for shipments to other locations. The production of the brand, however, is decentralized, with factories in a variety of European countries. The different levels of centralization in production and distribution are the main issue faced by the company, as they contribute to transportation costs while also contradicting the brand’s sustainability strategy.

Given that the three distribution centers in Spain serve all of Zara’s stores, including its online stores, the complex transportation chain also creates a risk of delivery delays and stock-outs, thus impacting its global sales and revenues. Another problem that was identified based on the information from the case is that Zara’s online store does not offer any significant benefits compared to other brands’ stores, thus relying on customers who are already familiar with the brand. This problem could affect the future of Zara’s online sales and thus needs to be addressed by the management.

In order to judge the brand’s financial performance, it is critical to perform a ratio analysis. Zara’s financials are included in Inditex’s consolidated financial statements; however, as the brand constitutes a vast part of the parent company’s operations, it is possible to evaluate the general financial health of Zara based on Inditex’s performance. As seen in Table 1, Inditex had a gross profit margin of 58.3% in 2014 compared to 59.3% in the previous year. Similarly, other ratios are stable and do not indicate any significant solvency, profitability, or liquidity problems. Hence, the overall financial health of Inditex is good, and there are no threats to the company’s profitability.

Table 1. Ratio Analysis of Inditex.

The financial information of Inditex also shows that the company’s capital structure relies predominantly on equity, although it also uses a significant share of current liabilities, mainly trade and other payables (Inditex 189). The share of non-current liabilities in the capital structure is low, which shows reduced reliance on financial debt and reduces the long-term financial risk for Inditex.

Based on the information in the case and the financial information available, the key strengths of Zara are its established position on the global scene and excellent supply chain management. The case shows that Zara fosters long-term relationships with most of its suppliers and has an extensive network of reliable supplies of products and raw materials. Nevertheless, stability in financial results despite opening new stores also indicates that the brand’s competitive position is not improving. Enhancing operations, promoting sustainability, and increasing the volume of online sales would help Zara to strengthen its competitive position.

There are two main recommendations that can help Zara to resolve its key problems. First of all, it would be helpful for Zara to improve distribution by opening regional distribution channels that would receive products straight from production facilities instead of the three main distribution centers in Spain. The proposed action plan here is to open regional distribution centers in North America and Asia and establish transportation of products from production facilities in Europe.

Secondly, Zara would benefit from improving its online sales by distinguishing itself from the key competitors. In order to do so, the brand should conduct market research to determine the type of unique selling point that would attract more customers to use its online stores. Examples of unique selling points in online clothing stores are next-day or same-day delivery, fitting services, and free online stylist consultations. These features would help Zara to increase the volume of online sales.

The two proposed developments would be useful for the brand in overcoming its main problems. For example, opening regional distribution centers that are directly connected to production facilities would decrease operations time, thus preventing delivery delays and stock-outs. It would also enhance the online shopping experience by allowing for faster delivery. In addition, reduced transportation would contribute to Zara’s sustainability goals.

Creating a unique selling point for Zara’s online store could help to attract more customers, thus boosting sales volume and achieving growth. Both parts of the action plan are feasible given Zara’s capital structure and will likely be accepted by the management due to their anticipated effects on the business. Based on the scale of Zara’s current operations and its experience in global distribution and sales, it is also evident that the brand has the competence to implement them and that there will be no constraints to implementation.

All in all, Zara is a profitable global brand that has a stable financial position. Nevertheless, the competitive environment of the market requires the brand to undertake new activities in order to develop further. The recommended options that should be applied by Zara are to improve distribution by opening regional distribution centers and to achieve increased online sales volume by creating a unique selling point. Using these recommendations, the brand will be able to attract more customers and increase net sales, thus enhancing its profitability.

Indetex. Annual Report 2014 . 2015. Web.

Snap, Inc. Form 10-K . 2018. Web.

The Change Foundation. Annual Report 2005/2006 . 2006. Web.

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IvyPanda. (2023, October 30). Operations Transformation & Decentralization: ZARA. https://ivypanda.com/essays/zara-case-study-analysis/

"Operations Transformation & Decentralization: ZARA." IvyPanda , 30 Oct. 2023, ivypanda.com/essays/zara-case-study-analysis/.

IvyPanda . (2023) 'Operations Transformation & Decentralization: ZARA'. 30 October.

IvyPanda . 2023. "Operations Transformation & Decentralization: ZARA." October 30, 2023. https://ivypanda.com/essays/zara-case-study-analysis/.

1. IvyPanda . "Operations Transformation & Decentralization: ZARA." October 30, 2023. https://ivypanda.com/essays/zara-case-study-analysis/.

Bibliography

IvyPanda . "Operations Transformation & Decentralization: ZARA." October 30, 2023. https://ivypanda.com/essays/zara-case-study-analysis/.

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ZARA: Achieving the “Fast” in Fast Fashion through Analytics

case study of zara

How does fast fashion make any business sense? Zara uses intensive data and analytics to manage a tight supply chain and give customers exactly what they want.

Introduction

Zara’s parent company Inditex has managed to thrive in the last decade while several other fashion retailers have faced declining sales or stagnant growth. Inditex has grown over 220% in annual revenue since 2004, more than its key competitors like H&M, Gap, or Banana Republic (1).

case study of zara

The value of a fast fashion brand is to bring the latest designs and “trendiest trends” into the market as quickly as possible, preferably as soon as they became hot on the catwalk, and to provide these at a reasonable price. The traditional fashion industry is not well equipped to provide such value as it operates on a bi-annual or seasonal basis, with long production lead times due to outsourced manufacturing to low cost-centers. Zara has turned the industry on its head by using data and analytics to track demand on a real-time, localized basis and push new inventory in response to customer pull. This enables them to manage one of the most efficient supply chains in the fashion industry, and to create the fast fashion category as a market leader.

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How Zara Uses Data

Inditex is a mammoth retailer, producing over 840 million garments in a year, the majority of which are sold by Zara (2). Every item of clothing is tagged with an RFID microchip before it leaves a centralized warehouse, which enables them to track that piece of inventory until it is sold to a customer (3). The data about the sale of each SKU, inventory levels in each store, and the speed at which a particular SKU moves from the shelf to the POS is sent on a real time basis to Inditex’s central data processing center (see picture below). This center is open 24 hours a day and collects information from all 6000+ Inditex stores across 80+ countries and is used by teams for inventory management, distribution, design and customer service improvements (4).

case study of zara

Zara’s Data Processing Center receives real-time data from around the world (4).

When the apparel arrives in store, RFID enables the stockist to determine which items need replenishing and where they are located, which has made their inventory and stock takes 80% faster than before (3). If a customer needs a particular SKU, salespeople are able to serve them better by locating it immediately in store or at a nearby location. Moreover, every Zara location receives inventory replenishments twice a week, which is tailored to that stores real-time updates on SKU-level inventory data.

The sales tracking data is critical in enabling Zara to serve its customers with trends that they actually want, and eliminate designs that don’t have customer pull. Zara’s design team is an egalitarian team of over 350 designers that use inspiration from the catwalk to design apparel on daily basis. Every morning, they dive through the sales data from stores across the world to determine what items are selling and accordingly tailor their designs that day. They also receive qualitative feedback from empowered sales employees that send in feedback and customer sentiment on a daily basis to the central HQ e.g., “customers don’t like the zipper” or “she wishes it was longer” (1).

At the start of the planning process, Zara orders very small batches of any given design from their manufacturers (even just 4-6 of a shirt per store). The majority of Zara’s factories are located proximally in Europe and North Africa, enabling them to manufacture new designs close to home and ship them to their stores within 2-3 weeks. They then test these designs in store, and if the data suggests the designs take off, Zara can quickly order more inventory in the right sizes, in the locations that demanded it. Such store-level data allows Zara to be hyper-local in serving their customer’s needs – as tastes can vary on a neighborhood level. As Inditex’s communication director told the New York Times,

“ Neighborhoods share trends more than countries do. For example, the store on Fifth Avenue in Midtown New York is more similar to the store in Ginza, Tokyo, which is an elegant area that’s also touristic. And SoHo is closer to Shibuya, which is very trendy and young.” (5)

Unlike other retailers that may order inventory based on their hypotheses about tastes at a regional level, Zara is tailors its collections based on the exact zip code and demographic that a given location serves (5).

Zara’s Results vs. Competitors

Zara sells over 11,000 distinct items per year versus its competitors that carry 2,000 to 4,000. However Zara also boasts the lowest year-end inventory levels in the fashion industry. This lean working capital management offsets their higher production costs and enables them to boast rapid sales turnover rates.

At Zara, only 15% to 25% of a line is designed ahead of the season, and over 50% of items are designed and manufactured in the middle of a season based on what becomes popular (2). This is in direct contrast to a close competitor like H&M where 80% of designs are made ahead of the season, and 20% is done in real-time during the season (6). Most other retailers commit 100% of their designs ahead of a season, and are often left with excess inventory that they then have to discount heavily at season-end. Instead, Zara’s quick replenishment cycles create a sense of scarcity which might actually generate more demand:

“With Zara, you know that if you don’t buy it, right then and there, within 11 days the entire stock will change. You buy it now or never.” (5)
  • https://www.bloomberg.com/news/articles/2016-11-23/zara-s-recipe-for-success-more-data-fewer-bosses
  • http://www.digitalistmag.com/digital-supply-networks/2016/03/30/zaras-agile-supply-chain-is-source-of-competitive-advantage-04083335
  • http://static.inditex.com/annual_report_2015/en/our-priorities/innovation-in-customer-services.php
  • http://www.refinery29.com/2016/02/102423/zara-facts?utm_campaign=160322-zara-secrets&utm_content=everywhere&utm_medium=editorial&utm_source=email#slide-11
  • http://www.nytimes.com/2012/11/11/magazine/how-zara-grew-into-the-worlds-largest-fashion-retailer.html?pagewanted=all
  • https://erply.com/in-the-success-stories-of-hm-zara-ikea-and-walmart-luck-is-not-a-key-factor/

Student comments on ZARA: Achieving the “Fast” in Fast Fashion through Analytics

Great post Ravneet – I had never read about Zara’s extremely quick supply chain or hyper-local testing. I have a question for you about fast fashion in general, but especially for Zara since it produces and sells more distinct items than its competitors: it seems that many designers are not fond of the “runway-inspired” fashions sold at these stores and some have even sued stores for copying their designs. Do you think Zara and other brands like it are doing anything wrong, and if not, what recourse do designers have for “imitations” of their work?

Thanks for the post Ravneet. Zara and H&M are beacons of hope for a mostly distressed industry. Do you think Zara’s advantage could be sustained in the event of a full-on assault by the Amazons of the world?

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Home » Management Case Studies » Case Study: Zara’s Operational Model

Case Study: Zara’s Operational Model

Founded in 1975, ZARA, a Spanish clothing and accessories retailer was originally the brainchild of the Inditex Group owned by Amancio Ortega. Headquartered in A Coruña, Galicia, Spain, Inditex is the world’s largest fashion retailer with ZARA as its international flagship chain store. Beginning with the single store in Spain to the recent launch into Australia, ZARA currently has over 1,700 stores in 78 countries providing exclusive fashion worldwide. ZARA, alone accounted for 64.6% of the Inditex group turnover in 2010. Over time, it has become one of the notable leaders amongst the fashion brands. ZARA was described by Louis Vuitton fashion director, Daniel Piette as “possibly the most innovative and devastating retailer in the world” and CNN described the brand as a “Spanish’s success story”

Case Study: Zara's Operational Model

Zara’s Operational Model

Shifting from “mass standardization” to “customization” on a global scale is the most interesting aspect of the Zara’s business model . The founder highlighted Zara’s approach to fashion which is unique, like food, must be consumed immediately rather than rot in a cupboard. Thus the production of fresh new clothes is in response to the consumer’s preference. Zara’s business model enables their operations to be more successful and achieving the goal of customers’ satisfaction. Zara’s operational model generally encompasses many elements like Company structure , Vertical Integration , Just in Time, etc. which finally contributes to Total Quality Management (TQM) of the Company.

Company Structure

In which there is Chairman and followed by the other directors below him. The directors or managers will act as Cell leader for the cells below them. Each cell be reporting to its cell leader and finally cell leader will report to the head.

Inditex has Flat organization structure in which Amancio Ortega as a Chairman is a head of all cell leaders and there are different directors who acts as a cell leaders e.g. Deputy Chairman and CEO will be the cell leader for tax advisory, finance and management control etc. This helps to keep track of the processes going in the company easily. With this structure Inditex can actually keep a close watch on the processes and quality in the company.

Vertical Integration

Vertical integration means merging of two businesses that are on different stages of production. This leads the business closer to the customers. It controls access to input and to control the costs, quality and delivery times of inputs. It is usually very hard to vertically integrate the organization because this process being expensive and hard to reverse. It is generally found that many companies integrate with distributors to secure market of their output.

Lack of existing channels to Spanish consumer in 1980s caused Zara being forced into control of production , distribution and sales. Zara’s success lies in its vertically integrated system. This highly synchronized system gives extraordinary speed and design litheness. This is the reason behind success of Zara’s strategy . Zara’s Strategy is to give mid-market pricing, niche fashion and rapidly changing product range to the customers. This has also helped Zara to reduce ‘Bullwhip effect’. The bullwhip effect as the tendency to fluctuation in final demand to get amplified as they were transmitted back up the supply chain. As a vertically integrated company, Zara always able to keep close look on the quality and delivery of the product to its retail store. Zara has developed such a strategy that they will manufacture 40% of the fabric in house and 60% they will get it from external supplier. Zara will then manufacture the designed the fabric in the house and send out to the external supplier for sewing and then again it comes to Zara where it is checked for its quality and then labeling will be done. Then the product goes to the central warehouse of Zara from where it is distributed to the stores.

Push and Pull System

When a new designs being pushed in the market based on fashion market trend is referred as PUSH system and when design changes has been done on the customers feedback, but at a lightning fast speed, which emphasizes on customer satisfaction then its referred as PULL system. In the push system generally the new design is created by the designer team of the manufacturer and then it will be produced in mass which will be promoted in the stores and market. This increases the demand in the market and customers will be attracted to the store to get the stuff. Zara’s designer team generally launches there seasonal collection late in the market which enables them to get know about the designs being launched by manufacturers and their demand accordingly as well as they attend fashion shows for ready-made clothing where they get the idea of the designs being launched in the market and accordingly they launch their design in the market. Sometimes Zara also launches the new collection forecasting the demand of the product e.g. when Madonna visited Spain for the stage show, Zara launched the new collection of design which was replicating the design used by Madonna in the past which distinctively increased the demand of the product.

Pull system generally works on customers demand, this demand is generally transmitted to the design team which will then create the design and send back to the market to satisfy their demand. There is another approach manufacturers can take in which they advertise the product on mass level which will increase the demand for the product resulting in the increase of the sales.

Just in Time

Just in time is invented in Japan. Japanese ship builder introduced this concept by lowering their steel inventory from one month stock to three days stock. The first writing on JIT is done by Toyota’s Vice president Taiichi Ohno . But this writing was in Japanese so it was difficult to understand so it has been converted in English. Excessive inventory storage is wasteful in the current manufacturing scenario causes JIT philosophy . Further it says JIT encourages the adaption of methodologies to generate the order of material and intermediate products only when required. The transformation to JIT is not instantaneous, but rather it occurs in steps over the time. In the current manufacturing scenario removing of waste is important. JIT helps to make small batch production and is also helps to keep commitment towards continual process & product improvement. In the current market scenario, deliver the high quality and low cost product to capture most of the market share is main concern for many organization. JIT helps to solve this concern for most of the companies. JIT helps to reduce the cost for the companies because it saves the cost of storing the inventory and maintenance of the inventory. Generally in ‘Pull’ management JIT is used which helps to keep supply in time when there is high demand.

Zara’s Design process is more focused on the public who uses Zara’s product. This information is generally collected by store manager or the store staff which is stored at the collection counter of each store and in the evening the collection details & the information stored is transmitted to the distribution center . This information transmitted to the Zara’s designing professional daily. Using this information the designer figures out what are customers needs and what are their main concerns which helps them to design the product carefully and reduce the customers concern. From design to the shelves it takes 6 weeks for Zara to introduce new design in market it is more effective than the normal 6 months cycle for any other organization. The short time cycle reduces working capital intensity and facilitates continuous manufacturing of new merchandise. In 2008, it was observed that “From design to the shelves it takes 15 days to Zara to bring the product in the market”. Also Zara purchase about one-half fabric in ‘Grey’ color which gives them the maximum flexibility. The internal manufacturing plants of Zara are located in or around Zara’s headquarters. This makes designing and approval of the product very fast ultimately resulting in the faster production. These products then goes to the central distribution center of Zara which further distributes the product to the stores twice in a week. This helps Zara to inventory and concentrate on customers’ requirement.

It means continuous improvement . Kaizen is Japanese concept and it’s a whole business philosophy. Kaizen is important for everyone in the organization and requires the same kind of participation from each employee. Customer always has some requirement, needs & expectation from the supplier and the output from the supplier has some characteristics relevant to the customer expectation, these characteristics are called as Quality characteristics. There is always a gap between customers’ need and quality characteristics. Implementation of Kaizen helps to reduce that gap and meeting customers’ expectation to the closest. Key elements of Kaizen are Customer focus, Just in time, Kanban, Flexible workplace practices , Empowerment, Quality assurance, Leadership, Future thinking, High quality, Low cost, Reduction in wastage , Punctuality.

Zara as organization has almost all the elements of Kaizen. As we have seen, Zara has efficient Just in time running also they are more customer focused as there most of the designs are made according to the customers demand. With the efficient JIT system Zara has reduced the wastage in the company. Most of the Zara’s products are lower in cost with good quality. Zara always follows flexible workplace practices.

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The Strategy Story

Zara PESTEL Analysis

case study of zara

Before we dive deep into the PESTEL analysis, let’s get the business overview of Zara. Zara is a Spanish fashion retailer founded in 1974 by Amancio Ortega and Rosalía Mera. It is the flagship brand of the Inditex Group, one of the world’s largest fashion retail groups.

Zara is known for its trendy and affordable clothing, shoes, and accessories for men, women, and children. The brand operates in over 90 countries, with over 2,000 stores worldwide.

Some key aspects of Zara’s business model include:

  • Vertical Integration: Zara controls every aspect of its supply chain, from design to distribution, which allows the company to maintain tight control over its inventory and quickly respond to changing trends.
  • Fast Fashion: Zara’s fast-fashion model means that the company constantly releases new designs, sometimes as often as twice a week. This helps to create a sense of urgency among customers, who know that items may sell out quickly and not be restocked.
  • Limited Inventory: Zara produces small quantities of each design, creating a sense of scarcity and exclusivity, encouraging customers to purchase quickly.
  • Cost-Effective Production: Zara produces most of its products in-house or through nearby suppliers, allowing the company to monitor costs closely and maintain competitive pricing.
  • Data-Driven Decision Making: Zara uses data from its stores, social media, and customer feedback to identify trends and decide which products to produce and in what quantities.

Overall, Zara has been a disruptive force in the fashion industry, challenging traditional retail models and demonstrating the power of speed and adaptability in a highly competitive market. Zara’s parent company  Inditex generated $27.7 billion  in 2021.

How Zara became the undisputed king of fast fashion?

Here is the PESTEL analysis of Zara

A PESTEL analysis is a strategic management framework used to examine the external macro-environmental factors that can impact an organization or industry. The acronym PESTEL stands for:

  • Political factors: Relate to government policies, regulations, political stability, and other political forces that may impact the business environment. 
  • Economic factors: Deal with economic conditions and trends affecting an organization’s operations, profitability, and growth. 
  • Sociocultural factors: Relate to social and cultural aspects that may influence consumer preferences, lifestyles, demographics, and market trends.
  • Technological factors: Deal with developing and applying new technologies, innovations, and trends that can impact an industry or organization. 
  • Environmental factors: Relate to ecological and environmental concerns that may affect an organization’s operations and decision-making.
  • Legal factors: Refer to the laws and regulations that govern businesses and industries. 

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In this article, we will do a PESTEL Analysis of Zara.

PESTEL Analysis Framework: Explained with Examples

  • Political Stability : Zara operates in numerous countries across the globe, and the political stability of each region can directly impact its business. Stable political environments generally create favorable conditions for businesses to grow, while political instability or turmoil can lead to uncertainty, disruptions in supply chains, and increased risk for investments.
  • Trade Policies and Tariffs : Zara is heavily dependent on international trade as a global fashion retailer. Changes in trade policies, such as the imposition of tariffs, trade barriers, or other restrictions, can affect Zara’s supply chain and overall costs. Positive trade relations and free-trade agreements among countries can benefit Zara, while protectionist policies might increase costs or create barriers to growth.
  • Labor Laws and Regulations : Zara must comply with various labor laws and regulations in its operating countries. These include minimum wage requirements, working conditions, and workers’ rights. Stricter labor regulations can lead to increased labor costs and operational challenges for Zara. Any negative publicity related to labor practices could also harm Zara’s brand reputation.
  • Tax Policies : Tax regulations and rates in different countries can significantly affect Zara’s profitability. Changes in corporate tax rates, sales taxes, or import/export taxes can directly impact the company’s financial performance.
  • Government Initiatives and Support : Government initiatives can positively or negatively impact Zara. For example, governments may support the fashion industry by providing subsidies, grants, or training programs, which could benefit Zara. On the other hand, governments might impose restrictions or regulations on the fast-fashion industry to address environmental or ethical concerns, which could pose challenges for Zara.
  • Geopolitical Risks : Global political tensions and conflicts can directly or indirectly impact Zara’s operations. Trade disputes, sanctions, or conflicts can disrupt Zara’s supply chains, limit access to certain markets, or increase costs.
  • Economic Growth : A country or region’s overall economic growth and prosperity can have significant implications for Zara’s sales and revenue. In periods of economic expansion, consumers are more likely to have higher disposable incomes, leading to increased spending on clothing and fashion items. Conversely, during economic downturns, consumers might reduce spending on non-essential items, which could negatively impact Zara’s sales.
  • Currency Fluctuations : As a global retailer, Zara is exposed to risks associated with currency fluctuations. Changes in exchange rates can affect the company’s profitability, as revenues and expenses in different countries may be subject to currency conversion. For example, a weaker euro could make Zara’s products more competitive in international markets, while a stronger euro might result in higher import costs for raw materials and finished goods.
  • Inflation Rates : Inflation can impact Zara’s operational costs, including labor, rent, and raw materials. Higher inflation rates can result in increased production costs, which may force Zara to either absorb these costs or pass them on to consumers through higher prices. Prolonged periods of high inflation may also decrease consumer purchasing power, reducing demand for Zara’s products.
  • Interest Rates : Changes in interest rates can influence Zara’s cost of borrowing and overall financial management. Higher interest rates can lead to increased borrowing costs, which may impact the company’s expansion plans or working capital requirements. On the other hand, lower interest rates can provide opportunities for Zara to invest in growth initiatives or reduce its overall cost of capital.
  • Unemployment Rates : Unemployment levels can, directly and indirectly, affect Zara. High unemployment rates can reduce consumer spending, affecting Zara’s sales. Unemployment levels can also influence the availability and cost of labor, which may impact Zara’s workforce planning and operational costs.
  • Consumer Confidence : Consumer confidence is a key indicator of consumer spending behavior. High consumer confidence usually translates to increased spending on non-essential items like fashion and clothing, benefiting Zara. On the other hand, low consumer confidence may result in reduced spending on discretionary items, which could negatively impact Zara’s sales.
  • Zara SWOT Analysis
  • Zara Marketing Mix (4Ps)

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Sociocultural

  • Consumer Preferences and Fashion Trends : As a fast-fashion retailer, Zara’s success depends on its ability to quickly identify, adapt to, and capitalize on the latest fashion trends. Sociocultural factors such as changing preferences, tastes, and lifestyles can significantly influence the demand for Zara’s products. The company must continually monitor and adapt to these changes to remain relevant and competitive.
  • Demographics : Population demographics, such as age, gender, and income distribution, can impact Zara’s target customer base and product offerings. For example, an aging population may require Zara to focus more on mature fashion styles, while a younger population might demand more trendy and casual clothing options.
  • Ethical and Sustainability Concerns : Increasing awareness of ethical and sustainability issues in the fashion industry can influence consumer preferences and purchasing decisions. Zara must address these concerns by adopting more sustainable practices, such as using eco-friendly materials, reducing waste, and ensuring fair labor practices. Failure to address these issues can harm Zara’s brand image and lead to a loss of customers.
  • Cultural Diversity : As a global brand, Zara operates in various countries with diverse cultural backgrounds. It is essential for the company to understand and respect the cultural differences of its customers and adapt its product offerings accordingly. This might involve creating region-specific designs, adhering to local dress codes, or customizing marketing campaigns to cater to local tastes and preferences.
  • Health and Well-being : Growing awareness of health and well-being can impact consumer preferences for clothing and fashion. For instance, there might be an increased demand for activewear, comfortable clothing, or garments made from natural and hypoallergenic materials. Zara should consider these trends when designing and launching new product lines.
  • Digitalization and Social Media : The increasing use of digital technology and social media has transformed how consumers discover, share, and consume fashion. Zara must leverage these platforms effectively to engage with its customers, showcase its latest collections, and gather valuable insights into consumer preferences and trends.

Technological

  • E-commerce and Online Retail : The rapid growth of e-commerce and online retail has changed how consumers shop for fashion. Zara must ensure a strong online presence, user-friendly website, and mobile app to meet the expectations of its tech-savvy customers. This includes seamless navigation, personalized recommendations, and efficient order fulfillment to enhance the overall customer experience.
  • Supply Chain Management and Logistics : Technological advancements in supply chain management and logistics can help Zara optimize its processes and reduce lead times. The company can leverage artificial intelligence, machine learning, and big data analytics technologies to improve demand forecasting, inventory management, and distribution. This can result in better product availability, reduced stockouts, and lower operational costs.
  • Digital Marketing and Social Media : The growing importance of digital marketing and social media platforms requires Zara to adapt its marketing strategies accordingly. By leveraging platforms like Instagram, Facebook, and Twitter, Zara can showcase its latest collections, engage with customers, and gather insights into consumer preferences and trends. Influencer marketing and user-generated content can also help strengthen Zara’s brand image and increase brand awareness.
  • Automation and Robotics : Adopting automation and robotics can enhance Zara’s manufacturing processes and improve efficiency. This can result in reduced production times, lower labor costs, and higher product quality. However, Zara must balance automation and human labor, ensuring ethical practices and workforce sustainability.
  • Sustainable and Smart Textiles : Technological advances, such as sustainable and smart fabrics, can offer new opportunities for Zara to innovate its product offerings. By incorporating eco-friendly materials and innovative features, such as temperature regulation or odor control, Zara can cater to the growing demand for sustainable and functional fashion.
  • Augmented Reality (AR) and Virtual Reality (VR) : AR and VR technologies can enhance the shopping experience for Zara’s online and in-store customers. These technologies can be used to create virtual fitting rooms, allowing customers to virtually “try on” clothes, mix and match outfits, or explore different styles before purchasing. This can lead to increased customer satisfaction and reduced return rates.

Environmental

  • Sustainable Sourcing and Production : Consumers and stakeholders are increasingly concerned about the environmental impact of the fashion industry, particularly the use of non-renewable resources and the generation of waste. Zara should prioritize sustainable sourcing of materials, such as organic or recycled fabrics, and implement eco-friendly production processes to reduce its environmental footprint.
  • Waste Management and Recycling : The fast-fashion industry is notorious for generating significant amounts of waste due to rapid turnover and disposable fashion trends. Zara can address this issue by implementing waste management and recycling initiatives, such as encouraging customers to recycle their old clothes or adopting a circular economy model emphasizing the reuse and recycling of materials.
  • Energy Efficiency and Carbon Emissions : As a global retailer, Zara’s operations contribute to greenhouse gas emissions through its manufacturing processes, transportation, and store operations. The company can reduce its carbon footprint by implementing energy-efficient technologies, using renewable energy sources, and optimizing its supply chain to minimize transportation-related emissions.
  • Water Usage and Pollution : The fashion industry is a significant consumer of water and a contributor to water pollution through the use of chemicals, dyes, and other pollutants in production. Zara should reduce water consumption and adopt cleaner production methods, such as using eco-friendly dyes or waterless dyeing technologies, to minimize its impact on water resources.
  • Climate Change : Climate change can, directly and indirectly, affect Zara’s operations. Extreme weather events, such as floods, droughts, or storms, can disrupt Zara’s supply chain, affecting the availability of raw materials and the transportation of goods. Additionally, climate change can influence consumer preferences and demand for certain types of clothing, such as weather-resistant or temperature-regulating garments.
  • Environmental Regulations and Compliance : Zara must comply with various environmental regulations and standards in its operating countries. This includes waste management, emissions reduction, and resource conservation requirements. Failure to comply with these regulations can result in financial penalties, legal action, and damage Zara’s brand reputation.

  • Employment Laws : As a global employer, Zara must comply with various employment laws and regulations in its operating countries. These include minimum wage requirements, working hours, overtime compensation, employee benefits, and workplace safety standards. Non-compliance with these regulations can result in legal disputes, fines, and damage to Zara’s reputation.
  • Consumer Protection Laws : Zara must adhere to consumer protection laws that regulate product safety, quality, and labeling requirements. Ensuring that its products meet safety standards and providing accurate information to customers can help Zara avoid legal disputes, product recalls, or fines.
  • Intellectual Property (IP) Laws : Zara operates in a highly competitive fashion industry, where protecting designs, trademarks, and other IP assets is crucial. The company must ensure that it respects the IP rights of others and takes necessary measures to protect its IP assets from infringement. Failure to do so can lead to costly legal disputes and damage Zara’s brand image.
  • International Trade Laws : As a global retailer, Zara is subject to various international trade laws and regulations, such as import/export controls, customs duties, and trade restrictions. Compliance with these laws is essential to avoid disruptions in its supply chain, financial penalties, or loss of access to key markets.
  • Environmental Regulations : Zara must comply with environmental regulations in the countries where it operates, such as waste management, emissions reduction, and resource conservation requirements. Non-compliance with these regulations can result in financial penalties, legal action, and damage to Zara’s brand reputation.
  • Data Protection and Privacy Laws : With the increasing importance of e-commerce and digital technology, Zara must comply with data protection and privacy laws, such as the European Union’s General Data Protection Regulation (GDPR). Ensuring the security and privacy of customer data is crucial to avoid legal disputes, fines, and loss of customer trust.
  • Anti-Corruption Laws : As a global company, Zara must adhere to anti-corruption and anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. Ensuring ethical business practices and maintaining transparent relationships with suppliers, partners, and government authorities is essential to avoid legal repercussions and maintain a positive brand image.

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AIX

  • September 23, 2023
  • AI Case Studies

Case Study: Zara’s Comprehensive Approach to AI and Supply Chain Management

case study of zara

Zara, an international fashion retailer based in Spain, has integrated artificial intelligence (AI) into various aspects of its business operations to enhance efficiency, responsiveness, and customer engagement. Unlike many competitors, Zara’s use of AI is not limited to consumer behavior analytics but extends throughout its supply chain and inventory management systems. By embracing cutting-edge technologies like RFID tagging, real-time analytics, and machine learning, Zara aims to maintain its competitive edge in the fast-paced fashion industry.

Key Takeaways

  • Zara employs a comprehensive use of AI across multiple facets of its operations, ranging from supply chain management to customer engagement.
  • Unlike many competitors, Zara minimizes outsourcing, enabling them to exercise greater control and gather data at every stage of the business process.
  • The company utilizes an advanced Just-In-telligent supply chain system, allowing for real-time optimization of inventory levels and logistics.
  • Zara can rapidly respond to market trends and consumer demands, boasting a turnaround time for new designs that is as quick as one week.
  • Their strategic use of AI has led to improved customer satisfaction and loyalty, as well as high rankings in global online fashion sales.

Deep Dive: Zara’s Comprehensive Approach to AI and Supply Chain Management

Zara’s approach to AI is holistic, involving every segment of its business operations. The company combines the principles of just-in-time inventory management with AI and real-time data analytics, creating a Just-In-telligent supply chain system. By doing this, Zara can closely monitor inventory levels, supplier performance, and even consumer behavior.

Implementation

Zara has collaborated with several technology partners to implement AI in its operations. For instance, it partnered with Tyco to embed microchips into its clothing’s security tags, enhancing inventory visibility. The firm also collaborates with Jetlore to predict customer behavior based on structured predictive attributes like size, color, fit, and style. RFID tags and sophisticated logistics systems further allow Zara to optimize transportation and inventory, reducing waste and ensuring that popular items are always available.

The results have been substantial. Zara’s turnaround time for new designs is as little as one week, far below the industry average of three to six months. It enjoys a loyal customer base and ranks among the top in global online fashion sales. The company’s unique approach to using AI for real-time monitoring and forecasting has also led to reduced lead times, improved delivery accuracy, and minimized inventory carrying costs.

Challenges and Barriers

While Zara’s adoption of AI has been overwhelmingly positive, challenges remain. Managing the immense amount of data generated can be a monumental task. The integration of AI into existing systems and processes can also be complex and requires ongoing fine-tuning. Moreover, the reliance on sophisticated AI and machine learning models necessitates skilled human resources to maintain and optimize these systems.

Future Outlook

As AI and machine learning technologies continue to advance, Zara is well-positioned to further refine its algorithms for improved forecasting, supplier management, and customer engagement. Future plans may include even more robust machine learning algorithms for trend prediction and potential integration of blockchain for more transparent and efficient supply chain management.

Zara’s application of artificial intelligence in its operations serves as a benchmark for the retail industry. From supply chain optimization to personalizing customer experience, the company’s comprehensive AI strategy has yielded tangible benefits in efficiency, cost reduction, and customer satisfaction. As technology continues to evolve, Zara seems poised to remain a step ahead of its competitors, setting a precedent for what is achievable with the intelligent use of data and automation.

Sources: H&M, Zara, Fast Fashion Turn to Artificial Intelligence to Transform the Supply Chain Zara’s Just-In-telligent Supply Chain Zara: Revolutionizing Fashion Retail with AI

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  4. Case Study of Zara: A Better Fashion Business Model

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    Zara is a Spanish fashion retailer founded in 1974 by Amancio Ortega and Rosalía Mera. It is the flagship brand of the Inditex Group, one of the world's largest fashion retail groups. Zara is known for its trendy and affordable clothing, shoes, and accessories for men, women, and children. The brand operates in over 90 countries, with over ...

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  22. (PDF) A case study on ZARA fashion

    We know that Zara believes in offering high fashion at a low cost. Prices range from $79.90 to $539.00 for both Womenswear and Menswear while the Kids segment has coats starting from $65.00 and these prices can start from $30 during a sale.

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