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.

File:HK CH 中環 Central 國際金融中心商場 IFC mall shop ZARA Clothing store April 2022 Px3 04.jpg

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.

File:Barcelona (Passeig de Gràcia - Gran Via de les Corts Catalanes). Zara Building, formerly “Banco Rural y Mediterráneo”. 1953. Agustí Borrell Sensat, architect (25905793406).jpg

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?

File:Zara Storefront (48155639387).jpg

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)

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Home » Management Case Studies » Case Study of Zara: A Better Fashion Business Model

Case Study of Zara: A Better Fashion Business Model

Zara is one of the most well known brands in the world and is also one of the largest international fashion companies. They are the third largest brand in the garment industry and are a unit of Inditex . It their flagship range of chain stores and are headquartered in Spain. Zara opened its first outlet in Spain in 1975. The headquarters of the company is based in Galicia. There are more than 2600 stores across 73 countries in the world. The Zara clothing line accounts for a huge bulk of its parent group’s revenues. There are other clothing brands owned by Inditex such as Kiddy ´s Class (children’s fashion), Pull and Bear (youth casual clothes), Massimo Dutti (quality and conventional fashion), Bershka (avant-garde clothing), Stradivarius (trendy garments for young woman), Oysho (undergarment chain) and Zara Home (household textiles). Inditex owns all Zara outlets except for places where they are not allowed ownership of stores (that’s where Franchises step in).

Zara's Business Model

Zara is renowned for coming up with products on a short timescale instead of taking forever. They are known for taking around 2 weeks to develop products and have been known to come up with around 10,000 new designs every year (which is an industry record). They have bucked the trend by making productions in Europe instead of shifting their entire production to Third World or Developing countries. However some of their clothes are manufactured in parts of Asia due to the fact that they have a longer shelf life. They make most of their own products inside Spain or other European Countries as they own a large number of factories in both Spain and Portugal. They also don’t have to depend on anyone else as they can get everything done by themselves.

Zara is unique in the way that it does not spend money on marketing and instead concentrates on opening new stores instead. Their brave experiments have led them to be labeled as one of the most innovative retailers in the world.

Zara started out with low priced products which were pale imitations of high end fashion products. This move led to Zara being a smashing success and allowed them to expand by opening more stores in Spain. The company management also managed to reduce the time it took to create new designs and came up with the term “instant fashions” which allowed them to capitalize on new trends really fast. Zara is known to use teams of designers instead of individuals.

Zara has to face a lot of competition from H&M, Gap and Benetton internationally. Fortunately Zara is considered to be more fashionable than the rest of the brands despite the fact that its price is less than Benetton and Gap. H&M is still cheaper than Zara but is equally fashionable as Zara. Gap and Benetton are less fashionable and more pricy.

Zara’s ‘Fast Fashion’ Business Model

Zara’s business model is basically based on the principle that it can sell “medium quality fashion clothing at affordable prices”. Basically vertical integration and the ability to come up with a quick-response is a key factor to Zara’s successful business model otherwise they would be no where without it. The process for Zara has been designed in such a way that it has the various functions within the business system such as designing, sourcing and manufacturing, distribution and retailing. They do all of these themselves and that is one reason why their growth is at a good rate. However what goes up must come down and Zara is not immune to the problems in the world. The way they operate can also prove to be their undoing due to the model they are currently utilizing. The fact that they have their own distribution center and manufacturing unit is a very weak point. This can be discussed further in this document.

The management at Zara have come up four fundamental success factors: short cycle time for creation of product, small quantity per product (and not too much of the same stock), extensive variety of product every season (so that users can choose easily) as well as a huge investment in information and communication technology to allow them to stay on track .

Zara knows what its customers want by tracking their preferences on a year round basis. They have their own team of designers who have been recruited fresh out of fashion school. It is not a tough job to tell them what they want based on the input they receive. They make around a limited quantity of clothes based on the 11000 various items designed by its in-house staff. Zara does not make any losses as they only order a limited quantity of each item which they believe is stylish and will be more restricted season wise. For example if they have miniskirts in design they will only be available for a short time due to the short summer period in Europe. Other clothes which can work the year around and for which the trend does not change are outsourced to Asia as the cost won’t be so high. The outsourcing operation is very handy mainly because these clothes have a longer shelf life. It does not take a long time for the clothes to be prepared as it merely takes around 4 weeks total for the whole process: from design to the finished product in the stores.

The fact that Zara knows what sort of trends are there in the market and are quick enough to change their strategy to match the trends in the fashion industry gives them a huge advantage. They are able to modify their timetable easily to adjust for a change in the trends in the market. Normally it takes around 8 to 12 months for any normal retailer to forecast trends and come up with a style and send it for production. They are unable to match what Zara does and they end up losing big time. Even if a style fails to sell much, Zara can easily sell the clothes on a discount. The fact that they quantity of clothes manufactured was so low that they lose much. Their low volume strategy has helped them have a very low number of discount sales every year as compared to a high rate for the rest of the industry.

However this leads to higher costs which is a disadvantage but then they don’t have to worry about having higher inventories. This method allows for a low inventory and high profit margins. They don’t save any money here with costs but then they get the maximum out of their clothing line. A problem they face is the fact that since Zara controls everything it is not easy for them to expand or relocate as they have to stay put in one place or the whole operation will suffer and the goods will cost more to distribute.

Zara’s business model is wonderful in the sense that it has a very fashion forward line as they know which trends to cash in on. They seem to have the midas touch of turning everything into gold. Their policy is to have a mostly young and fashion conscious staff so that they will also be able to double as trend setters. If for instance a certain item in a store sells well then the management decides to sell the same item in other locations as well. The key is that most of the items are in short supply and people presume that there is a shortage of items which ends up making consumers want to buy more.

A key factor in Zara’s success is the fact that it has sourced its products from the right places. They have based their procurement offices in a couple of fashionable cities in the world. This allows them to witness the trends first hand and then to quickly come up with a solution of their own. They don’t buy all the raw products on their own as they use one of their parent group’s procurement units to do all it’s purchasing. One clever move on their part is that they buy most of their fabric in grey so that there is greater flexibility. It doesn’t take long for the fabric to be prepared.

The main distribution artery is in Spain where they have their biggest distribution center. They also have some smaller distribution centers in countries such as Argentina, Brazil and Mexico. The problem with the distribution center is that it is purely based in Spain and does not have the capacity for a heavy load. It is a huge distribution center and occupies around 500,000 square feet in total. They only have the capability of processing around 60,000 folded garments in an hour. They need to find a new distribution center or increase their operations so that they can save more time. However the biggest advantage for them is the fact that they have vertical integration which allows them to manufacture and distribute their own stuff without having to be at the mercy of any supplier. It is not tough to move any of their products as they have their own railway network which allows them to move goods easily to its distribution center. Once the goods are ready they are shipped out immediately though the shipping schedule is only twice a week. European stores get their goods early (around 24-36 hours) while other destinations get them within 2 days. This system has allowed them to achieve a very high level of accuracy in its shipments. The other good thing is that the outlets don’t take long to display the new outfits once they reach their destination and this allows them to show new stock to their customers. The clothes are also coded according to their color so that the staff knows where to place them. This makes it easier for the customers to go around color matching the items they want to buy.

Problems with Zara’s Business Model

Zara is facing a large number of issues which can cause them a number of problems in the future. Despite the fact that Zara has a consistent business system which gives them a competitive advantage it is always in the danger of tanking badly. Zara’s biggest advantage is the fact that its economies of scale are really good and that they have been able to ramp up their distribution system. The continued growth is good for them in every way. They have been helped a lot by their expansion in the international market . However their growth in the international market will be curtailed due to the reason that Zara has a very centralized logistics model. It is understandable that Zara has to expand its distribution centers and to increase its capacity. Zara has its main distribution center in Spain and it won’t be easy going trying to expand when their base is only in Spain.

This will affect their plans to go international and to target more regions. They can’t simply survive with a European presence alone. It is true that they do have a presence in other countries but then it is not as much as it should be. They have a huge presence in Spain but quite limited when it comes to other countries. They can easily target the North American region where they don’t have much of a presence compared to the huge size of the region. The problem is that there are a lot of outlets there and a lot of competition coupled with the need for plus sized clothing, high cost of operations and a very mature market. Zara needs to come up with a strategy so they can compete very aggressively over there. They can also target South America but the problem is that it is not a very stable region and any geopolitical problems can lead to profits being low. A good market would be the ever reliable Middle East where Zara already has a small presence. However with talks of revolution in the air and other geo political problems it can be a risky bet. There are a few countries in the region which will lead it to be profitable but then the market is small compared to other regions. They can easily opt for countries such as the South East Asian markets and South Asia which have a lot of potential.

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2 thoughts on “ Case Study of Zara: A Better Fashion Business Model ”

Dear Abey, Many thanks for your continuing efforts to help learners. I’ve just come across your website and really amazed at the wealth and variety of topics which are covered in your business cases. Very helpful, indeed. God bless you for all the kind things you are doing. Alex

Thank you for this valuable insight. Quite informative. Helped me a lot.

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Zara's Secret for Fast Fashion

by Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca

Editor's note: With some 650 stores in 50 countries, Spanish clothing retailer Zara has hit on a formula for supply chain success that works by defying conventional wisdom. This excerpt from a recent Harvard Business Review profile zeros in on how Zara's supply chain communicates, allowing it to design, produce, and deliver a garment in fifteen days.

In Zara stores, customers can always find new products—but they're in limited supply. There is a sense of tantalizing exclusivity, since only a few items are on display even though stores are spacious (the average size is around 1,000 square meters). A customer thinks, "This green shirt fits me, and there is one on the rack. If I don't buy it now, I'll lose my chance."

Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Zara's designers create approximately 40,000 new designs annually, from which 10,000 are selected for production. Some of them resemble the latest couture creations. But Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower prices. Since most garments come in five to six colors and five to seven sizes, Zara's system has to deal with something in the realm of 300,000 new stock-keeping units (SKUs), on average, every year.

This "fast fashion" system depends on a constant exchange of information throughout every part of Zara's supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy that can bog down communication between departments. But Zara's organization, operational procedures, performance measures, and even its office layouts are all designed to make information transfer easy.

Zara's single, centralized design and production center is attached to Inditex (Zara's parent company) headquarters in La Coruña. It consists of three spacious halls—one for women's clothing lines, one for men's, and one for children's. Unlike most companies, which try to excise redundant labor to cut costs, Zara makes a point of running three parallel, but operationally distinct, product families. Accordingly, separate design, sales, and procurement and production-planning staffs are dedicated to each clothing line. A store may receive three different calls from La Coruña in one week from a market specialist in each channel; a factory making shirts may deal simultaneously with two Zara managers, one for men's shirts and another for children's shirts. Though it's more expensive to operate three channels, the information flow for each channel is fast, direct, and unencumbered by problems in other channels—making the overall supply chain more responsive.

In each hall, floor to ceiling windows overlooking the Spanish countryside reinforce a sense of cheery informality and openness. Unlike companies that sequester their design staffs, Zara's cadre of 200 designers sits right in the midst of the production process. Split among the three lines, these mostly twentysomething designers—hired because of their enthusiasm and talent, no prima donnas allowed—work next to the market specialists and procurement and production planners. Large circular tables play host to impromptu meetings. Racks of the latest fashion magazines and catalogs fill the walls. A small prototype shop has been set up in the corner of each hall, which encourages everyone to comment on new garments as they evolve.

The physical and organizational proximity of the three groups increases both the speed and the quality of the design process. Designers can quickly and informally check initial sketches with colleagues. Market specialists, who are in constant touch with store managers (and many of whom have been store managers themselves), provide quick feedback about the look of the new designs (style, color, fabric, and so on) and suggest possible market price points. Procurement and production planners make preliminary, but crucial, estimates of manufacturing costs and available capacity. The cross-functional teams can examine prototypes in the hall, choose a design, and commit resources for its production and introduction in a few hours, if necessary.

Zara is careful about the way it deploys the latest information technology tools to facilitate these informal exchanges. Customized handheld computers support the connection between the retail stores and La Coruña. These PDAs augment regular (often weekly) phone conversations between the store managers and the market specialists assigned to them. Through the PDAs and telephone conversations, stores transmit all kinds of information to La Coruña—such hard data as orders and sales trends and such soft data as customer reactions and the "buzz" around a new style. While any company can use PDAs to communicate, Zara's flat organization ensures that important conversations don't fall through the bureaucratic cracks.

Once the team selects a prototype for production, the designers refine colors and textures on a computer-aided design system. If the item is to be made in one of Zara's factories, they transmit the specs directly to the relevant cutting machines and other systems in that factory. Bar codes track the cut pieces as they are converted into garments through the various steps involved in production (including sewing operations usually done by subcontractors), distribution, and delivery to the stores, where the communication cycle began.

The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supply chains (and all open-loop information systems) to amplify small disturbances. A small change in retail orders, for example, can result in wide fluctuations in factory orders after it's transmitted through wholesalers and distributors. In an industry that traditionally allows retailers to change a maximum of 20 percent of their orders once the season has started, Zara lets them adjust 40 percent to 50 percent. In this way, Zara avoids costly overproduction and the subsequent sales and discounting prevalent in the industry.

Excerpted with permission from "Rapid-Fire Fulfillment," Harvard Business Review , Vol. 82, No.11, November 2004.

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Kasra Ferdows is the Heisley Family Professor of Global Manufacturing at Georgetown University's McDonough School of Business in Washington DC.

Michael A. Lewis is a professor of operations and supply management at the University of Bath School of Management in the UK.

Jose A.D. Machuca is a professor of operations management at the University of Seville in Spain.

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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:

zara case study video

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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ZARA: Fast Fashion

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  • September 23, 2023
  • AI Case Studies

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

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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.


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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The Strategy Story

Zara PESTEL Analysis

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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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  • 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.


  • 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.


  • 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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Zara case study. Zaras Objectives, Strategies and Problems.

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1. Introduction

In my short study case I will start by illustrating Zara’s present situation (according to the case), then I will continue with a brief analysis of the internal and external environments; in the next step I will develop some alternative ways of action and I will end by presenting my recommendations regarding the adaptation of the Zara’s business model in order to successfully face the future economic context.

2.  Zara’s Objectives, Strategies and Problems.    

2.1 Objectives

The first objective for Zara is to continue their expansion in countries like Switzerland, Italy, and Czech Republic and also on other continents: Latin America and Asia. A second objective is to continue their stores’ growth in the countries where already exists in order to consolidate its position and increase its market share. By the accomplishment of the two objectives Zara is looking to create enduring profitable growth.  

  2.2 Strategies

         I   will start with the product market penetration  used by Zara and more precisely with the product line stretching  (one of the tactics allowed by the product market penetration) and we can see in the case of Zara that it started with clothes and then added accessories. Zara definitively use a price differentiation  that permits a differentiation between countries: starting with the lowest prices from Spain, then the prices are increasing with 10% for Southern Europe and 70% higher in the Northern countries, fact that is explained by the alignment to the standards of life in that area. An interesting and successful strategy used by Zara is the market orientation , a strategy that involves an implication of the resources, information and employees in order to create superior customer value that will increase the awareness of the brand without using advertising, therefore lowering the costs. As for the branding architecture , Zara is a house brand  having tree collections categories, each of them personalized: Women (Zara Women, Zara Basics, Trafaluc), Men (Men’s line, Zara Basics, 100 Zara, Zara Sport) and Children Wear.

2.3 Problems

The main problem for Zara is that once with the global expansion the company is getting more and more difficult to coordinate the activities between the headquarter from Spain and the stores from other continents. In U.S Zara didn’t succeed to develop a strong supply chain and this will affect their sales being not able to provide the same services that provide in Europe: distribution facility and strong production. Therefore the vertical integration which is a distinctive feature of their business model tends to affect the costs but in a negative way.

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3.  Zara’s internal and external environments        

3.1 Internal Environment  

Zara has several specific capabilities  that allow the company to have a solid competitive advantage:

This is a preview of the whole essay

►The ability to quickly respond  to the market needs has given a distinctive competitive advantage to the company but other companies tried to copy the model but failed. That lead us to another distinctive capability   which is a mix between human resources and Zara IT’s, in my opinion this is something very hard to imitate: a strong company culture embraced by employees that are in a continuous learning process (trainings, workshops) matched with simple to use software.    

►   Time leadership :  the production of the collections is done in maximum 3 weeks; this measure makes Zara come much sooner on the market with new collections than the normal average retailer which needs around 9 months to present a new collection on the market.

► A Global Brand : Zara is beneficiating of a worldwide recognition that was achieved by an innovative design and a constant quality that must provide the stimuli needed in order to create a similar brand meaning  for the customers all over the world.  

► Differentiation : Zara has a creative design team who give differentiation .

► Cost leadership  (which is also a strategy pursued by the company): Zara manufactures 60% of its own products. By owning its in-house production, Zara is able to be flexible in the variety, amount, and frequency of the new styles they produce. Also, 50% of the production is done on client demand, which allows the chain to constantly provide its costumer with updated products. The supply chain permits the rotation of the products that aren’t sold in other countries in order to reach one of the main principles adopted by the company: 0 Inventories . Also the new products are tested first in certain stores before they entered full-run production keeping failures rate at 1 %( in comparison with the industry’s typical 10%).  

► But   Zara is offering fashionable clothes at affordable prices and that isn’t a pure differentiation and neither a pure cost leadership because Zara doesn’t have the objective to become the lowest-cost producer but   Zara did come up with a combination between these two and end up with a successful formula.  

        Besides its specific capabilities Zara is facing some issues  also:

 ►Because of an incorrect study the entrance on Argentina market was a failure because when analyzing the market the managers didn’t consider all the political and the economical factors.

► The lack of advertising : There is made only twice a year advertises and that is at the end of seasons for the sales. If Zara wants to continue the expansion on other continents where they don’t beneficiate of brand awareness it will be really difficult to be successful without an advertising campaign

► The Vertical Integration   which is a distinctive feature of Zara’s business model start to become more and more difficult to handle as long as the distance from the headquarters is getting bigger.  

3.2 External Environment

To have a better understanding of the company’s business model it is necessary to take a look to the external factors.

Opportunities :

►Once with the expansion of U.E the customs will disappear and also the liberalization of markets (e.g. Germany) will facilitate the further expansion of Zara

►Zara entered new markets that normally were riskier to approach by partnerships: franchises in Cyprus, joint-ventures with Benetton in Italy and Otto-Versand in Germany.

►If Zara will expand in Asia it will need to replicate its business model because of distance and differences

►A treat that become significant for several companies (e.g. Swatch) is the exchange currency rate, as Zara is having activities in other continents (other than Europe) the company could register losses because of the exchange rate. Swatch is a company that is really aware of this treat and it started to use several financial tools in order to stop the losses caused by the exchange rate but it is not an easy thing to do and even the measures putted in place can backfire.  

►The biggest treat for Zara is represented by the competition : H&M and C&A. H&M for example has lower prices uses top models(Naomi Campbell, Linda Evangelista) in order to advertise the brand and also is doing annual events with top designers( Cavalli in 2008)

►Another treat for Zara is the cannibalization . Because of the stores that are located so close one of each other we could assist to the cannibalization of sales between Zara and the other brands managed by Inditex.        

4. Possible alternative ways of action        

        I’ve identified two ways of changing Zara’s business model: the ways of entry on the markets and Assess and Eliminate some other Inditex chains.

4.1 The different ways of entry on markets

         When there is a more stable market, Zara is able to expand with the help of company-owned stores. In the case of the markets where there are cultural differences and therefore a bigger risk Zara should use franchise this way their partners will have to do the market study and assure that the clothes will respond to the market needs. Last but not least joint-ventures in the markets where there are barriers of entry.    

4.2 Assess and eliminate some other Inditex chains

Zara is still in the growing stage and needs effort to stay as successful as it is now. Diversifying the managerial capabilities in too many new chains can destroy both Inditex's and Zara's success. Inditex should assess well whether these chain networks can really become profitable and eliminate some of them if needed.

5. Recommendations  

My first recommendation is to expand aggressively  in Europe in the next five years and in Asia on long-term.

There are significant markets to exploit such as Italy and Scandinavian countries; Italians are the big spenders in the apparel industry in Europe. Zara should especially enter Sweden market as a counter attack to H&M to defend its position in Spain. Expand in Asia is a logical step; Asia is the most popular emerging market for almost all industries.

A second recommendation is a continuation of the first one; on a continent like Asia it will be difficult for Zara to enter and have success without brand recognition  so in the first phase is better to start an advertising campaign which must be well prepared in order to touch the Asian customers because this kind of advertising implies huge costs but in the case of a success the reward will compensate the efforts. Continuing on the idea of advertising Zara must invest in internet retailing, a sector that had an important growth in the previous years.  

My last recommendation is to change the global strategy into a transnational strategy  that will allow Zara to manage better the activities from U.S and Asia. Zara should most likely develop a second distribution center in U.S and the third one in Asia in order to deliver fashionable clothes in a fast manner. The creation of these two distributions centers it will be a test for Zara, it will be like a duplication of its business model and also a big signal of alarm towards the competitors but it also be a failure if it isn’t well managed. I would like also to consolidate the transnational strategy by adding two more elements: a management team that will be in charge with the coordination of all activities regarding the development of the two distributions centers and a council will be added also in order to supervise and improve the communication between the product divisions and the distributions centers (Exhibit 1). The information from the local centers will be sent to the Spain headquarters, in this way; the “design-on-demand” model will be more adapted to the various country specificities. An optimal solution can be the combination between cost leadership and local responsiveness.  

      6. Conclusion  

Zara is one of the biggest retailers in the fashion industry. Its business model is unique: Zara gathers the information from the customers and then respond in a fast manner to their demands.  As long as Zara is keeping its philosophy and make some modifications regarding its strategy in order to face the futures challenges it will be impossible to assist to the disappearance of this retailer in the near future.



Zara case study. Zaras Objectives, Strategies and Problems.

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Zara: fast fashion description.

Focuses on Inditex, an apparel retailer from Spain, which has set up an extremely quick response system for its ZARA chain. Instead of predicting months before a season starts what women will want to wear, ZARA observes what's selling and what's not and continuously adjusts what it produces and merchandises on that basis. Powered by ZARA's success, Inditex has expanded into 39 countries, making it one of the most global retailers in the world. But in 2002, it faces important questions concerning its future growth.

Case Description ZARA: Fast Fashion

Strategic managment tools used in case study analysis of zara: fast fashion, step 1. problem identification in zara: fast fashion case study, step 2. external environment analysis - pestel / pest / step analysis of zara: fast fashion case study, step 3. industry specific / porter five forces analysis of zara: fast fashion case study, step 4. evaluating alternatives / swot analysis of zara: fast fashion case study, step 5. porter value chain analysis / vrio / vrin analysis zara: fast fashion case study, step 6. recommendations zara: fast fashion case study, step 7. basis of recommendations for zara: fast fashion case study, quality & on time delivery.

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Case Analysis of ZARA: Fast Fashion

ZARA: Fast Fashion is a Harvard Business (HBR) Case Study on Strategy & Execution , Texas Business School provides HBR case study assignment help for just $9. Texas Business School(TBS) case study solution is based on HBR Case Study Method framework, TBS expertise & global insights. ZARA: Fast Fashion is designed and drafted in a manner to allow the HBR case study reader to analyze a real-world problem by putting reader into the position of the decision maker. ZARA: Fast Fashion case study will help professionals, MBA, EMBA, and leaders to develop a broad and clear understanding of casecategory challenges. ZARA: Fast Fashion will also provide insight into areas such as – wordlist , strategy, leadership, sales and marketing, and negotiations.

Case Study Solutions Background Work

ZARA: Fast Fashion case study solution is focused on solving the strategic and operational challenges the protagonist of the case is facing. The challenges involve – evaluation of strategic options, key role of Strategy & Execution, leadership qualities of the protagonist, and dynamics of the external environment. The challenge in front of the protagonist, of ZARA: Fast Fashion, is to not only build a competitive position of the organization but also to sustain it over a period of time.

Strategic Management Tools Used in Case Study Solution

The ZARA: Fast Fashion case study solution requires the MBA, EMBA, executive, professional to have a deep understanding of various strategic management tools such as SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis.

Texas Business School Approach to Strategy & Execution Solutions

In the Texas Business School, ZARA: Fast Fashion case study solution – following strategic tools are used - SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis. We have additionally used the concept of supply chain management and leadership framework to build a comprehensive case study solution for the case – ZARA: Fast Fashion

Step 1 – Problem Identification of ZARA: Fast Fashion - Harvard Business School Case Study

The first step to solve HBR ZARA: Fast Fashion case study solution is to identify the problem present in the case. The problem statement of the case is provided in the beginning of the case where the protagonist is contemplating various options in the face of numerous challenges that Zara Inditex is facing right now. Even though the problem statement is essentially – “Strategy & Execution” challenge but it has impacted by others factors such as communication in the organization, uncertainty in the external environment, leadership in Zara Inditex, style of leadership and organization structure, marketing and sales, organizational behavior, strategy, internal politics, stakeholders priorities and more.

Step 2 – External Environment Analysis

Texas Business School approach of case study analysis – Conclusion, Reasons, Evidences - provides a framework to analyze every HBR case study. It requires conducting robust external environmental analysis to decipher evidences for the reasons presented in the ZARA: Fast Fashion. The external environment analysis of ZARA: Fast Fashion will ensure that we are keeping a tab on the macro-environment factors that are directly and indirectly impacting the business of the firm.

What is PESTEL Analysis? Briefly Explained

PESTEL stands for political, economic, social, technological, environmental and legal factors that impact the external environment of firm in ZARA: Fast Fashion case study. PESTEL analysis of " ZARA: Fast Fashion" can help us understand why the organization is performing badly, what are the factors in the external environment that are impacting the performance of the organization, and how the organization can either manage or mitigate the impact of these external factors.

How to do PESTEL / PEST / STEP Analysis? What are the components of PESTEL Analysis?

As mentioned above PESTEL Analysis has six elements – political, economic, social, technological, environmental, and legal. All the six elements are explained in context with ZARA: Fast Fashion macro-environment and how it impacts the businesses of the firm.

How to do PESTEL Analysis for ZARA: Fast Fashion

To do comprehensive PESTEL analysis of case study – ZARA: Fast Fashion , we have researched numerous components under the six factors of PESTEL analysis.

Political Factors that Impact ZARA: Fast Fashion

Political factors impact seven key decision making areas – economic environment, socio-cultural environment, rate of innovation & investment in research & development, environmental laws, legal requirements, and acceptance of new technologies.

Government policies have significant impact on the business environment of any country. The firm in “ ZARA: Fast Fashion ” needs to navigate these policy decisions to create either an edge for itself or reduce the negative impact of the policy as far as possible.

Data safety laws – The countries in which Zara Inditex is operating, firms are required to store customer data within the premises of the country. Zara Inditex needs to restructure its IT policies to accommodate these changes. In the EU countries, firms are required to make special provision for privacy issues and other laws.

Competition Regulations – Numerous countries have strong competition laws both regarding the monopoly conditions and day to day fair business practices. ZARA: Fast Fashion has numerous instances where the competition regulations aspects can be scrutinized.

Import restrictions on products – Before entering the new market, Zara Inditex in case study ZARA: Fast Fashion" should look into the import restrictions that may be present in the prospective market.

Export restrictions on products – Apart from direct product export restrictions in field of technology and agriculture, a number of countries also have capital controls. Zara Inditex in case study “ ZARA: Fast Fashion ” should look into these export restrictions policies.

Foreign Direct Investment Policies – Government policies favors local companies over international policies, Zara Inditex in case study “ ZARA: Fast Fashion ” should understand in minute details regarding the Foreign Direct Investment policies of the prospective market.

Corporate Taxes – The rate of taxes is often used by governments to lure foreign direct investments or increase domestic investment in a certain sector. Corporate taxation can be divided into two categories – taxes on profits and taxes on operations. Taxes on profits number is important for companies that already have a sustainable business model, while taxes on operations is far more significant for companies that are looking to set up new plants or operations.

Tariffs – Chekout how much tariffs the firm needs to pay in the “ ZARA: Fast Fashion ” case study. The level of tariffs will determine the viability of the business model that the firm is contemplating. If the tariffs are high then it will be extremely difficult to compete with the local competitors. But if the tariffs are between 5-10% then Zara Inditex can compete against other competitors.

Research and Development Subsidies and Policies – Governments often provide tax breaks and other incentives for companies to innovate in various sectors of priority. Managers at ZARA: Fast Fashion case study have to assess whether their business can benefit from such government assistance and subsidies.

Consumer protection – Different countries have different consumer protection laws. Managers need to clarify not only the consumer protection laws in advance but also legal implications if the firm fails to meet any of them.

Political System and Its Implications – Different political systems have different approach to free market and entrepreneurship. Managers need to assess these factors even before entering the market.

Freedom of Press is critical for fair trade and transparency. Countries where freedom of press is not prevalent there are high chances of both political and commercial corruption.

Corruption level – Zara Inditex needs to assess the level of corruptions both at the official level and at the market level, even before entering a new market. To tackle the menace of corruption – a firm should have a clear SOP that provides managers at each level what to do when they encounter instances of either systematic corruption or bureaucrats looking to take bribes from the firm.

Independence of judiciary – It is critical for fair business practices. If a country doesn’t have independent judiciary then there is no point entry into such a country for business.

Government attitude towards trade unions – Different political systems and government have different attitude towards trade unions and collective bargaining. The firm needs to assess – its comfort dealing with the unions and regulations regarding unions in a given market or industry. If both are on the same page then it makes sense to enter, otherwise it doesn’t.

Economic Factors that Impact ZARA: Fast Fashion

Social factors that impact zara: fast fashion, technological factors that impact zara: fast fashion, environmental factors that impact zara: fast fashion, legal factors that impact zara: fast fashion, step 3 – industry specific analysis, what is porter five forces analysis, step 4 – swot analysis / internal environment analysis, step 5 – porter value chain / vrio / vrin analysis, step 6 – evaluating alternatives & recommendations, step 7 – basis for recommendations, references :: zara: fast fashion case study solution.

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