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Zara: A Spanish clothing chains recipe of centralisation and integration
Key points:
*…¾X Zara is the worlds fastest-growing retailer
*…¾X At the heart of the companys success is a vertically integrated business model that
spans design, just-in-time production, marketing and sales, giving it more flexibility than
its rivals to respond to changeable fashion trends
*…¾X Unlike other international clothing chains, Zara makes more than half of its clothes
in-house, rather than relying on a network of slow-moving and disparate suppliers
*…¾X Zara can make a new line from start to finish in three weeks, against an industry
average of nine months
A mixture of vertical integration and street smarts has transformed a small Spanish
clothing chain into a global success, reports The Economist
Most fashion retailers discreetly tuck their price tags inside their garments. Not Zara. Its
sales tickets are big and colourful, emblazoned with the flags of a dozen countries, each
accompanied by a local-currency price that is the same for that item around the world,
from Madrid to Riyadh to Tokyo.
In an industry traditionally geared to local tastes, this United Nations approach exemplifies
the centralisation and integration that have turned Zara into the worlds fastest-growing
retailer. Over the past five years, the number of its stores has risen from 180, mainly in
Spain, to 450 in 30 countries. Revenues have grown by an average of 27% a year since
1998.
Founded in 1963 as a maker of ladies lingerie in the Galician town of La Coruna, Zara
today is the centrepiece of Inditex, a holding company for five fashion chains that is
planning an initial public offering on the Madrid bourse on May 23rd. The flotation is
expected to value Inditex at as much as euro9.3bn ($8.2bn) and cement the standing of its
reclusive 65-year-old chairman and majority shareholder, Amancio Ortega Gaona, as
Spains richest man. Mr Ortega started the business with just Pta5,000 ($83).
At the heart of Zaras success is a vertically integrated business model spanning design,
just-in-time production, marketing and sales. This gives the group more flexibility than its
rivals have to respond to fickle fashion trends. Unlike other international clothing chains,
such as Hennes & Mauritz (H&M) and Gap, Zara makes more than half of its clothes in-
house, rather than relying on a network of disparate and often slow-moving suppliers.
H&M, for instance, buys clothes from more than 900 firms. "Vertical integration has gone
out of fashion in the consumer economy," says Richard Hyman of Verdict, a retail
