ZARA – FUNDAMENTALLY CHANGED THE FASHION INDUSTRY
By Thuy Nguyen
Final case study exam
(Presented to Bristol University, MBA Course, Marketing Management, 31 December
2013)
Abstract
Nowadays, the expression ‘Fast Fashion’- which essentially imitates the latest fashions and
brings their cheaper versions into stores – is becoming more and more popular in the
fashion world with the apparel retailers continuously joining in and rapidly expanding.
Zara – a brand of Inditex – is a pioneer among fast fashion companies and has achieved an
impressive success which made it become one of the world’s largest fashion retailer in
more than 26 years since its first shop opened. This essay will discuss Zara’s success based
on its typically competitive advantage and business model, as well as compare Inditex’s
financial results with a close competitor. The paper is structured as below:
I. Introduction: Background of Inditex and its oldest & biggest chain Zara.
1. Inditex’s history
2. Zara overveiw
II. Zara’s typical competitive advantage and its challenges.
1. Zara’s typical competitive advantage
2. Challenges of Zara
III. Distinctive feature of Zara’s business model affects its operating economics. IV.
Comparison of Inditex’s financial results with an international competitor.
V. Conclusion.
I. INTRODUCTION
1. Inditex’s history
Inditex (Industria de Diseno Textil) of Spain is a global specialty retailer with market
valuation of €13.4 billion, designed, manufactured and sold apparel, footwear, and
accessories for women, men, and children through Zara and five other chains around the
world: Massimo, Dutti, Pull & Bear, Bershka, Stadivarius and Oysho. At the end of the
2001 fiscal year, it operated 1,284 stores worldwide including Spain, with a selling area of
659,400 square meters, employed 26,724 people (40% out of Spain), and total revenues of
the company reached €3,250 million (1). The company was founded by Amancio Ortega,
who had begun to work in the apparel trade as an errand boy haft a century earlier and now
became Spain’s richest man. Inditex was headquartered and has its most upstream assets
concentrated in the region of Galicia on the northwestern tip of Spain, the place known as
the third-poorest of Spain’s 17 autonomous regions, with a reported unemployment rate in
2001 of 17% (compared to a national rate of 14%), which can be said an odd location for
an aggressive, global company like Inditex.
Inditex was more commonly known by its oldest and biggest brand, Zara, which had 507
stores around the world with a sales volume of €2,477M (76% of total sales of Inditex) at
the end of fiscal year 2001. The impressive success of Zara came from its fast fashion
model and vertical integration which, said by Masoud Golsorkhi, the editor of Tank (2), a
London magazine about culture and fashion, has completely changed consumer behavior.
2. Zara overview:
2.1 Zara background
The first Zara stored opened in 1975 by Amancio Ortega Gaona at Galicia, Spain. At the
beginning, he called it Zorba after the 1964 film “Zorba the Greek.”, however there was a
bar called Zorba in the same area, so to avoid the confusion, and because they had already
made the molds for the letters in the sign, Amancio just rearranged them to see what they
could find. They found Zara(3).
The holding company Inditex was created in 1985. In 1989, Zara had 82 stores in Spain
and started to expand to Portugal, Paris and New York. In the same time, it also began to
make major investments in manufacturing, logistics and IT including a just-in-time
manufacturing system, a warehouse of 130,000 square meters close to its headquarters in
Arteixo and an
advanced telecommunications system. At the end of 2001, Zara operated 507 stores in
countries around the world including Spain (40% of the total number for 6 chains of
Inditex) with 488,400 square meters of selling area (74% of the total) and reaching €1,050
million of the company’s capital (72% of the total). During this fiscal year, it had posted
EBIT of €441 million (85% of the total) on sales of €2,477 million (76% of the total) (4).
Zara was rapidly expanding, while other specialty retailers struggle to get customers in the
stores, due to the company’s strategy involves stocking very little and updating collections
often with a vertical integrative business model, which was differed from the norm, at the
beginning when Ortega started his business.
2.2 Zara business model
Zara Supply Chain
Source: Case study
Zara had a vertical integration system that was particularly distinctive: it manufactured its
most fashion-sensitive products internally (44%). Zara’s designers continuously tracked
customer preferences and placed orders to internal and external suppliers. Production took
place in small batches, with vertical integration into the manufacture of the most
time-sensitive items. Most of the outsource items were within Europe (34%) and only low
cost items was outsourced
to Asia or other regions (22%)(5). Both internal and external production flowed into Zara’s
central distribution center. Products were shipped directly from the central distribution
center to the well-located, attractive stores twice a week, eliminating the need for
warehouse and keep inventories low. This system allows Zara to originate a design and
have finished goods in stores within four or five weeks in the case of entirely new design.
Therefore, Zara can update its new design very often (twice per week) with a very little
stock.
Zara was very successful and developed rapidly with this business model and so the
management wanted to expand its success cross-border. In 2001, Zara was the most
