Zara: Business model

國

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

3.1.1 Zara: Business model

As Martínez (2012) writes, Zara considers the customer as their information source and not just a mere receiver of products (p. 120). Zara has kept firmly the idea that it is the customers who dictate the designer what they want to wear, and not the way around. As one executive of Zara explains (Martínez, 2012, p. 121):

We first observe the social environment, like restaurants, concerts, streets, in order to anticipate a fashion trend that customers are looking for, to anticipate a collection, bring them to the market and wait for the acceptance of the market, and then eventually, the clothes are designed, made and distributed.

Store managers report every day to the headquarters in Arteixo (A Coruña) what the customers buy, don’t buy and what their preferences and/or complaints are (Martínez, 2012, p. 76). In contrast to luxury brands, Zara, and to a further extent, other fast fashion brands too, they respond to consumers’ preferences. All this allows designers to work on a sure thing. In a way, customers determine production and Zara modifies consumer behavior. The production of each item is limited, thus its short available time in the stores creates a feeling of “scarcity” in consumer's perception. This rapid turnover of collections permits, on the one hand, to attract customers to go back often to the store, as it creates expectations: “If you don’t buy it now, it won’t be there later.” On the other hand, products can be sold at a full price, without having them to be returned; hence, there are almost non-existent stocks.

Once the team selects a prototype for production, the designers refine colors and textures on a computer-aided design system (Ferdows, Lewis & Machuca, 2004). In Inditex’s headquarters, over 130,000 square meters of cloth are marked and cut every day, and

‧

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

clothing models are designed. All those pieces of cloth and the correspondent accessories for each clothing are sent to the sewing workshops -a few owned by Inditex itself and the rest, subcontracted. After the garment is produced, it is sent back to the headquarters to be controlled, ironed and packed up before delivering to the stores (Martínez, 2012, p. 130).

Therefore, every store in the world receives new collections twice a week from one of the ten logistics centers, all owned by Inditex and located in Spain. From the logistics centers, the product reaches European stores in 24-36 hours (via railway) and those in the rest of the world, within 48 hours (via air). Another executive explains (Martínez, 2012, p. 123) that for wardrobe basics, from the moment they know which models have been the most bought until new models are produced, it may take three weeks, while for the rest of models (more sophisticated ones), it may take five weeks. Though, according to Martínez (2012) Zara’s two seasons are indeed presented during January-February and August-September, and at different times from the usual one of the fashion industry (April-June and September-December). And, during the season, Zara launches new designs, mostly, new trends -40%, 50% of the production- but also some ‘basics’ - a fixed collection that is never outdated. Only ‘basics’ count for 60% of the production (p. 127).

Figure 5. Business model of the Inditex Group (See also Appendix 3).

STORE 6,009 stores worldwide, across five continents.

DESIGN Over 1,000 professionals in products design and development.

MANUFACTURING Over 50% of Inditex’s manufacturing takes place in suppliers from proximity. And, over 1,300 suppliers.

‧

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

DISTRIBUTION Every store in the world receives new models twice a week from the logistics centers of each one of the chains, all of which are located in Spain. From the logistics centers, the product reaches European stores in 24-36 hours and those in the rest of the world within 48 hours.

Source: 2011 Inditex Annual Report

This business model is a simple illustration of the complex and well-integrated business strategy of Inditex, as it is reduced to four phases: store, design, manufacturing and distribution. Here we can observe how the company gives priority to the store “section”, where the model starts and comes back again to know about the customers’ preferences through the store managers’ reports. However, we include the supply phase along the three last phases (design, manufacturing and distribution), due to the significance of materials, fabrics, and technology in the whole process. Even so, the number of suppliers (over 1,300) is mentioned. Similarly, it informs about the quantity of employees (until March 13, 2013, a total of 120,314), the number of investors (over 60,000 shareholders), as well as the number of followers in Facebook (over 21 million), which the chart has put under the title of customers. Inditex adds figures about the community factor, by remarking the over 600,000 beneficiaries of social programmes.

After we have read an excerpt of Ferdows, Lewis & Machuca from their paper Zara’s secret for fast fashion (2004), we understand that the fundamental key point on the success of Zara’s business model is the constant exchange of information throughout every part of

‧

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

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. While most companies insert layers of bureaucracy that can delay communication between departments, in Zara though, the organization, operational procedures, performance measures, and even Arteixo’s layouts are all designed to make information transfer easy.

After understanding the business model of Zara, we can observe that this homogeneous strategy permits Zara to bring its global image to customers in any of its stores worldwide.

In short, this business model is successful because of the efficiency in time and costs of all the strategy phases, as well as the rapid turnover of collections.

This turnover is reflected in the feeling of “scarcity” of Zara items. This is similar to what high fashion brands or Haute couture make fashion consumers to think: products are limited, original and exclusive. Zara uses many different fabrics of inferior quality than those from Haute couture; Zara creates models in mass quantities (Prêt-à-porter), but limited, without stock and in a short period of time. Therefore, consumers might perceive Zara items as reproductions of high fashion brands, but with several sizes and offering more variety of styles. Somehow, Zara has combined features of two modalities of clothing.