Zara has become extremely successful due to its responsive supply chain management. It can design, produce, and distribute new fashion items to its stores within 2 weeks, allowing it to stay on top of changing fashion trends. Zara's vertically integrated supply chain with in-house production facilities near headquarters allows it to quickly make changes to designs based on customer demand feedback collected by store managers. This fast production cycle, along with twice-weekly deliveries to stores, means customers always find new inventory that reflects the latest trends, fueling Zara's success.

1. Successful Operations Management in ZARA
By Mariela Siegel
Zara, an extremely successful clothing retailer, continues to prosper due to its highly
responsive and organized supply chain. Zara is a global specialty apparel chain from La Coruña,
Spain, and it is owned by Inditex, one of the world’s largest distribution groups. The company
has become so successful over the years that the founder, Amancio Ortega is ranked fourth in
Forbes’ list of 2015 billionaires.
The first store was opened in La Coruña in 1975, after 12 years of work by Amancio
Ortega as a textiles maker. In December of 1988, Zara began its international expansion by
opening a store in Oporto, Portugal, the neighboring country. The next year, it opened its first
store in New York. After that, the company started expanding to other places in Europe, South
America and Asia. Now Zara has over 2,000 stores located across 88 countries. Zara’s business
model which is based on in-house production proved so successful that the Inditex Group created
new retailers following Zara’s example, which add up to 8 different brands (Inditex 2015). So,
what makes Zara so special? As mentioned previously, the answer is its supply chain
management.
Companies that manage their supply chain can carry less backup inventory and avoid
stockouts. This way, inventory levels are lower and with a lower inventory investment, total
assets are lower, so the asset and inventory turnovers are both higher. Supply chain management
is changing the way fashion comes to market, and Zara is leading the way. Zara is engaging in a
fast fashion strategy that is used by fashion apparel retailers in order to offer customers
inexpensive fashionable merchandise early in the fashion life cycle. This approach is great for
consumers who want the latest trends but who also have a very limited budget. Zara’s customers
engage in a consumer behavior that is based on buying new fashionable apparel every few weeks
instead of purchasing a few higher-priced items every few months. Zara is a pioneer of fast
fashion, and due to its success, this strategy has been adopted by other competitors such as Top
Shop (United Kingdom), H&M (headquartered in Sweden), World (Japan) and Forever 21
(United States) (Levy et al 2014).
The firm’s labor costs are greater because of Zara’s production in Spain, but the higher
costs even out since they have better communication, less shipping costs and time, and their
merchandise makes it to the stores faster. Because of Zara’s efficient supply chain, they can get
new fashionable clothes from design to stores in six weeks, while department stores usually take
about six months. This allows Zara to receive new shipments several times a month, compared to
other fashion apparel retailers who ship new products every three months. Thanks to this fast
fashion system, Zara ensures a relatively short time to get merchandise to stores, without having
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2. to worry about being out of stock. Limiting the stock in the store can create a sensation of
scarcity among consumers, so if they don’t buy a product when they see it, it might not be
available the next time they go to the store. This urges people to shop right away when they see
the product at full price, increasing sales for the company.
Zara’s business model is based on 5 components: design, manufacturing, logistics, stores
and customers. The following graph represents Zara’s sustainable business model:
Source: www.Inditex.com
The company makes constant changes to the initial collection design based on demand.
They manufacture small production batches and have deliveries twice a week. At the stores, daily
sales analyses are made based on customers’ feedback, which are then sent to the headquarters
(Inditex 2015). Zara developed a highly centralized design, manufacturing and distribution
system, all incorporated into the building officially known as The Cube. The workers think of it
as the brain; it’s the central command for a fashion empire built on the unconventional idea that
speed and responsiveness are more important than cost (Berfield 2013). I will now go into
further detail about the design, manufacturing, logistics and stores aspects of the business model.
DESIGN OF GOODS
Zara doesn’t create trends by having fashion shows to showcase its clothing; it prefers to
create designs following evidence of customer demand. In order to achieve a short time between
design and availability in stores, the fast-fashion process starts with the receipt of timely
information from store managers. The headquarter’s staff is always aware of what is currently
selling thanks to the company’s information system. The store managers are the ones who
interact with customers on a daily basis so they find out the things that customers want but that
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3. are not available at the store (Levy et al 2014). For this reason, Zara’s store managers carry
personal digital assistants (PDAs) to gather information about customers’ interests and demands.
To gather customer input, the staff speaks to customers to learn about what they would like to see
in the stores. For example, if customers like a white shirt that is sold in the store but want it in
blue, the store managers would inform the designers in Spain.
The PDAs are connected to the store’s point-of-sale (POS) system, which ranks the sales
of products. Managers can then send the information captured at the cash register and by
speaking to customers, to “The Cube” so that they can put it into use (Gallaugher 2008). The
company’s agents are always scouting out new fashion trends at social gatherings and public
places, and when they see inspiring examples, they quickly send design sketches to the designers
at The Cube (Berfield 2013). All of this data allows the firm to plan styles and issue re-buy
orders based on feedback. At The Cube, there are about 300 designers working on over 30,000
items each year, taking into account customers’ input. Competitors such as H&M and Gap
usually offer about 2,000-4,000 items. These kind of competitors offer exclusive lines in
collaboration with famous designers such as Stella McCartney, Karl Lagerfeld and Maison
Martin Margiela, or celebrities such as Madonna and Kylie Minogue. Zara doesn’t do these kind
of collaborations to attract customers, and its designers are mostly young, not famous, and fresh
from design school (Gallaugher 2008).
MANUFACTURING & LOGISTICS- SUPPLY-CHAIN MANAGEMENT
Fashion is a very high-speed and unstable world, so something can go out of style in the
months that it takes to contract manufacturers, produce it, ship it to the warehouse and then send
it to the retail store. This is where Zara is at an advantage, since the average time for a Zara
concept to go from the idea process to shelves is 2 weeks. Products that get tweaked take even
less time (Gallaugher 2008). If the company believes that there is a big enough demand for the
blue shirt mentioned previously, they will communicate electronically with the factory
responsible for the production of the fabrics for the shirts. Assembler firms have highly
automated equipment to dye the fabric blue and sew the shirts. Lastly, to ensure that the shirts are
delivered in time, they are transported by trucks to stores in Europe and are sent by air express to
other stores around the world (Levy et al 2014).
One of Zara’s biggest competitors, H&M, takes 3 to 5 months to go from the creation
stage to delivery to stores. Other retailers take an average of 6 months to design a new collection
and then three months to manufacture it. Most of the products seen in Zara didn’t even exist as a
sketch three weeks earlier. The company is able to be so responsive thanks to a competitor-
crushing combination of vertical integration and technology-orchestrated coordination of
suppliers, just-in time manufacturing, and finely-tuned logistics (Gallaugher 2008).
Zara has factories located near their headquarters in Spain, while its competitors usually
outsource all production to countries in Asia where labor is cheaper. H&M has about 900
suppliers and no factories (Levy et al 2014). Close to 60% of Zara’s merchandise is produced in-
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4. house, with an eye on leveraging technology in those areas that speed up complex tasks, lower
cycle time, and reduce error. Zara is able to make profits by blending math with its data-driven
fashion sense. The firm makes use of inventory optimization models to help determine the
amount of items and of each size that has to be delivered twice a week to stores in order to
ensure that the stores are stocked with what they need (Gallaugher 2008).
Zara has a vertical integration of the supply chain, which means that they own their
supply chain. Because of this, Zara makes 40 percent of its own fabric and purchases most of its
dyes from its own subsidiary. They also have robots from 23 highly automated factories from
outside of the distribution center which cut and dye the fabric. About half of their cloth arrives
undyed, so that Zara can make changes to it based on fashion changes or customers’ demands.
After the cutting and dying process, the products are stitched together by a network of local
cooperatives (Gallaugher 2008).
Finished products go to a 5 million square foot distribution center in La Coruña or to a
similar one in Zaragoza, Spain. The first facility is actually about nine times bigger than
Amazon’s warehouse in Fernley, Nevada. Around 2.5 million products get moved per week, so
no item stays there more than 72 hours. As part of their pre-shipping procedure, clothes are
ironed, hanged, priced and secured before leaving the facility. This allows the products to go
straight from the boxes to the store racks. An added benefit is that store associates can spend
more of their time on helping customers find what they want. Lastly, the items are either
transported by trucks overnight or flown to further destinations. As part of Zara’s sustainable
business model, they started an environmental strategy in 2007 that installed the use of
renewable energy systems at logistics centers and the use of biodiesel for the firm’s trucks
(Gallaugher 2008).
STORES- LAYOUT STRATEGY
Most of Zara’s products have a limited production run which provides the company with
several benefits. The first benefit is that it creates a sense of exclusivity, because there is a
limited amount of a certain item and not everyone can get it. In addition, each store is tailored to
the tastes of local customers, making some items even more exclusive. Due to the high level of
sales and to the limited quantity, the stores get restocked with new items very often. The CEO of
the National Retail Federation pointed out that “it’s like you walk into a new store every two
weeks” (Gallaugher 2008). I can attest to this because since I grew up in Spain and travel there
every summer, and I go to Zara several times a month over the summer, and the store looks
completely different every couple of weeks in terms of merchandise.
Secondly, the fear of not being able to buy something later on after first seeing it and not
buying it encourages customers to buy right away and at full price. Waiting three weeks to buy a
product probably means that either it has been sold or it has been removed in order to make room
for new merchandise. The industry average markdown ratio is about 50% while Zara sells 85%
of its merchandise at full price. Zara has sales twice a year, once during the summer time and one
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5. after the winter holidays. Besides those sales, nothing is marked down during the rest of the year.
The constant flow of new limited merchandise also encourages customers to visit the store more
often. An average Zara customer visits the store 17 times per year while competitors get 3 annual
visits. The last benefit of limited production is that it reduces the company’s risk of making a
mistake. If a product doesn’t sell well, the company doesn’t have to worry about a large amount
of merchandise, reducing the loss. Zara’s failure rates for a product line is 1%, compared to 10%
for the industry (Gallaugher 2008).
The Cube manages store aspects such as scheduling staff based on each store’s forecasted
sales volume by using software. It also directs store displays, which are tested in a basement
staging area that imitates some of the firm’s most exclusive locations worldwide. This is where
the workers test the chain’s window displays, merchandise layout, etc. Every two weeks, new
store layouts are sent out to each location to match the new merchandise received in stores
(Gallaugher 2008).
Zara is able to succeed so much thanks to its centralized business model and strict
directions from The Cube. Having the design team, manufacturing and logistics under the same
roof and guiding the way for the stores leads to a successful supply chain, that has brought Zara
to its rank as one of the world’s most valuable brands. There are other curious aspects about Zara
that differentiate it from its competitors, such as the low investment in advertising.
ZARA’S ADVERTISING
Zara’s approach to advertising is very unique, since it is almost inexistent. Instead of
spending millions on promoting the brand on television or magazines, the firm spends its money
on finding the best locations for its stores and designing the best shop windows, which do all the
advertising. While competitors spend 3.5% of their revenue on advertising, Zara spends 0.3%. Its
advertising resources go into buying storefronts next to luxury brand stores to elevate Zara’s
brand image to affordable luxury. Masoud Golsorkhi, the editor of Tank, a London magazine
about culture and fashion explained that "Prada wants to be next to Gucci, Gucci wants to be
next to Prada. The retail strategy for luxury brands is to try to keep as far away from the likes of
Zara. Zara's strategy is to get as close to them as possible.” This is why Zara is located next to
the most famous brands in the world, reinforcing their perception as a firm that delivers similar
fashion at a much lower price (Thompson 2012).
Some of Zara’s most exclusive locations are on 5th Avenue in New York City, by
Champs-Élysées in Paris, France, or Newbury Street in Boston. Zara’s target market is women
24-35 years old, who they reach by also locating their stores in town centers and places with high
concentrations of women in this age range. As we can see in the following pictures, Zara’s
locations and appearances have nothing to envy from higher end retailers.
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6. ZARA’S SUCCESS
Without a doubt, Zara’s success is based on the company’s vertically integrated supply
management, which gives the company a strategic advantage compared to its competitors. This
advantage is based on the company’s shorter cycle time from design to production to delivery to
stores, shorter lead time (production in small quantities and frequent deliveries) and less need to
discount goods. Zara can replenish existing items in as little as two weeks, much faster than
competitors. Zara’s small production batches create scarcity, generating a sense of urgency to
purchase the product while supplies last. As a consequence, the company doesn’t have much
excess inventory or big markdowns. This is combined with a lack of advertising budget, and a
focused attention on investing heavily in the beauty, historical appeal and location of its shops
(Loeb 2013). The company doesn’t even engage in collaborations with famous fashion designers
like its competitors do.
The savings from advertising help support higher costs of producing in Spain. This also
leads Zara to produce what the customers want. The integration of design, manufacturing and
logistics enables the company to be able to respond quickly to any market demand. The key is
that Zara controls more of its manufacturing than most retailers. Zara’s business strategy shows
others that supply chain management can lead to sustainable competitive differentiation and
incredible profits.
Zara’s strategic advantage continues leading the company to prosperity and increased
profits. The future shines bright for Zara and for Inditex as a whole, since Zara is its leading
brand. The corporation ended the year 2014 with 343 new stores, adding to 6,683 establishments
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5th Avenue, NYC Champs-Élysées, Paris
Newbury Street, Boston

7. in 88 markets for all of its 8 brands (Inditex 2015). The company plans on opening many more
stores in 2015 and expanding its online sales presence, which doesn’t seem difficult since
customers are shifting to online shopping. With this said, Zara has an even more prosperous year
ahead to continue its market expansion and retail domination.
Due to Zara’s European domination, the company should continue expanding in other
continents. Zara expects its US market to grow in the coming years and new stores are opening
in the country. It is still difficult to find a Zara store in the US unless you are in a major city, so
they could open more stores throughout the country. In Spain, there is a Zara at every mall, so
they should attempt to reach this same goal in many US cities and towns, making it easier for
customers to access their stores. They should definitely expand in the US, but they should look at
even better markets like China. This is a country with a growing population and a lot of
potential. China is also very appreciative of fashion, so Zara would be a great fit for China.
Another aspect that they could work on would be technologically advancing their stores.
It is the age of technology and Zara’s stores lack technology besides the devices that the store
managers carry around. Many other stores have kiosks within the store to check the availability
of products and to order them online and have them sent to customers’ homes. This is something
that could work really well for Zara since in many occasions, customers can’t find a product that
is highly demanded but that may still be available at another store.
Zara could also add to its stores the ability to pay with a mobile device. Zara is a very
famous store so it is always busy and the lines to checkout are always very long so this could
speed up the process. In many occasions, I have decided to not make a purchase at Zara because
I didn’t want to wait in the long lines. I recently bought something at Sephora and paid through a
store associate’s device, so I didn’t have to wait in any lines, which lead to an increased purchase
satisfaction. Most people have smartphones nowadays so this could be a great way to be more
technologically advanced and to increase efficiency, increasing Zara’s profits. Even though Zara
is extremely successful, there is always room for improvement, and in order to stay as a leader in
their market, they need to adapt to changes within the industry and continue to be innovative.
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8. References
Berfield, Susan, and Manuel Baigorri. "Zara's Fashion Supply-Chain Edge." Bloomberg.com.
Bloomberg, 14 Nov. 2013. Web. 15 Apr. 2015.
<http://www.bloomberg.com/bw/articles/2013-11-14/2014-outlook-zaras-fashion-
supply-chain-edge>.
Gallaugher, John M. "Zara Case: Fast Fashion from Savvy Systems." Gallaugher.com.
Gallaugher, 13 Sept. 2008. Web. 15 Apr. 2015.
<http://www.gallaugher.com/Zara%20Case.pdf>.
Inditex. Inditex, n.d. Web. 15 Apr. 2015.
<http://www.inditex.com/>.
Levy, Michael, Barton A. Weitz, and Dhruv Grewal. Retailing Management. Boston: McGraw-
Hill Irwin, 2014. Print.
Loeb, Walter. "Zara's Secret To Success: The New Science Of Retailing." Forbes. Forbes
Magazine, 14 Oct. 2013. Web. 16 Apr. 2015.
<http://www.forbes.com/fdc/welcome_mjx.shtml>.
Thompson, Derek. "Zara's Big Idea: What the World's Top Fashion Retailer Tells Us About
Innovation." The Atlantic. Atlantic Media Company, 13 Nov. 2012. Web. 16 Apr. 2015.
<http://www.theatlantic.com/business/archive/2012/11/zaras-big-idea-what-the-worlds-
top-fashion-retailer-tells-us-about-innovation/265126/>.
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