ZARA is a Spanish clothing brand owned by Inditex that pioneered fast fashion. ZARA's business model emphasizes vertical integration, producing clothing in small batches close to stores to facilitate quick response to trends. Stores provide frequent feedback to help designers continuously adapt products. About half of materials and 40% of products are manufactured internally. Distribution centers use advanced tracking to deliver to stores within 1-2 days in Europe and 2-4 days outside Europe. ZARA's approach reduces risks from unsold inventory compared to competitors. Its international growth follows an "oil stain" pattern entering culturally similar markets with company-owned stores.

1. ZARA: Fast fashion
case study
MIS 석사 3학기 정효경

2. Contents
 ZARA overview
 ZARA’s business system
 Comparing Zara with competitors
 International Growth Strategy
 Summary
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3. 1. ZARA overview
 Inditex
 Founded in 1963 in Galicia, Spain
Umbrella group of ZARA and 7 other apparel chains
 ZARA
 The most profitable brand Owned by Inditex
 The first ZARA store was opened in 1975 in La Coruna, Spain
Till 2014, over 2,000 stores located across 88 countries
in Europe, the Americans, Asia and Africa.
 Position: “medium quality fashion clothing at
affordable prices”
Main global competitions: the GAP, H&M, Benetton
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4. 1. ZARA’s business system
 ZARA’s business system was particularly distinctive in that
ZARA manufactured its most fashion-sensitive products
internally.
 Production took place in small batches, with vertical
integration into the manufacture of the most time-sensitive
items.
 Vertical integration helped reduce the “bullwhip effect”.
 Design-finished goods(4-5weeks); redesign (2weeks)
 ZARA produces and presents very limited volumes of new items in
certain key stores. They are produced in a larger scale only if
consumer reactions were unambiguously positive. Thus, failure rates
on new products were very low compares to competitors.
 Quick-response(QR) was critical to ZARA’s superior
performance, the connection between the two was not
automatic
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5. 1. ZARA’s business system
Design
 Each of ZARA’s three product lines(foe women, men, and children) had a creative team.
 Work on products for current season by creating constant variation
 Continue in-season development
 Select the fabrics and product mix for the following season and year
 The process of adapting to trends and differences across markets was more
evolutionary, placed greater reliance on high-frequency information.
 Frequent conversations with store managers
 The ZARA’s design teams continuously track consumer preferences and use
this information about sales potential based on a consumption information
system to transmit repeat orders and new designs to internal and external
suppliers.
 The ZARA’s design teams transcended design, are bridged merchandising
and the back end of the production process.
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6. 2. ZARA’s business system
Sourcing & Manufacturing
 ZARA sourced fabric, other inputs, and finished products from
external suppliers with the help of purchasing offices in Barcelona
and Hong Kong, as well as the sourcing personnel at headquarters.
 About one-half of the fabric purchased was “gray” (undyed) to
facilitate in-season updating with maximum flexibility, and of the
remainder, approximately two-third in Europe and North Africa, and
one-third form Asia.
 Further down the value chain, about 40% of finished garments
were manufactures internally.
 Focused on the capital-intensive parts of production process-pattern design,
cutting, finishing, and inspection.
 Vertical integration into manufacturing
 Cut garments were sent out to about 450 workshops with small operations
specialized by product type.
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7. 2. ZARA’s business system
Distribution
 own distribution center in Arteixo
 satellite center in Argentina, Brazil and Mexico
 center works on a dual-shift basis
 equipped with mobile tracking system
 delivery upon Europe takes about 24-36 hours, outside Europe 24-
48 hours
 scheduled shipments by time zones
 establishment of a second distribution center at Zaragoza in 2003
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8. 2. ZARA’s business system
Retailing:
 Consists of merchandising and store operations
 Stores placed in premier shopping streets and centers
 Very low advertising expenditures, no fashion shows
 Set high value on presentation of store window shows
 Main retailing-tactic: create a sense of scarcity
 Aim: reduce inventories at marketed-down prices
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9. INDITEX
MANAGEMENT /
DESIGNERS
Determine apparel
designs and
manufacturing locations
ASIA
(20%)
Low QR
Low Cost
IN-HOUSE (40
%)
High QR
High Cost
EUROPE /
N. AFRICA (40
%)
High QR
High cost
System is designed for short production
cycles, quick response (QR) to demand,
and reduced number of markdowns
DISTRIBUTION CENT
ER
Increased shipment freque
ncy increases QR
Small batch production low
ers cost of demand uncerta
inty
STORES
Decentralized store
management supplements
QR
Managers determine
products to sell and return
IT SYSTEMS
Provides accurate
demand information to
determine
manufacturing locations
and production levels
Manufacturing
Design
Distribution Sale
Returns from stores either rerouted or
disposed of in local stores near dist.
center
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2. ZARA’s business system

10. 3. Comparing ZARA with GAP & H&M
 H&M outsourced all of its production while ZARA’s retained
many production activities in house and kept all internal and
external activities under its strict control
 H&M’s competitive strategy different
 Lower prices, much higher spending on advertising, less upscale
stores.
 Both GAP and H&M relied on a traditional “push” approach, developing
substantial resources to advertising. ZARA used “pull” approach,
attracting shoppers with small collections and new weekly offerings in
reaction to customers.
 At GAP, design preceded manufacturing and commercial activity, while
ZARA’s business model configures the same activities simultaneously
by talking a team approach to design manufacturing-commercialization
activities.
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11. 4. International Growth Strategy
Market Selection
 Market Selection Process:
 Countries which are similar to ZARA’s home market
 Macro Analysis
Micro Analysis
 Preconditions for entering:
 Minimum level of economic development
 Low entry barriers
 Oil-Stain entry pattern
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12. 4. International Growth Strategy
Market Entry
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 Company-owned stores(subsidiaries)
 Most used method
 Applicable in profitable and no risk markets
 Lots of management resources needed
 Franchising
 Applicable in risky and small markets with high entry barriers
 Preferable in countries with many cultural differences
 Normally contracts for 5 years
 Fee is between 5& and 10% of sales
 Joint venture
 Applicable in markets which cannot be approached directly because
of market entry barriers
 Interest were split 50:50

13. 5. Summary
Key take away form ZARA case
 Selling “ state-of-the-art” fashion through being a fashion follower
 Integration upstream to create competitive advantages
downstream
 Relation between distribution and production development
 Evolutionary product development and sourcing
 Product development and distribution instead of promotion underlies
brand development
 Rethink the entire supply chain
 Reduction in mark-down can more than mark-up for increase in labor
cost
 Planned shortages cam induce more future demand
 Good store location, layout and product display can substitute advertis
ing
 Faster response eliminates inventory risks
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14. 5. Summary
Discussion and questions
 On which way can the fact that ZARA has s single
distribution center be an advantage ?
 Centralized control avoid misunderstanding or conflict
 Manageable time scheduling, focused on one rather than
managing several different time schedules.
 On which way can this be an disadvantage?
 Dis-economic of scale: in long term, the costs is getting higher
and higher.
 Because of managing distribution on their own, designing and
production process might not be in its optimum level.
 Need culturally diverse management team alone with ZARA’s
international expansion
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