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Chapter 3: Zara: Fast Fashion from Savvy Systems. Medium quality “fast” fashion clothing at affordable prices. A Zara store in Manhattan. Why Study Zara?. To understand and appreciate : The counterintuitive and successful strategy of Zara The technology, which has made all of this possible.

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chapter 3 zara fast fashion from savvy systems
Chapter 3: Zara: Fast Fashion from Savvy Systems

Medium quality “fast” fashion clothing at affordable prices.

A Zara store in Manhattan

why study zara
Why Study Zara?
  • To understand and appreciate :
    • The counterintuitive and successful strategy of Zara
    • The technology, which has made all of this possible
latest fashion
Latest Fashion

ZARA · Fall / Winter 2011 - TRF - Young

"TRF" is short for Trafaluc- offered by Zara for the youth/teenage

(Store in Sydney)

humble beginning amanciao ortega gaona
Humble beginning: Amanciao Ortega Gaona
  • At age of 13, worked as a gofer in a shirt store
  • In 1963, he started his own

lingerie production firm.

  • In 1972 he founded Confecciones Goa, S.A.,

the first garment-making factory of Inditex

  • 1975, he started Zara
    • When a German wholesaler suddenly canceled a big lingerie order in 1975, Amancio Ortega thought his fledgling clothing company might go bankrupt. All his capital was tied up in the order. There were no other buyers. In desperation, he opened a shop near his factory in La Coruña, in the far northwest corner of Spain, and sold the goods himself. He called the shop Zara.
fashionable but not pricy
Fashionable But Not Pricy

In the early 1960s Ortega became the manager of a local clothing shop, where he noticed that only a few wealthy residents could afford to buy the expensive clothes. Thus he started producing similar items at lower prices, purchasing cheaper fabric in Barcelona and cutting out pieces by hand using cardboard patterns. Ortega then sold his items to local shops; he used the profits to start his first factory in 1963 at the age of 27.

impacts of amanciao ortega s earlier experiences
Impacts of Amanciao Ortega’s Earlier Experiences

When Amanciao Ortega was 13 years old he worked as a delivery boy for a shirt maker who produced clothing for the rich. He later worked as a draper's and tailor's assistant. In seeing firsthand how costs mounted as garments moved from designers to factories to stores, Ortega learned early on the importance of delivering products directly to customers without using outside distributors. He would later employ such a strategy with great success at Zara, attempting to control all of the steps in textile production in order to cut costs and gain speed and flexibility. Read more: Amancio Ortega 1936— Biography - Early career, The zara phenomenon, Inditex


Inditex, one of the world’s largest fashion distribution groups, has more than 5,000 stores in 77 countries. In addition to Zara, the largest of its retail chains, Inditex has seven other formats: Pull &Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe.

Its unique management model, based on innovation and flexibility, and its vision of fashion – based on creativity and quality designs, together with the capacity to react quickly to market demands – has enabled it to enjoy rapid international expansion and an outstanding reaction to its various commercial concepts.

The Inditex Group is made up of more than 100 companies operating in textile design, manufacturing and distribution.

oem odm obm







(Supply Chain)

Demand Chain

net worth
Net Worth

Net Worth $31 B As of March 2011

The richest person in Spain

The #2 richest person in Europe

The #7 richest person in the world

went public in 2001
Went Public in 2001

Sales in 2000• Inditex $2.43 billion• H&M $3.2 billion• Gap $13.6 billion

  • In May 2001, a particularly tough period for initial public offerings, Inditex sold 25% of its shares to the public for €2.3 billion.
  • Inditex's sales—70% of which come from Zara.
  • Zara's sales and net income have continued to grow at an annual rate of over 20%.
  • Ortega's owned 59% share of the company.
gap versus inditex at a glance
Gap versus Inditex at a Glance

€12.5 billion in global sales 2010

2010 €1.73bn ($2.45bn) of net profit

1 euro = 1.3948 US dollars

apple vs zara
Apple vs. Zara

What is the similarity?

Jobs fostered an approach to product design that evoked haute couture as much as high-tech.

zara s positioning
Zara’s Positioning
  • Price
  • Fashion
  • Quality
  • Customer segmentation
  • “Armani at moderate prices!”
  • Fashions are more “Banana Republic,” prices are more “Old Navy.”
  • Look like high fashion but are comparatively inexpensive.
  • Cheap Chic

Zara as a "fashion imitator" companyand low cost products.

Trends setter?

Instead of setting the trends, Zara follows them.

zara positioning
Zara Positioning

The Zara brand is well regarded among the core 25- to-35-year-old consumers?

what is fashion
What Is Fashion?





Fashion is the imitation of a given example and satisfies the demand for social adaptation. .

The more an article becomes subject to rapid changes of fashion, the greater the demand for cheap products of its kind.— Georg Simmel, “Fashion” (1904)

fashion diffusion
Fashion Diffusion


fashion vs art
Fashion vs. Art
  • Steve Jobs’ philosophy of aesthetics reminds me [Mona Simpson] of a quote that went something like this:

“Fashion is what seems beautiful now but looks ugly later;

art can be ugly at first but it becomes beautiful later.”

apple vs zara1
Apple vs. Zara

Zara 12000 styles a year.

Apple 10 or so product lines, very focus.


-- Louis Vuitton Fashion Director Daniel Piette

Apple Commercial

"Zara is possibly the most innovative and devastating retailer in the world."

zara as a rule breaker
Zara as a Rule Breaker
  • Contract Manufacturing (Outsourcing, offshore outsourcing)?
    • factory workers in Spain make an average of $1,650 a month, vs. $206 in China's Guandong Province
    • 34% manufacturing is outsourced to Asia, and 14% to parts of Europe (mainly Italy and Turkey), those tend to be the more basic items. The high-fashion stuff, 49% of what it sells, is cut and finished in “proximity” (Spain, Portugal and Morocco), though some sewing is done by small local cooperatives. [ H&M 75% to Asia][[Check label]]
  • Marketing? (Budget)
    • 0.3% vs. 3.5% of revenue
  • Batch Size?
    • Zara produces in small batches which creates a sense of scarcity with consumers. (Buy now or never)
    • Fail products% (10% vs. 1%)
pros and cons of contact manufacturing
Pros and Cons of Contact Manufacturing
  • Costs
    • Controls/Coordination
      • Use IT for centralized planning & decentralized execution
    • Reduce a single point of failure?
  • Risks
    • Sweatshop
    • Environmental issues
    • Quality
labor costs
Labor Costs

Zar’s factory workers in Spain make an average of $1,650 a month, vs. $206 in China's Guandong Province. But the company saves time and money on shipping.

outfit clashes

ultimate fashion faux pas -- wearing the same dress as someone else.

Prevents Same-Dress Embarrassment

Outfit Clashes 撞衫

As any fashionista can tell you, it’s not just being “in fashion” that matters, it’s being “in fashion” when few others are.

zara as a rule breaker1
Zara as a Rule Breaker

Zara Thrives by Breaking All the Rules

  • Markdown?
    • Markdown legend (?)
    • 50% vs. 15%
  • Frequency of new products arrival & store layout?
    • Ship twice a week (Z-Day)
    • Like walking into a new store every two weeks (with store layout changed – directed from the Cube)
  • Out of stock (Good or Bad)?
    • Encourages customers to visit often(# of store visit per year 3 vs. 17)
  • Store product mix decision
    • Zara retail store managers, not headquarters, determine their own store’s product mix.

Industry average markdown ratio is approximately 50%, while Zara ration is about 15%.

zara as a rule breaker2
Zara as a Rule Breaker
  • Store Ownership? (Rent vs. Own)
  • Location of warehouses/distribution centers?
    • Spain
    • Get merchandise to European stores within 24H hours, flying goods via commercial airliners to stores in the Americas and Asia in 48H.
    • Some clothes it has made in China are shipped to Spain and then back to shops in China.
  • Design Team (Star Designer?)
    • Rotation (why?)
    • Cross-functional teams
shipping of clothes from distribution center
Shipping of Clothes from Distribution Center

Clothes are ironed in advance and packed on hangers, with security and price tags affixed.

More than 2.6 million items move through the distribution center each week, See pictures at

the quick change artist
The quick change artist

Zara's ability to quickly bring the latest designs to its stores rests on its unique business model.

Zara's design team monitors fashion trends and store sales. Based on this they come up with 1,000 designs a month.

They send these out for manufacturing around the world.

Completed designs are shipped back to Spain.

Local store managers in each country tell the Zara head office in Spain what the store needs and how much.

The design team then flies or trucks out consignments for each of Zara's over 1,608 stores based on local needs and trends. A store gets consignments twice a week.

co location leveraged at zara
Co-location leveraged at Zara

The cross-functional teams can examine prototypes in the hall, choose a design, and commit resources for its production and introduction in a few hours, if necessary

Production Planner


Marketing Specialist


the apparel lifecylce
The Apparel Lifecylce

Watch the BBC news video below!

What is the risk faced by Zara?

fashion reconnaissance
Fashion Reconnaissance

Spotting trends everywhere from the street to movies to couture fashion shows and,

Information from its customers to keep its merchandise fresh.


Zara has higher manufacturing costs than rivals.

Inditex gross margins are 56.8 percent compared to 37.5 percent at Gap.

information and it
Information and IT
  • Zara Store
    • Hard data: POS data
    • Soft data: Ask customers their preferences (PDA)
    • Firm data: Nonsale data  What is this called in e-commerce?
  • Design/Production Team
    • fabric is cut and dyed by robots (laser cutting)
  • Not mentioned specifically:
    • ERP, SCM, CRM, e-commerce web site
rapid fire fulfillment
Rapid-fire Fulfillment

Ferdows, K., M.A. Lewis, J.A.D. Machuca.

“Rapid-fire fulfillment”,

Harvard Business Review, 82(11), 2004.

ten fingers both hands
Ten Fingers: Both Hands
  • “You need to have five fingers touching the factory and five touching the customer.”
  • Translation:
    • Control what happens to your product until the customer buys it.
    • Do everything possible to let one hand help the other.
vertical integration
Vertical Integration

5 fingers on production & 5 fingers on customers


marketing and store locations
Marketing and Store Locations

Zara relies more on location of a retail establishment rather than advertising to attract customers.

Only .3 percent of sales are spent on advertising for the company compared to that of its competitors who spend around 3.5 percent.

communication loops
Communication Loops

Close the communication loop:

Customer  Store Manager/Staff  Market Specialists (i.e., Fashion Buyer)Designer  Production Staff  Buyer (Procurement Specialist)  Subcontractor  Warehouse Managers/Distributor

customer design
Customer  Design

Inditex Executive PresidentJesus Echevarria stated that “Everything is happening in stores”.

From customers to designers. “It turns the customer into the starting point of the fashion chain and not the designer.”

People on the street is the runway that Zara studies.

fast fashion
Fast Fashion
  • Just-in-Time  Quick Response  Fast Fashion
  • Information Technology
  • Push vs. Pull
  • Reactive Capacity
  • Fast Fashion Competitors
    • Forever 21
    • Uniqlo
    • Renner (Brazilian)
just in time

Zara's factories use sophisticated just-in-time systems, developed in cooperation with


that allow the company to customize its processes and exploit innovations. (Flexible Manufacturing)

For example, like Benetton, Zara uses


to gain more speed and flexibility, purchasing more than 50% of its fabrics undyed so that it can react faster to midseason color changes.

postponement strategy
Postponement Strategy

Zara: Roughly half of the cloth arrives undyed!

Operations reversal at Benetton: Single product Style with 4 colors choices

capacity utilization
Capacity Utilization

Waiting Time

Capacity Utilization

For Faster Response,

Have Extra Capacity on Hand

zara global presence
Zara Global Presence

Zara welcomes shoppers in 78 countries to its network of 1.557 stores in upscale locations in the world's largest cities.

The retailer's international footprint proves that national borders are no hindrance to a shared fashion culture.


“There's no such thing as borders when it comes to sharing a single fashion culture.”

global presence
Global Presence

Spain: 335 stores (159 with Zara Kids)France: 115 stores (4 with Zara Kids)Italy: 87 stores (12 with Zara Kids)China: 77 storesJapan: 68 storesUnited Kingdom: 65 stores Germany: 64 storesPortugal: 61 stores (21 with Zara Kids)Mexico: 51 storesRussia: 51 storesGreece: 48 stores (6 with Zara Kids)United States: 48 storesPoland: 33 storesBrazil: 31 storesSouth Korea: 30 storesTurkey: 29 storesBelgium: 27 storesSaudi Arabia: 24 storesCanada: 19 storesIsrael: 19 storesNetherlands: 18 stores

fifth avenue flagship store
Fifth Avenue Flagship Store

Earlier this year, Inditex spent $324 million on a New York property slated to become its new global Zara flagship store. The purchase of the National Basketball Association's old store on Fifth Ave. is the country's most expensive real-estate transaction, measured in dollars per square foot.

In another recent deal also at 666 Fifth, Japanese clothing retailer Uniqlo agreed to pay $300 million over 15 years, in one of the most expensive leases ever in New York.

why going online
Why Going Online?

When the economy was at it’s worst, online retail sales were the one area that either grew or didn’t suffer as much from the downturn. Not having an e-commerce operation at this point is inexcusable for a global retailer.

zara online strategy
Zara Online Strategy

Read more:

The bottom line: Inditex is counting on online sales rather than store expansion to power sales at its Zara chain and trump rival H&M in the U.S.

Inditex’s annual online sales will be €1.4 billion ($2 billion), or 7 percent of group sales by January 2014.

And Gap, which has sold goods online for more than a decade, gets 9% of its sales online (now).

why is zara late for the e commerce party
Why Is Zara Late for the E-Commerce Party?

Zara cited sourcing and logistics for their lack of online presence until now.

The fashion retailer also reported that their clothes sell quickly, making it difficult to offer them online.

online start up costs
Online Start-Up Costs

"It basically follows the same model as our regular store expansion," Mr. Isla says of the online rollout. "For us to enter a new country has a very small cost because, with our twice-a-week delivery model we have few start-up costs. We don't need large logistical infrastructures, marketing departments or big central operations. The model allows us to have a light structure, and that applies to online as well."Read more:

costs of us online initiative
Costs of US Online Initiative

Inditex spent €24 million over the past two years in preparation for its online launch in the U.S. and it has high hopes for online demand.

Some 200,000 people have downloaded the Zara application for Apple Inc.'s iPhone or iPad from the U.S., according to the company.Read more:


prada fancy technology use by ideo
Prada Fancy Technology Use by IDEO

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