Zara is a global fashion retailer whose success stems from its ability to reduce lead times and react to trends almost instantaneously. Zara is owned by Inditex, the world’s biggest fashion group.
The company was not afraid to go against conventional wisdom, vertically integrate its supply chain, and move its production to Europe (near-shoring), while many players in the fashion industry chose to outsource production to lower-cost factories in Asia.
Zara disrupted the fashion industry by shortening the time to market to less than three weeks from inspiration to retail. Zara created a new category of affordable fast fashion. This model allowed the company to become a heavyweight in the highly competitive fashion industry: as of 2018, Zara was active online and in 96 countries, managed 2,238 physical stores and €18.9 billion annual revenue.
Radically Reconfigure Activities for Speed
Zara decides to produce more than half its fashion items locally and in its own facilities to achieve speed. At the time, most large fashion players rely on outsourcing production to Asia for cost reasons. This activity differentiation allows Zara to effectively react with lightning speed to fashion trends.
Develop Time-Critical Value Proposition
Zara’s value proposition focuses on keeping up with fast-changing fashion trends. Its activity configuration allows it to spot trends and launch new pieces in less than three weeks. Competitors show two collections per year and take over nine months to get items to stores. Zara ships only a few items in each style to its stores, so inventory is always scarce. This leads to constantly changing collections and customers tend to “buy it when they see it,” because the clothes won’t be around for long.
Embrace a New Cost Structure
Higher labor cost was the price to pay for flexibility, full control, and the required speed in its design and production processes. Zara reserves 85% of its factory capacity for in-season adjustments and over 50% of its clothes are designed and manufactured mid-season.
Trends, Data, and Communication
Zara trains its retail employees to relay customers’ preferences and real-time sales data to designers through effective communication systems. The latest designs and production forecasts are adjusted accordingly. Because Zara manufactures only a limited supply of items, it doesn’t have to deal with excess inventory or constant markdowns.
Each store has a limited inventory of items in each style that are replenished based on demand. New styles based on latest trends arrive constantly. As a consequence Zara rarely discounts clothes, contrary to most fashion houses.