Fashion and Zara Store

Topics: Inditex, Zara, Fashion Pages: 18 (5783 words) Published: October 22, 2012
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Responsive, High Speed, Affordable Fashion
This case was prepared by Sophie Linguri under the supervision of Professor Nirmalya Kumar as a basis for classroom discussion rather than to illustrate either effective or ineffective handling of a management situation. Copyright © 2005 London Business School. All rights reserved. No part of this case study may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without written permission of London Business School. London Business School reference CS-05-037

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Zara: Responsive, High-Speed, Affordable Fashion
In 1975, the first Zara store was opened in La Coruña, in Northwest Spain. By 2005, Zara’’s 723 stores had a selling area of 811,100 m2 and occupied ““privileged locations of major cities”” in 56 countries. With sales of €€3.8 billion in financial year 2004, Zara had become Spain’’s best-known fashion brand and the flagship brand of €€5.7 billion holding group Inditex. Inditex’’s stock market listing in 2001 had turned Amancio Ortega, its founder and a self-made man, into the world’’s 23 richest man, with a personal fortune that Forbes magazine estimated at $12.6 billion. Zara strived to deliver fashion apparel, often knock-offs of famous designers, at reasonable costs to young, fashion-conscious city-dwellers. Zara used in- house designers to present new items of clothing to customers twice a week, in response to sales and fashion trends. Thus the merchandise of any particular store was fresh and limited. To produce at such short notice required that Zara maintain a vertically integrated supply chain that distributed the clothes through a single state-of-the-art distribution centre. Unlike its competitors, 70- 80% of Zara garments were manufactured in Europe. In 2005, Pablo Isla was appointed the new Inditex chief executive. With plans to double the number of its stores by 2009, the rapid pace of growth was necessitating changes. First, Zara had opened a second distribution centre to increase capacity. Second, expanding into more distant markets meant that the number of items carried had increased to 12,000. Would Zara’’s business model be able to scale up? Or would the resulting complexity compromise its speed advantage? Would Pablo Isla be able to maintain the focus that Zara had established? - 3 -305-308-1 LBS-CS-05-037

The apparel industry was one of the most globalised industries, with 23.6 million workers in over 20 countries. As labour costs in Western European countries had risen, labour-intensive manufacturing operations had become increasingly outsourced to less developed countries. Hourly wages in the textile industry could be as low as 60 cents in India and China, compared with $2 in North Africa, $3 in Eastern Europe, $8.50 in Spain, and around $15.00 in...
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