Zara Study Case

Topics: Inditex, Supply chain management, Retailing Pages: 16 (5120 words) Published: January 31, 2012

The case describes how Zara, operating out of the Galician port of La Coruña in north-west Spain has managed to become a benchmark for speed and flexibility in the garment industry. The case offers an illustration of a fast-response global supply, production and retail network. In 2003 Zara was the only retailer that could deliver garments to its stores worldwide (507 in 33 countries) in just fifteen days after they were designed. It could do that because of its unique systems for product design, order administration, production, distribution and retailing. The unconventional approach that Zara often deploys in these areas provides interesting opportunities for discussion and learning.

Kasra Ferdows,
Georgetown University, USA

Michael Lewis,
University of Warwick, UK

Jose A.D. Machuca,
University of Sevilla, Spain.

The unabridged Zara case was the winner of the 2003 Indiana University Center for International Business Education and Research (CIBER)-sponsored Production and Operations Management Society(POMS) International Case Competition.

Isabelle Borges, one of the product market specialists in the women’s wear department at the Zara headquarters, sensed that they were on to something. The new khaki skirt had sold out in the La Coruña store after only a few hours on the shelves and the store manager had just told her that she could have easily sold more. A small batch of 2800 skirts, just enough to “test the waters,” had been sent out the previous night to a selection of Zara’s worldwide network of stores. Ms. Borges called around a few of the Seville stores and discovered that sales there were also very brisk. If these market signals were not enough, she had also spotted a colleague wearing the skirt. “That’s always a good sign. Employees here are tough critics,” she said. As more and more reports came in from other stores, echoing the same positive customer reaction, Isabelle Borges knew that the skirt was going to be a hit and she quickly set in motion a process that within days had supplied the skirt to Zara stores on three continents. Although many firms would claim to be responsive to the changing demands of markets and customers, few actually have the requisite agility in their supply chain to deliver on such a claim. Zara stands out. It can rapidly design, produce and ship the latest fashions to its stores in various ‘upscale’ locations such as Oxford Street in London, the ChampsElysees in Paris and Lexington Avenue in New York. In May 2001, investor confidence in this capability underpinned a € 2.3 billion Initial Public Offering (IPO) of 25% of Zara’s parent company, Inditex. The founder, who started his first business with 5000 pesetas, retained 61.2% of the capital after the floatation, making him the richest man in Spain. By July 2001, the stock was trading at more than 25% over its IPO price, valuing the company at over € 12 billion - more than Benetton, The Limited, or Next. How did a relatively small Spanish company operating from La Coruña - one of the most westerly points on the European mainland – achieve all this?

The Inditex Story
In 1963, Amancio Ortega Gaona started Confecciones GOA in La Coruña, to manufacture women’s pajamas and lingerie products for garment wholesalers. In 1975 however, after a German customer cancelled a sizable order, the firm opened its first Zara retail shop in La Coruña. The original intent was simply to have an outlet for cancelled orders but the experience taught the firm the importance of a ‘marriage’ between manufacturing and retailing - a lesson that has guided the evolution of the company ever since. As a senior marketing executive reiterated in 2001, “it is critical for us to have five fingers touching the factory and five touching the customer.” From a starting point of 6 stores in 1979, the company established retail operations in all the major Spanish...
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