Zara Supply Chain

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Zara
“Possibly the most innovative and devastating retailer in the world” - Daniel Piette, Fashion Director of Louis Vuitton -

LIM College
Center of Graduate Studies & Continuing Education
Supply Chain Management (MNGM 605)

Introduction
Since globalization is an important asset to the world of fashion, significant developments have improved processes within the industry. It has been challenging for consumers to find clothing “Made in the USA” as transformations in the apparel business have caused changes in the supply chain distribution procedure. Accordingly, globalization has created new opportunities to improve production and distribution practices, which gave room for the growth of the “fast-fashion” concept.

Fast-fashion can be defined as the quick production of “apparel with a low cost, chic look now dominating the retail world. Fast fashion is mass-produced, reasonable in price for most consumers, and easy to obtain, making it simple for anyone to look stylish” (Mhm, 2010, p.55).

Zara: Spanish Retailer
Zara, the Spanish firm owned by Inditex (Industria de Diseño Textil), is the first company to control the fast fashion market in the United States after its success in Europe. In 2009 Zara went beyond Gap and became the world’s largest clothing retailer. In 1975, Zara established itself as a lingerie-clothing store in La Coruña, Spain, and in 1985 became part of Inditex. The company went public in 2001 and in 2012 was named Best Retail Brand in Spain by Interbrand, with 8% increase in brand value from 2011 to 2012 (Interbrand, 2012). Zara being the flagship brand of Inditex is accountable for Inditex’s global success as it reports for more than 60% of the company’s sales (Hoover’s Database, 2012).

Globalization increased the challenges to coordinate shipment by road, rail, sea, and air and now it broadened to include the Internet. An American consultant in the fashion industry, Thomas Freese, explains, "Supply-chain management is an evolution of logistics. Logistics tends to be tactical, supply-chain management is strategic. Supply chains are becoming not only longer but also more enveloping" (Mhm, 2010, p. 57). Zara owns the majority of its stores (90%), and to expand overseas has adopted three different methods. Owning subsidiaries is the most expensive strategy and represents high risk if the firm decides to exit the market; however, it involves high levels of control. This strategy is used in European and South American countries. Joint ventures are a co-operative strategy where the manufacturing facilities and the know-how of the local company merge with the expertise of international firms in the market. This strategy is applied in large and competitive markets were purchasing property to arrange a retail outlet is a challenge and the assistance of local companies is needed. Finally, franchising is the strategy chosen for high-risk countries that are culturally distant or have low sales forecast such as Saudi Arabia, Kuwait, Andorra, and Malaysia. Zara’s franchisees apply the same business model as its own subsidiaries concerning product, store location, interior design, logistic, and human resources. Also, they are responsible for investing in fixed assets and recruiting staff. Since Zara gained management control of the franchisees located in Japan, Germany, and Italy, such stores have been incorporated in the group of owned stores (Leong, et.al, 2009, p. 280). Zara utilizes a “store-centric business model”. Unlike other fashion companies, in which the design or sales functions tend to dominate others, Inditex places the retail function at the center of its corporate structure (Business Source Complete Database, 2008). Proof of this is that Zara’s store management function takes center stage, not only managing all the store staff, but also making orders (and discussing them with designers and market specialists),...
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