Zara Case

Topics: Inditex, London Business School, London Pages: 6 (1883 words) Published: September 15, 2011
Spanish retailer, Zara, has crafted a sweet success story riding on its image as a low-cost, high fashion store. Nirmalya Kumar and Sophie Linguri take to the High Street to look at Zara’s route from rags to riches.


n 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 square metres in 56 countries. With sales of e3.8 billion in the financial year 2004, Zara had become Spain’s best-known fashion brand and the flagship brand of e5.7 billion holding group Inditex. Inditex’s stock market listing in 2001 turned Amancio Ortega, its founder and a self-made man, into the world’s twenty-third richest man, with a personal fortune

that Forbes magazine estimated at $12.6 billion. Among the keys to Zara’s success is its approach to the supply chain. Zara sources around half its garments from third parties in low-cost manufacturing locations like Asia. These are basic collection items or wardrobe “staples,” with minimal fashion content, such as T-shirts, lingerie and woollens, and where there is a clear cost advantage. Externally manufactured items are shipped to Zara’s distribution centre. The other

→ half of Zara’s garments, those that are more fashion-dependent, is manufactured in-house, in nearby Zara factories. A team of 200 young, talented largely unknown designers create designs, based on the latest fashions from the catwalk and other fashion hotspots, which are easily adaptable to the mass market. In this way, Zara is adept at picking up the latest trends and churning them out to stores around the world in a matter of weeks. After Madonna’s first concert date in Spain during a recent tour, her outfit was copied by Zara designers. By the time she performed her last concert in Spain, some members of the audience were wearing the same outfit. In 2003, when the

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on the type of garment. As a result Zara can be responsive to fashion items that are selling well during the season, and to discontinue those that are not. By constantly refreshing the collection, and manufacturing items in high-intensity, short-runs, Zara is able to prevent the accumulation of nonsaleable inventories.

Unique selling proposition
It is estimated that Zara committed just 15-25 per cent of production before the season begins, 50-60 per cent at the start of the season, and the remainder is manufactured in-season. The percentage of Zara sales consisting of markdowns is 15-20 per cent. In some cases, stores run out of stock. However,

We want our customers to understand that if they like something, they must buy it now. Crown Prince of Spain announced his engagement to Letizia Ortiz Rocasolano, she wore a white trouser-suit for the occasion. In just a few weeks, the same white trouser-suit was hanging from Zara’s clothes racks all over Europe, where it was snatched up by the ranks of the fashion-conscious. this is not viewed as a negative since it contributes to customers’ perception of the uniqueness of their purchase. Thanks to the frequent refreshing of stock, customers constantly returned to stores, to browse new items. Zara’s global average of 17 visits per customer per year is considerably higher than the three visits to its competitors’ stores. Visitors are also more likely to purchase, as one senior executive explains: “Zara’s objective is not that consumers buy a lot but that they buy often and will find something new every time they enter the store.” Comments by Luis Blanc, an Inditex director, illustrate how Zara stores foster an environment of immediacy: “We want our customers to understand that if they like something, they must buy it now, because it won’t be in the shops the following week. It is all about creating a climate of scarcity and opportunity.” Affordable prices help to encourage purchases, and Zara’s offering is often referred to as clothing to be worn six to ten times. Zara’s pricing differs across...
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