Zara It System

Topics: Fashion, Fast fashion, Firm Pages: 15 (5323 words) Published: December 27, 2009
Zara Case: Fast Fashion from Savvy Systems
a case provided free to faculty & students for non-commercial use © Copyright 1997-2008, John M. Gallaugher, Ph.D. – for more info see:

 INTRODUCTION The poor, ship-building town of La Coruña in northern Spain seems an unlikely home to a techcharged innovator in the decidedly ungeeky fashion industry, but that’s where you’ll find “The Cube”, the gleaming, futuristic central command of the Inditex Corporation (Industrias de Diseno Textil), parent of game-changing clothes giant, Zara. The blend of technology-enabled strategy that Zara has unleashed seems to break all of the rules in the fashion industry. The firm shuns advertising, rarely runs sales, and in an industry where nearly every major player outsources manufacturing to low-cost countries, Zara is highly vertically integrated, keeping huge swaths of its production process in-house. These counterintuitive moves are part of a recipe for success that’s beating the pants off the competition, and it has turned the founder of Inditex, Amancio Ortega, into Spain’s wealthiest man and the world’s richest fashion executive.

Zara’s operations are concentrated in La Coruña and Zaragoza, Spain. A sampling of the firm’s designs, and “The Cube”, as shown on the firm’s websites. The firm tripled in size between 1996 and 2000, then skyrocketed from $2.43 billion in 2001 to $13.6 billion in 2007. By August 2008, sales edged ahead of Gap, making Inditex the world’s largest fashion retailer1. While the firm supports eight brands, Zara is unquestionably the firm’s crown jewel and growth engine, accounting for roughly two-thirds of sales2. While competitors falter, Zara is undergoing one of the fastest global expansions the fashion world has ever seen, opening a store a day and entering new markets worldwide – 68 countries so far. The chain’s profitability is among the highest in the industry3. The fashion director for luxury goods maker LVMH calls Zara ‘the most innovative and devastating retailer in the world’4. Zara’ duds look like high fashion, but are comparably inexpensive. A Goldman analyst has described the chain as “Armani at moderate prices”, while another industry observer suggests fashions are more “Banana Republic”, prices are more “Old Navy”5. Offering clothing lines for 

 1 2

Hall, 2008 Murphy, 2008 3 Sull and Turconi, 2008 4 Surowicki, 2000 5 Folpe, 2000


women, men, and children, legions of fans eagerly await “Z-day”, each Zara location’s twiceweekly inventory delivery that brings in the latest designs. In order to understand and appreciate just how counterintuitive and successful Zara’s strategy is, and how technology makes all of this possible, it’s important to first examine the conventional wisdom in apparel retail. To do that we’ll look at former industry leader – Gap. GAP – AN ICON IN CRISIS Most fashion retailers place orders for a seasonal collection months before these lines make an appearance in stores. While overseas contract manufacturers may require hefty lead-times, trying to guess what customers want months in advance is a tricky business. In retail in general and fashion in particular, there’s a saying: inventory = death. Have too much unwanted product on hand and you’ll be forced to mark down or write off items, killing profits. For years, Gap sold most of what it carried in stores. It was led by a man with a radar-right sense of style. Micky Drexler, the iconic CEO who helped turn Gap’s button down shirts and khakis into America’s uniform. Drexler’s team had spot-on tastes throughout the 90s, but when sales declined in the early part of this decade, Drexler was left guessing on ways to revitalize the brand and he guessed wrong – disastrously wrong. Chasing the youth market, Drexler filled Gap stores with miniskirts, low-rise jeans, and even a...

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Tiplady, R., “Zara: Taking the Lead in Fast Fashion”, BusinessWeek, April 4, 2006. Ram, V., “Spain Rains on Inditex”, Forbes, March 31, 2008. Rohwedder, C., and Johnson, K., “Pace-Setting Zara Seeks More Speed to Fight Its Rising Cheap-Chic Rivals”, The Wall Street Journal, Feb. 20, 2008. Ryan, T., “Uncovering Zara”, Apparel Magazine, Jan. 2006. Tokatli, N., “Global sourcing: insights from the global clothing industry - the case of Zara, a fast fashion retailer”, Journal of Economic Geography, Oct. 2007. Sellers, P., “Gap’s New Guy Upstairs”, Fortune, April 14, 2003. Sull, D., and Turconi, S., “Fast Fashion Lessons”, Business Strategy Review, Summer 2008. Sullivan, L., “Designed to Cut Time”, InformationWeek, Feb. 28, 2005. Surowiecki, J., “The Most Devastating Retailer in the World”, The New Yorker, Sept. 18, 2000. Vitzthum, C., “Zara 's Success Lies in Low-Cost Lines and a Rapid Turnover of Collections”, The Wall Street Journal, May 18, 2001.
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