Zara Thrives by Breaking All the Rules - BusinessWeek
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INNOVATION October 9, 2008, 5:00PM EST
Zara Thrives by Breaking All the Rules
How the Spanish apparel chain gets new designs into stores in two weeks while keeping costs low
by Kerry Capell
ARTEIXO, SPAIN Many U.S. apparel retailers are choking on slow-moving inventories as consumers hold back on spending. But Spain's Inditex, whose Zara chain pioneered cheap chic, is zipping ahead. The $13.8 billion company, which is closing in on Gap (GPS) for the title of world's biggest clothing retailer, has nearly quadrupled sales, profits, and locations since 2000. This year, Inditex plans to expand by up to 640 stores. "They will weather the storms better than most of their rivals," says Michael Lewis, a supply-management professor at University of Bath's School of Management.
Inditex's secret? Besides selling relatively cheap clothes, which fit the times, the company maintains an iron grip on every link in its supply chain. That enables it to move designs from sketch pad to store rack in as little as two weeks. This "fast fashion" way of doing things has become a model for other apparel chains, such as Los Angeles-based Forever 21, Spain's Mango, and Britain's Topshop, which is set to open in New York next year. Inditex has spent more than three decades perfecting its strategy. Along the way it has broken almost every rule in retailing. At most clothing companies, the supply chain starts with designers, who plan collections as much as a year in advance. At Inditex, Zara store managers monitor what's selling daily—and with up to 70% of their salaries coming from commission, there's a lot of incentive to get it right. They track everything from current sales trends to merchandise customers want but can't find in stores, then shoot orders to Inditex's 300 designers, who fashion what's needed instantly.
HIGHER PAY AT THE PLANT
Typically, apparel chains outsource the bulk of production to...
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