Zara, a successful name in fashion industry, was established in 1975 in Spain. Amancio Ortega owner of Inditex group headquartered in Spain started now world famous retail apparel stores. Zara is known to develop a new product and set to its stores in just two weeks.
Zara has changed the way clothing industry works where deigning, production and delivery to the retailers requires period of six months. The design and distribution cycle of the company takes just 10 to 15 days in the whole process. The company prefers to invest their revenues in opening new stores instead of in advertising which is unusual strategy adopted by a company in fashion industry. The company has its own team of designers who design clothes on the emerging trends. They also customize clothes for some of their customers and design clothes on their demands. The other source of design comes from the informer, which moves around in crowd, listen to the customers’ requirement, and pass on the messages to headquarters.
Business model of ZARA is very ruthless, in case any design fails to perform well within a week, it is withdrawn and new orders of the same are cancelled. No design last for more than four weeks in the store, fast fashion seekers get encourage and they visits Zara stores more often approx 17 times than average in high street store in Spain which is three times in a year.
Zara customers are aware that a particular design will not be available for a long period so they prefer to purchase quickly. Zara success encouraged Inditex group to move outside Spain so company opened its store in Oporto, Portugal in 1988.Since than today company has presence in more than 70 countries across globe. As a result, it is now one of the biggest global retailers. Zara stores are often found crowded and out of stock during the festive season and vacation period.
Primarily there are two product lines in Zara stores men and women section. Most of the production for Zara clothing takes places in Spain, some in other parts of Europe and very less in Asian countries. Since most of the production is in Spain and other European countries, company is able to maintain efficient supply chain and distribution channel. It is advisable for company to decentralize its production for countries outside Europe; by this company can perform better in other parts also.
It is less likely for company in clothing industry to adopt vertical integration but Zara has successfully implemented it. Zara designs, produces and distributes through self-owned channels. Communication and coordination are other factors that can be termed as success mantra for ZARA.
Zara main competitors are H&M and Gap. H&M is Sweden based retailer that spent heavily in advertising and is a close competitor of Zara. H&M opens its distribution center in the country of its operations so as to cut down on lead time and transportation cost.
It would not be surprising that in a time to come Zara focuses on region based deigns. It might adopt the strategy of mass customization to offer differentiated products across the geographically separated locations. Depending on the county culture and environment, company can take its marketing and promotion decisions like in America Company could concentrate more on internet selling as American users do most of the e-commerce.
One risk that that Inditex group takes by re investing all its profits in opening new stores might work for all its stakeholders. But at the end of day ZARA is one of the successful global retailers and in near terms there is no threat to the business model adopted by ZARA.