{"id":3148,"date":"2015-12-08T16:24:41","date_gmt":"2015-12-08T21:24:41","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/zara-disrupting-the-fashion-industry\/"},"modified":"2015-12-08T16:24:41","modified_gmt":"2015-12-08T21:24:41","slug":"zara-disrupting-the-fashion-industry","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/zara-disrupting-the-fashion-industry\/","title":{"rendered":"Zara: disrupting the fashion industry"},"content":{"rendered":"

Latest trends at affordable prices<\/i><\/b><\/em><\/strong><\/p>\n

Zara is the main brand of the Spanish retail company Inditex, headquartered in Arteixo, in the north-west of Spain. Inditex\u2019s sales in 2014 reached $19.7Bn, compared to H&M with $20Bn or The Gap with $16.4Bn. Zara designs, produces and distributes clothing products for women, men and kids. Zara has over 2.000 stores in more than 88 markets around the world and it is expanding its online presence (26 countries in 2014).<\/p>\n

Zara\u2019s key value proposition is delivering the latest trends at affordable prices. Unlike other competitors, Zara does not hire \u201cstar designers\u201d like H&M (e.g. Balmain, Versace). Instead, its design team captures the trends from the Pr\u00eat-a-porter collections from Paris, London, Milan and New York, celebrities, street trend-setters and, of course, Zara\u2019s customers.<\/p>\n

Although Zara has a very limited advertising spend (0.3% of sales vs 3.5% average competitor), it is able to generate sales excitement through premium store locations and constantly renovated product offering -every store receives new merchandise twice per week. Therefore, customers are encouraged to increase their average number of visits per year (17 vs 3 in competitors) to check out the new products and they feel the urge to buy a piece of clothing for the fear of not finding it the next time they visit their store.<\/p>\n

\"zara<\/a>\"winter<\/a><\/p>\n

\u00a0<\/i><\/b><\/em><\/strong>Zara\u2019s business model has been enabled by its innovative<\/b><\/strong> supply chain, which has shifted from push to pull & has reduced the time-to-market.<\/b><\/strong><\/p>\n

Average fashion retailer has 2 to 5 collections that designs more than 5 months in advance and then \u201cpushes\u201d the manufactured merchandise to retailers or their own stores. Conversely, Zara produces the latest trends in the market less than a month in advance and, most importantly, produces what Zara\u2019s customer wants.<\/p>\n

Zara\u2019s store employees provide real time feedback about store demand<\/b><\/strong> and consumer preferences<\/b><\/strong> to the designer team in Arteixo through hand-held computers. Zara also produces small batches of new designs to test the interest of consumers and thus decide what designs to mass-produce.<\/p>\n

By having a \u201cpull\u201d approach, Zara reduces the \u201cbullwhip effect\u201d, lowers its inventory costs in store and reduces the need to sell at discounted prices: Zara generates only 15%-20% of its sales at mark-downed prices (vs 30-40% from European competitors).<\/p>\n

Their cross-functional design teams <\/b><\/strong>\u2013which include designers, product developers, procurers, manufacturing planners and logistics managers- have managed to decrease design lead-time due to collaboration and fast end-to-end decision making.<\/p>\n

Regarding their procurement<\/b><\/strong> strategy, around two thirds of the fabrics purchased are undyed (gray) so that the material can be purchased before the design is finalized and to obtain savings from demand aggregation in procurement.<\/p>\n

Zara\u2019s manufacturing<\/b><\/strong> approach combines a \u201cmake and buy\u201d<\/b><\/strong> approach. Zara produces internally in Spain the most fashionable items (40% of designs), which are also the riskier and need testing, in order to get them to the stores as soon as possible. The production of the more standard designs is outsourced to manufacturers in Morocco, Turkey and Asia to reduce the production cost of the products with a more predictable demand.<\/p>\n

In 1990 Zara partnered with Toyota to apply the Lean and JIT principles<\/b><\/strong> to its production facilities. Zara\u2019s plants are also product-focused and operate at 50% of capacity<\/b><\/strong> to provide flexibility given market demand.<\/p>\n

Zara has two main distribution centers in Spain <\/b><\/strong>\u2013Arteixo and Zaragoza-, from where all the clothing is distributed. DC\u2019s also operate at a 50% capacity and are equipped with a cross-docking center which is able to manipulate more than 45.000 items per hour. Every product spends less than 3 days in the DC, usually only a few hours. The distribution to the stores happens twice per week \u2013through truck or plane- and therefore eliminates the need to have local distribution centers in the countries where Zara is present.<\/p>\n