ZARA is the most known fashion brand today across the whole world. Started in 1975 by Amanio Ortega. Today ZARA is values at $22 Billions (as of 2022). In this blog post we will figure out ZARA’s strategy that turned into such a powerful fast fashion company.
To give you some quick insights on how well structured and efficient ZARA Supply chain is,
- ZARA changes its clothing designs every two weeks on average while competitors change their designs every two or three months
- ZARA carries about 11,000 distinct items per year in thousands of stores worldwide compared to competitors that carry two thousand to four thousand items per year in their stores.
So without any further ado lets start our ZARA Supply Chain Case Study.
How ZARA Was Started - Part 1 Of Zara Case Study
Before we straight away jump to ZARA supply chain case study, lets quickly see
- How ZARA was started ?
- How ZARA’s founder – Amancio Ortega, got the idea and what were his key observations, which still today are the core philosophies of ZARA.
- Then finally we will focus on ZARA’S Supply Chain and some other strategies ZARA implements
Market Gap ZARA Founded
- Guys the story dates back to 1952, Spain when 14 year old Amancio Ortega dropped out of school and found a job in local shirt maker’s store in order to support his family. So yes, Amancio Ortega don’t have any high school or college degree. He’s one of the billionaires without a college degree.
For the next 10 years, he worked at multiple jobs in the garment business starting from being an assistant to the tailor all the way up to delivering clothes directly to the customers.
And during these 10 years of experience, Amancio Ortega made three very, very important observations that went on to change the fashion industry for ever. And even today, Zara operates on the basis of the same lessons. The question is, what are these observations and what was so special about those lessons that they turned this ordinary boy into one of the richest people on the planet.
- The first thing Amancio Ortega understood is that all human beings, depending on whichever age group they belong to, put in extra money and extra efforts onto something called the instruments of status. In simple words, if somebody has an iPhone, it suddenly gave you the slight impression that he or she is rich. So at every age, we have our own instruments of status. And just like that, Mr. Amancio understood that the most important instrument of status among women between the ages of 20 to 34 were nothing but the clothes they wore.
- Secondly, he also understood that along with these instruments of status, human beings also have critical parameters that define the value of those status instruments. In clothing, women have two primary parameters that define their status in those social circle and those parameters are variety and design. And the combination of these parameters is what makes them great status instruments. Amancio Ortega found out that Very few women cared about the quality of clothes as much as they cared about design and variety. So hardly a few people wanted a dress that would last for 10 years because they anyways wouldn’t wear it frequently.
- And third, and most importantly, he also found out that women were extremely fascinated by fashion icons like Marilyn Monroe and other fashion models. But at the same time, the existing clothing stores never cater to this need of the customers in order to get the latest designs of clothing. They only had a new store every two or three months. And on the other hand, the designer clothing that actually caught up with these trends, they were quite desirable and yet very, very expensive.
So clearly, there was an unfulfilled demand in the market. Therefore, by using these three insights Amancio Ortega built an agile supply chain which we are going to study next in our ZARA supply chain case study.
ZARA Supply Chain Analysis
So lets start studying about ZARA Supply Chain – How ZARA manages its operation and at each step I will tell you study the advantages ZARA gets over its competitors due to its well structured supply chain.
1) Arranging Raw Materials - Step 1 in ZARA Supply Chain
The first step for any business is to source the raw materials they need for production.
Instead of buying high quality clothes in less quantity, ZARA buys medium quality material in high quantities and then bargain with the seller to get it at a discount.
The company purchases raw fabric from suppliers in Italy, Spain, Portugal and Greece and those suppliers deliver within five days of orders being placed inbound logistics from suppliers are mostly by trucks.
2) Extensive Market Research - Step 2 in ZARA Supply Chain
Then the next is to do an extensive research to find out what type of designs are trending in the society and what type of designs are doing well at the most Premium Outlets.
For this agents for the company are always scouting out new fashion trends at clubs and social gatherings when they see inspiring fashion designs they quickly send those design sketches to the garment designers of Zara.
3) Starting the Production - Step 3 in ZARA Supply Chain
Zara’s success is largely attributed to its unique supply chain strategy, which enables it to respond quickly to changing customer preferences and fashion trends. Unlike most of its competitors, who outsource their production to low-cost countries and plan their collections months in advance, Zara produces most of its clothes in-house or through a network of local suppliers and distributors. Zara also designs its clothes based on real-time feedback from its store managers, who communicate daily with the headquarters about what is selling well and what is not. This allows Zara to adjust its production and inventory levels accordingly and to introduce new items every week.
4) Delivering Clothes to ZARA Stores - Step 4 in ZARA Supply Chain
Zara’s operational strategy is based on speed, flexibility and efficiency. Zara has a centralized distribution center in Arteixo, Galicia, where it receives all the clothes from its factories and suppliers. From there, it ships them to its stores around the world twice a week using air freight or trucks. Zara’s distribution system is highly automated and uses RFID technology to track and sort the garments. Zara’s stores are also designed to facilitate fast turnover and display of merchandise. Zara’s store managers have autonomy to decide how to arrange the clothes according to local demand and preferences. Zara’s stores are constantly refreshed with new products, creating a sense of urgency and scarcity among customers.
Zara can deliver garments to stores worldwide in just a few days for China it takes 48 hours for Europe 24 hours for japan 72 hours and for United States it takes 48 hours.
It uses trucks to deliver to stores in Europe and uses air freight to ship clothes to other markets.
Zara can afford this increased shipping cost because it does not need to do much discounting of clothes and it also does not spend much money on advertising.
5) Streamlining The Operations - Step 5 in ZARA Supply Chain
The benefits of supply chain management requires mastery of connected processes. As supply chains evolve, their ability to streamline key operational processes and flows also increases.
ZARA makes sure that the above 4 steps are well streamlined to keep its Supply Chain Cycle super fast.
And all these processes are so fast that while normal shops had a new stock every two months, Zara had a new design every two weeks. This is what is known as the fast fashion supply chain.
Some Strategies ZARA Follows For its Strong Supply Chain
1) ZARA Supply Chain uses Vertical Integrated System
ZARA tries to work by using a vertical supply chain. Although this is uncommon strategy in the fashion industry. Vertically integrated business undertakes a variety of activity from designing, manufacturing, sourcing and distributing to retail stores around the world.
When a company works with a vertically integrated system, it has control over its business activities. When its competitors outsource ZARA favors mostly local production. The brand, therefore, controls its entire production chain (design, production, logistics and sales) with the aim to increase flexibility and responsiveness.
2) Using Postponement Strategy
ZARA implements an integrated production strategy, that is, dyeing and printing of manufactured parts are held in the factories of the brand at the last moment, according to fashion and demand. This is also called postponement startegy.
Advantages ZARA Gets Over Its Competitors
The above supply chain strategies gives ZARA some incredible advantages over its competitors.
1) ZARA Gets More Store Footfalls Compared To Its Competitors
Since ZARA brings out new designs every two weeks so customers visits ZARA stores more frequently to find trending designs and a huge variety of clothes. The credit for this obviously goes to ZARA supply chain which can bring new designs to stores in every two weeks.
For example: in SPAIN customers visit ZARA stores 17 times per year on average compared to three times per year for competitors.
2) ZARA does not need to place big bets on yearly fashion trends
ZARA does not need to place big bets on yearly fashion trends they can make many smaller bets on short-term trends that are easier to guess correctly.
Making short term forecast and predictions help ZARA to make better, trendy and in-demand designs for its customers. Moreover ZARA supply chain is focused on fast fashion
3) Zara achieve the golden equation of just in time production and just in case consumption
This point is going to be very long but very interesting and important as well in this ZARA Supply chain case study, so please read it carefully.
There are two types of operations in supply chain management.
Challenges and Risks ZARA Faces
Although ZARA Supply Chain is one of the best when it to comes to fashion industry but Zara also faces some challenges and risks that could threaten its future performance. Some of these include:
- Increasing competition from other fast fashion players such as H&M, Uniqlo and GAP, who are also expanding their global presence and offering low prices and trendy products.
- Rising environmental and social concerns about the sustainability and ethics of fast fashion, which generates large amounts of waste and pollution and exploits workers in developing countries.
Changing consumer behavior due to the COVID-19 pandemic, which has reduced demand for clothing and shifted preferences towards online shopping and casual wear.
- Potential loss of differentiation and innovation due to the imitation and copying of Zara’s products and business model by other brands.
How ZARA Can Overcome The Above Challenges
To overcome these challenges and sustain its success, Zara will need to adapt its strategy to the changing market conditions and customer needs. Some possible actions that Zara could take are:
- Investing more in sustainability initiatives such as using recycled materials, reducing packaging waste, improving labor conditions and supporting social causes.
- Enhancing its online presence and capabilities by improving its website functionality, offering more delivery options, personalizing recommendations and creating virtual fitting rooms.
- Expanding into new markets such as Africa, India and Latin America, where there is a growing middle class and demand for fashion.
ZARA Marketing Strategy
Although this blog is mainly about ZARA Supply Chain, but at last I just thought of sharing a little bit about ZARA Marketing Strategy.
Zara’s marketing strategy is also different from that of its rivals. Zara spends very little on advertising, relying instead on word-of-mouth and its store locations as its main promotional tools. Zara chooses prime locations for its stores, often in high-traffic areas or near luxury brands. Zara’s stores are also distinctive for their minimalist and elegant design, which reflects the brand’s image of sophistication and quality. Zara also uses social media platforms such as Instagram, Facebook and Twitter to engage with its customers and showcase its latest collections.