ZARA: Origins of Fast Fashion Company's Success

Introduction

Zara is a “Fast-Fashion” apparel company owned by Inditex of Spain, the world’s largest clothing retailer in 2011 with $19.5 billion revenue (Forbes, 2012). For the past years, Zara’s supply chain model has been envied by other players in the fashion industry because of its agility. This case analysis briefly discusses how Zara translates its supply chain design to a value chain proposition to the customers.

Value Chain Strengths

Zara offers fashionable clothes with affordable price and reasonable quality that renew quickly.

Women, as the main market segment, have the tendency for refreshing their wardrobe collection as quickly as the fashion trend change. Thus, the ability to provide unparalleled rage of new styles is making Zara’s product can be classified as order qualifier. However, the capability of changing the collection in each store very frequently is creating an order winner characteristic that create competitive advantage from its main competitors.

Zara’s supply chain design has been based on agility where the lead time between design creations to store display can be done within 15 days.

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In contrast, traditional industry model typically requires approximately 9 months for doing the same thing. Vertical integration business model that limits outsourcing is giving a better control for Zara to keep the rhythm of the chain and to maintain reasonable output quality. In 1786, Thomas Reid came with the idea that a chain is only as strong as its weakest link. Consequently, the ability to set the pace of plan (design), source, make, and deliver will support all related players to shorten the lead time by eliminating unnecessary waiting time.

Value Chain Weaknesses

In principles with lean manufacturing practice, Zara produces standard size for all its stores across the globe. For customers who have normal body size, this means that they enjoy cheaper price due to some extent of economies of scale. In the downside, the standard size cannot fit most of American customers due to increasing obesity rate in United States. Although the revenue opportunity from United States market is promising, the requirement to make larger size apparels will increase production complexity that might not worth the hassle.

Ferdows, Lewis, and Machuca (2004) analyzed that Zara’s success is built upon three principles of close the communication loop, stick to a rhythm across the entire chain, and leverage capital assets to increase supply chain flexibility. The difficulties with value-based firm are there are threats from macro and microeconomic changes, such as the new government regulation, increased trade barriers, as well as maintaining the corporate value as the top management changes.

Discussion

For the last 5 years, we have seen volatility in distribution cost due to increasing oil price. Moreover, there is also an increasing sustainability issue that comes from transportation activity, which increased the carbon footprint. Currently, Zara distribution process is all arranged from two warehouses in Spain. Zara off-set the transportation cost by expanding rapidly in each new market to leverage economy of scale in distribution as well as by increasing the price for market with greater distance. Yet, Zara’s supply chain system might need to be re-evaluated and adjusted in the future. If the above two trends continue, opening another manufacture and warehouse facilities that are closer to Asia Pacific market will make more financial and sustainable business sense than keeping the current process.