ZARA – AFFORDABLE LUXURY AT SUPERSONIC SPEEDS

Cool designs, Innovative strategies and a Supersonic supply chain have boosted the Spanish company as the largest luxury fashion retail chain in the whole world. Its founder, Amancio Ortega is now the 2nd richest person in the world. The company operates across more than 86 countries with more than 6100 stores selling over 450 million items of clothing every year.

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The company uses a vertical integration business model for distributing its products across the world with a strong focus on fast, trendy and inexpensive fashion catalogue. Most of its products are both designed and manufactured in-house giving the company remarkable control over its supply chain and thus ensuring better quality control approaches. With more than half of their manufacturing in the heart of Europe, the company gets an inventory turnover ratio of 29.58 compared to around 5-6 for other competitors in the industry.

The fast fashion concept helps the company get new designs off the ramps and into the stores in less than two weeks while the low shelf time of their products means their stocks are updated twice every week giving customers new and fresh products on each shopping occasion. Store managers can use electronic ordering practices to order new designs instantly which get delivered within a week to the stores through the companies fast supply network. They use air transport rather than ocean transport as the preferred shipping option in order to achieve speed in their logistics operations. The company manages to create an artificial scarcity for its products by keeping inventory low and thus sells more than 85% of their stocks at full price compared to industry norms of above 50 percent. This gives the company bring latest fashion trends faster for the customers at cheap and inexpensive costs than what their rivals can manage.

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Having its own manufacturing and design line also helps the company achieve flexibility in the variety, the quantity and frequency with which their apparel is produced. The company produces nearly half of its inventory in the middle of the season compared to other companies whose inventories are ordered 6-9 months in advance. This helps the company integrate real time customer preferences helping them reduce unsold items in their inventory which in 2014 accounted for only 10 percent of its stock compared to industry average of 18 percent.

The company uses cheap labour for manufacturing by choosing to operate in relatively poorer European countries rather than outsourcing to Asian markets like Bangladesh as some of their rivals prefer to do. This helps the company ensure that turnover speeds are fast by keeping all its materials sourcing, cutting and sewing facilities close to its headquarters in Spain only. The company believes that they can overcome cost cutting measures of rivals through scale of production and fast delivery rates at affordable costs. Their global distribution centre moves more than 3 million items every week that goes across the world to Asia, North America, Australia and Africa with no stocks waiting for over 72 hours at their warehouses.

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ZARA combines its vertically integrated distribution network along with a diversified range of designs operating in a cross functional manner in order to create extra shareholder value through higher profitability and lower markdowns. The demand for ZARA apparels is so high that the company believes promotions are just a pointless distraction for them. The company is building on its image of fast, affordable and quality luxury clothing retailers while giving major headaches to a wide range of global fashion elite.

References:

Lu, C 2014, ‘Zara’s Secret to Retail Success – Its Supply Chain’, Tradegecko, Weblog Post, 4 December, retrieved 10 May 2016, <https://www.tradegecko.com/blog/zara-supply-chain-its-secret-to-retail-success&gt;.

Min, H 2015, ‘Zara’s Rapid Rise as a Cool Supply Chain Icon’, Financial Times Press, 25 June, retrieved 15 May 2016, <http://www.ftpress.com/articles/article.aspx?p=2359420&seqNum=12&gt;.

Lutz, A 2015, ‘This clothing company whose CEO is richer than Warren Buffett is blowing the competition out of the water’, Business Insider, 14 June, retrieved 14 May 2015, <http://www.businessinsider.com.au/zaras-retail-strategy-is-winning-2015-6?r=US&IR=T&gt;

Hungry Beast 2011, ‘Zara Masters the Art of Retail’, YouTube, Podcast, 1 June, retrieved 12 May 2016, <https://www.youtube.com/watch?v=qhCM0F81vEg&gt;.

Berfield, S 2013, ‘Zara’s fast-fashion edge’, Bloomberg, 15 November, retrieved 15 May 2016, <http://www.bloomberg.com/news/articles/2013-11-14/2014-outlook-zaras-fashion-supply-chain-edge&gt;.
 

Name: Baibhab Mahapatra

Student ID: 214311899

Deakin Username: bmahapat

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