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Spain’s Zara has become Europe’s leading apparel retailer, providing consumers with current, high fashion styles at reasonable prices. With over $8.7 billion in sales and more than 1,500 stores, the company’s success has come from breaking virtually every traditional rule in the retailing industry. The first Zara store opened in 1975. By the 1980s, Zara’s founder, Amancio Ortega, was working with computer programmers to develop a new distribution model that would revolutionize the clothing industry. This new model takes several strategic steps to reduce the lead time from design to distribution to just two weeks—a significant difference from the industry average of six to nine months. As a result, the company makes approximately 20,000 different items a year, about triple what Gap or H&M make in a year. By reducing lead times to a fraction of its competitors, Zara has been able to provide “fast fashion” for its consumers at affordable prices. The company’s success lies within four key strategic elements:

Design and Production. Zara employs hundreds of designers at its headquarters in Spain. Thus, new styles are constantly being created and put into production while others are tweaked with new colors or patterns. The firm enforces the speed at which it puts these designs into production by locating half its production facilities nearby in Spain, Portugal, and Morocco. Zara produces only a small quantity of each collection and is willing to experience occasional shortages to preserve an image of exclusivity. Clothes with a longer shelf life, like T-shirts, are outsourced to lower-cost suppliers in Asia and Turkey. With tight control on its manufacturing process, Zara can move more rapidly than any of its competitors and continues to deliver fresh styles to its stores every week.

Logistics. Zara distributes all its merchandise, regardless of origin, from Spain. Its distribution process is designed so that the time from receipt of an order to delivery in the store averages 24 hours in Europe and 48 hours in the United States and Asia. Having 50 percent of its production facilities nearby is key to the success of this model. All Zara stores receive new shipments twice a week, and the small quantities of each collection not only bring consumers back into Zara stores over and over but also entice them to make purchases more quickly. While an average shopper in Spain visits a high street (or main street) store three times a year, shoppers average 17 trips to Zara stores. Some Zara fans know exactly when new shipments arrive and show up early that day to be the first in line for the latest fashions. These practices keep sales strong throughout the year and help the company sell more products at full price—85 percent of its merchandise versus the industry average of 60 percent.

Customers. Everything revolves around Zara’s customers. The retailer reacts to customers’ changing needs, trends, and tastes with daily reports from Zara shop managers about which products and styles have sold and which haven’t. With up to 70 percent of their salaries coming from commission, managers have a strong incentive to stay on top of things. Zara’s designers don’t have to predict what fashion trends will be in the future. They react to customer feedback—good and bad—and if something fails, the line is withdrawn immediately. Zara cuts its losses and the impact is minimal due to the low quantities of each style produced.

Stores. Zara has never run an advertising campaign. The stores, 90 percent of which it owns, are the key advertising element and are located in prestigious high-traffic locations around the world. Zara spends significant time and effort regularly changing store windows to help lure customers in. In comparison to other retailers, which spend 3 percent to 4 percent of revenues on big brand-building campaigns, Zara spends just 0.3 percent.

The company’s success comes from having complete control over all the parts of its business— design, production, and distribution. Louis Vuitton’s fashion director, Daniel Piette, described Zara as “possibly the most innovative and devastating retailer in the world.” Now, as Zara continues to expand into new markets and countries, it risks losing some of its speed and will have to work hard to continue providing the same “newness”’ all over the world that it does so well in Europe. It is also making a somewhat belated major push online that will need to work within its existing business model.

1. Would Zara’s model work for other retailers? Why or why not?

2. How is Zara going to expand successfully all over the world with the same level of speed and instant fashion?

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