2 min read · Nov 29, 2017
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Inditex, the parent company of ZARA, the world’s largest apparel retailer, reported its first three quarters. When its peers, H&M complained about sales decrease due to warm winters, Inditex followed the same pattern in the first half of the year, where sales continued to show strong growth, leading other fast fashion brands. A question that has come to our mind that how would ZARA standing out from the current slumping fast fashion industry.
Inditex supply chain management can be one of the industry’s benchmark. ZARA’s core competitiveness lies in the model used by it, called Vertical Integration. Many apparel retailers outsource their production to Asian factories. For example, 80% of H & M’s products are produced in Asia. The downside of this model is that it is difficult to make timely adjustments based on changes in markets and external factors. For example, due to unusually warm weather in autumn in 2016, many brands fail to reflect the changes due to lack of timely replacement of stocks and produce products that match the weather. As a result, many goods cannot be sold out.
Instead of completely outsourcing its production overseas, Inditex does not outsource manufacturing completely. Most of its factories are built in Galicia, northern Spain (35% outsourcing). Aircraft transport is used once production is completed . As a result, design, manufacturing, logistics and distribution in the supply chain are all under its own control.
The unique supply chain allows ZARA to control the entire process in a more timely manner, greatly reducing shipping time and enabling quick response to fashion and weather changes. However, in order to make up for the transportation cost, ZARA hardly advertises, which greatly reduced the marketing expenses. Most of the turnovers relies on its retail sales, which may be one reason that it opening stores in a variety of crowded shopping districts.
ZARA’s retail model also has its drawbacks, including greater operational risk, the pressure in the economic decline cannot be transferred to the supplier. Based on its store direct sales mode, the brand cannot be rapidly expanding through the agency.
To conclude, ZARA is creating a brand new business model, which is a complete business model based on customer needs. Only by fully understanding and controlling the pros and cons, the company would be able to achieve long-term, stable and continuous development.
