Fast Fashion: The Zara Business Model
Fast fashion, or selling runway trends to consumers quickly and at low cost, has been a topic of controversy within the fashion industry. We all participate in this fast fashion scheme whenever we purchase inexpensive, on-trend garments from retailers such as H&M or Forever21.
The mastermind behind this brilliant and lucrative retailing philosophy is a man by the name of Amancio Ortega, the world’s third richest man and founder of Inditex. Headquartered in La Coruña, Spain, Inditex is the world’s largest fashion group (with over 5,900 stores in 85 countries). Their oldest and largest brand is Zara, a popular shopping destination for the fashion-forward bargain hunter.
The secret to Zara’s outrageous success lies in Ortega’s genius business model. Here’s how it works: while traditional companies send their designs to factories in China and India to be manufactured, Inditex’s main factory is located across the street from their corporate headquarters. While this increases the cost of labor, it decreases shipping costs and ensures greater flexibility in production. When the company designs a collection, they send just three or four of each style to their stores. With such limited quantities delivered, Zara stores needn’t be concerned with the cost of storing leftover stock.
Zara HQ constantly communicates with store managers to determine which products have been successful, and which have not. Each Zara sales team closely monitors customer reactions by taking note of what they buy and don’t buy, and what customers say to sales associates. If customers consistently complain about color or texture of a certain garment, store managers will report this information to HQ, and in 2-3 weeks, Zara stores will be stocked with new designs in response to this feedback.
While the customers determine production, Zara has modified consumer behavior. Because of Zara’s rapid responsiveness to the whims of customers, each garment purchased is nearly unique. This has turned their customers into serious impulse buyers. They know that if they don’t buy it right away, they may never see that garment again.
Zara does not have to be ahead of the curve when it comes to designing garments. They sit back and evaluate the success of trends first, then adapt to the curve based on customer reception. This is the very reason Inditex prospered through the world financial crisis and continues to expand globally. However, this model has earned them the reputation of being a “copycat” in the industry.
What do you think: should Zara be praised for being a pioneer in innovation or criticized for benefiting from the hard work of designers?