..

Zara's Supply Chain Management Practices

"Zara has managed to fill a hole and seize an opportunity in Spain. It has done for
fashion what IKEA did for furniture, filling the gap between hypermarket and
designer clothing in a ve,y desirable way. "I
- Valerie Van den Boffche, Head Wolff Olins, Spain, in 2004 .
"Zara is nimbler and faster to the market. This will be important as fashion trends
I b I ,,]
go a Ize.
- Keith Wills, European Retail Analyst, Goldman Sachs\ in 2000.
ZARA'S FAST FASHION STRATEGY
In 2004, a famous pop star toured Spain to give a series of concerts. Her outfits
attracted instant attention from teenagers and young girls across Spain. By the time
the pop star had reached the last leg of her tour, Spanish girls were sporting outfits
similar to the ones she had worn during her first concert. The outfits were designed
and distributed by apparel retailer Zara, which quickly gauged the demand for them
and stocked up its stores across Spain in less than two weeks.
According to a survey conducted by Interbrand,4 Zara was the only Spanish brand to
be featured in the list of 'The 100 Top Global Brands' in 2005. It was featured at the
77th position in the list that featured Coca-Cola, Microsoft, and IBM in the first three
positions. The survey featured only those brands with a value of more than US$ 1
billion, which derived around 33% of their revenues outside their country of origin
and whose financial data was publicly available. Interbrand describing Zara, said,
"Cutting-edge Spanish apparel retailer epitomizes cheap chic knocking out mass-
produced copies of catwalk fashions almost overnight.,,5
Zara introduced about 12,000 designs every year; the shelf life of each design was
about four weeks. In January 2006, Zara had 853 stores, located across the world
(Refer to Exhibit I for the geographical spread of Zara's stores). These stores received
two deliveries from Zara's central distribution center every week. The deliveries were
customized in accordance with the data sent by them every day. Zara pioneered the
concept of customized retailing and was able to conceptualize the garment, develop,
and deliver it to the stores within two to three weeks.
The key to Zara's success was its vertically integrated structure where design,
production, distribution, and retailing were integrated. Maria 1. Garcia, spokeswoman
for Zara, said, "The vertical integration of our production system allows us to place a
I Joanna Doonar, "Branding Espana to the Rest of the World," Brand Strategy, March 2004.
2 William Echikson, "The Mark of Zara," BusinessWeek, May 29, 2000.
J Goldman Sachs Inc. is one of the world's oldest investment banks founded in 1869. It is a
primary dealer in the US treasury securities market. Goldman offers its clients mergers &
acquisitions advisory, provides underwriting services, engages in proprietary trading. invests
in private equity deals and also manages the wealth of affluent individuals and families.
4 Interbrand Corporation is a leading brand consultancy, serving clients worldwide. Founded
in London, Interbrand is headquartered in New York.
S "Global Brand. The I00 Top Brands," BusinessWeek, August 0 I, 2005.
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Retail Management
garment in any store around the world in a period between two to three weeks.,,6
(Refer to Table I for the time taken for lara to make garments) Zara's vertically
integrated supply chain received the attention of industry players and analysts.
According to Richard Hyman of Verdict,7 a retail consultancy in London, "Vertical
integration has gone out of fashion in the consumer economy, lara is a spectacular
exception to the rule."g ,
Table I: Zara's Supply Chain - Time Taken from Start to Finish
Process
Style idea, quantity etc., conveyed to Head quarters
Fabric from Stock
Design
Style Approval
Prototype Development/ Fit Sample/ Approval
Garment Production
Shipment
Time Taken
One day
One day
Three days
One day
Three days
Ten days
Five days
Adapted FO/71 'Devangshu Dutta, Brand Watch Zara, Images Fashion Forum, "
wWw.3isite.com. Februmy J 2,2004.
ABOUTZARA
lara was founded by Amancio Ortega Gaona (Ortega), who was born in Leon, Spain,
in 1936. Ortega worked as an assistant in an apparel shop and in 1963 he set up his
own fashion retail businesS<>named Confecciones Goa, in Arteixo-La Coruna, to
manufacture housecoats9. In 1975, when a German retailer cancelled a major order,
Ortega started selling the clothes from a small outlet in his factory and called the
outlet lara. lara went on to become the flagship brand of the holding company,
Industria de Diseno Textil, SA, popularly called Inditex, which was founded in 1979.
Ortega was credited with democratizing fashion in Spain; he was responsible for
making designer clothing accessible to the masses. Between 1976 and 1984, lara's
presence was extended to major Spanish cities. The first store outside Spain was
opened in 1988 in Portugal. The next international ventures were New York in 1989
and Paris in 1990. By the end of 1990, lara had operations in 82 cities across Spain
and three cities internationally.
In the late 1990s and early 2000s, lara continued its global expansion and opened
stores in several countries. These included the UK, Japan, Chi Ie and Uruguay (1998),
Canada, Germany, Poland, Brazil, UAE, Saudi Arabia, and Bahrain (1999), Australia
and Denmark (2000), Holland, Luxembourg, Iceland, and the Czech Republic (2001).
6 Stephan A. Schapiro, ''flying Off the Rack," Air Cargo World Online, September 2001.
7 Verdict Research is one of the leading publishers that carry out analyses of the retail
industry. Through its reports. Verdict presents forecasts and analyses. which are used by
retailers, manufacturers, analysts. mt:dia etc.
S "Floating on Air.' Economist, May J 9.2001.
9 A woman's garment, usually long and loose. used for informal wear at home.
..
Zara's Supply Chain Management Practices
In 2002, lara entered Italy, Switzerland, Finland, Malta, Singapore, the Dominican
Republic, and El Salvador. In 2003, the new markets in which the company
established its stores were Sweden, Russia, Ireland, Slovenia, Malaysia and Jordan.
lara entered Hungary, Romania, Estonia, Latvia, Lithuania, Hong Kong, Morocco,
and Panama in 2004.
In 2004, Inditex owned about 100 companies engaged in several activities related to
textiles, such as textile purchasing, textile manufacturing, and logistics. Through these
companies, lara was able integrate its operations. For example, Comditel specialized
in procuring undyed fabrics which could be dyed or printed as per the orders obtained.
lara procured 40% of the fabric from Comditel, which finished the processes of dying
and printing in about 4 to 5 days. Dyestuff was obtained from another company,
Fibracolor. Synthetics were supplied by external suppliers.
By 2005, lara had become the third largest clothing retailer in the world in terms of
revenues. As of January 2006, lara operated in 58 countries. For the year ending
January 2005, the company accounted for 67.4% of Inditex's turnover with sales of
3819.6 million. About 65.8% of lara's revenues came from international markets.
According to Inditex, "lara is a high-fashion concept offering apparel, footwear, and
accessories for women, men, and children, from newborns to adults aged 45. lara
stores offer a compelling blend of fashion, quality, and price offered in attractive
stores in prime locations on premier commercial streets and in upscale shopping
centers. Our in-house design and production capabilities enable us to offer fresh
designs at our lara stores twice a week throughout the year."IO
lara always had something new to offer its customers and the supply of these
products was limited. By not resorting to mass production, lara was able to maintain
the exclusivity of its products. This also helped in creating a scarcity value -
shoppers were not sure if they could get the same product later and went ahead with
buying the product instead of postponing their purchase. lara also scored high on
offering garments similar to those created by famous fashion houses at a fraction of
the price. In-order to maintain a constant flow of new supplies, the garments needed to
be created at quick intervals according to the demands of customers and had to be
replenished rapidly. Commenting on lara, Richard Perks, retail analyst with Mintel,11
said, "They've got to get the design. They've got to engineer it for low-cost
production. They've got to take the gray fabric and print it. They've go to get it out to
their outworkers to be made up and they've got to ship it from Galicia right across
Europe. That is an unbelievable achievement." 12
SPOTTING TRENDS
One of the secrets behind lara's success was its ability to spot emerging trends and
react quickly. lara had a dedicated design team in Arteixo, A Coruna, in northern
Spain. Ideas for new designs or for modifications to be made in existing designs
10 Offer Document Inditex, 200 I.
11 Mintel provides consumer, media, and market research services. It has several clients across
the globe. The company was recognized as a business super brand in the UK for four years.
The major products provided by Mintel include market and consumer research reports and
interactive reports.
12 "Zara: A Model Fashion Retailer," CNN, July 22,2004 .
. 3
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Retail Management
mainly came from Zara's stores. The store managers and sales staff updated the head
office every day about the moving stock and about customers' demands. Across all
the stores, Zara's sales 5taff was equipped with wireless handsets which provided data
to the store manager about the pieces sold. The manager consolidated the data and
sent it to the company headquarters through the Internet. The staff also provided
inputs regarding the new lines, colors, styles, and fabrics that customers were
demanding. It was quite common for Zara's sales personnel to inform headquarters
about a new style that a customer had been wearing. This could eventually become
part of Zara's line.
The store managers were selected carefully as they had an important role to play in
providing the crucial information which formed the base for new designs. People witb
retailing experience, who could spot the right trends, and possessed a design sense
were selected for the position. The store managers followed the trends in local fashion
carefully. According to a store manager in London, "I follow trends in London very
closely. If Sienna Miller is doing boho, Zara will do boho. We're on top of every new
sty Ie." 13
Another source for the new designs was the team of designers who traveled across the
world looking for new designs and the emerging trends. Zara kept scouting around at
fashion shows, discotheques, universities, movies and music videos to spot new
trends.
Designing
Zara had a team of 200 designers, with each designer churning out about 60 styles a
year on an average. The designers were encouraged to experiment, but within Zara's
defined parameters. They were expected to adapt haute couturel4 styles to the mass
market, while not bringing in their own styles or influencing the designs. According to
Ken Watson (Watson), Director of a London based Industry forum, who conducted an
in-depth study of Zara, "Zara doesn't want any prima donna designers. They want
young 26-year-olds who will work within their system.,,15 Zara had three design
centers - one each for men's, women's, and children's apparel. Each line had separate
procurement, design, and production planning staff.
The store managers across Zara's stores placed orders twice a week, on Wednesdays
and Saturd~ys in Southern Europe and Spain and on Tuesdays and Fridays in the other
parts of the world. At the Zara headquarters, the store specialists collected the
information obtained from different stores across the globe. This was then fed into a
database. Each of the store specialists was responsible for a group of stores. They
obtained informal feedback from the store managers and also visited the stores
periodically to assess the trends. Most of the store specialists had worked as store
managers and had a deep knowledge about managing stores.
13 Angela Saini and Sarah Ryle, "New Kids on the High Street cut a Dash with Fast Fashions,"
www.observer.guardian.co.uk, June 05,2005.
14 The term 'haute couture' is French. Haute means 'high' or 'elegant.' Couture literally means
'sewing,' but has come to indicate the business of designing, creating, and selling custom-
made, high fashion women's clothes.
15 Rayan J Thomas, "Uncovering Zara," Apparel Magazine, January 2006.

Zara's Supply Chain Management Practices

Based on the feedback from the stores, the store specialists provided the designers
with an outline of the new styles, designs, and fabric as demanded by the stores. The
procurement and production managers provided inputs regarding the capacity and
manufacturing costs. The designers came out with the design specifications and the
teclmical brief. With all the teams working in tandem, the prototypes were ready
within a few hours. Commenting on the fact that several teams worked together,
spokeswoman from lara, Carmen Melon, said, "We have five different teams sharing
the same space, so design people work together with product people and
merchandising, as well as the people who provide the samples and patterns."16
Once the team came out with a prototype, designers used CAD17 to further enhance
the color and textures. Sampling did not take much time as the fabric was already
available with lara. The approvals were also obtained in quick time since the whole
team was at one place. As soon as the approvals were obtained from the team and the
final consent from Ortega, the fabric was sent for cutting. Ortega was involved in the
day to day operations of the company. According to Martin Varsavsky, founder of
Spain's Jazztel telecom, "He is very hands-on about the designs. Everything creative
is passed on by him.,,18
lara also brought out its own collections periodically, one during spring/summer and
another during fall/winter. The designers started working on the designs, colors, and
fabric about eight months in advance. Several patterns were deliberated upon before
the final designs were decided on. Once the designs had been decided upon, fabric
procurement and production planning began.
Production
Depending on the styles and sizes to be produced, the fabric was cut at lara's own
high-tech automated cutting facilities. Several layers of fabric, meant for garments of
a particular design, were laid out on cutting tables, vacuum sealed, and cut by
machines, based on a computer layout of the sample pieces. The layout was prepared
so as to minimize wastage. The fabric was then marked for sewing.
The pieces cut in lara were distributed for sewing among 350 small workshops in
Galicia and northern Portugal. These workshops, which were not owned by lara,
employed about 11,000 workers and were provided with a set of instructions. The
garments were generally ready within a week or two, depending on the number of
garments. With the fabric in stock, lara was ready with the final product, including
designing, pattern making, and cutting within 10 days.
Due to this flexibility in production processes, when the demand for any design was
low, lara was able to stop its production. At the same time, it was able to modify its
processes to produce more of the designs in demand. Analysts opined that it was
lara's ability to respond quickly that put the company on a different plane as
compared to the other fasnion retailers.
After the stitched garments arrived at the manufacturing centers, they were checked
twice for quality, ironed, tagged, and then wrapped in plastic bags and sent to the
distribution centers. About 60% of lara's total production was carried out in Portugal
16 "lara: A Model Fashion Retailer," CNN. July 22.2004.
17 Computer-aided design (CAD) is the use of a wide range of computer-based tools that assist
engineers. architects, and other design professionals in their design activities.
18 Richard Heller. "Inditex Index, Inside lara," Forbes. May 28. 2001.
Retail Management
and Spain. The company considered several factors like expertise, cost, and especially
time sensitivity before opting for outsourcing. Zara carried out some of the capital
intensive manufacturing processes including dyeing and cutting the fabric
indigenously while the labor intensive steps like sewing were outsourced. Garments
that required styling and reflected fashion trends were made by Zara while the basic
designs and knitting were outsourced. On the flip side, the people cost that Zara had to
incur was higher compared to other retailers who outsourced their production to Asia.
Distribution
The distribution of garments was carried out at Zara' s 500,000 square meter
distribution center in Arteixo. This center was located centrally among 14
manufacturing plants in La Coruna. Zara had its own railway track of 211 km through
which the goods moved trom the manufacturing plants to the distribution center. In
2002, another distribution center was opened at Zaragoza in Spain to complement the
existing facility.
The merchandise moved through optical reading devices that sorted out more than
60,000 items every hour. The distribution center had two levels and was fully
automated. On one level was the section on folded apparel packed into cardboard
boxes. The boxes were dropped through a shaft according to their destination. On the
other level were garments placed on hangers. These garments were sorted based on
their styles. There were two belt systems -- one for folded and one for hung garments.
The garments were then routed using automatic. routing devices. All the garments
were pre-priced and the lots labeled according to their destination.
At the loading docks, fleets of trucks took the goods to their destinations. Twice a
week, the garments were shipped out of the distribution center. Non-European
consignments were sent to the airport at Santiago di Compostela. For stores within
Europe, they were sent through trucks, which received the consignments within 24 to
36 hours. The stores located outside Europe received the consignment within two
days.
The distribution center was used to select, sort, reroute, and resort merchandise
between manufacturing units and stores and was not used to store merchandise. About
Zara delivering its products twice a week, The New Yorkerl9 wrote, "Twice-weekly
deliveries may be common in the grocery business, but in fashion retailing they're
unheard of. The curse of the rag trade, after all, is the enormous lag time between the
initial sketches of that new A-line skirt and its arrival in stores. Instead of reacting
quickly to what customers want now, most retailers must guess what they'll want six
or nine months hence. That's hard enough if you're selling televisions or bicycles. In
the fashion business, it's close to impossible."zo
Once the trucks reached the stores, the garments could be put on display straight away
as they were pre-priced and already ironed. Zara was able to achieve an accuracy level
of 98.9% in its shipments. The items sent to a particular store had the items that the
store managers had asked for and sometimes new items that were proving popular
19 The New Yorker is an American magazine that publishes reports, criticism, essays, cartoons.
poetry, and fiction. The first magazine was published in 1925. Earlier, the magazine was
published every week. Later, the format was changed to forty weekly magazines and six
special issues.
20 James Surowiecki, "The Most Devastating Retailer in the World," The New Yorker,
November 2000.
...
Zara's Supply Chain Management Practices
with stores at other nearby locations. With new stock arriving twice a week, the stores
always had something new to offer and the customers waited eagerly for the new
arrivals. According to lara, on an average, customers visited lara's stores 17 times a
year, compared to the three to four visits its competitors received (Refer to Exhibit III
for lara's production process).
Store Outlay
lara was very particular about the location of its stores. The stores were mostly
located in prime locations across the world. For example, lara outlets were located in
34th Street, Fifth Avenue, SoHo in New York; Regent Street in London, and Champs
Elysees in Paris. All of lara's stores were uniform in outlay, including lighting,
fixtures, window display, and arrangement of garments. A typical store had a floor
space of 1200 square meters.
The stores were brightly lit with a mix of halogen and fluorescent lighting. The back
walls were fully lit and the lights placed around and above the merchandise diffused
light from all sides. Color was not used much in the interiors, which were mostly in
white, natural pine, mill work, and brushed stainless steel hues. The glass paneled
faryade was brightly lit with a prominent display of products, mannequins, and posters
showing lara's clothes.
lara planned its store windows and displays carefully. At the company's
headquarters, there were 25 full length display windows. These windows had display
platforms and variable light, which helped lara in determining how the display unit
would look on bright days, on cloudy days, and during the night. A team of window
designers worked to arrive at the look of the windows at each of their stores. The
window presentation designs were then sent to the stores and most of lara's stores
across the world sported those designs.
The display of clothes was given prominence in the stores. When the shipments
arrived, there were codes on all the items which conveyed to the staff where exactly
the items needed to be placed. In the stores, the clothes were organized by color rather
than type of garments. This was done in order to encourage customers to spend more
time at the stores and to spot the matching items. According to a sales assistant in one
of lara's stores, "We always have something that looks like what the customer wants.
If the flowery dress sells out, there will be a white ohe of the same design in stock.
Customers won't leave the store empty-handed."21
All of lara's stores were located at places where there was constant pedestrian flow
and they had huge windows to display the merchandise. This acted as a major pull
factor in attracting customers. lara believed that these locations themselves provided
the required advertising - the company spent very little (about 0.3% of its total
revenues) on advertising or on the launch of new stores. On lara's store designs,
Domenico De Sole, the CEO of Gucci22, said, "What always strikes me is the very
high quality of their store presentation. I respect people who know how to present
their product. Their stores, and particularly their windows, are very elegant.,,23
21 Angela Saini and Sarah Ryle, "New Kids on the High Street cut a Dash with Fast Fashions,"
www.observer.guardian.co.uk, June 05, 2005.
22 Italy-based Gucci Group NV is one of the world's leading multi-brand luxury goods
companies. The group companies design, produce, and distribute high-quality personal
luxury goods, including ready-to-wear apparel, handbags, luggage, small leather goods,
shoes, timepieces, jewellery, ties and scarves, eye wear, perfumes, cosmetics and skincare
products.
23 Richard Heller, "Inditex Index, Inside Zara," Forbes, May 28, 2001.
'7
....
Retail Management
Zara's huge stores presented the ambience of upscale boutiques, with marble floors
and effective lighting. One of the customers visiting Zara in New York commented,
ayou feel like you'r~ in a classy European boutique.,,24 Most of the stores were
company owned and in some markets particularly in Asia, Zara adopted the route of
alliances and franchises. All the franchise operations were controlled by strict quality
procedures laid out by Zara. It provided the franchise partners with extensive training
in human resources and logistics. Even while entering into agreements with
franchisees, Zara retained the right to open its own stores in the location and buyout
franchised operations in case it experienced any problems with running the stores.
REAPING THE BENFITS
Instead of projecting sales for a certain color, fabric, or style and launching such
products, Zara reacted swiftly to emerging trends in the fashion industry
The company ensured that its stores were stocked with the products that the customers
wanted at that point of time. In contrast, other retailers took between 8 and 12 months
to forecast and arrive at a style and send it for production. Zara's initial forecast was
limited to the kind of fabric and the amount of fabric it would buy. The fabric thus
procured was unprocessed and undyed and Zara colored the product only before
sell ing it, based on the need and demand by consumers. Zara sourced undyed fabric
from the Far East, Morocco, and India.
When Zara opened stores in new locations, the shop assistants clearly told the
customers that the styles changed every week and that they might not find the same
piece in the stores again. Once a product was in the stores, Zara quickly moved on to
the next style. With new styles being introduced every week, consumers were likely to
visit the store more often.
Producing a product in limited quantity had another advantage. Ifthestyle did not sell
as expected, Zara did not lose much, as there was not much stock to be discounted.
On an average, Zara sold only 18% of the clothes through discount sales twice a year,
as against the industry average of 36% and constant markdowns. Analysts opined that
Zara's main advantage was its ability to respond during the season. If any collection
was not doing well during the season, Zara could immediately realign its resources,
whereas the other retailers had to resort to discounts and advertising to clear their
stocks.
Zara used the pull process instead of forecasting to gauge market trends. As soon as a
product was sent to the stores, Zara would know if the new design was going to
succeed or not, based on immediate feedback from the sales force and store managers.
Products that did not sell as expected were immediately discontinued. According to
Watson, "The fundamental thing about using small batches and this model is that
[you] are continually making decisions based on consumer demand. And if you cut
your demand to your supply and are able to do it quite quickly as it begins, you're
always on the upward start of the demand curve, which is the highest rate ofsales.,,25
Defying conventional wisdom, Zara adopted practices that resulted in higher costs.
These included three product lines, deliveries twice a week, using planes and trucks to
transport its goods instead of cheaper alternatives like trains and ships, and shipping
24 William Echikson. "The Mark or Zara," BusinessWcck, May 29, 2000.
25 J Ryan Thomas. "Uncovering Zara," Apparel Magazine, January 2006.
..
Zara's Supply Chain Management Practices
some of the garments on hangers, which occupied more space, thus increasing freight
charges. However, these practices helped lara maintain a low inventory and higher
profit margins. Analysts opined that lara's supply chain did not minimize costs but
worked towards maximizing revenues.
When most of the European retailers were moving their production processes to low
cost countries like China and India to minimize their costs, lara made efforts to keep
its costs low, despite manufacturing in Spain and other European countries. The
company did not own any of the workshops where the sewing was done. These
workshops employed women from villages and small towns. Their average wage was
around US$ 500 a month as against the US$ 1,300 per month paid to industrial
workers. However, these wages were still 5 to 7 times higher than those paid in India
or China. lara was thus able to achieve the flexibility of making and distributing the
garment in a few days, something which would have not been possible if the
manufacturing was done in these low cost countries. According to David Bovet of
Mercer Management Consultant, "The dominant way of thinking for a while now has
been, find the cheapest country out there and get it to produce your stuff, but what
lara has said is that proximity matters. Even if you save a couple of bucks an hour by
shipping the stuff off to the Third World, you end up paying more in the end, because
it destroys your flexibility.,,26
lara's use of information technology (IT) was limited. According to Andrew McAfee,
specialist in the corporate use of IT at Harvard Business School, "The company keeps
its technology simple - even a little old-fashioned - but as a result spends five to ten
times less on information technology than its rivals.,,27
LOOKING AHEAD
o
Industry analysts were of the opinion that lara could not continue with its supply
chain model for too long. With many retailers moving their manufacturing processes
to India and China to control costs, lara would have to follow suit sooner or later in
order to remain competitive. However, if the production was to move out to low cost
countries, lara could lose its advantage and might not be able to refurbish its product
lines in quick succession, the analysts felt.
By 2008, the quotas28 imposed on the Chinese textile industry by the US and the
European Union would be removed. Most of the leading European textile companies
were expected to move their manufacturing processes to Asia, particularly to China,
due to lower costs. Several luxury apparel brands would also start sourcing from
China. According to Nathan Cockerll, analyst with Credit Suisse First Boston
26 James Surowiecki, ;'The Most Devastating Retailer in the World," The New Yorker,
November 2000,
27 "The Future of Fast Fashion," Economis,t, June 18,2005,
28 In order to protect European manufacturers from Chinese imports, a quota was imposed on
10 categories of clothes from China. Under the terms, the quotas restricted the annual
imports of the specified items till 2008, America also entered into a similar agreement for 34
categories of clothes. After the quotas are removed, the European manufacturers who are not
able to manufacture garments in China would be able to manufacture them and source their
products from China,
9
Retail Management
(CSFB)29, "The economics of Asian sourcing actually work better for some luxury
companies than fast-fashion retailers, because the margins on more expensive goods
aren't affected as much by the cost of putting them on a plane. ,,30
Analysts cautioned lara against aggressive expansion. They pointed out that the
farther lara moved its operations from Spain, further away it would be from its
centralizec} ~istribution system, which would lead to higher costs. Analysts warned
that vertical integration, which was lara's strength, could also turn out to be its
weakness, if it continued expanding to far off locations in Asia and America. One of
the disadvantages of vertical integration was the lack of economies of scalt:, where
lara was unable to reap the advantage of producing large quantities of products to sell
them at competitive prices.
Retail experts suggested that lara should complete its expansion in the European
markets before venturing into the Asian markets. In case lara wanted to expand
further, analysts opined that it needed to decentralize its production processes and
have a production center for a cluster of countries along with distribution centers.
Questions for Discussion:
1. According to Richard Hyman, "Vertical integration has gone out of fashion in the
consumer economy; lara is a spectacular exception to the rule." Explain how
lara used its vertically integrated supply chain to its advantage. What are the
drawbacks of having a highly vertically integrated supply chain for a fashion
retailing company? Explain.
2. In the light of lara's global expansion in far-off locations like Asia and America,
what modifications according to you, the company has to bring in its supply chain
and why?
3. Most of the supply chain management efforts by organizations now-a-days are
aimed at minimizing costs rather than on maximizing revenues. However, lara's
supply chain management practices are an exception. Do you think lara should
continue with these practices or should aim at reducing costs so as to maximize
profits? Take a stand and justify.
29 CSFB is a New York based investment banking and financial services firm. It is a division of
the Credit Suisse group and has started operating under the the name Credit Suisse since
January 16, 2006. The firm caters for three different categories of clients - institutional,
investment banking and investment management clients.
30 Rana Foroohar, "Fabulous Fashion," Newsweek International. October 17, 2005.
Zara's Supply Chain Management Practices
Exhibit I
Zara - Global Presence (January 2006) America
Europe
Country
No. of Stores
Country
No. of Stores
..
Argentina
6 Andorra 1
Brazil
14
Austria 8
Canada
14
Belgium
18
Chile
5
Cyprus
3
Costa Rica
1
Czech Republic
3
Dominican Republic
1 Denmark
4
E1 Salvador
1
Estonia 1
Mexico
39
Finland
4
Panama
1 France 90
Uruguay
2
Germany
41
Venezuela
9 Greece 38
USA
19
Hungary
2
Total
112
Ireland 5
Asia
Italy
36
Country
No. of Stores Latvia 1
Hong Kong
4 Lithuania 2
Japan
18
Luxembourg
2
Malaysia
3
Malta 1
Singapore
3 Monaco 1
Indonesia
2 Netherlands 6
Philippines
1
Poland 11
Total
31
Portugal
46
Middle East & Afrka
Romania 1
Country
No. of Stores Russia 7
UAE
5 Slovenia 3
Bahrain
1
Spain
259
Israel
14
Sweden
4
Jordan
1 Switzerland 8
Kuwait
4
Turkey
13
Lebanon
2 UK 45
Morocco
1
Total 665
Qatar
1
Saudi Arabia
16 Grand Total 853
Total
45
Source: www.inditex.com.
Retail Management
Exhibit II
INDITEX - International Expansion
Year Countries
1988 Portugal
1989 USA
1990 France
1992 Mexico
1993 Greece
1994 Belgium, Sweden
1995 Malta
1996 Cyprus,
1997 Norway, Israel
1998 Argentina, Japan, UK, Venezuela, UAE, Lebanon, Kuwait, Turkey
1999 Netherlands, Germany, Poland, Chile, Saudi Arabia, Bahrain, Canada,
Uruguay
2000 Austria, Denmark, Qatar, Andorra
2001 Puerto Rico, Jordan, Ireland, Italy, Iceland, Luxembourg, Czech
Republic
2002 El Salvador, Finland, Singapore, Dominican Republic, Switzerland
2003 Russia, Slovakia, Slovenia, Malaysia
2004 Hong Kong. Morocco, Estonia, Latvia, Romania, Hungary, Lithuania,
Panama
2005 Morocco, Indonesia, Philippines, Costa Rica
Source: www.inditex.com.
..
Zara's Supply Chain Management Practices
Exhibit III
Manufacturing Process of Zara
Sales personnel & store managers
Designers travel across the world
obtain customer feedback, monitor
sccuting for trends, ideas and
local trends and update the
designs
headquarters daily
~
~
Data obtained used to decide on price, fabric etc.
Undyed
fabric
supplied
from far- east
Store specialists, designers, procurement and
production managers work in tandem to arrive at new designs
~
Sampling and approval
Fabric is dyed, cut and sent to workshops for
stitching
Stitched garments are checked for quality and sent
for distribution
Garments are sorted out and sent to Zara stores
across the world
Adapted from J. L. W. Lo, B. Rabenasolo and A-M. Jolly-Desodt, "Leveraging Speed as a
Competitive Advantage: A Case Study of an International Fashion Chain and its Competitors. "
Fashion Net, International Conference 2004.
..
Retail Management
Additional Readings & References:
]. William Echikson, "The Mark of lara," Business Week, May 29,2000.
2. Jane M Folpe, ''lara has a Made-to-Order Plan for Success," Fortune. Septembcr 04.
2000.
3. William Echikson, "The Fashion Cycle hits High Gear." BusinessWeek. September 18,
2000.
4. James Surowiecki, "The Most Devastating Retailer in the World," The Ne\!' Yorker,
November 2000.
5. "Floating on Air," Economist. May 19,2001.
6. Richard Heller, "Indite:.: Inde\ - Inside lara," Forbes, May 2S, 2001.
7. "lara, a Spanish Success Story," www.cnn.com. June 15,200 I.
8. "lara tests Market with Brand Launches," Estates Gazelle, June OS. 2002.
9. Devangshu Dutta, "Retail @ the Speed of Fashion Part I and II," wwwJisite.com. 2002
and 2003.
10. Jane Bainbridge, "High-Speed Retail is Quick to Answer Customers' Needs," Marketing
(UK) April 03, 2003.
] 1. "Spain's Best Brands," www.brandchannel.com. February 16,2004.
12. Joanna Doonar. "Branding Espana to the Rest of the World." Brand Strategy, March.
2004.
] 3. Ferdows, Kasra. Lewis, Michael A., Machuca . .lose AD. "Rapid-Fire Fulfillment,"
Harvard Business Review, November 2004.
14. Robel1 Pepper. 'Loyalty's Missing Link." Marketing (UK), March 23, 2005.
15. "The Future of Fast Fashion," Economist. June 18.2005.
16. "Global Brand. The 100 Top Brands," BusinessWeek. August 0 1,2005.
17. Robert Murphy, "Strong Sales at lara Boost Inditex Profit," Women's Wear Daily,
September 23, 2005.
18. Rana Foroohar, "Fabulous Fashion," Newsweek International. October 17,2005.
19. J Ryan Thomas, "Uncovering lara," Apparel Magazine, January 2006.
20. www.indite\.com
21. w\Yw.zara.com