How Does Zara’s Business Model Work?
The New York Times Sunday Magazine dispatched Suzy Hansen to Spain to visit
Inditex, the holding company that owns Zara. In How Zara Grew Into the World’s
Largest Fashion Retailer, Hansen explains Zara's business model. The key to Zara's
"runaway success" is to be the best at fast fashion. Michelle Denise gets at this when she writes "they don't spend too much ... trying to develop their own designs."
Instead, Zara excels at process innovation.
The Atlantic's Derek Thompson breaks down Hansen's article through the lens of process innovation in Zara's Big Idea: What the World's Top Fashion Retailer Tells Us
About Innovation. Some things to consider:
• Iterate. Zara's success at Fast Fashion goes beyond rapid …show more content…
On average, according to Hansen, production
"takes only two to three weeks."
• Supply Chains. Zara does not wait on Chinese manufacturers. Seizing the opportunity posed by cheaper Spanish, North African and Turkish labor, Zara can put its new merchandise in stores within weeks, not months. To offset costs, Zara focuses on trendy items being produced close to spain and outsourcing more evergreen products to cheaper labor markets.
• Scarcity. Rapid product iteration means that jacket you saw last Tuesday may not be available 10 days from now. Customers are trained (and pushed) to purchase goods at first impression or risk never seeing that item again. Impulse buys are lucrative.
• Burger King. Executives at Burger King knew that McDonalds invested millions into researching the best locations/intersections to build future McDonalds.
Instead of parallel investing, Burger King decided to build new franchises next to new McDonalds. Zara pays a premium to locate stores as close as possible, sometimes adjacent, to the luxury brands, such as Gucci, Chanel and Hermes, so customers are more likely to inflate Zara's brand …show more content…
This is the case because most brands have a specific theme that is relatively unique to their company. When you walk into an Abercrombie & Fitch store, you already know what their clothes will generally look like. The same applies to Gucci, LV, Marc by Marc
Jacobs, and most other brands. This means these companies are not interested in
"chasing the trend" but in creating or maintaining the trend. They have a very specific look that has evolved to their signature look.
Therefore, these fashion companies generally design their entire line up for the following year/season before handing it to manufacturing. It makes sense for them to consider how each one of their designs fit into a bigger theme of style. Pretty much everyone knows that an Abercrombie & Fitch jacket is going to have a vanilla/cream outer color, and huge embroidered words spelling out the brand, with the usual fluffy layer inside.
Hence, their supply chain looks like this:
Design entire line > Forecast > Manufacture in bulk > Logistics
There is no urgency to speed up the supply chain for any reason at all.
Zara on the other hand, is in a market segment called "Fast fashion",
The New York Times Sunday Magazine dispatched Suzy Hansen to Spain to visit
Inditex, the holding company that owns Zara. In How Zara Grew Into the World’s
Largest Fashion Retailer, Hansen explains Zara's business model. The key to Zara's
"runaway success" is to be the best at fast fashion. Michelle Denise gets at this when she writes "they don't spend too much ... trying to develop their own designs."
Instead, Zara excels at process innovation.
The Atlantic's Derek Thompson breaks down Hansen's article through the lens of process innovation in Zara's Big Idea: What the World's Top Fashion Retailer Tells Us
About Innovation. Some things to consider:
• Iterate. Zara's success at Fast Fashion goes beyond rapid …show more content…
On average, according to Hansen, production
"takes only two to three weeks."
• Supply Chains. Zara does not wait on Chinese manufacturers. Seizing the opportunity posed by cheaper Spanish, North African and Turkish labor, Zara can put its new merchandise in stores within weeks, not months. To offset costs, Zara focuses on trendy items being produced close to spain and outsourcing more evergreen products to cheaper labor markets.
• Scarcity. Rapid product iteration means that jacket you saw last Tuesday may not be available 10 days from now. Customers are trained (and pushed) to purchase goods at first impression or risk never seeing that item again. Impulse buys are lucrative.
• Burger King. Executives at Burger King knew that McDonalds invested millions into researching the best locations/intersections to build future McDonalds.
Instead of parallel investing, Burger King decided to build new franchises next to new McDonalds. Zara pays a premium to locate stores as close as possible, sometimes adjacent, to the luxury brands, such as Gucci, Chanel and Hermes, so customers are more likely to inflate Zara's brand …show more content…
This is the case because most brands have a specific theme that is relatively unique to their company. When you walk into an Abercrombie & Fitch store, you already know what their clothes will generally look like. The same applies to Gucci, LV, Marc by Marc
Jacobs, and most other brands. This means these companies are not interested in
"chasing the trend" but in creating or maintaining the trend. They have a very specific look that has evolved to their signature look.
Therefore, these fashion companies generally design their entire line up for the following year/season before handing it to manufacturing. It makes sense for them to consider how each one of their designs fit into a bigger theme of style. Pretty much everyone knows that an Abercrombie & Fitch jacket is going to have a vanilla/cream outer color, and huge embroidered words spelling out the brand, with the usual fluffy layer inside.
Hence, their supply chain looks like this:
Design entire line > Forecast > Manufacture in bulk > Logistics
There is no urgency to speed up the supply chain for any reason at all.
Zara on the other hand, is in a market segment called "Fast fashion",