How Zara Changed the Fashion Industry Forever with Their Disruptive Business Model
Fashion retailer Zara has been an industry leader in business model innovation since they first opened their doors in Spain all the way back in 1975. Their fast-fashion business model allows them to provide the latest fashion trends at an affordable price to their customers, which has led to Zara being one of the most successful clothing brands in the world, even outselling some major American brands like Gap and Ralph Lauren as of late. How did Zara accomplish this? What key traits were important to their success?
A brief history of Zara
Before Zara, high-fashion was expensive and time-consuming. Before Zara, if you wanted to stay on top of trends and look fashionable you had to know someone working in fashion or have a lot of money to spend. Before Zara, shopping was a commitment not everyone could afford. The innovative business model of Inditex–the parent company behind brands like Bershka, Pull & Bear, Stradivarius and more–changed all that by turning shopping into an experience customers can enjoy anywhere at any time. Here’s how it happened… Zara founder Amancio Ortega opened his first clothing store in 1975 in La Coruña, Spain. In 1984 he launched Zara as a separate entity, keeping it under Inditex’s umbrella but making it its own self-sufficient company. His idea: create affordable fashion that looked as good as anything high-end designers were producing. To do so he set up his supply chain so he could buy directly from manufacturers instead of through distributors who would mark up prices—and produce goods without Ortega’s input—before selling them to him. This allowed him to quickly get new styles on shelves and respond quickly to changing trends. And because everything is produced locally, clothes can be shipped out immediately after they are made, resulting in quick turnaround times for shoppers. There are no seasons with Zara; each week there is a new selection of fresh items for customers to choose from. This fast production cycle has been instrumental in helping Zara develop such close relationships with designers around the world; instead of waiting months for their designs to make it onto racks, these creatives get immediate feedback about what works and what doesn’t—and then make changes accordingly. This flexibility allows for constant innovation while maintaining consistent quality standards across every item sold in stores worldwide.
Fast fashion is, by nature, a disruptive concept. By eliminating wasted inventory and producing small batches of clothing based on latest trends, fast fashion retailers offer apparel that can be quickly moved from store shelves to customers—and unlike legacy companies like Gap and H&M, they needn’t spend vast sums of money on advertising to do it. This helps keep costs low for both company and customer, resulting in lower prices for consumers and higher profit margins for retailers. It also allows companies like Zara to introduce new collections (and a constant flow of new inventory) as often as twice per week—giving shoppers more variety in a market where shopping is becoming increasingly impersonal. But there are challenges inherent to operating at such a breakneck pace. For one thing, manufacturing at such speed means making clothes without time for proper development or quality control; mistakes are bound to happen. Moreover, because fast-fashion brands rely so heavily on third-party manufacturers, even minor errors can result in major delays and significant losses if they occur during key selling periods—such as back-to-school or holiday sales seasons. These challenges have led some critics to accuse these companies of having an anything goes attitude toward quality control; others claim their products are made by poorly paid laborers who work under harsh conditions.
The competitive advantage
At first glance, you wouldn’t think that being able to deliver mass-produced, stylish clothing to consumers quickly would be a competitive advantage. But it has turned out to be just that. In 1986, when Inditex founder Amancio Ortega opened his first Zara store in La Coruña, Spain, he was doing something no one else was doing: making inexpensive clothes available in new stores all over the world on an ongoing basis. If a trend took off in Tokyo or Milan, he could get clothing into shoppers’ hands—literally and figuratively—faster than anyone else by tailoring styles and reproducing them at lightning speed. Fast fashion is now commonplace, but back then, it wasn’t even possible. And Ortega made sure of that by building a vertically integrated supply chain and cutting out as many middlemen as possible. By owning everything from design to manufacturing to distribution, he eliminated any delays that might slow down production or distribution of trendy items. He also kept costs low because most of his products were produced outside of Europe where labor costs are much lower than they are in Western Europe. Fast fashion became fast fashion because Zara owned every step along its supply chain; other retailers had to go through suppliers who were not always nimble enough to keep up with trends and demands for quick delivery times.
The growth of Inditex
In 1975, Ortega opened his first store selling ready-to-wear clothes in La Coruña, Spain. By 1978, he was successful enough to be able to afford a small factory in Arteixo, Galicia. In 1983, he opened his first store abroad: La Voz (later called Zara) at Oxford Street in London. The same year he bought an abandoned hosiery factory in A Coruña (at 4 Almirall Cervera Street), which became headquarters and flagship store for Industrias Diana SAU. In 1985, Ortega opened stores in Barcelona and Madrid; also that year, Industrias Diana acquired a majority stake in its main competitor El Corte Ingles (see below). In 1986, it launched its own brand of perfumes under its Parfums de Coeur line; also that year it began expansion into Latin America opening stores in Mexico City and Buenos Aires. That same year it began opening stores outside Europe including locations in São Paulo (Brazil), Kuwait City (Kuwait), Dubai (United Arab Emirates) and Riyadh (Saudi Arabia). Expansion continued into Asia opening locations in Bangkok (Thailand) and Singapore.
The future for Inditex
Inditex, founded by Amancio Ortega in 1975, took a small shop in La Coruña, Spain and created a large global company that earned $56.2 billion dollars in sales during 2017. The company has revolutionized fashion with their business model that allows them to quickly get products to market while maintaining low prices by streamlining production, building new stores rapidly and making only small collections every year. But what can we expect from Inditex as they move forward? Will they continue to challenge retail giants like Target and Nordstrom’s? And will they grow at an even faster rate? Will they be able to keep up with their current pace of expansion or will they outgrow their capabilities? Only time will tell.