The success of fast fashion has been a hot topic in recent times. H&M, Uniqlo, Cos and a whole host of other high street retailers now bring catwalk high-fashion designs to everyday shoppers on tight timescales, be they in mid-western shopping malls, British high streets or European town squares. Zara, owned by the Spanish Inditex Group, is the most successful of them all.
Fast fashion asks that certain trends make it from ready-to-wear fashion showcases to customers; the ephemeral nature of fashion trends mandates that this be achieved as quickly as possible. This is where Zara, with its highly responsive supply chain, excels. Although the company’s flexible supply chain means its price points are slightly higher than its competitors, it allows it to be the most responsive to changing fashion trends.
What began as a small Spanish clothing company, founded by Amancio Ortega in 1975, has transformed into a global business and market leader. Boasting over 6,000 stores, it has a presence in nearly 88 countries, with total net income rising to €2.5bn ($2.8bn) in 2014 (see Fig. 1).
From design to shop floor
The beginning of the Zara supply chain starts with its creative and design teams. Based in Spain, the creative team, including designers, make use of large amounts of information to inform their decision. As opposed to having an over-lauding design director, it has a vertical team of designers and other personnel in their creative teams.
While Zara has two seasonal release collections – Autumn/Winter and Spring/Summer – the fashion retailer makes only a small commitment of what products are to be produced at the start of a season. Designs are produced through a culmination of conversations with product managers, who are in constant contact with various store managers across the globe.
The production process is highly flexible, designed to allow a rapid response to changing consumer demands in season. For instance, when Zara purchases fabrics, much of the material is undyed. With these fabrics uncoloured, Zara is again able to respond to trends or consumer demands, dyeing the fabrics accordingly to whichever colour happens to be on-season or is required for a particular clothing design. Along with using European sources, much of the supply chain is owned by Zara, allowing the company to quickly source materials.
“We decide where to source the materials and where to produce depending on the item which has been designed, taking into account quality of that supplier and the timeline in which they can feasibly produce”, Julia Grindell, Head of Corporate Affairs at Inditex, tells World Finance. While Zara has resisted the trend in fast fashion to outsource much of its manufacturing to low-wage, developing world countries, it does where it makes sense: when price overrides fashion trends. Zara uses Asian manufacturers to produce clothing staples such as plain t-shirts, which are not sensitive to fashion trends and the use of lower-wage labour with larger contracts makes sense.
“As a general rule proximity markets (Spain, Portugal, Morocco) are used to produce higher fashion items because of shorter lead times and Asia for basic items with longer lead times”, says Grindell. The manufacturers used for the more time sensitive high-fashion items are located near Zara’s Spanish headquarters.
“Two tiers of the company’s suppliers are located in areas close to the headquarters, mainly Spain, Portugal, Morocco, Turkey and other European countries (55 percent).” In comparison, H&M has the majority of its products produced in Asia.
This use of close proximity manufacturers allows for greater flexibility and for Zara to fulfil its “aim of creating customer driven designs to customers as fast as possible”, while also incorporating any fashion trends as they see fit. This sets Zara apart in that, according to a paper by the Universitat Politècnica de Catalunya, “Traditional retailers lack this flexibility and they are obligated to place production orders to manufacturers overseas at least six months in advance of the season.”
The delivery time is then also made as short as possible. With the proximity of these producers used for high fashion and time-sensitive clothing located in and around Europe, they can be rapidly delivered to Zara’s central distribution centre in Spain and shipped to stores around the world twice a week. In contrast, H&M claims that its “displays are changed frequently and themed around an association or a feeling, but always keep the clothes in focus”. At H&M, stocks “are replenished as required from central stockrooms. As soon as a product is sold a request is sent for replenishment”, according to a Staffordshire University case study. In contrast, Zara does not necessarily replenish its stocks, but carefully considers whether or not to expand upon a trend or keep it to a limited batch release.
Feedback loops
This ability to produce and deliver items according to in-season trends relies upon a large amount of data, made possible by regular contact between stores and headquarters. According to Grindell, the company’s business model requires a “constant feedback between stores and designers (over 250 at Zara), through daily analysis of sales and data analysis of sales data and qualitative information on customer reactions to products”.
Designers will constantly respond to in-season changes throughout any given season. This requires high-frequency information: communication with store managers, the use of IT to monitor data sale trends, trend spotters on university campuses and in clubs, and taking into consideration the fashion choices of Zara’s own staff. Dr Yi Wang, a lecturer in supply chain and logistics at the University of Manchester points out the importance of IT in Zara’s supply chain, in allowing for the “collection [of] information on consumer needs”. Often a very limited number of new designs are presented in-store and produced on a larger scale if the reaction from customers is positive. If a trend proves successful Grindell says this “will be evolved and new items on this trend will come to store, if a trend is not successful this trend will not be evolved, or it will be adjusted through the season”.
Its highly responsive supply chain means that the clothing racks in Zara stores are always changing. Whereas in other high street fashion shops, one seasonal batch will be left on the shelf until stocks are depleted or the new season rolls over, what is on sale in a Zara store is subject to constant change, with new items expected in-store every two weeks.
Zara’s supply chain is responsive and flexible, with new items continually produced and placed on sale, often in limited batches; the current key to its success. This constant feedback allows for information to be easily relayed back so that workers can design, produce and distribute new designs constantly.
Playing catch up
The ability of rival fast fashion companies to replicate Zara’s model is uncertain. Zara relies on local manufacturers with which it has longstanding relations, and this allows it to place short-term quick orders, to be cancelled or expanded at short notice depending upon fashion trends and customer demands. Other retailers, who often rely upon long-term large orders with far-flung factories, will face a struggle to easily develop such relationships with local manufacturers.
Zara’s responsive supply chain works in tandem with its specific position in retail. While Zara generally offers low price points for the high-fashion designs its supplies, it is not a discount fashion retailer. According to Yi, “Vertical integration [of Zara] often leads to the inability to acquire economies of scale, which means they cannot gain the advantages of producing large quantities of goods for a discounted rate.” For other fast fashion firms to replicate its highly responsive supply chain, they would perhaps have to sacrifice the defining feature of their business: cheap and moderately fashionable clothes. In contrast, Zara has carved out a niche for moderately cheap and highly fashionable clothes.
Zara, however, has often neglected its online presence. In November last year The Guardian reported that Zara’s online retail accounts for only three percent of overall sales. Zara, along with other Inditex companies “need a digital push”, Daniel Lucht, Research Director at retail analyst group Research Farm told Essential Retail. Yet it is unclear how well Zara’s supply chain will adapt to e-commerce. Its custom of introducing small batches to certain stores does not apply to a nationally and globally accessible online store, while the constant adding of new stock every two weeks lends itself to the habits of the high street consumer, but not necessarily the e-shopper.
Despite this, according to Lucht, the fast fashion company took its online sales “a lot more seriously in 2014”. While Zara seems set to dominate the fast fashion market for the foreseeable future, its continued success will rely upon the ability of its business model to adapt to its growing digital sales.
