A Case Study in Fast Fashion Success môn Principles of Management | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

At the announcement of her engagement to Spain’s Crown Prince Felipe,
Letizia Ortiz Rocasolano wore a chic white pantsuit. Within a few weeks,
hundreds of European women sported the same look. Welcome to fast
fashion, a trend that sees clothing retailers frequently purchasing small
quantities of merchandise to stay on top of emerging trends. In this world of
“hot today, gauche tomorrow,” no company does fast fashion better than
Zara International. Shoppers in 78 countries are fans of Zara’s knack for
bringing the latest styles from sketchbook to clothing rack at lightning speed
and reasonable prices.1 In Fast Fashion, Moments Matter Because style-
savvy customers expect shorter and shorter delays from runway to store,
Zara International employs a creative team of more than 200 professionals to
help it keep up with the latest fashions.2 It takes just two weeks for the
company to update existing garments and get them into its stores; new
pieces hit the market twice a week. Defying the recession with its cheap-and-
chic Zara clothing chain, Zara’s parent company Inditex posted strong sales
gains. Low prices and a rapid response to fashion trends are enabling it to
challenge Gap, Inc., for top ranking among global clothing vendors. The
improved results highlight how Zara’s formula continues to work even in the
downturn. The chain specializes in lightning-quick turnarounds of the latest
designer trends at prices tailored to the young—about $27 an item.3 Louis
Vuitton fashion director Daniel Piette described Zara as “possibly the most
innovative and devastating retailer in the world.”4 Inditex Group shortens
the time from order to arrival by utilizing a complex system of just-in-time
production and inventory reporting that keeps Zara ahead. Their distribution
centers can have items in European stores within 24 hours of receiving an
order, and in American and Asian stores in under 48 hours.5 “They’re a
fantastic case study in terms of how they manage to get product to their
stores so quick,” said Stacey Cartwright, executive vicepresident and CFO of
Burberry Group PLC. “We are mindful of their techniques.”6 Inditex’s history
in fabrics manufacturing made it good business sense to internalize as many
points in the supply chain as possible. Inditex controls design, production,
distribution, and retail sales to optimize the fl ow of goods, without having to
share profi ts with wholesalers or intermediary partners. Customers win by
having access to new fashions while they’re still fresh off the runway. During
a Madonna concert tour in Spain, Zara’s quick turnaround let young fans at
the last show wear Madonna’s outfi t from the fi rst one.7 Twice a week
Zara’s fi nished garments are shipped to logistical centers that all
simultaneously distribute products to stores worldwide. These small
production batches help the company avoid the risk of oversupply. Because
batches always contain new products, Zara’s stores perpetually energize
their inventories.8 Most clothing lines are not replenished. Instead they are
replaced with new designs to create scarcity value—shoppers cannot be sure
that designs in stores one day will be available the next. Store managers
track sales data with handheld computers. They can reorder hot items in less
than an hour. This lets Zara know what’s selling and what’s not; when a look
doesn’t pan out, designers promptly put together new products. According to
Dilip Patel, managing director for Inditex, new arrivals are rushed to store
sales fl oors still on the black plastic hangers used in shipping. Shoppers who
are in the know recognize these designs as the newest of the new; soon
after, any items left over are rotated to Zara’s standard wood hangers.9
Inside and out, Zara’s stores are specially dressed to strengthen the brand.
Inditex considers this to be of the greatest importance because that is where
shoppers ultimately decide which fashions make the cut. In a faux shopping
street in the basement of the company’s headquarters, stylists craft and
photograph eye-catching layouts that are e-mailed every two weeks to store
managers for replication.10 Zara stores sit on some of the world’s glitziest
shopping streets—including New York’s Fifth Avenue, near the fl agship stores
of leading international fashion brands—which make its reasonable prices
stand out. “Inditex gives people the most up-to-date fashion at accessible
prices, so it is a real alternative to high-end fashion lines,” said Luca Solca,
senior research analyst with Sanford C. Bernstein in London. That is good
news for Zara as many shoppers trade down from higher priced chains.11
Catfi ghts on the Catwalk Zara is not the only player in fast fashion.
Competition is fi erce, but Zara’s overwhelming success (recent sales were
over $16 billion) has the competition scrambling to keep up.12 San
Francisco-based Gap, Inc., which had been the largest independent clothing
retailer by revenue until Zara bumped them to second place in 2009, posted
a 21% decline in the fi rst half of 2011 and has plans to close 700 stores by
the end of 2013.13 Only time will tell if super-chic Topshop’s entry into the
American market will make a wrinkle in Zara’s success. Some fashion
analysts are referring to all of this as the democratization of fashion: bringing
high(er) fashion to low(er) income shoppers. According to James Hurley,
managing director and senior research analyst with New York-based Telsey
Advisory Group LLC, big-box discount stores such as Target and Wal-Mart are
emulating Zara’s ability to study emerging fashions and knock out look-alikes
in a matter of weeks. “In general,” Hurley said, “the fashion cycle is
becoming sharper and more immediately accessible.”14 But making fashion
more accessible can have its costs: Zara faced some controversy last year
when Brazilian authorities discovered and shut down a São Paulo sweatshop
run by AHA, one of Zara’s contractors. Inditex denied knowledge of the
working conditions, but it acknowledged that the conditions in the sweatshop
ran counter to its code of conduct and compensated the affected workers.15
A Single Fashion Culture With a network of over 1,600 stores around the
world, Zara International is Inditex’s largest and most profi table brand,
bringing home 77% of international sales and nearly 67% of revenues.16 The
fi rst Zara outlet opened shop in 1975 in La Coruña.17 It remained solely a
Spanish chain until opening a store in Oporto, Portugal, in 1988. The brand
reached the United States and France in 1989 and 1990 with outlets in New
York and Paris, respectively.18 Zara went into mainland China in 2001, India
in 2009, and Japan, Jordan, Lebanon, Oman, Qatar, and Russia last year.19
Essential to Zara’s growth and success are Inditex’s 100-plus textile design,
manufacturing, and distribution companies that employ more than 92,000
workers.20,21 The Inditex group began in 1963 when Amancio Ortega
Gaona, chairman and founder of Inditex, got his start in textile
manufacturing.22 After a period of growth, he assimilated Zara into a new
holding company, Industria de Diseño Textil.23 Inditex has a tried-and-true
strategy for entering new markets: start with a handful of stores and gain a
critical mass of customers. Generally, Zara is the fi rst Inditex chain to break
ground in new countries, paving the way for the group’s other brands,
including Pull and Bear, Massimo Dutti, and Bershka.24 Inditex farms out
much of its garment production to specialist companies, located on the
Iberian Peninsula, which it often supplies with its own fabrics. Although some
pieces and fabrics are purchased in Asia—many of them not dyed or only
partly fi nished—the company manufactures about half of its clothing in its
hometown of La Coruña, Spain.25 H&M, one of Zara’s top competitors, uses
a slightly different strategy. Around one quarter of its stock is made up of
fast-fashion items that are designed in-house and farmed out to independent
factories. As at Zara, these items move quickly through the stores and are
replaced often by fresh designs. But H&M also keeps a large inventory of
basic, everyday items sourced from cheap Asian factories.26 Inditex CEO
Pablo Isla believes in cutting expenses wherever and whenever possible.
Zara spends just 0.3% of sales on ads, making the 3–4% typically spent by
rivals seem excessive in comparison. Isla disdains markdowns and sales as
well.27 Few can criticize the results of Isla’s frugality: Inditex opened 358
new stores by the end of Q3 last year and was simultaneously named
Retailer of the Year during the World Retailer Congress meeting.28,29
Perhaps most important in an industry based on image, Inditex secured
bragging rights as Europe’s largest fashion retailer by overtaking H&M.30
According to José Castellano, former deputy chairman of Inditex, the group
plans to double in size in the coming years while making sales of more than
$15 billion. He envisioned most of this growth taking place in Europe—
especially in trend-savvy Italy.31 Fashion of the Moment Although Inditex’s
dominance of fast fashion seems virtually complete, it isn’t without its
challenges. For instance, keeping production so close to home becomes difÏ
cult when an increasing number of Zara stores are far-fl ung across the
globe. “The efÏ ciency of the supply chain is coming under more pressure the
farther abroad they go,” notes Nirmalya Kumar, a professor at London
Business School.32 Inditex launched its Zara online store in the United States
in the fall of 2011, offering free 2–3 day shipping and free returns in the
model of uber-successful e-retailer Zappos.33 A Zara application for the
iPhone has been downloaded by more prospective clients in the United
States than in any other market, according to chief executive Pablo Isla—
more than a million iPhone users in just three months. Beginning in 2010,
Zara rolled out its online store in sixteen European countries and plans to
progressively add the remaining countries where Zara operates.34 Analysts
worry that Inditex’s rapid expansion may bring undue pressure to its
business. The rising number of overseas stores, they warn, adds cost and
complexity and is straining its operations. Inditex may no longer be able to
manage everything from Spain. But Inditex isn’t worried. By closely
managing costs, Inditex says its current logistics system can handle its
growth until 2012.35 José Luis Nueno of IESE, a business school in Barcelona,
agrees that Zara is here to stay. Consumers have become more demanding
and more arbitrary, he says—and fast fashion is better suited to these
changes.36 But is Zara International trying to expand too quickly? Do you
think it will be able to introduce a new logistics system able to carry it into
another decade of intense growth.