Case Study #23: Zara’s Operational Values Grow Brand and Business Position in 2009

As I sweated bullets at the gym yesterday from a two week hiatus from exercising, I was simultaneously reading Businessweek’s 2009 report on the 100 Best Global Brands. Interbrand is the reputable firm that works with Businessweek to publish this report. As I scan through this list while maintaining my balance on a stepmill moving faster than it should, I am not too surprised by the rankings. I decide to analyze the delta in rankings (2009 to 2008). Certain brands lose and gain their position, but maintain a competitive spot in the top 50. Zara moves up twelve points to be ranked number 50 this year from number 62 last year. Today’s post will be dedicated to Zara and how it achieves business and brand success during one of the worst economic recessions since the Great Depression.

Zara is the flagship brand for Europe's fastest-growing apparel retailer Industria de Diseño Textil (commonly know as Inditex). Industria de Diseño Textil, S.A., together with its subsidiaries, operates as a worldwide fashion distributor. The company also does textile design, manufacturing, and distribution. It serves customers in various sales formats, such as Zara, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe. The company operates 4,359 stores. Industria de Diseño Textil is currently headquartered in Arteixo, Spain.

Zara runs about 1,520 stores, including some 230 Zara Kids shops, in more than 70 countries worldwide, including China where is has about two dozen locations. Zara has about 40 shops in the US and 60 in Mexico. The chain sells women's, men's, and children's apparel and also offers plus-size and maternity lines to its larger customers. Zara Home, which sells home fashions, has about 250 stores, in about 25 countries. Zara is Inditex's principal chain and accounts for about two-thirds of its parent company's sales.

Zara’s success in 2009 can be attributed to its organizational collaboration.


They institute a “fast fashion” system which “depends on a constant exchange of information throughout every part of Zara's supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy that can bog down communication between departments. But Zara's organization, operational procedures, performance measures, and even its office layouts are all designed to make information transfer easy” (Ferdows, Kastra, Lewis, Michael A., Jose A.D. Machuca. “Zara’s Secret for Fast Fashion”. Harvard Business School: Working Knowledge for Business Leaders, February 2005). Continuous knowledge transfer within the supply chain is a critical need to distribute products according to customer demand, not a mercantile system where manufacturing output creates excessive supply. For example, Zara can quickly identify a trend to having clothes in it stores in 30 days (Dutta, Devangshu. “retail @ the speed of fashion”. Third Eyesight, 2002). Zara is an excellent example of vertical integration and swiftly makes intelligent decisions to adapt their strategy based on market trends. The result is a very streamlined and efficient approach to inventory management, thereby reducing costs and increasing profitability.

The economic conditions in 2005 are far different than they are now. Several fashion brands lament about declines in sales and profitability even as they spotlight luxury items at lower retail price points and heavily discount products to turn inventory. Zara, on the other hand, is not experiencing the same issues. Given Zara’s focus on vertical integration, excellent inventory management and market demand, one would assume it could invest in distributing more expensive, higher-end items to increase its profitability levels. Four years later, the brand stays true to its low price, very chic offering to young people. Since the company is grounded in immediate and actionable data transfer across the supply chain, they are able to immediately anticipate changes in purchase behavior and react intelligently at the retail level. The average transaction is $27. Zara also plans to open 370 to 450 locations this year and its current logistics system can handle growth until 2012 (Rohwedder, Cecilie. “Zara grows as retail rivals struggle”. Wall Street Journal, March 26, 2009). While Zara is headquartered in Spain, it has a tremendous global focus and offsets losses it faces in its home market. The gross domestic product for Spain is forecasted to be -4.0% in 2009 and consumer expenditure has fallen from $951,754 million in 2008 to $908,289 million in 2009 (Euromonitor Country Factfile – Spain). The unemployment rate in Spain is forecasted to go over 20%. Dominic Bryant, an economist with BNP Paribas, said: “The momentum is clearly there for something well above 20 per cent, it's odds on, really. My forecast is that it gets to something around about 23 per cent.”

There is a lot to glean from Zara’s success in the fashion industry. It is not surprising why the company moves up 12 points in the Interbrand study. As customers become more discerning about consumption, it is important to make sure businesses are aligned at all levels to not only serve the buyers, but sustain their growth over a long period of time.