by. Stuart Levine, Stuart Levine & Associates LLC
Zara, the world’s largest fashion retailer, is an excellent example of how putting the customer in control, helped to build one of the world’s most successful companies. They succeeded by having a culture of collaboration with seamless communication, using “Big Data” effectively and implementing effective processes. The New York Times published a feature on Zara and the key business points are extracted for this summary.
Inditex, commonly known by its oldest and biggest brand, Zara, is based in the economically depressed region of Galicia, Spain. Inditex is a pioneer among “fast fashion” companies, which essentially imitates the latest fashions and speed their cheaper versions into stores with trendy and well-made, but inexpensive products sold in beautiful, high-end-looking stores. Zara’s prices are similar to those of the Gap. The company makes 840 million garments a year and has around 5,900 stores in 85 countries. Its founder, Amancio Ortega Gaona, has become the world’s third-richest person.
Customer reactions are monitored on the basis of what they buy and don’t buy and on feedback given to the staff. Every day this information is transmitted to their headquarters, which sends it to a vast team of in-house designers. They quickly develop new designs and in turn send them to factories to be turned into clothes. For example, if Zara stores have customers responding enthusiastically to a specific item, the company very quickly delivers more of them. If customers give feedback on desired changes to a product, this can be accommodated as well.
Zara might make a fall collection and then ship only three or four dresses, shirts or jackets in each style to a store. Stores receive deliveries of new clothes twice a week, often in response to customer demand and often with specific items adjusted according to customer feedback. Not only is there very little leftover stock, but also the company keeps its stock fresh. Customers know that they will be buying something nearly unique. Merchandise moves incredibly quickly. Zara customers realize that they must buy it now or never and because the prices are so low, they buy it now.
Based on its seamless communications and effective processes, Zara can succeed in ways that traditional fashion firms cannot. Traditional firms send the designs for the clothes to independent factories in countries like China and India, where the labor is cheap. Most of Inditex’s manufacturing takes place in factories located in more costly labor markets, many near headquarters. The trendiest items are made closest to home, so that the production process, from start to finish, takes only two to three weeks. The higher labor costs are offset by greater flexibility, smaller inventory cost and faster turnaround speed.
This customer-focused business did not share the cycle of the financial crisis. In the last five years, Inditex’s overall sales have grown from 9.4 billion Euros a year to 13.8 billion. The number of employees increased from 80,000 in 2007 to 110,000 in 2011and profit has risen to about 2 billion Euros a year. Zara’s customer-focused business strategy has delivered enviable results.