Reference no: EM132214234

Zara: The Capabilities behind the Spanish “Fast Fashion” Retail Giant Amancio Ortega built the world’s largest fashion empire through his Zara branded products and compa- ny-owned stores.

Through his management approach, Ortega became quite wealthy. In fact, in 2015 he was the fourth wealthiest person in the world (with a worth of $64.5 billion). This placed him behind only Bill Gates (the wealthiest of all), Carlos “Slim” Helu and family, and Warren Buffett. Headquartered in La Coruña, in Spain’s Galicia region, Ortega founded the Inditex Group with Zara as its flagship brand. Despite Spain’s 24 percent unemploy- ment rate and crippling debt, in 2012 Zara increased its revenue 17 percent. Also in 2012, Zara averaged a new store opening every day, including its six thousandth store launched on London’s Oxford Street. Although the influence of the economic environment (an influ- ence from the external environment that we examined in Chapter 2) affects Zara’s success, the way Zara uses its resources and capabilities as the foundation for core competencies (core competencies are capabilities that serve as a potential source of competitive advantage for a firm over its rivals) demonstrates the value of understanding a firm’s internal organization. Ortega built this successful business based on two critical goals: Give customers what they want, and get it to them faster than anyone else. To do “fast fash- ion,” as it is called, there are several critical capabili- ties that must be in place. The first critical capability is the ability to design quickly; the design pace at Zara has been described as “frantic.” The designers create about three items of new clothing a day, and pattern makers cut one sample for each. The second critical capability is the commercial sales specialists from each region where Zara has stores. They provide input on customers’ tastes and buying habits which are reported through store managers. Each specialist is trained to keep an eye on what people are wearing, which Ortega, as well, does personally since founding Zara. As such, Zara has a team approach to match quick and creative design with information coming in from the sales staff through regional specialists and sector specialists to operationalize new fashion ideas. Zara’s supply chain is also managed much more efficiently than those of other companies. The logistics department is the essence of the company. Rather than waiting for cloth to come in after designing, Zara already has a large supply of basic cloth and owns its own dyeing operation to maintain control and speed. Zara’s objective is to deliver customized orders to every store in its empire with a 24-hour turnaround for Europe, the Mideast, and much of the United States, and a 48 hour turnaround for Asia and Latin America. The frequent shipments keep product inventories fresh but also scarce since they send out very few items in each shipment. This approach com- pels customers to visit stores frequently in search of what they want and, because of the scarcity, creates an incen- tive for them to buy on the spot because it will likely not be in stock tomorrow. Accordingly, Zara’s global store average of 17 visits per customer per year is considerably higher than the average of three visits per year for its competitors. Until 2010 Zara did not have an online strategy. Unlike most retailers it has used very little advertising because it has focused on a rather cheap but fashionable approach. The fashion draws the interest of customers and, thereby, created a huge following on Facebook, with approximately 10 million followers. This compares favorably to other competitors such as Gap. The rarity of the individual pieces of clothing gives customers a sense of individuality. This creates a stronger potential for Zara to pursue an online strategy relative to its competitors. Most Zara stores are owned by the parent com- pany, and many of its suppliers, although not owned by the company, are considered long-time, relationship- oriented partners. As such, these partners identify with the company and, therefore, are loyal. This approach also sets Zara apart and makes its strategy difficult to duplicate because all of the various facets and capabilities of the company fit together through a unified culture. As noted above, Zara also operates its own dyeing plant for cloth, giving it significant control over its products. Likewise, it sews many of these garments in its own fac- tories and, thus, maintains a high level of quality control and an ability to make quick changes. Overall, the com- pany has a unique set of capabilities that fit together well as it manages activities to produce “fast fashion,” which creates demand from their customers and loyalty from their partner suppliers.

1. What influences from the external environment over the next several years do you think might affect the way Zara competes?

2. How easy or difficult do you think it would be for competitors to imitate Zara’s supply chain as a capability?

3. Is getting products to customers as quickly as possible an outcome that you believe would create value in industries in addition to clothing? If so, which industries and why?

4. What value does Zara create for its customers?

5. As you study how Zara competes and the capabilities it uses to do so, are there areas of the firm’s operations you believe might be candidates for outsourcing? If so, what areas and why might those be outsourced in the future?