The emergence of ZARA and its position in the clothing market
<\/strong>A review of professional publications and the content of numerous reports concerning the clothing industry leave no doubt: ZARA keeps its competitors, the largest retail clothing companies in the world, awake at night due to its pace of development, the scale of revenue generated from sales, and the level of profits. ZARA has become a favorite example described by scientists – specialists in logistics and management, as well as a source of information for participants of numerous international conferences. The reason for this state of affairs is a management system that is different and contrary to the prevailing logic not only in the clothing industry but also in other areas of economic activity: a high share of in-house production, manufacturing in Europe, “expensive” logistics, fast deliveries to final buyers, and finally – for many years – double-digit sales profitability. Despite difficult market conditions resulting from the rapid volatility of fashion, and thus demand, seasonality, the intensity of international competition, and organizational barriers, the company’s inventory levels are low, and the scale of seasonal sales is limited. The essence of the company’s functioning is providing customers with exactly what they expect at any given moment. This is, of course, not only about fast production and efficient logistics but also about effective marketing in every element. Without these skills in constructing supply chains, the business model used at ZARA could not function.<\/p>
The Spanish company, widely known in the world and present in many countries, drives half-full trucks across Europe; it sends T-shirts and coats by air freight to Japan twice a week and maintains its own clothing factories that work 8 hours a day. What is the reason for this? ZARA subordinates its logistics and its principles to a different general strategy of development and competition in the market.
Current fashion trends should quickly materialize on retail chain shelves – from design, through production and delivery organization, to the moment of product display on store shelves, no more than a dozen or so days can pass. With such operations, ZARA achieved sales profitability reaching 20% for a long period. This example provides a model for the requirements placed on the logistics of the future. It is agile, adaptive to changing market conditions, and capable of ensuring a competitive advantage.<\/p>
Analyzing the case of ZARA individually, some practices used in this chain can be assessed as questionable or even crazy. This is how three scholars formulate their assessment: Kasra Ferdows (USA), Michael A. Lewis (Great Britain), and José A. D. Machuca (Spain) in an article published on January 25, 2005, in Harvard Businessmanager<\/em>. They studied all aspects of the company’s functioning for 3 years (!), talking to managers and examining all available sources and company materials. “We wanted to know if ZARA had introduced any significant new solutions, but we didn’t find any” – this was their conclusion. Instead of surprises, they encountered a mixture of many unconventional solutions. While numerous market competitors in retail clothing trade use outsourcing on a large scale, ZARA produces almost half of its products in its own factories. Instead of striving to increase production volume in its plants, management quite consciously allows for excess production capacity. Instead of reaping the benefits of economies of scale, ZARA manufactures and distributes products in small batches. And finally: instead of building market power based on strong partners, ZARA manages procurement, design, production, warehousing, sales, and the entire sphere of logistics itself.
In addition, the trio of professors found other success factors: the company cultivates short communication paths: designers and production planners receive quick information about customer expectations and accurate data on the size and structure of purchases. Furthermore, product orders and delivery organization take place according to a fixed and precise “timetable”. In this way, ZARA manages to deliver new goods to all stores around the world twice a week. The mentioned authors state that not all solutions used at ZARA can be transferred to other companies, but the simplest of simple philosophies of the company’s founder, Amancio Ortega, to ensure an appropriate level of profit through full and continuous control over the value chain, can in principle be proposed for all industries.<\/p>
It should be emphasized here that it is the person of the ZARA founder who provides more excitement than the company’s market activity itself, due to his experiences and life path, his decisive influence on shaping management principles and the company’s expansion, and the shaping of the broadly understood corporate culture. And so, everyone – from heads of competing companies to business school lecturers – studies his biography and career path. They are looking for an answer to the question of how a man without an education managed to travel the path “from zero to Zara” (as the title of the billionaire’s only biography reads), creating one of the world’s largest clothing empires, while breaking all the rules: he copied trends spotted “on the street” instead of imposing them, did not move production to cheap Asia, leaving a large part of it in his native Spain, and barely advertised.<\/p>
The article comes from the magazine “Logistyka” 5\/2009.<\/p>