Why Isn't Zara On Every Street Corner?

Zara has long been known as the fast-fashion darling of the retail industry. I’ve written about its successes in an article in 2012 and again in 2015.

Since opening its first store in 1975, Zara ’s dedication to listening to its customers has remained constant, and its processes have become a model for the entire fashion industry to at least consider, if not try to copy.

Zara is owned by Inditex, one of the world’s largest fashion retailers, and operates more than 2,000 stores across 96 markets. Zara’s sales have increased around 12 percent a year over the last 15 years.

Fast fashion is something that a lot of retailers strive for, but few have actually mastered. Zara’s design process differs from the norm. While many retailers are working more than six months out, Zara brings new concepts to life in just three weeks. It does this through its integrated supply chain and by consistently keeping more than half of its factories in close proximity to key markets. They keep the supply close to the demand signal.

While other retailers are having trouble keeping pace with the evolving demands of today’s consumer, Zara isn’t fazed because it already is ahead of the curve.

So, what’s holding Zara back from even faster growth? Why isn’t there a Zara on every street corner everywhere?

They are held back on margins

In my 2015 article, I described the process Zara uses to bring new products to market.  The company manufactures a new item in small quantities in Asia, ships it as a “greige good” (i.e. without color or final cutting/sewing), and then finishes it on the Iberian peninsula.  The landed cost of such an item is far higher than the landed cost of an item manufactured in high volumes completely in Asia. In this way, Zara has been willing to sacrifice margins for speed to market.

They aren’t the fastest anymore

A recent article in Reuters depicts the new challenges Zara faces in keeping pace with up and coming brands, stating:

“ Inditex , the world’s largest clothing retailer and owner of the Zara chain, faces growing competition from younger, online-only players like Boohoo.com and Missguided. Its rivals are churning out clothes at higher speeds - as little as one week from design to point of sale - refreshing their sites daily with hundreds of new items.”

As a result, Inditex is looking to integrate its online sales with its bricks-and-mortar network by focusing on large, high-profile stores where customers could try things on, but make their purchases later online.

If this tactic ends up being successful, we could see the company begin to consolidate its bricks-and-mortar presence to continue to compete.

Is it scalable?

Zara has done and continues to do a lot of things right, and I think it’s safe to assume that with every step they make, they’ve heavily vetted the outcomes.

They have their supply chain down to an exact science, which could be thrown off by trying to add stores at a rapid pace.

They continue to invest in new technologies that continue to keep them at the top of the fast-fashion discussion. They recently announced that they are rolling out a ship-from-store service to 2,000 of their stores. By the end of the year, products that are out of stock online, but are available at a store nearby, can have the product shipped directly from that location.

As the Wall Street Journal states:

“The benefits of this new system are expected to be threefold: Customers are more likely to receive items more quickly if they live closer to the store, stores can stay relevant in the era of online shopping, and Zara can better manage its inventory levels.”

Ultimately, though, Zara lives by what I would consider the “Golden Rule of Retail”. They put the customer at the center of everything they do and they use those insights to deliver the right product, at the right price, at the right time.