After debuting a collection with Chanel’s creative director Karl Lagerfeld in 2004, Swedish fast fashion giant H&M has consistently rolled out collaborative lines with everyone from Lanvin’s former creative Alber Elbaz and Marni to Balmain and the latest: a collection with Kenzo, the first brand under the LVMH umbrella to take on the high street. Other brands have followed suit. Uniqlo tapped Chistophe Lemaire for a couple of collabs before naming him creative director of the brand. Topshop has enlisted British brands like Marques Almeida, Christopher Kane, Mary Katrantzou, and Meadham Kirchhoff over the years. And Forever 21 has dabbled in the designer x mass market collaboration model, as well.
One name that is quite notably missing from this list: Zara. The Spanish fast fashion giant has eschewed the popular tactic of teaming up with big name designers to sell garments and accessories – something that many of its competitors have relied upon so heavily for store traffic and sales. Nor does it boast a long roster of celebrity models, as many similarly situated retailers do. Zara arguably does not need famous names and faces to help sell its goods; it has something better: A near-perfect supply chain and spot-on runway copies.
Since its founding in 1975 in the city of Coruña in northeast Spain, Zara has managed to consistently win over customers of practically every age on almost every continent around the world. Part of the success of Zara’s collections has been the company’s ability to tap into an array of distinct groups of consumers, from budget-conscious teens and college students to more discerning fashion industry insiders, who have a penchant for mixing high and low fashion.
In just over a decade, Zara’s parent company Inditex has become world’s largest fashion retailer. With eight brands under its purview – ranging from higher-end Massimo Dutti to Bershka, which aims more towards teens, and Zara, of course, its largest company – Inditex is one of the very few companies that have managed to resist recessionary sales falls. Zara not only weathered the storm, it was expanding – by roughly one store per day in 2007.
Since Inditex’s 2001 initial public offering, the retailer has boosted its sales more than six-fold through aggressive expansion of its eight chains. Zara’s latest published figures – from June 2016 – indicate that its net profit for the quarter ended April 30 rose to €554 million ($621 million) from €521 million a year earlier. Sales grew 12% to €4.88 billion. The results exceeded market expectations.
Two-thirds of its 7,000 stores – which occupy 88 markets – have been opened or revamped in the last three years. The brand only recently began cutting its rapid plans for expansion (aims to increase store by 8 to 10 percent were cut in March 2016 to 6 to 8 percent for coming years) to focus more significantly on online sales.
According to a report from Inditex in March 2016, all eight of its brands will have e-commerce throughout the European Union and Turkey by the end of this year. Inditex ended 2015 with online operations in 27 markets and plans to add Taiwan, Hong Kong and Macau in 2016.
SHUNNING CELEBRITIES FOR SPEED
Such growth has not been dependent on external forces, such as famous spokesmodels, though. “Celebrities may work for other brands, not for us,” a Zara executive, who wished to remain unnamed, said in 2007. “For us, it’s all about speed.”
While it takes roughly six months for the average fashion brand to get its garments and accessories from the runway to retail, Zara’s model – one that has been the topic of study for graduate business schools, including Harvard, University of Pennsylvania’s Wharton School, and IESE Business School in Spain, among others, for years – enables the retailer to sell expensive-looking, affordable copies of a season’s hottest runway looks within weeks of their debut. “We believe that Inditex has the best business model in apparel and expect Inditex to deliver double-digit earnings growth per year over the next five years,” Bernstein analysts told the Wall Street Journal in 2015.
The company’s business model – which is funded upon two core elements, stocking less merchandise and updating its collections often – is revolutionary. Zara disrupted the traditional two collection-per-year model by bringing out a large number of collections each season. The traditional Spring/Summer and Fall/Winter schedule was never part of Zara’s plan. As a result, Zara has, in effect, set the standard for the fashion sector because it manages to “design, produce, distribute and sell its collections in [only] four weeks; a record-brief period if you take into account that its competitors take several months to complete this same process,” notes José Luis Nueno, professor of commercial management at the IESE Business School in Spain.
One of Zara’s greatest strengths is its ability to very adequately gauge the personal tastes of its customers so that it can give them what they want even before they ask for it. To do that, more than 200 designers located at the company’s central headquarters in Spain constantly collect information about the decisions made by consumers in each of the chain’s stores. In addition to keeping an extremely close eye on the runway, Zara’s own scouts are tapped into what people are wearing on the streets around the world, which has been a tactic of trend-forecasting companies, like WGSN. Beyond the process of design, the production and logistics of Zara’s products also take place inside the company. The advantage of that approach is that it gives Zara a lot of flexibility to adapt to the changing tastes of fashion consumers.
“If I had to condense the foundations for Zara’s success, I would say it comes down to agility and flexibility,” according to Neil Saunders, CEO of retail consulting firm Conlumino. “From these things flow a number of advantages: quickly picking up on new fashion trends, accurate forecasting of stock requirements which reduces markdowns, quick turn of stock which keeps customers coming back for new product, good responsiveness to external factors like the weather, and margin maximization.”
Saunders continues: “Zara uses a push based model which means factories push out product to stores which is then sold to consumers; there is no customization or products being made to order. However, while the model is still the same on the surface behind the scenes it is highly integrated — much more so than many other apparel retailers – which means that there is a very tight supply chain from initial design through to final production.” This keeps lead times shorter, which leads to the second advantage: that they do not have to commit to all of their stock well in advance of each season and, actually, are still manufacturing during the season. Obviously this means they can do things like respond to fashion changes, reduce or increase production as necessary, introduce new lines and so forth.”
In short: Zara’s most central strengths are control and timing. Its products make their way into stores (either online or in brick-and-mortar locations) in accordance with a formerly unheard of timetable because Zara produces them by itself and only continues to manufacture those products that sell the best within its stores. As a result, “customers of Zara know that if they like a garment, they have to buy it right away, because it can go out of stock and never come back,” says Nueno.
Consider such speed and the monitoring of individual stores’ consumer preferences (which further refined by the input of staff trained to monitor customers’ reactions on the basis of what they buy and don’t buy, and what they say to sales clerks about specific products) with Zara’s drastically limited production cycles. The retailer’s stock per style in any given store is quite significantly less than the volumes observed by its competitors and the resulting turnover of products is also much greater. The stock in any given store changes every two weeks, potentially even more frequently. In observing this schedule and this operation based on limited quantities per style, Zara manages to save on its warehousing and inventory costs in every store worldwide. As noted by Harvard Business School: “Those sorts of savings are very important for any business, not just because of the savings themselves but because if the business knows pretty much which items it is going to sell, it manages to reduce its business risks.”
Oh, and do not forget the other effect of limited stock: You buy now or risk missing out. According to Masoud Golsorkhi, the editor of Tank, a London magazine about culture and fashion, Inditex has completely changed consumer behavior. “When you went to Gucci or Chanel in October, you knew the chances were good that clothes would still be there in February,” he says. “With Zara, you know that if you don’t buy it, right then and there, within 11 days the entire stock will change. You buy it now or never. And because the prices are so low, you buy it now.”
In that way, Zara ensures that shoppers rarely leave empty-handed. “Every purchase is an impulse buy; there’s no longer any saving up for that gorgeous leather jacket in the window. You are buying clothes not because you love them, but because, at $50, those hot pants are as cheap as Sunday brunch for two — and likely to be gone in a matter of days. It’s a way of consumption that has conditioned buyers to expect this up-to-the-minute trendiness and variety in higher-end labels as well,” the New York Times’ Suzy Hansen wrote in 2012.
AD-FREE IS THE WAY TO BE
Putting its manufacturing model aside, one of the most remarkable aspects of Zara’s business is that it operates in an entirely advertising-free manner. Unlike Forever 21 with its billboards or H&M’s television commercials, Zara has managed to build its company without such traditional means of advertising. While it releases campaigns of sorts each “season” – aka every 2 weeks or so – you will not find them in magazines but on its website.
“Inditex owes none of its success to advertising. That’s because Inditex doesn’t advertise. It hardly even has a marketing department, and it doesn’t engage in flashy campaigns, as its competitors do, teaming up with fashion designers like Stella McCartney, Karl Lagerfeld, Martin Margiela and Marni,” wrote Hansen.
In lieu of common advertising tactics, Zara has opted to depend on word of mouth marketing (something analysts have come to tout as the most effective means of advertising) and on its landmark retail outlets, found in high-end locations, such as Fifth Avenue and Soho in New York City and Oxford Street in London. “The marketing Inditex does do is all about real estate. The company invests heavily in the beauty, historical appeal and location of its shops,” according to the New York Times.
In this way, Zara’s collaboration- and ad-free existence is rather cohesive. (It is worth noting that while Zara eschews official partnerships, some of the brand’s biggest sources of visibility have been celebrities. Take the Duchess of Cambridge Kate Middleton, for instance: The day after her wedding to Prince William, she stepped out in £49.99 Zara dress, and it sold out immediately, with consumers flocking to Zara’s website and brick-and-mortar store to get the same one). Why spend money where you simply do not need to?