Zara’s parent company, Inditex, recently reported a monumental (albeit unfortunate) achievement. Its valuation has surpassed $100 billion – in fact, it has surpassed $109 billion. Shares have been up 36% in the last year, making Inditex (which also owns Massimo Dutti, Bershka, Oysho, Pull and Bear, Stradivarius, Zara, Tempe, and Uterqüe) the most valuable company in Spain, and making it one of only 80 companies worldwide with such a valuation. Oh, and Inditex’s founder, Amancio Ortega, who in the 1980’s started changing the brand’s design, manufacturing, and distribution process to reduce lead times and react to new trends in a quicker way, in what he called “instant fashions,” is the second-richest man in the world.
Since Zara hit the U.S. market in 1989, much attention has been paid by everyone from market analysts to business schools to the compay’s unique business strategy, which involves stocking a limited number of garments per style (especially in comparison to other similarly situated retailers) and updating its collections on a frequent schedule. Zara and a handful of other “fast fashion” retailers have become known for manufacturing pieces “inspired by” those from the runways of the various fashion weeks – and by “inspired by” I mean “copies of.” Zara (and now a slew of online retailers, such as Nasty Gal) “design” and releases new styles in as little as two weeks.
These brands manufacture in low wage countries, operating in a manner that allows them to manufacture the copies and beat the real thing to the market for a much cheaper cost for consumers. According to Business Insider, Unlike its biggest competitors, H&M and Forever, “Zara tends to create its designer-inspired merchandise with cleaner designs and it does it a lot more often.”
The Spanish giant’s strategy is successful according to Suzy Hansen of the New York Times because it promotes loyalty among consumers, who visit the store on a relatively regular basis to check for new inventory. This model also means that if the customer is looking to buy an item, he or she tends to feel more inclined to buy it out of fear that it will sell out, as the store’s popular styles tend to sell quite quickly.
Moreover, a 2013 study produced by Goldman Sachs states: “Unlike fast-fashion retailers, which have buying teams sourcing current trending fashion from third-party vendors, traditional specialty retailers have design teams creating product they believe is going to be trending 12 months out.” This is beneficial as it helps to avoid the risk of trying to predict fashion trends a year in advance – a tactic that is heavily weighing on the success of retailers such as Gap, Abercrombie & Fitch, Ann Taylor, American Eagle, and others. If these retailers have a “fashion miss,” it means markdowns, which hurts profits.
Despite its tremendous global presence, Inditex is still growing its businesses. At the beginning of the year it announced its plan to have a total of eight new locations in Manhattan by the end of 2015.