Zara: It for Fast Fashion

Common Question

History and growth

Analysis of Zara’s current business model first requires an understanding of Zara’s history and growth in the retail industry. Founded by fashion entrepreneur Amancio Ortega, Zara first opened its doors in 1975 in La Coruña, Spain. Since then it has become the largest and most profitable segment of Inditex holding company, accounting for 73.3% of the group’s sales. Inditex is Spain’s leading fashion retailer with a domestic market share of 5%. It trades under five brands, principally Zara. Inditex is a well-internationalized business, currently represented in over 30 countries. In the last five years, the business has grown aggressively, increasing net sales at a compound rate of 29% per annum to EUR 3.9bn and EBIT at a rate of 33% to EUR 839mm.[1]

Zara’s success story is attributed to a business model that has yet to be duplicated, despite its high levels of simplicity and cost effectiveness.

Business model vs. the competitive forces

After a successful start, Zara has maintained strong presence in the retail industry and has thus far faced competitive forces successfully. According to Porter’s competitive forces model, there are five forces that define competition. These forces are the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products, and the current competitors. Zara’s biggest threat once came from jockeying for a position among current competitors; now it is coupled with the threat from new entrants, especially those with copycat abilities and substitute products.

Zara’s strongest competitive advantage over current competitors stems from their ability to quickly produce and bring to market popular pieces at moderate prices. Zara’s original business model began with the simple idea of bringing manufacturing, distribution and customer demand together. The fundamental objective relied on speed; movement of designs from...