Case Study

Zara

The year 2001 had been a down year for retailers. Retail consolidations and bankruptcies were occurring at a fast pace. Et Inditex and its flagship company Zara had managed yet another year of impressive growth and strong profitability. During 2000-2001, Inditex received widespread favorable press and analyst coverage, touting Inditex’s success and attributing it to Zara’s unique integrated business model.

Zara is high-fashion concept offering apparel, footwear and accessories for women, men and children. At year-end 2001 Inditex was operating over 1200 stores in over 35 countries around the world. Zara’s vertically integrated model depended to a great extent on local Spanish sourcing for a large proportion of garment manufacturer, but Zara would shift more production offshore, probably to Asia, to take advantage of the lower wage costs. How much of a shift was necessary to support Zara’s expansion and to meet possible pricing pressures and how much of a shift could e made without undermining Zara’s success- were critical issues facing Inditex.

The designers worked in large open spaces at Zara’s headquarters, with one design center for each of the women’s, men’s and children’s lines. Designers often prepared sketches by hand but eventually worked on a CAD system to illustrate the design and associated specifications. Once the initial collection for a season had been approved, the related fabric procurement and production planning started. Third party sourced commitments for production were made roughly 6 months prior to the scheduled store delivery, where 60 percent came from Europe and 30 percent from Asia, remaining from rest of the world.

Distribution of both outsourced and in-house manufactured garments was centralized in Arteixo. It was centrally located among fourteen manufacturing plants, from where the garments moved to the distribution center. About 2.5 million garments could move through the distribution center each week. Shipments...