Zara's Rapid Expansion: Can It's Supply Chain Keep Up?

Zara's rapid expansion: Can it's supply chain keep up?

Over the years, Zara has become the quintessential fashion brand for price sensitive consumers, taking on the likes of American Apparel, Gap, Mango, Mexx and the Italian juggernaut Benetton. The Spanish retailer, based in A Coruna, Spain has carved a venerable reputation of delivering fresh clothing styles with remarkably low turnaround time, frequented by customers multiple times in a year. Many of Zara's successes have been attributed to it's superior supply chain system which is both resilient and flexible; however, the company's recent quest for aggressive expansion may have both positive and negative ramifications on it's solidly established value chain.

It is a known fact that Zara's supply chain network relies on a cluster of subcontractors that conduct the bulk of labor intensive functions for the clothing giant, while it focuses on keeping the cost leveraging activities such as dying, labeling and packaging in house. The store count increase could potentially benefit Zara's in house operations through the realization of economies of scale as it produces more of the aforementioned activities to support consumer demand. By significantly lowering the fixed cost component, Zara could improve its bottom line; thereby, increasing overall profit margins. the company would be able to augment shareholder value, and raise capital from investors in order to bolster future growth opportunities.

Zara's strengths as a worldwide clothing retailer are substantiated by the company's strong grip on it's upstream partners, and by globally sourcing raw materials, Zara has been mostly able to circumvent dependence on few suppliers; thereby, maintaining a higher inventory turnaround time than the industry standard has been set at. By adding more stores to the company's present roster, Zara will have to deal with increased supply chain complexity as orders pile up and delivery standards are put to the test. Unless...