Zara (retailer) - Manufacturing and Distribution

Manufacturing and Distribution

Zara is a vertically integrated retailer. Unlike similar apparel retailers, Zara controls most of the steps on the supply-chain, designing, manufacturing, and distributing its products. Zara set up its own factory in La Coruña (a city known for its textile industry) in 1980, and upgraded to reverse milk-run-type production and distribution facilities in 1990. This approach, designed by Toyota Motor Corp., was called the just-in-time (JIT) system. It enabled the company to establish a business model that allows self-containment throughout the stages of materials, manufacture, product completion and distribution to stores worldwide within just a few days.

Regarding the design strategy, an article in Businessworld magazine describes it as follows: "Zara was a fashion imitator. It focused its attention on understanding the fashion items that its customers wanted and then delivering them, rather than on promoting predicted season's trends via fashion shows and similar channels of influence, which the fashion industry traditionally used.

50% of the products Zara sells are manufactured in Spain, 26% in the rest of Europe, and 24% in Asian and African countries and the rest of the world. So while some competitors outsource all production to Asia, Zara makes its most fashionable items—half of all its merchandise—at a dozen company-owned factories in Spain and Portugal, particularly in Galicia and northern Portugal where labour is somewhat cheaper than in most of Western Europe. Clothes with a longer shelf life, such as basic T-shirts, are outsourced to low-cost suppliers, mainly in Asia and Turkey.

Zara can offer considerably more products than similar companies. It produces about 11,000 distinct items annually compared with 2,000 to 4,000 items for its key competitors. The company can design a new product and have finished goods in its stores in four to five weeks; it can modify existing items in as little as two weeks. Shortening the product life cycle means greater success in meeting consumer preferences. If a design doesn't sell well within a week, it is withdrawn from shops, further orders are canceled and a new design is pursued. Zara relies on sophisticated information technology, such as PDAs with wireless transmission capabilities, in the hands of store managers, to monitor customers' fickle fashion changes. Zara has a range of basic designs that are carried over from year to year, but some fashion forward designs can stay on the shelves less than four weeks, which encourages Zara fans to make repeat visits. An average high-street store in Spain expects customers to visit three times a year. That goes up to 17 times for Zara.

On September 6, 2010, Financial Times reported that Inditex launched the first online boutique for its best-selling brand Zara. The website will begin in Spain, the UK, Portugal, Italy, Germany and France – six countries that are among the most important of the company's 76 markets. When asked about the company's late arrival to internet retailing, Pablo Isla, chief executive, said they have been waiting for online demand to build before launching into cyberspace. All items on sale at its Zara outlets would be available online and at the same prices. Customers can choose from the usual range of paying methods and opt either for a free store pick-up or paid-for postal delivery. The online return and exchange policy is identical to the store system, with shoppers given 30 days to change their minds. Queries will be handled by customer service operators or via e-mail or chat messaging. Inditex said that iPhone and iPad applications that allowed purchasing would soon be available.

On November 4, 2010, Zara Online extended the service to five more countries: Austria, Ireland, the Netherlands, Belgium and Luxembourg. Online stores will begin operating in the United States and South Korea in 2011. The simple website allows shoppers to filter a search for garments by; type of garment, colours, sizes, prices, reference number, etc. Customers can view products in precise detail from different angles and use a SuperZoom feature to get an exceptional close-up look at the details of each item.

In 2011, Zara entered the Australian market with a three story, 1400sqm store in the Westfield Sydney complex opened on April 21, 2011 and a second three story 1800sqm store at Bourke Street Mall Melbourne which opened on 15 June 2011. Zara will open its third Australian store in November 2011 at Burnside Village Shopping Centre in Adelaide, South Australia. It will be Australia's largest at 2,300sqm, and modelled on the design of their Fifth Avenue, New York store.

In November 2011, Zara entered the South African market with a flagship store in the upmarket suburb of Sandton, in Sandton City Shopping Complex, Johannesburg. In March 2012, Zara opened their second store in South Africa, at Gateway Theatre of Shopping in Durban