Achieving success with an enticing slogan in your mother tongue can be a great premise for a market extension overseas. Enhanced sales converted into increased financial revenues is what the contemporary businesses are aspiring to.
In Spain customers visit Zara stores 17 times per year on average compared to 3 times per year for competitors. Because their clothing designs change often, it is harder for people to see them clearly on the Internet and thus they are encouraged to come into the stores instead and try on the unique fashions that Zara offers.
Suzy Hanzel, production technician associate, Zara Clothing Company
Agents for the company are always scouting out new fashion trends at clubs and social gatherings. When they see inspiring examples they quickly send design sketches to the garment designers at the Cube. New items can be designed and out to the stores in 4 – 6 weeks, and existing items can be modified in 2 weeks. Clothing items are priced based on market demand, not on cost of manufacture. The short lead times for delivery of unique fashion items combined with short production runs enable Zara to offer customers more styles and choices, and yet still create a sense of urgency to buy because items often sell out quickly.
The company’s core market is women 24 – 35 years old. They reach this market by locating their stores in town centers and places with high concentrations of women in this age range. Short production runs create scarcity of given designs and that generates a sense of urgency and reason to buy while supplies last. As a consequence, Zara does not have lots of excess inventory, nor does it need to do big mark-downs on its clothing items. Zara has 12 inventory turns per year compared to 3 – 4 per year for competitors. Stores place orders twice a week and this drives factory scheduling.
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Zara stores respond practically in real-time as styles and customer preferences evolve. It is a great business model for success in the high-change and hard to predict fashion industry. It means about half of the clothing the company sells, most of its high margin and unique fashion items.
Because Zara is a private company, specific details of the Zara business model and supply chain can be difficult to verify. Yet the supply chain model presented here is still a useful picture of the Zara supply chain and illustrates its operations and its capabilities.
Zara has spent more than 30 years building its unique real-time supply chain and training its people. So competitors have a lot of learning to do to create the mental models, and roll out the operating procedures needed to do what Zara does so well.
Zara stores in a single city are represented by a single store that combines the demand of all stores in that city – not all cities are included and more cities can be added to this model.
However, a fast-moving and finely tuned supply chain like Zara’s requires constant attention to keep it running smoothly. Supply chain planners and managers are always watching customer demand and making adjustments to manufacturing and supply chain operations.
Vehicle operating costs per km are set to be just half the normal cost for trucks and airplanes. This more accurately models the process where Zara pays for one-way shipping containers to move products from one facility to another without paying the full round-trip cost (carbon per km was also adjusted to half of normal for the same reason). This compensates for the model logic which calculates vehicle costs based on the round trip distance instead of the one-way distance.