Inditex required a cost effective communication system across its operations, which includes more than 100 companies associated with its business of textile design, manufacturing and distribution. The company also had to upgrade its shops, the main point of contact with customers.
Unlike so many of its peers in retail clothing that rush to outsource, Zara keeps almost half of its production in-house. Far from pushing its factories to maximize their output, the company intentionally leaves extra capacity. Rather than chase economies of scale, Zara manufactures and distributes products in small batches. Instead of relying on outside partners, the company manages all design, warehousing, distribution, and logistics functions itself. Even many of its day-to-day operational procedures differ from the norm.
Zara’s supply chain is organized to transfer both hard data and anecdotal information quickly and easily from shoppers to designers and production staff. It’s also set up to track materials and products in real time every step of the way, including inventory on display in the stores. The goal is to close the information loop between the end users and the upstream operations of design, procurement, production, and distribution as quickly and directly as possible.
With over a dozen cities comprising over 3 million people, Inditex couldn’t have missed India. According to McKinsey, by 2025 India’s middle class is set to grow to 583 million from about 50 million which is just 5 per cent of the population, making it the fifth-largest consumer market. But Zara has more immediate plans. It expects revenue from Asia and West Asia to account for 20 per cent of its turnover, up from 12 per cent currently.
The Inditex Group welcomes shoppers in more than 80 countries with more than 5,500 stores and eight retail formats: Zara, Pull&Bear;, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe. With total net sales exceeding 12.5 billion euros in 2010, Inditex is renowned for a business model that enables it to quickly meet changing market needs. All establishments worldwide receive new product twice weekly, enabling them to constantly refresh their merchandise with the latest fashion trends and tweak their collections to account for their own customers’ changing tastes and desires. More than 1,000 product design and development personnel at Inditex receive ongoing feedback from Group stores, helping them to mobilise rapidly to offer customers the items they crave at an attractive price.
The Group’s net income totalled 1.9 billion euros, an increase of 12% from 2010.
Zara has developed a superresponsive supply chain. The company can design, produce, and deliver a new garment and put it on display in its stores worldwide in a mere 15 days. Such a pace is unheard-of in the fashion business, where designers typically spend months planning for the next season. Because Zara can offer a large variety of the latest designs quickly and in limited quantities, it collects 85% of the full ticket price on its retail clothing, while the industry average is 60% to 70%. As a result, it achieves a higher net margin on sales than its competitors.
Their distribution centers are now equipped to handle small scale, direct to consumer orders. And they’ve taken advantage of their prolific manufacturing, and are offering it in the fastest growing medium.
Zara’s business model closely links customer demand to manufacturing and distribution. Inventory depends largely on the location of the store and what particular customers were buying. They understoodand that their consumer had a penchant for trend driven pieces, and that marketing and advertising efforts lengthened the lead-time. Zara doesn't need to convince their consumers to buy with advertising and marketing efforts, rather they change 75% of their inventory every three to four weeks, so consumers know to constantly frequent the store for up to date items.
The Inditex Group (Zara) is one of the world's largest fashion distributors, with well-known brands like Zara, Pull & Bear, Massimo Dutti and Bershka.