This case study delves into the agile strategies implemented by Zara, a renowned fast fashion brand. Founded in 1975 by the Spanish conglomerate Inditex under the leadership of entrepreneur Amancio Ortega, Zara has earned its place as one of the world’s top retail fashion brands, with an estimated 3,000 stores globally and a staggering $21.3 billion in revenue in 2018, securing its position as the 46th most valuable brand according to Forbes.

Unlike traditional fashion retail methodologies, Zara’s business model embraces agile principles, enabling it to outshine competitors in the fast-paced fashion industry.

Fast fashion brands thrive through exploiting the demand for the latest styles, which makes the length of production cycle a very important metric to be followed. In terms of comparison, lets take a look in market standards:

  • Traditional fashion brands operate on production cycles spanning 9 to 12 months, releasing 3 or 4 collections per year in alignment with seasonal changes,
  • Average fast fashions shortens this cycle to just 6 to 15 weeks, resulting in a remarkable 12 collections annually

However, Zara distinguishes itself by completing the entire production cycle, from design to store display, in approximately 15 days, ensuring new arrivals hit stores twice a week. This rapid turnaround is facilitated by employing around 300 designers at its A Coruña headquarters in Spain. These designers work concurrently on multiple collections, generating a staggering 40,000 new designs annually, from which only a maximum of 10,000 are selected for production.

Upon the design approval, Zara produces in small-scale and promptly delivers items to stores. Once in the stores, sales data serve as crucial feedback, with the POS (Point of Sales) collecting and compiling data into consumer behavior trends report. This constant feedback loop position retail stores as the starting point of the value chain, rather than the endpoint as in traditional business models.

Additionally, maintaining low production volumes extends beyond agility; it cultivates scarcity, encouraging impulse purchases among consumers. Moreover, high merchandise turnover significantly boosts customer visitation rates, averaging 17 visits annually compared to 3 in traditional retail stores.

The combination of low production volumes and responsive design to consumer behavior results in a remarkable leftover stock percentage of 10%, significantly lower than the industry average of 17% to 20%. Consequently, Zara sells approximately 85% of its products at full price, compared to the industry average of 60% sold at full price.

To sustain this rapid production chain, Zara makes strategic decisions, which not necessarily is based in reducing costs. Such decisions are, for example, producing 60% of its goods internally, with 50% produced in Spain, 26% in other European locations, and only 24% in Asia and Africa. This represents a significantly difference of cost, considering the average hourly wage in Spain is 8 Euros versus 0,40 in Asia.

Other key factors contributing to Zara’s low lead cycle include:

  • When it comes to fabrics supply, Zara buys large quantities of a few types of fabrics and always without coloring, leaving any type of cutting and ornamentation to be done in-house. This allows suppliers to deliver orders in just 5 days.
  • Only 50 to 60% of production is made in advance, compared to the industry average of 80 to 90%.
  • Distribution via truck in Europe and air freight in other markets ensures swift global product availability (China – 48h; Europe – 24h; Japan – 72h; United States – 48h).

Zara’s case exemplifies the evolving landscape of the fashion sector. In a industry that has been focusing heavily in cost reduction, we can now see this will no longer be enough to conquer a significant market share. Companies will have to review their production centers focusing on agility and will also need systems that allow them to collect customer feedback quickly, which demands digitalization of processes, data analysis and an inversion of the value chain, moving stores to the beginning of the chain, rather than the end.

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