703-497 ZARA: Fast Fashi starting a program to set up much larger company-owned outlets in big cities. About 100 such Benetton megastores were in operation by the end of 2001, compared with a network of approximately 5,500 smaller, third-Party-owned stores Inditex Inditex(Industria de Diseno Textil)was a global specialty retailer that designed, manufactured, and sold apparel, footwear, and accessories for women, men, and children through Zara and five other chains around the world. At the end of the 2001 fiscal year, it operated 1, 284 stores around the world, including Spain, with a selling area of 659, 400 square meters. The 515 stores located outside pain generated 54% of the total revenues of 63, 250 million. Inditex employed 26, 724 people, 10,919 of them outside Spain. Their average age was 26 years and the overwhelming majority were women Just over 80% of Inditex's employees were engaged in retail sales in stores,8.5% were emplo anufacturing, and design, logistics, distribution, and headquarters activities accounted for the remainder. Capital expenditures had recently been split roughly 80% on new-store openings, 10%on refurbishing, and 10% on logistics/ maintenance, roughly in line with capital employed. Operating working capital was negative at most year-ends, although it typically registered higher levels at other times of the year given the seasonality of apparel sales(see Exhibit 7 for these and other historical financial data). Plans for 2002 called for continued tight management of working capital and E510-560 million of capital expenditures, mostly on opening 230-275 new stores (across all chains). The operating economics for 2001 had involved gross margins of 52%o, operating expenses equivalent to 30% of revenues, of which one-half were related to personnel, and operating margins of 22%%. Net margins on sales revenue were about one-half the size of operating margins, with depreciation of fixed assets(e158 million) and taxes(e150 million) helping reduce operating profits of 6704 million to net income of E340 million. Despite high margins, top management stressed that Inditex was not the most profitable apparel retailer in the world: that stability was perhaps a more distinctive feature The rest of this section describes the pluses and minuses of Inditex's home base, its foundation by Amancio Ortega and subsequent growth, the structure of the group in early 2002, and recent changes in its governance. (A timeline, Exhibit 8, summarizes key events over this period chronologically. Home base G Inditex was headquartered in and had most of its upstream assets concentrated in the region of licia on the northwestern tip of Spain(see Exhibit 9). Galicia, the third-poorest of Spain,s 17 utonomous regions, reported an unemployment rate in 2001 of 17%(compared with a national average of 14%), had poor communication links with the rest of the country, and was still heavily dependent on agriculture and fishing. In apparel, however, Galicia had a tradition that dated back to the Renaissance, when Galicians were tailors to the aristocracy, and was home to thousands of small Pparel workshops. What Galicia lacked were a strong base upstream in textiles, sophisticated local demand, technical institutes and universities to facilitate specialized initiatives and training, and an industry association to underpin these or other potentially cooperative activities. And even more critical for Inditex, as CEO Jose Maria Castellano put it, was that "Galicia is in the corner of Europe from the perspective of transport costs, which are very important to us given our business model. Some of the same characterizations applied at a national level, to Inditex's home base of Spain compared, for example, to Italy. Spanish consumers demanded low prices but were not considered as
703-497 ZARA: Fast Fashion 6 starting a program to set up much larger company-owned outlets in big cities. About 100 such Benetton megastores were in operation by the end of 2001, compared with a network of approximately 5,500 smaller, third-party-owned stores. Inditex Inditex (Industria de Diseño Textil) was a global specialty retailer that designed, manufactured, and sold apparel, footwear, and accessories for women, men, and children through Zara and five other chains around the world. At the end of the 2001 fiscal year, it operated 1,284 stores around the world, including Spain, with a selling area of 659,400 square meters. The 515 stores located outside Spain generated 54% of the total revenues of €3,250 million. Inditex employed 26,724 people, 10,919 of them outside Spain. Their average age was 26 years and the overwhelming majority were women (78%). Just over 80% of Inditex’s employees were engaged in retail sales in stores, 8.5% were employed in manufacturing, and design, logistics, distribution, and headquarters activities accounted for the remainder. Capital expenditures had recently been split roughly 80% on new-store openings, 10% on refurbishing, and 10% on logistics/maintenance, roughly in line with capital employed. Operating working capital was negative at most year-ends, although it typically registered higher levels at other times of the year given the seasonality of apparel sales (see Exhibit 7 for these and other historical financial data). Plans for 2002 called for continued tight management of working capital and €510-560 million of capital expenditures, mostly on opening 230-275 new stores (across all chains). The operating economics for 2001 had involved gross margins of 52%, operating expenses equivalent to 30% of revenues, of which one-half were related to personnel, and operating margins of 22%. Net margins on sales revenue were about one-half the size of operating margins, with depreciation of fixed assets (€158 million) and taxes (€150 million) helping reduce operating profits of €704 million to net income of €340 million. Despite high margins, top management stressed that Inditex was not the most profitable apparel retailer in the world: that stability was perhaps a more distinctive feature. The rest of this section describes the pluses and minuses of Inditex’s home base, its foundation by Amancio Ortega and subsequent growth, the structure of the group in early 2002, and recent changes in its governance. (A timeline, Exhibit 8, summarizes key events over this period chronologically.) Home Base Inditex was headquartered in and had most of its upstream assets concentrated in the region of Galicia on the northwestern tip of Spain (see Exhibit 9). Galicia, the third-poorest of Spain’s 17 autonomous regions, reported an unemployment rate in 2001 of 17% (compared with a national average of 14%), had poor communication links with the rest of the country, and was still heavily dependent on agriculture and fishing. In apparel, however, Galicia had a tradition that dated back to the Renaissance, when Galicians were tailors to the aristocracy, and was home to thousands of small apparel workshops. What Galicia lacked were a strong base upstream in textiles, sophisticated local demand, technical institutes and universities to facilitate specialized initiatives and training, and an industry association to underpin these or other potentially cooperative activities. And even more critical for Inditex, as CEO José Maria Castellano put it, was that “Galicia is in the corner of Europe from the perspective of transport costs, which are very important to us given our business model.” Some of the same characterizations applied at a national level, to Inditex’s home base of Spain compared, for example, to Italy. Spanish consumers demanded low prices but were not considered as
ZARA: Fast Fashion discriminating or fashion-conscious as Italian buyers-although Spain had advanced rapidly in this regard, as well as many others, since the death of long-time dictator General Francisco Franco in 1975 and its subsequent opening up to the world. On the supply side, Spain was a relatively productive apparel manufacturing base by European standards(see Exhibit 2), but lacked Italys fully developed thread-to-apparel vertical chain(including machinery suppliers), its dominance of high quality fabrics(such as wool suiting), and its international fashion image. For this reason, and because rivalry among them had historically been fierce, Italian apparel chains had been quick to move overseas. But Spanish apparel retailers had followed suit in the 1990s, and not just Inditex. Mango, a smaller Spanish chain that relied on a franchising model with returnable merchandise, was already present in more countries around the world than inditex Early Histo Amancio Ortega Gaona, Inditex's founder, was still its president and principal shareholder in early 2002 and still came in to work every day, where he could often be seen lunching in the company cafeteria with employees. Ortega was otherwise extremely reclusive but reports indicated that he had been born in 1936 to a railroad worker and a housemaid, and that his first job had been as an errand boy for a La Coruna shirtmaker in 1949. As he moved up through that company, he apparently developed a heightened awareness of how costs piled up through the apparel chain. In 1963, he founded Confecciones Goa(his acronym reversed) to manufacture products such as housecoats Eventually, Ortega's quest to improve the manufacturing/retailing interface led him to integrate forward into retailing: the first Zara store was opened on an up market shopping street in La Coruna, in 1975. From the beginning, Zara positioned itself as a store selling "medium quality fashio clothing at affordable prices. By the end of the 1970s, there were half-a-dozen Zara stores in galician Ortega, who was said to be a gadgeteer by inclination, bought his first computer in 1976. At the ime, his operations encompassed just four factories and two stores but were already making it clear that what (other)buyers ordered from his factories was different from what his store data told him customers wanted. Ortega's interest in information technology also brought him into contact with Jose Maria Castellano, who had a doctorate in business economics and professional experience in information technology, sales, and finance. In 1985, Castellano joined Inditex as the deputy chairman of its board of directors, although he continued to teach accounting part-time at the local university Under Ortega and Castellano, Zara continued to roll out nationally through the 1980s by expanding into adjoining markets. It reached the Spanish capital, Madrid, in 1985 and, by the end of the decade, operated stores in all Spanish cities with more than 100,000 inhabitants. Zara then began to open stores outside Spain and to make quantum investments in manufacturing logistics and IT The early 1990s was also when Inditex started to add other retail chains to its network through Structure At the beginning of 2002, Inditex operated six separate chains: Zara, Massimo Dutti, Pull Bear, Bershka, Stradivarius, and Oysho(as illustrated in Exhibit 10). These chains retailing subsidiaries in Spain and abroad were grouped into 60 companies, or about one-half the total number of companies whose results were consolidated into Inditex at the group level; the remainder were involved in textile purchasing and preparation, manufacturing, logistics, real estate, finance, and so forth. Given internal transfer pricing and other policies, retailing (as opposed to manufacturing and other
ZARA: Fast Fashion 703-497 7 discriminating or fashion-conscious as Italian buyers—although Spain had advanced rapidly in this regard, as well as many others, since the death of long-time dictator General Francisco Franco in 1975 and its subsequent opening up to the world. On the supply side, Spain was a relatively productive apparel manufacturing base by European standards (see Exhibit 2), but lacked Italy’s fully developed thread-to-apparel vertical chain (including machinery suppliers), its dominance of high quality fabrics (such as wool suiting), and its international fashion image. For this reason, and because rivalry among them had historically been fierce, Italian apparel chains had been quick to move overseas. But Spanish apparel retailers had followed suit in the 1990s, and not just Inditex. Mango, a smaller Spanish chain that relied on a franchising model with returnable merchandise, was already present in more countries around the world than Inditex. Early History Amancio Ortega Gaona, Inditex’s founder, was still its president and principal shareholder in early 2002 and still came in to work every day, where he could often be seen lunching in the company cafeteria with employees. Ortega was otherwise extremely reclusive but reports indicated that he had been born in 1936 to a railroad worker and a housemaid, and that his first job had been as an errand boy for a La Coruña shirtmaker in 1949. As he moved up through that company, he apparently developed a heightened awareness of how costs piled up through the apparel chain. In 1963, he founded Confecciones Goa (his acronym reversed) to manufacture products such as housecoats. Eventually, Ortega’s quest to improve the manufacturing/retailing interface led him to integrate forward into retailing: the first Zara store was opened on an up market shopping street in La Coruña, in 1975. From the beginning, Zara positioned itself as a store selling “medium quality fashion clothing at affordable prices.” By the end of the 1970s, there were half-a-dozen Zara stores in Galician cities. Ortega, who was said to be a gadgeteer by inclination, bought his first computer in 1976. At the time, his operations encompassed just four factories and two stores but were already making it clear that what (other) buyers ordered from his factories was different from what his store data told him customers wanted. Ortega’s interest in information technology also brought him into contact with Jose Maria Castellano, who had a doctorate in business economics and professional experience in information technology, sales, and finance. In 1985, Castellano joined Inditex as the deputy chairman of its board of directors, although he continued to teach accounting part-time at the local university. Under Ortega and Castellano, Zara continued to roll out nationally through the 1980s by expanding into adjoining markets. It reached the Spanish capital, Madrid, in 1985 and, by the end of the decade, operated stores in all Spanish cities with more than 100,000 inhabitants. Zara then began to open stores outside Spain and to make quantum investments in manufacturing logistics and IT. The early 1990s was also when Inditex started to add other retail chains to its network through acquisition as well as internal development. Structure At the beginning of 2002, Inditex operated six separate chains: Zara, Massimo Dutti, Pull & Bear, Bershka, Stradivarius, and Oysho (as illustrated in Exhibit 10). These chains’ retailing subsidiaries in Spain and abroad were grouped into 60 companies, or about one-half the total number of companies whose results were consolidated into Inditex at the group level; the remainder were involved in textile purchasing and preparation, manufacturing, logistics, real estate, finance, and so forth. Given internal transfer pricing and other policies, retailing (as opposed to manufacturing and other
703-497 ZARA: Fast Fashi activities) generated 82% of Inditex's net income, which was roughly in line with its share of the group's total capital investment and employment The six retailing chains were organized as separate business units within an overall structure that also included six business support areas(raw materials, manufacturing plants, logistics, real estate, expansion, and international)and nine corporate departments or areas of responsibility(see Exhibit 11). In effect, each of the chains operated independently and was responsible for its own strategy roduct design, sourcing and manufacturing, distribution, image, personnel and financial results while group management set the strategic vision of the group, coordinated the activities of the concepts, and provided them with administrative and various other services Coordination across the chains had deliberately been limited but had increased a bit, particularly in the areas of real estate and expansion, as Inditex had recently moved toward opening up some multichain locations. More broadly, the experience of the older, better-established chains, particularly Zara, had helped accelerate the expansion of the newer ones. Thus, Oysho, the lingerie chain, drew 75% of its human resources from the other chains and had come to operate stores in seven European markets within six months of its launch in September 2001 Top corporate managers, who were all Spanish, saw the role of th c usiness strategies of the orate center as a "strategic controller" involved in setting the corporate strategy, approving the individual chains, and controlling their performance rather than as an"operator" functionally involved in running the chains. Their ability to control performance down to the local store level was based on standardized reporting systems that focused on(like-for-like)sales growth, earnings before interest and taxes(EBIT)margin, and return on capital employed. CEO Jose Maria Castellano looked y performance metrics once a week, while one of his direct reports monitored them on a daily Recent governance changes Inditex's initial public offering(IPO)in May 2001 had sold 26% of the companys shares to the iblic, but founder Amancio Ortega retained a stake of more than 60%. Since Inditex generated substantial free cash flow(some of which had been used to make portfolio investments in other lines of business), the IPO was thought to be motivated primarily by Ortega's desire to put the company on a firm footing for his eventual retirement and the transition to a new top management team Second, Inditex also made progress in 2001 toward implementing a social strategy involving dialogue with employees, suppliers, subcontractors, non-governmental organizations, and local communities. Immediate initiatives included approval of an internal code of conduct, the establishment of a corporate responsibility department, social audits of supplier and external workshops in Spain and Morocco, pilot developmental projects in Venezuela and Guatemala, and the joining, in August 2001, of the Global Compact, an initiative headed by Kofi Annan, Secretary General of the United Nations, that aimed to improve global companies' social performance Zaras Business system Zara was the largest and most internationalized of Inditex's chains. At the end of 2001, it operated 507 stores around the world, including Spain(40% of the total number for Inditex), with 488, 400 quare meters of selling area(74% of the total)and employing E1,050 million of the companys capital (72% of the total), of which the store network accounted for about 80%. During the course of fiscal year 2001, it had posted EBIT of E441 million(85% of the total)on sales of 2, 477 million(76% of the
703-497 ZARA: Fast Fashion 8 activities) generated 82% of Inditex’s net income, which was roughly in line with its share of the group’s total capital investment and employment. The six retailing chains were organized as separate business units within an overall structure that also included six business support areas (raw materials, manufacturing plants, logistics, real estate, expansion, and international) and nine corporate departments or areas of responsibility (see Exhibit 11). In effect, each of the chains operated independently and was responsible for its own strategy, product design, sourcing and manufacturing, distribution, image, personnel and financial results, while group management set the strategic vision of the group, coordinated the activities of the concepts, and provided them with administrative and various other services. Coordination across the chains had deliberately been limited but had increased a bit, particularly in the areas of real estate and expansion, as Inditex had recently moved toward opening up some multichain locations. More broadly, the experience of the older, better-established chains, particularly Zara, had helped accelerate the expansion of the newer ones. Thus, Oysho, the lingerie chain, drew 75% of its human resources from the other chains and had come to operate stores in seven European markets within six months of its launch in September 2001. Top corporate managers, who were all Spanish, saw the role of the corporate center as a “strategic controller” involved in setting the corporate strategy, approving the business strategies of the individual chains, and controlling their performance rather than as an “operator” functionally involved in running the chains. Their ability to control performance down to the local store level was based on standardized reporting systems that focused on (like-for-like) sales growth, earnings before interest and taxes (EBIT) margin, and return on capital employed. CEO José Maria Castellano looked at key performance metrics once a week, while one of his direct reports monitored them on a daily basis. Recent Governance Changes Inditex’s initial public offering (IPO) in May 2001 had sold 26% of the company’s shares to the public, but founder Amancio Ortega retained a stake of more than 60%. Since Inditex generated substantial free cash flow (some of which had been used to make portfolio investments in other lines of business), the IPO was thought to be motivated primarily by Ortega’s desire to put the company on a firm footing for his eventual retirement and the transition to a new top management team. Second, Inditex also made progress in 2001 toward implementing a social strategy involving dialogue with employees, suppliers, subcontractors, non-governmental organizations, and local communities. Immediate initiatives included approval of an internal code of conduct, the establishment of a corporate responsibility department, social audits of supplier and external workshops in Spain and Morocco, pilot developmental projects in Venezuela and Guatemala, and the joining, in August 2001, of the Global Compact, an initiative headed by Kofi Annan, Secretary General of the United Nations, that aimed to improve global companies’ social performance. Zara’s Business System Zara was the largest and most internationalized of Inditex’s chains. At the end of 2001, it operated 507 stores around the world, including Spain (40% of the total number for Inditex), with 488,400 square meters of selling area (74% of the total) and employing €1,050 million of the company’s capital (72% of the total), of which the store network accounted for about 80%. During the course of fiscal year 2001, it had posted EBIT of €441 million (85% of the total) on sales of €2,477 million (76% of the
ZARA: Fast Fashion total). While Zara's share of the group's total sales was expected to drop by two or three percentage points each year, it would continue to be the principal driver of the group's growth for some time to come,and to play the lead role in increasing the share of Inditex's sales accounted for by international operations Zara completed its rollout in the Spanish market by 1990, and began to move overseas around that time. It also began to make major investments in manufacturing logistics and IT, including establishment of a just-in-time manufacturing system, a 130,000 square meter warehouse close to corporate headquarters in Arteixo, outside La Coruna, and an advanced telecommunications system and sales locations. Devel financial, merchandising, and other information systems continued through the 1990s, much of it taking place internally. For example, while there were many logistical packages on the market, Zaras unusual requirements mandated internal development. The business system that had resulted(see Exhibit 12) was particularly distinctive in that Zara manufactured its most fashion-sensitive products internally. The other Inditex chains were too small to justify such investments but generally did emphasize reliance on suppliers in Europe rather than farther away. Zara's designers continuously tracked customer preferences and placed orders with internal and external suppliers. About 11,000 distinct items were produced during the year-several hundred thousand SKUs given variations in color, fabric, and sizes--compared with 2,000-4,000 items for key competitors. Production took place in small batches, with vertical integration into the manufacture of the most time-sensitive items. Both internal and external production flowed into Zara's central distribution center. Products were shipped directly from the central distribution center to well-located, attractive stores twice a week, eliminating the need for warehouses and keeping inventories low. Vertical integration helped reduce the bullwhip effect".the tendency for fluctuations in final demand to get amplified as they were transmitted back up the supply chain Even more importantly, Zara was able to originate a design and have finished goods in stores within four to five weeks in the case of entirely new designs and two weeks for modifications (or restocking of existing products. In contrast, the traditional industry model might involve cycles of up to six months for design and three months for manufacturing The short cycle time reduced working capital intensity and facilitated continuous manufacture of new merchandise, even during the biannual sales periods, letting Zara commit to the bulk of its product line for a season much later than its key competitors(see Exhibit 13). Thus, Zara undertook 35% of product design and purchases of raw material, 40%-50% of the purchases of finished products from external suppliers, and 85% of the in-house production after the season had started, compared with only 0%o-20% in the case of traditional retailers But while quick-response was critical to Zara's superior performance, the connection between the wo was not automatic. World Co of Japan, perhaps the only other apparel retailer in the world with comparable cycle times, provided a counterexample. It too had integrated backward into( domestic) manufacturing, and had achieved gross margins comparable to Zara's. But World Co s net margins remained stuck at around 2% of sales, compared with 10% in the case of Zara, largely because of selling, general, and administrative expenses that swallowed up about 40% of its revenues, versus about 20% for Zara. Different choices about how to exploit quick-response capabilities underlay these differences in performance. World Co served the relatively depressed Japanese market, appeared to place less emphasis on design, had an unprofitable contract manufacturing arm, supported about 40 brands with distinct identities for use exclusively within its own store network(smaller than Zaras), and operated relatively small stores, averaging less than 100 square meters of selling area. Zara had made rather different choices along these and other dimensions
ZARA: Fast Fashion 703-497 9 total). While Zara’s share of the group’s total sales was expected to drop by two or three percentage points each year, it would continue to be the principal driver of the group’s growth for some time to come, and to play the lead role in increasing the share of Inditex’s sales accounted for by international operations. Zara completed its rollout in the Spanish market by 1990, and began to move overseas around that time. It also began to make major investments in manufacturing logistics and IT, including establishment of a just-in-time manufacturing system, a 130,000 square meter warehouse close to corporate headquarters in Arteixo, outside La Coruña, and an advanced telecommunications system to connect headquarters and supply, production, and sales locations. Development of logistical, retail, financial, merchandising, and other information systems continued through the 1990s, much of it taking place internally. For example, while there were many logistical packages on the market, Zara’s unusual requirements mandated internal development. The business system that had resulted (see Exhibit 12) was particularly distinctive in that Zara manufactured its most fashion-sensitive products internally. (The other Inditex chains were too small to justify such investments but generally did emphasize reliance on suppliers in Europe rather than farther away.) Zara’s designers continuously tracked customer preferences and placed orders with internal and external suppliers. About 11,000 distinct items were produced during the year—several hundred thousand SKUs given variations in color, fabric, and sizes—compared with 2,000-4,000 items for key competitors. Production took place in small batches, with vertical integration into the manufacture of the most time-sensitive items. Both internal and external production flowed into Zara’s central distribution center. Products were shipped directly from the central distribution center to well-located, attractive stores twice a week, eliminating the need for warehouses and keeping inventories low. Vertical integration helped reduce the “bullwhip effect”: the tendency for fluctuations in final demand to get amplified as they were transmitted back up the supply chain. Even more importantly, Zara was able to originate a design and have finished goods in stores within four to five weeks in the case of entirely new designs and two weeks for modifications (or restocking) of existing products. In contrast, the traditional industry model might involve cycles of up to six months for design and three months for manufacturing. The short cycle time reduced working capital intensity and facilitated continuous manufacture of new merchandise, even during the biannual sales periods, letting Zara commit to the bulk of its product line for a season much later than its key competitors (see Exhibit 13). Thus, Zara undertook 35% of product design and purchases of raw material, 40%-50% of the purchases of finished products from external suppliers, and 85% of the in-house production after the season had started, compared with only 0%-20% in the case of traditional retailers. But while quick-response was critical to Zara’s superior performance, the connection between the two was not automatic. World Co. of Japan, perhaps the only other apparel retailer in the world with comparable cycle times, provided a counterexample. It too had integrated backward into (domestic) manufacturing, and had achieved gross margins comparable to Zara’s.15 But World Co.’s net margins remained stuck at around 2% of sales, compared with 10% in the case of Zara, largely because of selling, general, and administrative expenses that swallowed up about 40% of its revenues, versus about 20% for Zara. Different choices about how to exploit quick-response capabilities underlay these differences in performance. World Co. served the relatively depressed Japanese market, appeared to place less emphasis on design, had an unprofitable contract manufacturing arm, supported about 40 brands with distinct identities for use exclusively within its own store network (smaller than Zara’s), and operated relatively small stores, averaging less than 100 square meters of selling area. Zara had made rather different choices along these and other dimensions
703-497 ZARA: Fast Fashi Design Each of Zara's three product lines-for women, men, and children-had a creative team onsisting of designers, sourcing specialists, and product development personnel. The creative teams simultaneously worked on products for the current season by creating constant variation, expanding upon successful product items and continuing in-season development, and on the following season and year by selecting the fabrics and product mix that would be the basis for an initial collection. Top management stressed that instead of being run by maestros, the design organization was very flat and focused on careful interpretation of catwalk trends suitable for the Zara created two basic collections each year that were phased in through the fall/winter and pring/summer seasons, starting in July and January respectively. Zara's designers attended trade fairs and ready-to-wear fashion shows in Paris, New York, London, and Milan, referred to catalogs of luxury brand collections, and worked with store managers to begin to develop the initial sketches for a collection close to nine months before the start of a season. Designers then selected fabrics and other complements and, simultaneously, the relative price at which a product would be sold was determined, guiding further development of samples. Samples were prepared and presented to the sourcing and product development personnel, and the selection process began. As the collection came together, the sourcing personnel identified production requirements, whether an item would be insourced or outsourced, and a timeline to ensure that the initial collection arrived in stores at the tart of the selling season. The process of adapting to trends and differences across markets was more evolutionary,ran through most of the selling season, and placed greater reliance on high-frequency information. Frequent conversations with store managers were as important in this regard as the sales data captured by their IT system. Other sources of information included industry publications, TV, Internet, and film content, trend-spotters who focused on venues such as university campuses and discotheques, and even Zaras young, fashion-conscious staff. Product development personnel played a key role in linking the designers and the stores, and were often from the country in which the stores they dealt with were located. On average, several dozen items were designed each day, but only slightly more than one-third of them actually went into production. Time permitting, very limited volumes of new items were prepared and presented in certain key stores and produced on a larger scale only if consumer reactions were unambiguously positive. As a result, failure rates on new products were supposed to be only 1%, compared with an average of 10% for the sector. Learning b doing was considered very important in achieving such favorable outcomes Overall, then, the responsibilities of Zaras design teams transcended design, narrowly defined They also continuously tracked customer preferences and used information about sales potential based, among other things, on a consumption information system that supported detailed analy product life cycles, to transmit repeat orders and new designs to internal and external suppliers. The design teams thereby bridged merchandising and the back-end of the production process. These functions were generally organized under separate management teams at other apparel retailers Sourcing manufacturing Zara sourced fabric, other inputs, and finished products from external suppliers with the help of purchasing offices in Barcelona and Hong Kong, as well as the sourcing personnel at headquarters While Europe had historically dominated Zara's sourcing patterns, the recent establishment of three companies in Hong Kong for purposes of purchasing as well as trend-spotting suggested that sourcing from the Far East, particularly China, might expand substantially
703-497 ZARA: Fast Fashion 10 Design Each of Zara’s three product lines—for women, men, and children—had a creative team consisting of designers, sourcing specialists, and product development personnel. The creative teams simultaneously worked on products for the current season by creating constant variation, expanding upon successful product items and continuing in-season development, and on the following season and year by selecting the fabrics and product mix that would be the basis for an initial collection. Top management stressed that instead of being run by maestros, the design organization was very flat and focused on careful interpretation of catwalk trends suitable for the mass-market. Zara created two basic collections each year that were phased in through the fall/winter and spring/summer seasons, starting in July and January respectively. Zara’s designers attended trade fairs and ready-to-wear fashion shows in Paris, New York, London, and Milan, referred to catalogs of luxury brand collections, and worked with store managers to begin to develop the initial sketches for a collection close to nine months before the start of a season. Designers then selected fabrics and other complements and, simultaneously, the relative price at which a product would be sold was determined, guiding further development of samples. Samples were prepared and presented to the sourcing and product development personnel, and the selection process began. As the collection came together, the sourcing personnel identified production requirements, whether an item would be insourced or outsourced, and a timeline to ensure that the initial collection arrived in stores at the start of the selling season. The process of adapting to trends and differences across markets was more evolutionary, ran through most of the selling season, and placed greater reliance on high-frequency information. Frequent conversations with store managers were as important in this regard as the sales data captured by their IT system. Other sources of information included industry publications, TV, Internet, and film content, trend-spotters who focused on venues such as university campuses and discotheques, and even Zara’s young, fashion-conscious staff. Product development personnel played a key role in linking the designers and the stores, and were often from the country in which the stores they dealt with were located. On average, several dozen items were designed each day, but only slightly more than one-third of them actually went into production. Time permitting, very limited volumes of new items were prepared and presented in certain key stores and produced on a larger scale only if consumer reactions were unambiguously positive. As a result, failure rates on new products were supposed to be only 1%, compared with an average of 10% for the sector. Learning by doing was considered very important in achieving such favorable outcomes. Overall, then, the responsibilities of Zara’s design teams transcended design, narrowly defined. They also continuously tracked customer preferences and used information about sales potential based, among other things, on a consumption information system that supported detailed analysis of product life cycles, to transmit repeat orders and new designs to internal and external suppliers. The design teams thereby bridged merchandising and the back-end of the production process. These functions were generally organized under separate management teams at other apparel retailers. Sourcing & Manufacturing Zara sourced fabric, other inputs, and finished products from external suppliers with the help of purchasing offices in Barcelona and Hong Kong, as well as the sourcing personnel at headquarters. While Europe had historically dominated Zara’s sourcing patterns, the recent establishment of three companies in Hong Kong for purposes of purchasing as well as trend-spotting suggested that sourcing from the Far East, particularly China, might expand substantially