Zara Case

Introduction

Although many firms market themselves as responsive to the changing demands of markets and customers, few actually have the requisite operational agility necessary to deliver on such a claim. Zara stands out. It can design, produce and ship a new garment to any of its many stores around the globe in mere 15 days. No other company can match this speed. Moreover, it delivers the kind of sustained profit growth that wins admirers in the investment world: "the most flexible, high-growth retail format in our investment universe ... a unique proposition, offering superior performance, low risk, a proven consistent growth record and operational flexibility unmatched in global retailing" [1]. In a market segment already served by world class operations like Benetton, The Gap and Hennes & Mauritz, it is Zara's ability to deliver "fashionability" (i.e. the latest designs, large variety and exclusivity) that has helped it achieve benchmark status.

To illustrate Zara's success is simple: from 1991 to 2002, Inditex sales (Zara account for 75%) grew from €367 million to €3.97 billion and net profit from €31 million to €438 million. In the challenging global economic conditions of the last two years, while many of its competitors have been experiencing poor financial results, Zara's sales and net income have continued to grow at an annual rate of over 25%. Understanding the reasons for Zara's success is more challenging. The simple explanation is that Zara has chosen a clear strategy based on fast response to changing consumer taste, increasing market fragmentation and shorter product life cycles. But the real question is how Zara achieves such extraordinary speed and flexibility in its operating systems. In search of an answer, during the last two years we conducted a series of interviews with senior managers at Inditex and examined company documents and a wide range of secondary source material [2]. What we found is a model composed of many pieces: few are revolutionary by themselves but in cleverly and consistently combining them over time Zara has developed a formidable capability. In this paper we summarize this model by focusing on Zara's four fundamental operating principles and describing how Zara applies them.

Principles of Zara's Operating System

Centered on La Coruña in the far North West corner of Spain, the Zara operating system permits the rapid and efficient design, production and delivery of an ever-changing range of fashionable garments to more than 500 Stores in 42 countries [3] in 'upscale' locations like Oxford Street, the Champs-Elysees

and Lexington Avenue. The system detects and adapts itself to rapidly changing consumer tastes and trends and more fundamentally, it is a robust system that has proven itself able to accommodate both short and long term changes in the