Here’s what you’ll learn from Zara's strategy study:
- How to come up with disruptive ideas for your industry.
- How finding the right people is more important than developing the best strategy.
- How best to address the sustainability question.
Zara is a privately held multinational clothing retail chain with a focus on fast fashion. It was founded by Amancio Ortega in 1975 and it’s the largest company of the Inditex group.
Amancio Ortega was Inditex’s Chairman until 2011 and Zara’s CEO until 2005. The current CEO of Zara is Óscar García Maceiras and Marta Ortega Pérez, daughter of the founder, is the current Chairwoman of Inditex.
Zara's market share and key statistics:
- Brand value of $25,4 billion in 2022
- Net sales of $19,6 billion in 2021
- 1,939 stores worldwide in 2021
- Over 4 billion annual visits to its website
- Inditex employee count of 165,042 in 2021
Humble beginnings: How did Zara start?
Most people date Zara’s birth to 1975, when Amancio Ortega and Rosalia Mera, his then-wife, opened the first shop. But, it’s impossible to study the company’s first steps, its initial competitive advantage, and strategic approach by starting at that point in time.
When the first Zara shop opened, Amancio Ortega already had 22 years of industry experience, ten years as a clever and hard-working employee, and 12 years as a business owner. Rosalia Mera also had 20 years of industry experience.
As an employee, Ortega worked in the clothing industry, first as a gofer and then as a delivery boy. He quickly demonstrated great talent for recognizing fabrics, understanding and serving customers, and making sound business suggestions. Soon, he decided to use his insights to develop his own business instead of his boss’s.
As a business owner, he started GOA Confecciones in 1963, along with his siblings, his wife, and a close friend. They started with a humble workshop making women’s quilted dressing gowns, following a trend at the time Amancio had noticed. Within ten years, that workshop had grown to support a workforce of 500 people.
And then, the couple opened the first Zara shop.
Zara’s competitive positioning strategy in its first year
The opening of the first Zara shop in 1975 wasn’t just a new store to sell clothes. It was the final big move of a carefully planned vertical integration strategy.
To understand how the strategy was formulated, we need to understand Amancio’s first steps. His first business, GOA Confecciones, was a manufacturing business. He was supplying small stores and businesses with his products, and he wasn’t in contact with the end customer.
That brought two challenges:
- A lack of insight into market trends and no direct consumer feedback about preferences.
- Very low-profit margins compared to the 70-80% profit margin of retailers.
Amancio developed several ideas to improve distribution and get a direct relationship with the final purchaser. And he was always updating his factories with the latest technological advancements to offer the highest quality of products at the lowest possible price. But he was missing one essential part to reap the benefits of his distribution practices: a store.
So, in 1972 he opened one under the brand name Sprint. An experiment that quickly proved unsuccessful and, seven years later, was shut down. Although it’s unknown the extent to which Amancio put his ideas to the test, Sprint was a private masterclass in the retail world that gave Amancio insights that would later turn Zara into a global success.
Despite Sprint’s failure, Amancio didn’t abandon the idea of opening his own store mainly because he believed that his advanced production model was vulnerable and the rise of a competitor who could replicate and improve his system was imminent.
Adding a store to his vertical integration strategy would have a twofold effect:
- The store would operate as a direct feedback source.
The company would be able to test design ideas before going into mass production while simultaneously getting an accurate pulse of the needs, tastes, and fancies of the customers. The store would simultaneously reduce risk and increase opportunity spotting.
- The company would have reduced operating costs as a retailer.
Since the group would control all aspects of the process (from manufacturing to distribution to selling), it would solve key retail challenges with stocking. The savings would then be passed on to the customer. The store would have an operational competitive advantage and become a potential cash cow for the company.
The idea was to claim his spot in prime commercial areas (a core and persistent strategic move for Zara) and target the rising middle class. The market conditions were tough, though, with many family-owned businesses losing their customer base, giant players owning a huge market share, and Benetton’s franchising shops stealing great shop locations and competent potential managers.
So the first Zara store had these defining characteristics that made it the successful final piece of Amancio’s strategy:
- It was located near the factory = delivery of products was optimized
- It was in the city’s commercial heart = more expensive, but with access to affluence
- It was located in the city where Ortegas had the most customer experience = knowing thy customer
- It was visibly attractive = expensive, but a great marketing trick
Amancio’s team lacked experience and expertise in one key factor: display window designing. The display window was a massive differentiator and had to be bold and attractive. So, Amancio hired Jordi Bernadó, a designer with innovative ideas whose work transformed display windows and the sales process.
The Zara shop was a success, laying the foundations for the international expansion of the Inditex group.
Key Takeaway #1: Challenge your industry’s conventional wisdom to create a disruptive strategy
Disrupting an industry isn’t an easy task nor a frequent occurrence.
To do it successfully, you need to:
- Understand the prominent business mode of your industry and the forces that contributed to its development.
- Challenge the assumptions behind it and design a radically different business model.
- Develop ample space for experimentation and failures.
The odds of instantly conquering the industry might be low (otherwise, someone would have already done it), but you’ll end up with out-of-the-box ideas and a higher sensitivity to potential disruptors in your competitive arena.
Recommended reading: How To Write A Strategic Plan + Example
How Zara’s supply chain strategy is at the core of its business strategy
According to many analysts, the Zara supply chain strategy is its most important innovative component.
Amancio Ortega and other senior members of the group disagree. Nevertheless, the Inditex logistics strategy is extraordinarily efficient and plays a crucial role in sustaining its competitive advantage. Most companies in the clothing retail industry take an average of 4-8 weeks between inception and putting the product on the shelf. The group achieves the same in an average of two weeks. That’s nothing short of extraordinary.
Let’s see how Zara developed its logistics and business strategy.
Innovative logistics: how Zara’s supply chain evolved
The logistics methods developed by companies are highly dependent on external factors.
Take, for example, infrastructure. In the early days of Zara, when it was expanding through Spain, the company considered using trains as a transportation system. However, the schedule couldn’t keep up with Zara’s needs, which had the goal of distributing products twice a week to its shops. So transportation by road was the only way.
However, when efficiency is a high priority, it shapes logistics processes more than anything else.
And for Zara, efficient logistics was – and still is – of the highest priority.
Initially, leadership tried outsourcing logistics, but the experiment failed and the company assigned a member of the house with a thorough knowledge of the company's operating philosophy to take charge of the project. The tactic of entrusting important big projects to employees imbued with the company’s philosophy became a defining characteristic.
So, one of Zara’s early strategic decisions was that each shop would make orders twice a week. Since the first store was opened, the company has had the shortest stock rotation times in the industry. That’s what drove the development of its logistics methods. The whole strategy behind Zara relied on quick production and distribution. And the proximity of manufacturing and distribution was essential for the model to work. So Zara had these two centers in the same place.
Even when the brand was expanding around the world, its logistics center remained in Arteixo, Spain, despite being a less-than-ideal location for international distribution. At some point, the growth of the brand, and Inditex as a whole, outpaced Arteixo’s capacity, and the decentralization question came up.
The debate was tough among leadership, but the arguments were strong. Decentralization was necessary because of:
- Safety and security. If there was a fire or any other crippling disaster there (especially on a distribution day), then the company would face serious troubles on multiple fronts.
- Arteixo’s limitations. The company’s center in Arteixo was reaching its capacity limits.
So the company decided to decentralize the manufacturing and distribution of its brands.
Initially, the group made the decision to place differentiated logistics centers where the management of its chain of stores was based, i.e. Bershka would have a different logistics center than Pull&Bear, although they were both part of the Inditex Group. That idea emerged after Massimo Dutti and Stradivarius became part of Inditex. Those brands already had that geographical structure, and since the group integrated them successfully into its strategy and logistics model, it made sense to follow the same pattern with its other brands.
Besides, the proximity of the distribution centers to the headquarters of each brand allowed them to consolidate them based on the growth strategy and purpose of each brand (more on this later).
But just a few years after that, the group decided to build another production center for Zara that forced specialization between the two Zara centers. The specialization was based on location, i.e. each center would manufacture products that would stock the shelves of stores in specific locations.
Zara’s supply chain strategy is so successful because it’s constantly evolving as the group adapts to external circumstances and its internal needs. And just like its iconic fashion, the company always stays ahead of the logistics curve.
Zara’s business strategy transcends its logistics innovations
Zara’s business strategy relies on four key pillars:
- Flexibility of supply
- Instant absorption of market demand
- Response speed
- Technological innovation
Zara is the only brand in the Inditex group that is concerned with manufacturing. It’s the first brand in the clothing sector with a complete vertical organization. And the production model requires the adoption or development of the latest technological innovations.
This requirement is counterintuitive in the clothing sector.
Most people believe that making big investments in a market as mature as clothing is a bad idea. But the Zara production model is very capital and labor intensive. The technological edge derived from that investment gave the company, in the early days, the capability to manufacture over 50% of its own products while maintaining an extremely high stock rotation frequency.
Zara might be one of the best logistics companies in the world, but that particular excellence is a supporting factor, or at least a highly contributing factor, to its successful business strategy.
Zara’s business strategy is so much more than its supply chain strategy.
The company created the “fast fashion” term and industry. When other companies were manufacturing their collections once per season, Zara was adapting its collection to suit what people asked for on a weekly basis. The idea was to offer fashionable items at a fair price and faster than everybody else.
Part of its cost-cutting strategic priority was its marketing strategy. Zara didn’t – and still doesn’t – advertise like the rest of the clothing industry. Its marketing strategy starts with choosing the location of the stores and ends with advertising that the sales period has started. In the early years of the brand’s expansion, Amancio would visit potential store locations himself and choose the site to build the Zara shop.
The price was never an issue. If the location was in a commercial center, Zara would build its store there no matter how high the cost was because the company expected to recoup it quickly with increased sales.
Zara’s marketing is its own stores.
The strategy of Zara and her Inditex sisters
Despite Zara’s success (or because of it), Amancio Ortega created – or bought – multiple other brands that he included in the Inditex group, each one with a specific purpose.
- Zara was targeting middle-class women.
- Pull&Bear was targeting young people under twenty-five years old with casual clothing.
- Bershka was targeting rebel teens, especially girls, with hip-hop-style clothing.
- Massimo Dutti was targeting both sexes with more affluence.
- Stradivarius was competing with Bershka, giving Inditex two major brands in the teenage market.
- Oysho was concentrating on women's lingerie.
- Zara Home manufactures home textiles and decor.
Pull&Bear was initially targeting young males between the ages of 14 and 28. Later it extended to young females of the same age and focused on selling leisure and sports clothing. It has the slowest stock turnaround time in the group.
Bershka’s target group was girls between 13 and 23 years of age with highly individualized tastes. Prices were low, but the quality average. Almost a fiasco in the beginning, it underwent a successful strategic turnaround becoming today one of the biggest growth opportunities for the group. And out of all the Inditex chains, Bershka has the most creative designs.
Massimo Dutti was the first retail brand Amancio bought and didn’t create himself. Its strategy is very different from Zara, producing high-quality products and selling them at a high price. It’s an extension of the group’s offer to the higher end of the price spectrum in the fashion industry. It’s also the only Inditex chain brand that advertises regularly.
Stradivarius was the second acquired brand, with the purchase being a defensive move. The chain shares the same target group with Bershka, making it, to this day, a direct competitor.
Oysho started as an underwear and lingerie company. Its product lines evolved to include comfortable night and homewear along with swimwear and a very young children’s line. The brand’s strategy was aggressive from its conception, opening 286 stores in its first six years of existence.
Zara Home is the youngest brand in the Group and the only one outside the clothing sector, though still in the fashion industry. It was launched with the least confidence and with immense prior research. An experiment to extend the Zara brand beyond clothing, it was based on the conservative view that Zara could extend its product categories only to textile items for the home. But it turned out that customers were more accepting of Zara Home selling a wide variety of domestic items. So the brand made a successful strategic pivot.
Key Takeaway #2: The right people are more important than the best strategy
It might not be obvious in the story, but a key reason for Zara's and Inditex’s success has been the people behind them.
For example, a vast number of people in various positions from inside the group claim that Inditex cannot be understood without Amancio Ortega. Additionally, major projects like the development of Zara’s logistics systems and the group's international expansion had such a success precisely because of the people in charge of them.
Zara’s radically different model was a breakthrough because:
- Its leadership had a clear vision and a real strategy to execute it.
- People with a deep understanding of the company’s philosophy led Its largest projects.
Sustainability: Zara’s strategy to make fast fashion sustainable
Building a sustainable business in the fast fashion industry is a tough nut to crack.
To achieve it, Inditex has made sustainability a cornerstone of its business model. Its strategy revolves around the values of collaboration, transparency, and innovation. The group’s ambition is to make a positive impact with a vision of prosperity for the planet and its people by transforming its value chain and industry.
Inditex’s sustainability commitments and strategy to achieve them
Inditex has developed a sustainability roadmap that extends up to 2040 with ambitious goals. Specifically, it has committed to
- 100% consumption of renewable energy in all of its facilities by 2022 (report pending).
- 100% of its cotton to originate from more sustainable sources by 2023.
- 100% of its man-made cellulosic fibers to originate from more sustainable sources by 2023.
- Zero waste from its facilities by 2023.
- 100% elimination of single-use plastic for customers by 2023.
- 100% collection of packaging material for recycling or reuse by 2023.
- 100% of its polyester to originate from more sustainable sources by 2025.
- 100% of its linen to originate from sustainable sources by 2025.
- 25% reduction of water consumption in its supply chain by 2025.
- Net zero emissions by 2040.
The group’s commitments extend beyond environmental issues to how its manufacturing and supplying partners conduct their business. To bring its strategy to fruition, it has set up a new governance and management structure.
The Board of Directors is responsible for approving Inditex’s sustainability strategy. The Sustainability Committee oversees and controls all the proposals around the social, environmental, health, and safety impact of the group’s products, while the Ethics Committee makes sure operations are compliant with the rules of conduct. There is also a Social Advisory Board that includes external independent experts that advises Inditex on sustainability issues.
Finally, Javier Losada, previously the group’s Chief Sustainability Officer and now promoted to Chief Operations Officer, will be leading the sustainability transformation of the group. Javier Losada first joined Inditex back in 1993 and ascended its rank to reach the C-suite.
Inditex is dedicated to its commitment to reducing its environmental impact and seems to be headed in the right direction. The only question is whether it’s fast enough.
Key Takeaway #3: Integrating sustainability with business strategy is a present-day necessity
Governments and international bodies around the world are implementing more stringent environmental regulations, forcing companies to commit to ambitious goals and developing a realistic strategy to achieve them.
The companies that are impacted the least are those that always had sustainability as a high priority.
From the companies that require significant changes in their operations to comply with the new regulations, only those who integrate sustainability into their business strategy and model will succeed.
Why is Zara so successful?
Zara is the biggest Spanish clothing retailer in the world based on sales value. Its success is due to its fast fashion strategy that is based on a strong supply chain and quick market feedback loops.
Zara's customer-centric approach places a strong emphasis on understanding and responding to customer needs and preferences. This is reflected in the company's product design, marketing, and customer service strategies.
Zara made fashionable clothes accessible to the middle class.
Zara’s vision guides its future
Zara's vision, as part of the Inditex Group, is to create a sustainable fashion industry by promoting responsible consumption and production, respecting the environment and people, and contributing to the communities in which it operates.
The company aims to offer the latest fashion trends to its customers at accessible prices while continuously innovating and improving its operations and processes.
Growth by numbers (Inditex)