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Chapter 11 • Supply Chain Management 327

CASE 11-2
Real-World Cases
Zara and the Limited Brands

CASE 1: ZARA
Source: Based on: Zara: Taking the Lead in Fast-Fashion, Rachel Tiplady, BusinessweekOnline, April 4, 2006.
Zara is the flagship brand of the Spanish retail group, Inditex, one of the superstars in the
fashion retail industry in recent years. In 2005, Inditex reported 21 percent sales growth to
$8.51 billion. That puts Inditex ahead of H&M, the world-leading purveyor of cheap-chic
apparel, which posted $7.87 billion in sales. Zara has more than 1,000 stores in 31 countries.
The fashion industry is a special industry. The products they deal with are highly perishable,
and they are susceptible to seasons—gross margin is meaningless if the product does not sell
as planned. For many retailers, 35–40 percent of the total merchandise being sold at hefty
discount is quite the norm.
Zara contributes around 80 percent of group sales by concentrating on three winning
formulas on which to base its fresh fashions: short lead time, lower quantities, and more
styles. With an in-house design team based in La Coruna, Spain, and a tightly controlled
factory and distribution network, the company says it can take a design from drawing board
to store shelf in just two weeks. That lets Zara introduce new items every week, which
keeps customers coming back again and again to check out the latest styles. With new
styles being developed and introduced frequently, each style would provide only around
$200,000–$300,000 of retail sales, a far lower figure than those other retailers or brands,
and certainly not “cost-efficient” in terms of design and product development cost.
Moreover, Zara’s success is all the more surprising because at least half of its factories are
in Europe, where wages are many times higher than those in Asia and Africa. To maintain
its quick inventory turnover, however, the company must reduce shipping time to a
minimum. The fast-fashion approach also helps Zara reduce its exposure to fashion faux
pas. The company produces batches of clothing in such small quantities that even if it
brings out a design that no one will buy, which happened during an unseasonably warm
autumn in 2003, it can cut its losses quickly and move on to another trend. This higher cost
of product development, however, is obviously more than adequately compensated by
higher realized margins. The result is that Zara discounts only about 18 percent of its product,
which is roughly half the level of competitors.
Information and communications technology is at the heart of Zara’s business supply
chain. Zara’s quick response to the market and its high speed from design table to store
shelf are enabled through four critical information-related areas.
The first is constant collection of information on customer needs. Trend informa-
tion flows daily and is in turn fed into the database at the company’s head office. Zara
outfits its store clerks with handheld computers to record sales and customer comments
and then integrates the collected data with design, manufacturing, and distribution func-
tions. Designers check the database for these dispatches as well as daily sales numbers,
using the information to create new lines and modify existing ones. Thus, designers
have access to real-time information when deciding with the commercial team on the
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