Zara: Is Fast Fashion Speeding Out of Control?

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Case Analysis

Zara: Is Fast Fashion Speeding Out of Control?University of Alaska Fairbanks

Vincent Kwarteng

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I. Company Overview:

Zara is one of the largest global fashion companies in the world based in La Coruna,

Spain. It currently falls under the multibillion dollar conglomerate Inditex, one of the world’s

largest fashion distribution groups. Zara started from humble beginnings in 1963 when the

founder Amancio Ortega Gaona, the world’s third-richest man, started a housecoat and robe

manufacturing business. Today, Zara is a pioneer among the prominent fast fashion businesses,

which basically imitates the most current fashion trends and speed-manufactures their affordable

versions into stores all over the world. Under its conglomerate, it carries eight different lines

which all follow the Zara template: trendy and decently made, yet very affordable and sold in

up-scale stores. They currently have about 5,900 stores in 85 countries and are increasing

exponentially; therefore, it becomes difficult to know the exact number of stores at a given time.

The company makes about 840 million garments a year, opens more than one store a day and

over 500 stores a year. Zara’s main competitors are far behind. Arcadia Group, which owns

TopsShop and many more, has

about 3,000 total stores worldwide.

H&M, the Swedish based company

has 2,500 and Mango which is

based in Spain has 2,400 stores

worldwide. The stores are

strategically scattered all over the

world with 442 stores in China and

47 stores in the United States. They

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Figure 1: Zara Flagship in New York

Photo credit: Folan (2013)

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mainly target young adults ranging from ages 25 to 35; however they make clothing for kids and

older people alike (Hansen, 2012).

Unlike other traditional retailers, Zara has created its own module by owning the

processes of the fashion business from production stage to the retailing of products. Zara has

harnessed the power of Information Technology (IT) and Supply Chain Management (SCM) to

make its unique module an efficient one. According to Bloomberg’s Business Week, “Zara is

renowned for its ability to deliver new clothes to stores quickly and in small batches. Twice a

week, at precise times, store managers order clothes, and twice a week, on schedule, new

garments arrive. To achieve this, Zara uniquely controls more of its manufacturing; about half of

its clothes are made in Spain or nearby countries. For Zara, its supply chain is its competitive

advantage (Berfield and Baigorri 2013).”

Zara also employs agents who roam around night clubs and social places with digital

cameras capturing the latest trends in fashion and instantly sending it to design and production

managers, who immediately produce clothing and make them available in stores within two

weeks. The company uses robots at their factories which work around the clock to manufacture

products without having to pay the robots over time (Forbes, 2012). Zara also has a huge state –

of-the-art distribution railway infrastructure at their Spain headquarters where all their goods

depart from. These underground railways lead to airports where products are shipped to various

destinations (Fox, 2011).

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Even though Zara is headquartered in Spain, it maintains major offices at strategic

locations including USA, China, Brazil, India, and Morocco. In the last two decades, despite the

global economic crisis and Spanish economic woes, Zara has increased its profit regardless.

A statement by Matt Miller, editor of the Bloomberg Billionaires Index in an interview with The

Daily Ticker, was posted on yahoo Finance’s website; “The biggest winner in 2012 was

Amancio Ortega, founder of the Spanish retail conglomerate Inditex SA. Ortega increased his

wealth by $22.2 billion in 2012 – more than the entire fortune of Alisher Usmanov, Russia’s

richest man” (Korn, 2013).

This illustrates how well Zara has been able to master the art of fast fashion and continually

capitalize on the unique model of owning the entire process of the fashion retail business.

II. Organizational Structure and Culture of Zara:

Zara uses a streamlined organizational structure and is performance-oriented. This structure

eliminates unwanted managerial levels and consequently increases the flow of communication.

The result is fewer redundant administrative procedures in the organization thereby supporting

their decentralized decision making structure.

Zara obtains raw materials from Spain, Italy, and Greece. The company also buys in large

quantities and capitalizes on economies of scale. Zara makes agreements with suppliers to

deliver raw materials in no later than five days. This timeline supports the fast fashion model of

designing and the delivery of products within a two-week time frame. Customer satisfaction is a

priority for Zara and the consumer’s demands are what shape Zara’s decisions. Zara retail

stores use technology to report directly to their production centers and designers in Spain. For

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instance, store managers collect ideas and fashion trends from customers and digitally send them

to design and production departments.

According to the New York Times article, the headquarters is a huge airplane-hangar-size

warehouse, with regional sales managers sitting at a line of desks running down the middle, with

designers on either side of them, they have a decentralized decision making structure. Managers

run calls from China or Chile to figure out what is trendy. They then meet with the designers and

agree on given trends. Managers analyze trends around the world from information obtained and

make strategic production decisions (Hansen, 2012). On their website it states that the corporate

culture at Zara is geared towards teamwork and open communication, also performance

expectations are very high at Zara. Those are the basic principles that drive personnel

commitment to customer satisfaction (Inditex, 2014).

III. Challenges:

Zara has being very successful in the fast fashion business and has expanded exponentially over

the past years. The recent global social attitude towards fast fashion industries coupled with

rising global labor cost, primarily in China, may have an adverse impact on Zara’s profitability

and growth of the entire company (Folan, 2013). Production of low cost clothing usually entails

extremely low wages, unethical conduct towards workers, and other socially unacceptable

conduct. Over the past decade, social responsibility and ethical conduct have begun to matter in

fashion on the global stage. With the advent of social media, information either good or bad can

be spread across the globe in a matter of seconds. Recently, Zara has been accused of illegal

labor practices including the incident of a building collapsing in Bangladesh in June 2013, which

resulted in the death of over 1,127 people (Ahmed and Lakhani, 2013). In 2011, it was reported

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on Brazilian Television that Zara was involved in a slave labor scandal (Moore, 2011).

According to an Argentinean news website, several law suits have been filed against Zara for

illegal labor practices in South America resulting in millions of dollars in fines. This has been a

recurring event (Schaerer, 2013).

Ethical concerns with the production of textiles, coupled with the increasing awareness of

corporate social responsibility (CSR) have fashion companies all over the world recognizing the

importance of environmental protection and ethical business (Folan, 2012). As the text puts it

“Being ethical and socially responsible is not the right thing for a corporation to do; it is critical

for success” (Daft, pg 392).

IV Critical Evaluation:

Even though Zara has been profitable over the years, it may burst its bubble if management

doesn’t address the increasing labor cost issues with the associated ethical and social concerns

surrounding the fashion industry.

Issue 1: Rising cost of labor.

Recommendations and Managerial Implications:

1. Look elsewhere for cheap labor. To curb the rising cost of labor in the apparel industry I

would focus on untapped labor markets in emerging markets like Lesotho. Though Labor costs

in places like China are rising, emerging markets are the new frontier. Countries such as Lesotho

and South Africa have relatively good infrastructure and cheaper labor cost.

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2. Capitalize on Information Technology (Automation). Since Zara already has the high-tech

infrastructure at the Spain manufacturing plant, I would extend that module to other factories.

This will reduce the percentage of human hours which will decrease the overall human labor

cost. This will be capital intensive to begin with but in the long run savings will offset the high

initial cost.

3. Localize production to the market where production is taking place. I would leverage cost

of production by making some changes to the current supply chain management (SCM).

Currently all goods, no matter where they are manufactured, are shipped to the main

headquarters in Spain before being shipped to various countries or retailers. I would streamline

the logistical process to reduce distance and time of shipment. For example, I would set up local

distribution centers in strategic areas such as China and the United States. When a product is

manufactured in China it will be placed at the China distribution center and inventory will be

managed through high tech enterprise resource planning (ERP) systems. In this way management

can have control and visibility over goods without having to leave and return to China.

Issues 2: Increasing awareness of ethical and corporate social responsibility

Recommendations and Managerial Implication

1. Improve working conditions overseas. Social responsibility is becoming a mainstay for large

conglomerate such as Zara. I would first make sure working conditions in all factories including

contractors and affiliates are in legally acceptable working conditions. I would also make sure

legal minimum wages are met. I would then factor the aforementioned in the priorities of the

company. By taking jobs to emerging markets such as Africa and South Asia, and ensuring that

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working conditions are good, Zara will in effect be boosting the economies of these countries

while also expanding its frontiers or potential and/or actual markets.

2. Campaign to improve public image. To highlight Zara’s social responsibility I would pick

some initiatives to genuinely support financially. I would make this support visible on all media

to show that Zara is socially responsible. A good place to start is to support social and/or health

initiatives in the developing countries that I have proposed Zara move manufacturing plants to.

By making their philanthropy more global and specific to their manufacturing site, Zara will be

seen as a global company that gives back globally. This will improve their public image, boost

their corporate social responsibility commitment, and help grow their brand.

3. Less invasive methods of textile production. Zara should actively participate in the

Greenpeace Detox campaign to stop fashion industry poisoning our water with hazardous,

persistent and hormone-disrupting chemicals. “The Detox campaign challenges top brands to

make amends by working with their suppliers to eliminate all hazardous chemicals across their

entire supply chain, and the entire life-cycle of their products” (Greenpeace, 2014). I would

make donations to support this cause. Doing this will strategically enhance the corporate social

responsibility of the company.

VII. Conclusion:

Zara and its leadership have done an outstanding job at exponentially increasing in size and

profits. They did so through creating a unique model of business which owns the entire process

from manufacturing to retailing. Even though Zara has done such a great job in the past, its

leadership has to me mindful of certain external factors currently going on which can affect the

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ongoing success of the organization. These factors are the recent increase in labor cost, and the

increasing awareness of ethical and social responsibilities of the organization. If they strengthen

their effectiveness in the foregoing directions and with a few improvements on their uniqueness,

they could be poised to maintain the marketing edge beyond its traditional or current global

competitors like H&M, Mango, Forever 21 and a host of others.

.

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References

Folan, Kerry (2013, March 4) Will Zara Be Able To Keep Clothes Cheap as Labor Costs

Rise? Retrieved March 3, 2014, from <http://racked.com/archives/2013/03/04/some-

fastfashion-companies-will-survive-increased-labor-prices-but-some-wont.php#more>

Hansen, Suzy (2012, November 9) How Zara grew Into the World’s Largest Fashion

Retailer. Retrieved February 20, 2014, from

<http://www.nytimes.com/2012/11/11/magazine/how-zara-grew-into-the-worlds-largest-

fashion-retailer.html?pagewanted=all&_r=0>

Berfield, Susan and Baigorri, Manuel (2013, November 14) Zara’s Fast-Fashion Edge.

Retrieved March 3, 2014, from <http://www.businessweek.com/articles/2013-11-14/2014-

outlook-zaras-fashion-supply-chain-edge>

Forbes. (2012, October 25) The Zara Approach. Retrieved March 3, 2014, from

<http://www.forbes.com/sites/gregpetro/2012/10/25/the-future-of-fashion-retailing-the-zara-

approach-part-2-of-3/>

Fox, Kenneth, A. (2011, December 15) Global Success Story. Retrieved March 3, 2014 from

< http://gbr.pepperdine.edu/blog/2011/12/15/4396/>

Korn, Morgan. (2013, January 4 ) Zara Co-Founder Increases Wealth by $22.2B in 2012

Retrieved March 3, 2014 from <http://finance.yahoo.com/blogs/daily-ticker/zara-co-founder-

increases-wealth-22-2b-2012-182819240.html>

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Lukac, Jenni (2006, August 18) the Responsibility of International Success. Retrieved March

3, 2014 from <http://www.triplepundit.com/2006/08/zara-inditex-and-amancio-ortega-

%E2%80%93-the-responsibility-of-international-success/>

Moore, Marlyn (2011, August18) Zara Caught In ‘Slave Labor’ Scandal . Retrieved March

3, 2014 from< http://greengopost.com/zara-slave-labor-scandal/>

Ahmed, Saeed and Lakhani, Leone (2013, June 14) Bangladesh building collapse. Retrieved

March 3, 2014 from <http://www.cnn.com/2013/05/14/world/asia/bangladesh-building-

collapse-aftermath/>

Schaerer, Lucas (2013, May 15) Zara Uses Slave Labor in Argentina. Retrieved March 3,

2014 from http://www.equaltimes.org/news/zara-uses-slave-labour-in-argentina

Das, Mitali and Papa N’Diaye (2013, June) The End of Cheap Labor. Retrieved March 3,

2014 from <https://www.imf.org/external/pubs/ft/fandd/2013/06/das.htm>

Inditex (2014a) Our Team. Retrieved March 9, 2014 from

<http://www.inditex.com/en/who_we_are/our_team>

Daft, R. L. (2010). Organizational theory and design. 10th ed. Mason, OH: South-Western

Cengage Learning

Greenpeace (2014) Eleven hazardous chemicals which should be eliminated

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Retrieved March 9, 2014 from

<http://www.greenpeace.org/international/en/campaigns/toxics/water/detox/intro/Eleven-

flagship-hazardous-chemicals/>

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Organizational Chart

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