Lecture Report On

ZARA’S CASE STUDY

For The Subject Supply Chain Management
Under The Guidance Of
Dr. Maninder Kaur
(Christ College, Pune)
EXECUTIVE SUMMARY
This report is an overview on the lecture that was conducted by Dr. Maninder Kaur at Christ college, Pune.
This report focuses on Manufacturing and supply chain operations of the Spanish fast fashion clothing and
accessories retailer ‘Zara’.

The initial part of the report introduces the brand and its reach worldwide. It informs us about the founder of
the brand, Amancio Ortega and his strategic plan to change the design, manufacturing, and distribution
process to reduce lead times and react to new trends in a quicker way, which he called “instant fashions”.

Then, the report explains the mission and vision of the brand. It tells us about Zara’s core values, expressed
simply in the same four key words that define all their stores: beauty, clarity, functionality and sustainability.

It briefs us about the brand’s manufacturing process.

After that, the report focuses on the components of Zara’s supply chain.

It informs us the competitive advantage that the brand has over other fast fashion brands.

The latter part of the report emphasizes on the Strengths, Weaknesses, Opportunities and Threats of the brand.
(SWOT analysis)

Lastly, the report deals with the impact that Covid-19 had on Zara’s supply chain and the strategies adopted
by them to recover the loss.
INTRODUCTION
Zara is a Spanish fast fashion clothing and accessories retailer. The company was founded in 1975 by
Amancio Ortega and Rosalía Mera.

The legend began when Ortega established a dress making factory in 1963 under the name of Inditex. The
success of his foundation led him to the path of retail market for which he had a vision unmatched. Ten years
after having set up a factory Ortega with Rosalía Mera started a small store called Zorba, which he had to
rename as ZARA. Marking the year 1975 for a store setup, the investment was merely nothing and yet
another feather was pulled out of Spain’s hat which has made a remarkable name all across the globe.

After setting up the first store in A Coruña, Galicia, in Spain, ZARA slowly expanded its empire in the rest of
the country and later in Portugal in 1988 and the year after that- 1989 ZARA made it to the United States of
America.

This annual growth has not dropped since day one and every year Zara has been expanding in countries and
places across the globe. France in 1990. During the 1990s, Zara expanded to Mexico (1992), Greece, Belgium
and Sweden (1993). In the early 2000s, Zara opened its first stores in Japan and Singapore (2002), Russia and
Malaysia (2003), China, Morocco, Estonia, Hungary and Romania (2004), the Philippines, Costa Rica and
Indonesia (2005), South Korea (2008), India (2010), and South Africa and Australia (2011).

With about 6,500 stores across 88 countries ZARA has kept pace with the technologically advancing world.
They pushed out their stock online in the year 2010 in Spain, the UK, Portugal, Italy, Germany and France. In
November that same year, Zara Online extended the service to five more countries: Austria, Ireland, the
Netherlands, Belgium and Luxembourg. Online stores began operating in the United States in 2011, Russia
and Canada in 2013, and Mexico, Romania, and South Korea in 2014. India in 4 October 2017.

Amancio Ortega

The Spanish retail magnate, labelled the secretive billionaire, is the founder of high street chain Zara. He also
owns a massive chunk of the rest of the high street brands. Today Inditex announced record half year sales
and profits with a 3% rise in net income to £1.2 billion for the six months to July 1. From a small shop in the
city of A Coruna to a global retail empire with over 7,000 stores, the brand’s visionary founder Amancio
Ortega has made Zara the world’s largest fashion retailer.
ZARA’s Mission and Vision

With his first store, Ortega started keeping the vision of a low priced product from the higher end clothing
brands. The idea was itself genius. During the 1980s, Ortega changed the design, manufacturing, and
distribution process to reduce lead times and react to new trends in a quicker way, which he called “instant
fashions”. The improvements included the use of information technologies and using groups of designers
instead of individuals.

Setting up a brand in such a competitive world where bigger fish already sweep the ramps, setting up and
making Zara successful is one of the most remarkable events in the history of Fashion. This kind of success
does not go around name or brands waiting with silver spoons or luck, but is built on strong brand values and
the utility that a brand creates for its consumers. Getting this step right, Ortega managed to inculcate values in
his clothing items that are not recognised as the USP of ZARA.

Zara has remained faithful to its core values, expressed simply in the same four key words that define all their
stores: beauty, clarity, functionality and sustainability.

1.Only a few clothing brands can keep up with the latest fashion while maintaining high quality of products
and selling then at an affordable price. It is no surprise that Zara, which started off as a small store in Spain is
now the world’s largest retailer and its founder, Amancio Ortega, the 4th richest man in the world. Zara is one
of the largest international fashion companies.

2.Yet no one seems to know very much about Ortega. But without him we’d never have heard of the term
‘fast fashion’ and our shopping habits would certainly be very different. To put it into context, in 1998 you
had to be invited to a fashion show to see what was happening on the catwalk. And it took six months before
the likes of you and me could buy something ‘inspired’ by a designer on the high street. Since the beginning
of its establishment, the main idea of Zara is to make luxury products accessible to everyone. Thus, they
managed somehow to democratize luxury manufacturer of products inspired by the evolution of fashion. With
this policy, Zara is now an industry capable of offering trendy products at affordable prices. On the other
hand, it is a company that wants to be close to young people. Also, this desire is felt in its recruitment policy.
Zara young employees with styles very marked fashion. However, Zara understands what exactly the
customers need and respond to their needs very quickly. That’s the main secret of Zara, which gives them a
competitive advantage.
3.Zara’s value chain is vertically integrated, which offers many advantages. It can react quickly and it may
have high control over the entire process from design to final product. Supply chain is efficient when they
have a smooth use of distributions centers and warehouses. Its strategy also allows distributing the products
within a wide geographic range within a very short time. The other thing also is that the products are close to
market demand. Their products are made only in limited editions; consequently, they must sale their products
in short period of time so they can be sold at full price without having them to be returned. This responsive
approach involves both lower marketing costs, and higher profit margins for the company. IT integration is
also an important aspect of Zara’s strategy which is significant as it enables information sharing between
different joints within the company.

4.Online shopping became huge and significant market; customers can go online and order what they need. If
Zara allows customers to purchase online, that would increase their sales. Pablo Isla is the first Deputy
Chairman and Chief Executive says: “we view our entry into the Indian market to be of significant strategic
importance.”

5. The competitive advantage of the company based on three factors: quality items, reasonable prices and very
short response time.

6. Their philosophy is: “No Marketing”, “no communication”.

7. The customer is at the heart of our unique business model, which includes design, production, distribution
and sales through our extensive retail network.

8. Another thing that sets Zara apart from the competition is that, unlike most other retailers, they don’t just
produce one product range per season. Thanks to a huge design team, Zara has the ability to identify new
trends and immediately put into production. This means they can produce four or five updated and relevant
collections after the initial seasonal launch. This way they never miss a trend.

9. The key to their success is keeping these new introductory ranges small allowing mistakes to be discarded
and the hits followed up quickly. These collections are in effect dictated by customer demand. The clever part
being how quickly Zara responds to consumer behaviour.

10. Distribution is the key to the speed in which the company can respond. Every item of clothing produced
comes through Spain.
11. At the company’s vast 10,000 sq ft base in Arteixo, not far from where it all began in A Coruna, an
extensive tunnel network carries a huge carousel that transports clothing from the on-site factories to the
distribution centre.

12. It is probably the amalgamation of all these qualities that made Zara, the Spanish clothing brand become
the go-to fashion brand for all.

13. Ortega thought that customers would regard clothes as a perishable commodity — no different from
yogurt or bread — to be consumed, rather than stored in closets.

Manufacturing and Supply Chain Operations Make Zara Unique

Zara buys large quantities of only a few types of fabric (just four or five types, but they can change from
year to year), and does the garment design and related cutting and dyeing in-house. This way fabric
manufacturers can make quick deliveries of bulk quantities of fabric directly to the Zara DC – the Cube. The
company purchases raw fabric from suppliers in Italy, Spain, Portugal and Greece. And those suppliers
deliver within 5 days of orders being placed. Inbound logistics from suppliers are mostly by truck.

The Cube is 464,500 square meters (5 million square feet), and highly automated with underground monorail
links to 11 Zara-owned clothing factories within a 16 km (10 mile ) radius of the Cube. All raw materials
pass through the Cube on their way to the clothing factories, and all finished goods also pass through on
their way out to the stores.

Zara’s factories can quickly increase and decrease production rates, so there is less inventory in the supply
chain and less need to finance that inventory with working capital. They do only 50 – 60 percent of their
manufacturing in advance versus the 80 – 90 percent done by competitors. Zara does not need to place big
bets on yearly fashion trends. They can make many smaller bets on short term trends that are easier to call
correctly.

Here are some facts about the company’s manufacturing operations:

 Zara competes on flexibility and agility instead of low cost and cheap labour. They employ about
3,000 workers in manufacturing operations in Spain at an average cost of 8.00 euros per hour
compared to average labour cost in Asia of about 0.40 euros per hour.
 Zara factories in Spain use flexible manufacturing systems for quick change over operations.
 50% of all items are manufactured in Spain
 26% in the rest of Europe
  24% in Asia and Africa

 Manufacturing is centered in northwestern Spain where company headquarters and the Cube are located.
But for their main distribution and logistics hub they chose a more centrally located facility. That facility is
located in Zaragoza in a large logistics hub developed by the Spanish government. Raw material is sent by
suppliers to Zara’s manufacturing center. Then finished garments leave the Cube and are transported to the
Zara logistics hub in Zaragoza. And from there they are delivered to stores around the world by truck and by
plane.

Zara can deliver garments to stores worldwide in just a few days: China – 48 hrs; Europe – 24 hrs; Japan –
72 hrs; United States – 48 hrs. It uses trucks to deliver to stores in Europe and uses air freight to ship clothes
to other markets. Zara can afford this increased shipping cost because it does not need to do much
discounting of clothes and it also does not spend much money on advertising.

A Lean and Agile Supply Chain

Stores take deliveries twice per week, and they can get ordered inventory often within two days after placing
their orders. Items are shipped and arrive at stores already on hangers and with tags and prices on them. So
items come off delivery trucks and go directly onto the sales floor. This makes it possible for store managers
to order and receive the products customers want when they want them, week by week.

Zara stores respond practically in real-time as styles and customer preferences evolve. It is a great business
model for success in the high-change and hard to predict fashion industry. It means about half of the clothing
the company sells, which includes most of its high margin and unique fashion items (but not its lower
margin basic items), is manufactured based on highly accurate, short-term (2 – 6 week) demand forecasts.
Because this business model tracks so closely to real customer demand from one month to the next, it frees
the company to a large degree from getting caught in cyclical market ups and downs that ensnare its
competitors (those cycles are driven by boom-to-bust gyrations generated by the bullwhip effect).
Turbulence in the global economy since 2008 has hurt sales at many competing fashion retailers, but Zara
has seen steady, profitable growth during this time.

A fast-moving and finely tuned supply chain like Zara’s requires constant attention to keep it running
smoothly. Supply chain planners and managers are always watching customer demand and making
adjustments to manufacturing and supply chain operations. The screenshot below shows the result of one
simulation using the supply chain model outlined above. Continuous adjustments need to be made to
production rates, vehicles, and delivery routes and schedules to keep this supply chain working well.
Zara is a clothing and fashion retailer that uses its supply chain to significantly change the way it operates in
a very traditional industry. No other competitor can copy its business model until it first copies its supply
chain. And since supply chains are composed of people, process, and technology, even the latest and greatest
technology is not a competitive advantage all by itself. People must be well trained, and processes must be
put in place that enable people to apply their training and their technology to best effect.

Buying technology similar to that used by Zara is easy. But for the technology to be used effectively,
competitors must learn about the mental models and the operating procedures used by Zara. Good mental
models enable people to understand the potentials and see the opportunities that a real-time supply chain
offers. Effective operating procedures enable people to act on what they see and capitalize on the
competitive advantages their technology gives them.

Zara has spent more than 30 years building its unique real-time supply chain and training its people. So
competitors have a lot of learning to do to create the mental models, and roll out the operating procedures
needed to do what Zara does so well.

1) Analyze the different components of Zara’s supply chain.

 Synergy between Zara’s business strategy and operational

processes
Zara’s overarching strategy is achieving growth through diversification with vertical
integrations. It adapts couture designs, manufactures, distributes, and retails clothes within
two weeks of the original design first appearing on catwalks. This is in stark contrast to the
average six months it takes to produces items in the fashion industry. The company owns its
supply chain and competes on its speed to market, literally embodying the idea of 'fast
fashion'.

 Just in Time production

The retail giant delivers fashionable and trendy numbers catered for different tastes through
a controlled and integrated process – Just in Time production.

Zara’s success relies on keeping a significant amount of its production in-house and making
sure that its own factories reserve 85 percent of their capacity for in-season adjustments. In-
house production allows the organization to be flexible in the amount, frequency, and
variety of new products to be launched.
The company often relies heavily on sophisticated fabric sourcing, cutting, and sewing
facilities nearer to its design headquarters in Spain.

The wages of these European workers are higher than those of their developing-world
counterparts, but the turnaround time is miraculous.

Zara also commits six months in advance to only 15 to 25 percent

of a season’s line. And it only locks in 50 to 60 percent of its line
by the start of the season, meaning that up to 50 percent of its
clothes are designed and manufactured smack in the middle of
the season.

If a certain style or design becomes the new must-have on the

street, Zara gets to work. Designers churn out the new styles and
they're fast-tracked to stores while the trend is still going strong.

Store managers communicate customer feedback on what

shoppers like, what they dislike, and what they’re looking for.
That demand forecasting data is instantly funneled back to
Zara’s designers, who begin sketching on the spot.

Zara also has extra capacity on hand to respond to demand as it

develops and changes. For example, it operates typically 4.5 days
per week around the clock on full capacity, leaving some
flexibility for extra shifts and temporary labor to be added when
needed.

This then translates to frequent shipments and higher numbers

of customer visits to the stores, creating an environment of
shortage and opportunity.
Zara’s business strategy allows the company to sell more items at
full price because of the sense of scarcity and exclusiveness the
company exudes. Zara’s total cost is minimized because
merchandise that is marked down is reduced dramatically as
compared to competitors.

Zara makes 85 percent of the full price on its clothes, while the
industry average is 60 to 70 percent. Unsold items account for
less than 10 percent of its stock, compared with an industry
average of 17 to 20 percent.

 Lean inventory management

You'll be hard pressed to find any excess inventory

or deadstock in a Zara warehouse. Throughout the supply chain,
lean is the word, all the way from raw materials to the finished
garments on the shelves.

Inventory optimization models  are put in place to help the

company to determine the quantity that should be delivered to
every single one of its retail stores via shipments that go out twice
every week. The stock delivered is strictly limited, ensuring that
each store only receives just want they need. This goes towards
the brand image of being exclusive while avoiding the build up of
unpopular stock.

This quick in-season turnaround, from production facilities

located close to Zara’s distribution headquarters in Spain, allows
Zara to ship more often and in smaller batches. If the design
Zara hastily creates in an attempt to chase the latest trend does
not sell well, little harm is done.

The batch is small, so there’s not a ton of unsold inventory to get

rid of. And because the failed experiment is over quickly, there’s
still time to try a different style, and then a different one after
that.

Zara sticks to a deep, predictable and fast rhythm, based around

rapid deliveries to stores.

Each Zara outlet sends in two orders per week on specific days.
Trucks leave at specific times and shipments arrive in stores at
specific times. Garments are already labeled and priced upon
arriving at their destination, meaning they’re immediately ready
to be sold.

As a result of this clearly defined rhythm, every staff member

involved in the supply chain – from design to procurement,
production, distribution, and retail – knows the timeline and how
their activities impact other functions. That certainly also
extends to Zara customers, who know when to visit stores for
fresh new garments.

Zara’s reliance on centralized order fulfillment is what enables

the company to maintain incredibly efficient workflows – from
initial design right through to delivery to stores and customers.
The company’s approach is just another example of why
streamlined operations and supply chain management are
critical to profitability and achieving scale.

 Solid distribution network

Zara’s strong distribution network enables the company to

deliver goods to its European stores within 24 hours, and to its
American and Asian outlets in less than 40 hours.

 Fast fashion success

Zara’s success story shows the strength of its operations. Its

cross-functional operations strategy, coupled with its vertically
integrated supply chain, enables mass production under push
control, leading to well-managed inventories, lower markdowns,
higher profitability, and value creation for shareholders in the
short and long term.

Zara is all about staying on top of the hottest trends, and exuding
an exclusive feel, but its supply chain is the real star of the show.
These rockstar-level logistics take it from being just another
fashion retailer to an industry example of fast fashion done right.

2) How well does Zara perform compared to its competitors?

The fact that the fast fashion industry has a promising outlook for profitability makes it an extremely
competitive field with newcomers entering the market and new collections from famous names being
launched on a regular basis. As a matter of fact, Zara has a number of rivals competing to attract customers
and gain market share. The biggest threats to the market share of Zara are H&M, Gap and Uniqlo. In
addition to these four dominating names, the global market of fast fashion has also witnessed the strong
growth of around 39 other retailers, such as Pull & Bear, Next, Mango, Forever 21, etc. Even though Zara
has managed to maintain its position as the leader in the industry, its competitors are also continuously
increasing.
Except for H&M who had sales of $20.2 billion, no brands succeeded in making more money than Zara in
2014, as the net sales of Uniqlo was $16.6 billion, Gap $16.4 Billion, Primark $7.5 Billion, Abercrombie &
Fitch $3.7 Billion, Mango $2.1 Billion. However, Zara’s 7% increase in sales was quite low compared to H
%M with 14% in the same year. While the European market is dominated by Zara, the Asian countries
accounts for an enormous percentage of Uniqlo’s market share and H&M’s biggest markets are Australia,
Germany and the US. The US also brings Gap a lot of revenue, even though this retailer has been struggling
these days. These brands produce items for both kids and adults but Mango does not concentrate on the young
customer segment.

The retailer’s agility proves to be so efficient that even Benetton Group and some other competitors are
inspired by it. It is why no retail brand can beat Zara in terms of speed. It is only no more than 3 weeks from
the moment you see the 2000-dollar high-fashion items being shown in Versace or Chanel’s latest runway
collections to when Zara has the daily version of those clothes on the rack for less than 100 dollars. This
amazing outcome results from Zara’s flexibility in the supply chain. Instead than investing in a team of
talented and innovative designers who build and develop new fashion trends, Zara takes advantage of the
famous and luxury retailers by politely reproducing their designs according to the preferences of the customers.
In addition, the feedback system is thoroughly used up in order to help the brand achieve the “fast” objective in
offering value to customers since the development team constantly receives information on consumers’
opinions about what changes Zara should make about the clothes to meet their demands. Furthermore, the
company operates an exceptionally efficient production chain, comprises of designers, textile manufacturers
and labor, with primary plants based in Spain, which means they do not have to spend too much time on
outsourcing.

3) SWOT analysis of Zara with respect to its supply chain.

What are Zara’s major strengths?
 Pioneer Advantage: Fast-fashion focuses on designing, producing, and selling clothes as soon
as they identify a trend. In traditional fashion, the process takes months; Zara does this in 3
weeks. As pioneers, Zara has the most evolved strategy and management practices in running
the supply chain.
 Stores: Zara is selling in 202 markets and has stores in 96 of them. Totaling 2249 stores, Zara
has the most number of fashion retail stores in the world. The number is almost twice the
number of retail stores than Nike has, which has the second-highest number of retail stores.
  Supply Chain: Zara refreshes its online and retail collection two times a week. Zara’s 10
logistic centers deliver to any location in the world within 48 hours. Inditex also has an in-
house team who design software to double the speed at which the company dispatches orders.
 Design Team: Inditex has a team of 700 trained designers who transform the customer’s
desires to designs. The team of designers outputs 50,000 creatives a year. And, it takes them
just 3 weeks to get the designs from the drawing board to the stores.
 Switch to Online: Inditex is investing $3 billion in bolstering its online sales. The investment
focuses on developing an engaging online buying experience and integrating existing physical
infrastructure. The company aims to generate a quarter of its revenue through online sales by
2022.

What are some of Zara’s weaknesses?

What makes Zara unique in the world of fashion is its commitment to revise its collection every two weeks.
This commitment gives Zara a place at the top of the industry. But the edge comes at a price. Here’s more:

 Fast-Fashion: Interestingly, the trend that helped propel Zara to the top is the cause of its
most pressing weakness. With the focus on sustainability increasing among customers and
policymakers Zara’s weakness is balancing sustainability with fast-fashion.
 Reliance on Physical Stores: The pandemic accelerated Zara’s plans to limit the number
of physical stores. Online sales helped Zara climb out of a massive drop in sales because of
COVID-19-related causes. However, even with online sales picking up, the sales are only at
89% of what it was in 2019.
 Expansion to US and Asia-Pacific: Zara has 99 stores in the US. This accounts for only
4.4% of Zara’s 2249 stores. However, the US is the biggest apparel market in the world. And
the Asia-Pacific accounts for 38% of the apparel market share. Zara’s presence in both
geographies is weak.
 Ethical Work Practices: Inditex works with 1520 suppliers across 7108 factories.
Although Inditex deserves credit for creating a rigorous code of conduct, a large gap exists in
enforcing the code. An issue, as reported by Buzzfeed, regarding the treatment of workers in
Myanmar points to this gap.
 AI-Enabled Prediction: Currently, Inditex is working with AI and Big Data companies to
create an AI-enabled system that predicts consumer behavior. However, the current system is
still in its testing stage. When such a system goes online, Zara will have the unrivaled
capability in predicting and fulfilling customer’s needs.
What are some opportunities for Zara?
One of the biggest advantages Zara has is its experience in capitalizing on fashion trends quickly. This
advantage puts Zara in the right place to leverage opportunities on the horizon. Some of these opportunities
are:

 Rapid Delivery Cycle: Customers visit Zara’s shops on an average of 17 times a year.
This is because Zara responds to trends as soon as they emerge. Right now, Zara delivers a
trend from start to finish in just 2 to 3 weeks. However, in the future, Zara could shorten the
cycles even more.
 Personalization: Collecting data and segmenting the customer base after analyzing the data
is becoming easier than ever before thanks to AI. This allows for providing personalized
suggestions to customers. Zara should capitalize on this technology.
 Eco-Friendliness: According to the Sourcing General, more than 1/3rd of Millennials and
Gen Z look for “sustainable” and “environment friendly” labels on clothes. Together, the two
groups account for 50% of the population. So, Zara must listen and respond to this growing
need.
 Resale: The re-sale market, currently valued at $28 billion today, is predicted to grow to $64
billion in 5 years. Integrating a re-sale strategy to their current platform would allow customers
to purchase more with less wastage. This encourages consumerism while supporting
sustainability.
 Influencer Marketing: Unbox Social says influencer marketing is the most effective
strategy for promoting lifestyle brands. Zara’s success with the #DearSouthAfrica campaign
involving 60 micro-influencers engaged 8 million people. This should be a model for the
future.

What is the biggest threat to Zara?

Zara’s biggest competition in the traditional sense would be H&M. However, in the online space, Zara faces
competition from multiple businesses. But competition is just one of the threats to Zara.

 Competition: China’s fast-fashion giant, Shein, is the world’s biggest fashion retailer with a
purely online presence. During September, the Shein app saw 10.3 million downloads. Zara,
with only 2 million downloads in the same period, must watch out for its rivals in the digital
arena.
 Price War: Fast-fashion, Zara’s primary niche, brings the latest trends from the ramp to the
customers quickly and at low costs. However, the industry is vulnerable to imitators waging
price wars to leech off from Zara’s line. 
  COVID-19: In the first quarter of 2020, Inditex reported a 44% drop in sales. Inditex’s
report states the closure of 88% of its stores because of the Coronavirus lead as the central
reason for the drop in sales.
 Government Regulations: Inditex has 13 factories in Spain. Due to the Spanish
government’s lockdown measures, only 3 of the 13 factories operated in the early months of
the pandemic. With Europe heading towards a second wave, the company can expect similar
measures.
 Sustainability: The use-and-throw attitude people had towards fashion is changing. People
are conscious of the impact of fashion on the environment and people. Thus, Zara would have
to push towards making fast-fashion a sustainable business – economically and ecologically.

4) Impact of Covid-19 on Zara’s supply chain. What strategies did Zara

adopt to recover.

In the first quarter of 2020, Zara-owner Inditex suffered a net loss of 229 US million dollars after a
successful second quarter largely helped to mitigate a disastrous start to the year. Due to the abrupt impacts
of the COVID-19 pandemic, the first three months saw a huge loss of 481 million dollars, while the second
quarter bounced back to a profit of 253 million dollars. The third quarter continued to trend towards
normalcy. Although Zara’s online sales increased, the overall fast fashion industry suffered a decline in
profits and excess inventory during the pandemic (Kohan, 2020).
Similarly, the Inditex group of companies, including Zara, saw its sales significantly impacted. During the
financial year 2019, more than 7,100 suppliers invoiced the group for over?.1 billion of services and goods.
On the other hand, the worldwide tax contribution during 2019 also increased, 6.75 billion, representing a
9% from the previous year (Isla, 2020).
After taking a hit during 2020 due to the coronavirus, the fast-fashion retailer’s revenue has returned to pre-
pandemic levels, parent company Inditex reported during its earnings this week. 
Inditex — which also owns clothing brands Pull&Bear and Massimo Dutti — reported that its revenue hit
€6.99 billion (about $8.25 billion) between May and July, a 7% increase over the same period in 2019. As
such, Inditex regained its spot as the biggest clothing retailer in the world. 

Zara’s ability to offer in-store pickup has allowed it to recoup sales quicker than its fast-fashion peers, such
as H&M, which offer more limited in their fulfilment options. Zara’s brick-and-mortar stores are proving to
still be a major part of its business, with its increasing traffic helping boost sales. Inditex confirmed that 99%
of its stores have now reopened. Meanwhile, e-commerce sales continue to grow; the company projected that
the online business will surpass 25% of total sales by the end of fiscal year 2021, two years earlier than its
original goal. In 2018, Inditex said that 12% of its total sales came from e-commerce orders. 
By contrast, competitor H&M is recovering at a much slower pace. In its latest earnings, the H&M Group’s
sales increased by 9% year-over-year, to SEK 55.6 billion (around $6.46 billion). However, its net sales
were still down 11% from the same period in 2019. 
Part of what helped Zara recoup sales more quickly was its early investment in online fulfilment. Even prior
to Covid-19 lockdowns, the brand had been offering in-store pickup for years. In 2018, the company
introduced “click and collect” locations dedicated to online order pickups. These pop-ups are separate from
Zara’s typical stores, which tend to be crowded with long fitting rooms and checkout lines. In 2020, Inditex
also announced its plans to spend $3 billion on tech tools that further integrate its online and store shopping
experiences. 
These types of fulfilment options are still lacking at H&M. The retailer currently allows customers to check
local store inventory, but still doesn’t have an official in-store pickup service at U.S. locations.

Conclusion:
Zara is an organization in a strong position in the financial market that has established itself as a brand name
which produces cutting-edge fashion products that are better than its competitors at a

Strategic appraisal of Zara low cost. However, it is vital that the organization should recognize the forces
that impact on the external business market and use its internal strengths to ensure that its competitive
advantage is maintained. This would enable it to maintain its position within the market being one of the
brand leader.

The company provides full value products and services different from one another and its market
segmentation can be explained by the principles of demographic segmentation.

Zara’s business strategy incorporates both cost leadership and differentiation and this is called integrated
cost leadership and differentiation strategy (hybrid strategy). The main aim of this strategy is to maintain a
balance between low cost and differentiated products and this enables Zara to focus on cost and
differentiation as its two competitive advantages as it provides attractive prices to consumers and an up-to
date product design.

Several elements discussed have supported the success of the hybrid strategy used by Zara and one of the
most vital points is the company’s efficient supply chain system that ensures a balance between production
of high quality products and decreasing the distribution cost in the company.

The efficient supply chain system has also enabled the company to increase in its flexibility in availing the
products to buyers quicker than its competitors.
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