Zara: Future Ready?
| Case Code: OPER122 Case Length: 10 Pages Period: 2011 - 2016 Pub Date: 2017 Teaching Note: Available |
Price: Rs.400 Organization : Inditex Industry : Apparel Manufacturing and Retail Countries : Spain Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Zara
Before fast fashion became mainstream, the fashion industry worked on stable schedules. Popular designers exhibited their designs through shows and trade fairs. The production lead times were based on forecasts made a season or even a year before the apparels hit the stores. The clothes replacement cycles too were long. Consumers saw clothing as an investment and spent carefully on their clothes. As they became more fashion conscious, there was a shift in the apparel industry which went on to become market driven rather than production driven. This resulted in shorter market cycles and more fashion seasons, which led to the birth of fast fashion. The fast fashion industry was based on the strategy of planned obsolescence; the clothes were designed to be replaced by new designs, which in turn led to more consumption..
Sourcing
The front end of Zara had to be nimble. Accordingly, the business model demanded similar agility in the up-stream of the supply chain. To align with such a strategy, Zara manufactured its garments at its own factories in Spain besides outsourcing to neighboring Portugal, Moroccan, and Turkish factories. Again, contrary to the competition, it resorted to “proximity sourcing” using high-wage labor rather than sourcing from Asian factories in a deliberate move to attain responsiveness and speed. Such proximity sourcing ensured product availability at retail outlets in less than 2 weeks. Proximity sourcing contributed to 60% of Zara’s total sourcing; the balance was sourced from low wage factories based in India, China, and Bangladesh and the South American ..
Challenges with sub-contracting
The issue of illegal subcontracting came into the public scrutiny when Rana Plaza, a commercial complex in Dhaka, Bangladesh, collapsed in April 2013 due to structural failure. With the death toll as high as 1130, the accident shook the garment industry. Two months after the accident, labels for brands sold by Inditex were found at another factory in Dhaka which had caught fire. Inditex said the production had been subcontracted without its permission. It later stopped doing business with its Bangladeshi subcontractor Centex Textile and Apparels..
Is the supply chain future ready?
By 2016, fast fashion had become a larger phenomenon for the apparel industry than ever. Zara closely competed with many other retailers who had gained expertise in the concept. But unlike the parent of Zara, the competitors were not so vertically integrated. Forever21, one of the famous brands in fast fashion, was merely a design house outsourcing all its manufacturing operations. Swedish apparel retailer H& M (Hennes and Maurizt), which was the second largest retailer in the world and the closest competitor to Zara, also did not own any factories. H&M sourced 60% of its production to Asia while the rest was manufactured in Europe..
Exhibits
Exhibit I:Inditex Financials
Exhibit II: Distribution
Exhibit III: Production Traceability at Inditex
Exhibit IV: Inditex Sale by Geographical Area for 2015-16
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