zara-business-model

A Quick Glance At Zara Business Model

Zara is a brand part of the retail empire Inditex. Zara is the leading brand in what has been defined as “fast fashion.” With almost €20 billion in sales in 2021 (comprising Zara Home) and an integrated retail format with quick sales cycles. Zara follows an integrated retail format where customers are free to move from physical to digital experience.

The origin story and business model transformation

Born in a small town in Spain (Villamanín), Amancio started as a delivery boy in A Coruña, a city and the municipality of Galicia, Spain. 

As a delivery boy, he got the chance to learn the fundamentals of the garment retail business.

And over the years, he learned that by better organizing the manufacturing and delivery of garments, he could sell those materials at a more competitive price.  

He first applied this model to its first brand during the mid-70s. 

This retail model would work so well that Amancio would expand all over Spain and internationally. 

As its first brand, Zara expanded exponentially over the years; he consolidated his empire under the umbrella of a holding company, Inditex (it took decades and many failed attempts).

Today Inditex comprises eight core brands following similar retail formats, of which Zara is the largest and most prominent, and Amancio Ortega, its founder, is among the wealthiest men on earth.

With almost €20 billion in revenues in 2021, Zara had undergone a business model transformation process, which started with one thing in mind: giving more options to its customers. 

Indeed, while starting in 2012, Zara consolidated its stores under a flagship model, it also invested massively in integrating the experience of its customers to make them seamlessly jump from physical to digital without any friction.

The flagship retail model consolidates existing physical stores to have a single location in an exclusive city area.

Therefore, on average, in 2018, Zara expanded its retail space by 50%. 

Instead of locking customers’ experience to those physical stores (where Zara had invested billions), the company, in parallel, invested in technologies that enhanced the digital experience.

In short, if today you go to Zara and with your phone can directly scan products to see their availability and order them online in other Zara locations, this is thanks to a deliberate process of transformation of its retail format. 

Customers are not locked in a single experience but are allowed to browse the shop and choose whatever format fits them the most. 

This is the power of business model transformation, starting with a single focus: enhanced customer experience!

fast-fashion
Fash fashion has been a phenomenon that became popular in the late 1990s and early 2000s, as players like Zara and H&M took over the fashion industry by leveraging on shorter and shorter design-manufacturing-distribution cycles. Reducing these cycles from months to a few weeks. With just-in-time logistics and flagship stores in iconic places in the largest cities in the world, these brands offered cheap, fashionable clothes and a wide variety of designs.

Zara is the core asset of the Inditex Fashion Empire

who-owns-zara
Inditex owns Zara, the Spanish fashion empire owned by Amancio Ortega, whose net worth in 2022 stood at over $50 billion, making him the wealthiest man in Spain. Zara is the most important asset of Inditex, contributing to over 70% of the group’s revenues. Inditex generated almost €28 billion in 2022, and Zara generated almost €20 billion in the same period.

Inditex is among the largest fashion retailers in the world with eight retail formats:

  • Zara & Zara Home,
  • Pull&Bear,
  • Massimo Dutti,
  • Bershka,
  • Stradivarius,
  • Oysho

The Zara retail format follows an integrated offline-online store network which generated almost €20 billion in 2021 and accounted for over 70% of the group’s revenues.

The key element that has made Zara’s store successful over the years is its ability to anticipate and react to customer demands.

inditex-store-models
Overall, Inditex store models create direct access from consumers with the brands part of the various Inditex retail models. Inditex retail empire has eight key brands that follow a similar retail format of anticipating or swiftly adapting to customers’ requests, thus making its products appealing to a large customer base. (image source: Inditex Annual Report)

Zara flagship store retail model

Over the last years, Zara has been implementing an integrated retail format leveraging physical flagship stores located in exclusive central locations worldwide.

As reported on Inditex annual reports, the new flagship store opening, starting in 2018, Zara flagship stores were, on average, 59% larger than the first wave of stores opened in 2012 (from 1,452 m2 in 2012 to 2,184 m2 in 2018).

Primarily driven by new store openings, larger flagship stores, and consolidation of smaller stores within a larger flagship store.

RFID technology and Integrated experiences

zara-shopping-experience
An example of the potential customer journey of Zara depends on the channel chosen to purchase a product. (image source: Inditex annual report)

RFID stands for “radio-frequency identification” and is widely used in retail to track customers’ journeys across several physical and digital touchpoints between the customer and the brand.

RFID-technology-zara
All the digital channels used by Zara as additional digital touchpoints, working either as independent touchpoints compared to physical stores. Or as touchpoints enhancing the physical experience. For instance, enabling customers to check the availability of products in-store or to order them online (image source: Inditex annual report)

Starting in 2007, championed by Zara Home and Zara started a process of digitalization to build a stronger relationship with customers to prevent them from being tied to the physical stores.

This process ended with the transition to an integrated store model.

To complete this process, Zara had to undergo several initiatives to create a trackable experience from the supply chain to the retail experience.

Some of the services implemented to enrich the customer experience were:

  • Click&Collect (order online and pick up in-store),
  • Self-service checkouts,
  • Automated online order pick-up points,
  • Same-Day Delivery for online orders,
  • And Next-Day Delivery.

Key takeaways

The key elements of Zara’s business model are:

  • Product expansions and quick sales cycles combined with continuous product variety to anticipate or react to customers’ wants.
  • Integrated shopping experience thanks to new technologies: from RFID to integrated stock management or additional services to enhance the retail model (Click&Collect service, Self-service checkouts, Automated online order pick-up points, Same-day / Next-day delivery).
  • Upgrading of physical stores gradually transformed into the Flagship store, located in exclusive locations, which were on average 50% larger compared to 2012.
  • The expansion of physical stores has also been coupled with the upgrading of the online sales platforms, thus incentivizing customers to a purchasing experience more congenial to their needs.

In short, Zara’s quick delivery, fast inventory, and seamless customer experience, enabling customers to jump to its physical store and shop online, helped it further consolidate throughout the last decade of digital transformation.

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Related Visual Resources

Fast Fashion

fast-fashion
Fash fashion has been a phenomenon that became popular in the late 1990s and early 2000s, as players like Zara and H&M took over the fashion industry by leveraging on shorter and shorter design-manufacturing-distribution cycles. Reducing these cycles from months to a few weeks. With just-in-time logistics and flagship stores in iconic places in the largest cities in the world, these brands offered cheap, fashionable clothes and a wide variety of designs.

Ultra Fast Fashion

ultra-fast-fashion
The Ultra Fashion business model is an evolution of fast fashion with a strong online twist. Indeed, where the fast-fashion retailer invests massively in logistics and warehousing, its costs are still skewed toward operating physical retail stores. While the ultra-fast fashion retailer mainly moves its operations online, thus focusing its cost centers on logistics, warehousing, and a mobile-based digital presence.

Real-Time Retail

real-time-retail
Real-time retail involves the instantaneous collection, analysis, and distribution of data to give consumers an integrated and personalized shopping experience. This represents a strong new trend, as a further evolution of fast fashion first (who turned the design into manufacturing in a few weeks), ultra-fast fashion later (which further shortened the cycle of design-manufacturing). Real-time retail turns fashion trends into clothes collections in a few days or a maximum of one week.

SHEIN Business Model

shein-business-model
SHEIN is an international B2C fast fashion eCommerce platform founded in 2008 by Chris Xu. The company improved the ultra-fast fashion model by leveraging real-time retail, quickly turning fashion trends in clothes collections through its strong digital presence and successful branding campaigns.

Read Next: Zara Business Model, Inditex, Fast Fashion Business Model, Ultra Fast Fashion Business Model, SHEIN Business Model.

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