A Quick Glance At Zara Business Model

Zara is a brand part of the retail empire Inditex. Zara business model, with over €18 billion in sales in 2018 (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.

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 started to apply 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, among the wealthiest men on earth.

With €18 billion in revenues in 2018, Zara itself had undergone a process of business model transformation, which started with one thing in mind: giving more options to its customers. 

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

The flagship retail model consists of consolidating existing physical stores to have a single location in an exclusive area of the city. Therefore, on average, in 2018, Zara expanded its retail space by 50%. 

Instead of locking the experience of customers 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 allowed to browse the shop and chose whatever format fits them the most. 

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

Fash fashion has been a phenomenon that became popular in the late 1990s, 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, 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 as one of Inditex retail formats

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

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

The Zara retail format follows an integrated offline-online store network. The key element that has made Zara’s store successful over the years has been its ability to anticipate and react to customers’ demands.

Overall Inditex store models which 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 on physical flagship stores, located in exclusive central locations across the world.

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).

Primary drove by new store openings, larger flagship stores and consolidation of smaller stores within a larger flagship store.

RFID technology and Integrated experiences

An example of the potential customer journey of Zara’s customers, depending on the channel chosen to purchase a product. (image source: Inditex annual report)

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

All the digital channels used by Zara as additional digital touchpoints, working either as independent touchpoint 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 to be tied to the physical stores.

This process ended with the transition in 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 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 also 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 quick delivery, fast inventory, seamless customer experience enabling customers to jump to its physical store, but also to shop online helped it further consolidate throughout the last decade of digital transformation.

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