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.
Table of Contents
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!
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
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.
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
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.
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),
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.
Key Highlights
Amancio Ortega’s Background: Zara’s founder, Amancio Ortega, began as a delivery boy and learned the garment retail business’s fundamentals through this experience.
Innovative Retail Model: Ortega organized manufacturing and delivery to offer garments at competitive prices. This model was applied to Zara in the mid-70s, leading to rapid expansion throughout Spain and internationally.
Inditex and Business Consolidation: Zara’s success led to the creation of Inditex, a holding company encompassing multiple retail brands. Zara remained the largest and most prominent brand within this group.
Integrated Retail Format: Zara focused on integrating physical and digital experiences, allowing customers to seamlessly transition between both. The flagship store model consolidated physical locations in exclusive city areas, coupled with investments in enhancing the digital experience.
Fast Fashion Emergence: Zara played a pivotal role in the rise of fast fashion, with its quick design-manufacturing-distribution cycles and just-in-time logistics, offering fashionable clothing in a variety of designs.
Zara’s Significance in Inditex: Zara contributes significantly to Inditex’s revenues, accounting for over 70% of the group’s earnings. Inditex is a global fashion retailer with eight core brands under its umbrella, each following a similar retail format.
Anticipating Customer Demand: Zara’s success lies in its ability to anticipate and swiftly respond to customer demands, making its products appealing to a broad customer base.
Flagship Store Model: Zara’s recent strategy involves opening flagship stores in prime locations, which are larger and offer an integrated shopping experience. The average size of these flagship stores increased by almost 60% from 2012 to 2018.
RFID and Integrated Experiences: Zara employs RFID technology to track customer interactions across physical and digital touchpoints, enhancing the overall shopping experience. Digital channels complement physical stores, allowing customers to check product availability, order online, and more.
Digital Transformation Process: Zara underwent a process of digitalization to transition into an integrated store model, allowing customers to engage with the brand both online and offline seamlessly.
Enhanced Customer Services: Zara introduced various customer-centric services, including Click&Collect, self-service checkouts, automated online order pick-up points, same-day and next-day delivery options.
Key Elements of Zara’s Business Model: Zara’s success can be attributed to its quick product turnover, continuous variety, and the integration of technologies for a seamless shopping experience both online and offline.
Continued Expansion: Zara’s expansion extended not only to physical stores but also online platforms, catering to customers’ evolving preferences and needs.
Digital Transformation and Consolidation: Throughout the last decade, Zara’s agility in delivery, inventory management, and customer experience have allowed it to consolidate its position amidst digital transformation.
Business Model Cap
Element
Description
Value Proposition
Zara offers a range of value propositions for its customers: – Fast Fashion: Zara is known for its ability to bring the latest fashion trends to consumers quickly, offering a constant stream of new styles. – Affordable Prices: Zara provides trendy clothing and accessories at affordable prices, making fashion accessible to a wide range of consumers. – Quality and Design: Zara emphasizes quality materials and design, providing customers with stylish and well-crafted clothing. – In-Store Experience: Zara stores offer a unique in-store shopping experience, with visually appealing displays and layouts. – Online Shopping: Zara’s e-commerce platform allows customers to shop online for convenience and access to the brand’s products. – Sustainability Efforts: Zara has committed to sustainability through initiatives like the “Join Life” collection, appealing to eco-conscious consumers.
Core Products/Services
Zara’s core products and services include: – Clothing and Accessories: Zara offers a wide range of clothing items, including dresses, tops, pants, jackets, and accessories like bags and shoes. – Fast Fashion Model: The company follows a fast fashion model, constantly introducing new collections and designs to stay on-trend. – In-House Production: Zara designs, manufactures, and distributes its products in-house, allowing for a quick turnaround from design to store shelves. – Supply Chain Efficiency: Zara’s supply chain is designed for efficiency, with the ability to restock popular items swiftly. – In-Store Shopping: Zara’s physical stores provide a unique shopping experience with well-organized displays and frequent updates. – E-commerce: Zara’s e-commerce platform allows customers to shop online, providing convenience and a broader reach.
Customer Segments
Zara’s customer segments include: – Fashion-Forward Shoppers: Customers who seek the latest fashion trends and appreciate Zara’s quick response to style changes. – Value Shoppers: Consumers looking for stylish clothing at affordable prices without compromising on quality. – Eco-Conscious Consumers: Customers interested in sustainable fashion may be drawn to Zara’s eco-friendly “Join Life” collection. – Online Shoppers: Customers who prefer online shopping and value the convenience of browsing Zara’s products on the website or app. – Fashion Enthusiasts: Those passionate about fashion and design often turn to Zara for their clothing needs. – Global Audience: Zara has a global presence, catering to a diverse customer base across different countries.
Revenue Streams
Zara generates revenue through several revenue streams: – Product Sales: The primary source of revenue comes from the sale of clothing and accessories through physical stores and the e-commerce platform. – Fast Fashion Model: Zara’s frequent introduction of new collections drives repeated customer visits and purchases. – Global Presence: Revenue is earned from sales in numerous countries where Zara operates its stores and online retail. – Online Sales: The company generates revenue from online sales made through its official website and mobile apps. – In-House Manufacturing: Zara’s in-house manufacturing allows for cost control and profit margin optimization. – Sustainability Collections: Sales of sustainable fashion items contribute to revenue through initiatives like the “Join Life” collection.
Distribution Strategy
Zara’s distribution strategy focuses on agility and responsiveness: – In-House Manufacturing: Zara designs and manufactures its products in-house, allowing for quick design-to-shelf turnaround. – Frequent Store Updates: Zara stores are frequently updated with new collections and styles to keep up with fashion trends. – Global Store Network: Zara maintains a global network of physical stores, ensuring its products are accessible to customers in various regions. – E-commerce Platform: Zara’s e-commerce platform offers online shopping with a user-friendly interface and mobile app for convenience. – Supply Chain Efficiency: The company’s supply chain is optimized for efficiency and restocking popular items swiftly. – Sustainability Efforts: Zara’s sustainability initiatives, like the “Join Life” collection, align with eco-conscious consumers’ preferences.
Slow fashion is a movement in contraposition with fast fashion. Where in fast fashion, it’s all about speed from design to manufacturing and distribution, in slow fashion, quality and sustainability of the supply chain are the key elements.
Patagonia is an American clothing retailer founded by climbing enthusiast Yvon Chouinard in 1973 who saw initial success by selling reusable climbing pitons and Scottish rugby shirts. Over time Patagonia also became a fashionable brand also for its focus on slow fashion. Indeed, the company sells high-priced clothing items built to last which it will repair for free.
Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
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.
With over €27 billion in sales in 2021, the Spanish Fast Fashion Empire, Inditex, which comprises eight sister brands, has grown thanks to a strategy of expanding its flagship stores in exclusive locations around the globe. Its largest brand, Zara, contributed over 70% of the group’s revenue. The country that contributed the most to the fast fashion Empire sales was Spain, with over 15% of its revenues.
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.
ASOS is a British online fashion retailer founded in 2000 by Nick Robertson, Andrew Regan, Quentin Griffiths, and Deborah Thorpe. As an online fashion retailer, ASOS makes money by purchasing clothes from wholesalers and then selling them for a profit. This includes the sale of private label or own-brand products. ASOS further expanded on the fast fashion business model to create an ultra-fast fashion model driven by short sales cycles and online mobile e-commerce as the main drivers.
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 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.
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.
Wish is a mobile-first e-commerce platform in which users’ experience is based on discovery and customized product feed. Wish makes money from merchants’ fees and advertising on the platform, and logistic services. The mobile platform also leverages an asset-light business model based on a positive cash conversion cycle where users pay in advance as they order goods, and merchants are paid in weeks.
Poshmark is a social commerce mobile platform that combines social media capabilities with its e-commerce platform to enable transactions. It makes money with a simple model, where for each sale, Poshmark takes a 20% fee on the final price for sales of $15 and over and a flat rate of $2.95 for sales below that. Its gamification elements and the tools offered to sellers are critical to the company’s growth as a mobile-first platform.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
