Zara: The Fast Fashion Leader

In this world of rapidly moving trends, no company does fast fashion better than Zara International. Shoppers in a growing number of countries — 88 as of April 2016 — are fans of Zara’s knack for bringing the latest styles from sketchbook to shopfront at lightning speed and reasonable prices.1

In fast fashion, moments matter

Zara’s parent company Inditex is known for year-on-year strong sales gains. Low prices and a rapid response to fashion trends have pushed it into the top ranks of global clothing vendors. The chain specialises in lightning-quick turnarounds of the latest designer trends at prices tailored to the young — about A$35 an item.2 Louis Vuitton fashion director Daniel Piette has described Zara as ‘possibly the most innovative and devastating retailer in the world’.3

Inditex shortens the time from order to arrival using a complex system of just-in-time production and inventory management that keeps Zara ahead of the competition. Their distribution centres can have items in European stores within 24 hours of order receipt, and in American and Asian stores in less than 48 hours.4 ‘They’re a fantastic case study in terms of how they manage to get product to their stores so quick’, said Stacey Cartwright, executive vice president and CFO of Burberry Group PLC. ‘We are mindful of their techniques.’5

The firm carefully controls design, production, distribution and retail sales to optimise the flow of goods, without having to share profits with wholesalers or intermediary partners. Customers win with access to new fashions while they’re still fresh off the runway.6 Twice a week Zara’s finished garments are shipped to physical distribution centres that all simultaneously distribute products to stores worldwide. These small production batches help the company avoid the risk of oversupply. Because batches always contain new products, Zara’s stores perpetually energise their inventories.7 Most clothing lines are not replenished. Instead they are replaced with new designs to create scarcity value— shoppers cannot be sure that designs in stores one day will be available the next day.

The Zara store in Melbourne’s CBD is located on a busy thoroughfare near other flagship stores.

Store managers track sales data with handheld devices. They can reorder hot items in less than an hour. Zara always knows what’s selling and what’s not. When a look doesn’t pan out, designers promptly put together new products. New arrivals are rushed to shop sales floors still on the black plastic hangers used in shipping. Shoppers who are in the know recognise these designs as the newest of the new; soon after, any items left over are rotated to Zara’s standard wood hangers.8

Inside and out, Zara’s stores are designed to strengthen the brand. Inditex considers this to be very important because that is where shoppers ultimately decide which fashions make the cut. In a faux shopping street in the company’s headquarters, stylists craft and photograph eye-catching layouts that are emailed every two weeks to store managers for replication.9

Zara stores sit on some of the hottest shopping streets, including Bourke St Mall in Melbourne, near the flagship stores of Sportsgirl, General Pants and Myer. While those adjacent stores all vie for the same consumer dollar, Zara sells fashion items at a lower price point. It’s all part of the strategy. ‘Inditex gives people the most up-to-date fashion at accessible prices,’ said Luca Solca, senior research analyst with Sanford C Bernstein in London. That is good news for Zara as many shoppers trade down from higher priced chains.10

A single fashion culture

The Inditex group began in 1963 when Amancio Ortega Gaona, chairman and founder of Inditex, got his start in textile manufacturing.11 After a period of growth, he assimilated Zara into a new holding company, Industria de Diseño Textil.12 Inditex has a tried-and-true strategy for entering new markets: start with a handful of stores and gain a critical mass of customers. Generally, Zara is the first Inditex chain to break ground in new countries, paving the way for the group’s other brands, including Pull and Bear, Massimo Dutti and Bershka.13

Inditex farms out much of its garment production to specialist companies, located on the Iberian Peninsula, which it supplies with its own fabrics. Although some pieces and fabrics are purchased in Asia — many of them not dyed or only partly finished — the company manufactures about half of its clothing in its hometown of La Coruña, Spain.14 Inditex CEO Pablo Isla believes in cutting expenses wherever and whenever possible. Zara spends just 0.3 per cent of sales on ads, making the 3–4 per cent typically spent by rivals seem excessive in comparison. Isla disdains markdowns and sales as well.15

H&M, one of Zara’s top competitors, uses a slightly different strategy. Around one-quarter of its stock is made up of fast-fashion items that are designed in-house and farmed out to independent factories. As at Zara, these items move quickly through the stores and are replaced often by fresh designs. But H&M also keeps a large inventory of basic, everyday items sourced from inexpensive Asian factories.16

Ethical fashion

How can a company turn fashion items around quickly and sell them at such an inexpensive price point while turning a solid profit? Is there a human price to be paid? According to the 2016 Australian Fashion Report — an annual report that assesses fashion companies’ labour rights systems in a bid to illuminate how they are addressing the alarming issues of forced labour, child labour and worker exploitation overseas, and then rates them from A to F — Zara ticks all of the right boxes when it comes to their transparent labour rights system. The 2016 report gave Inditex a rating of A, the highest performing company after two Fairtrade companies Etiko and Audrey Blue. This rating is not reflective of actual conditions on the ground, but is an analysis of the strength of Zara’s labour rights systems. Their high rating implies that Inditex makes a concerted effort to trace back where the source materials for their clothing have come from, and is transparent with the public about this information. Ratings are based on four key elements of the labour rights management system:

1. policies

2. knowing suppliers

3. auditing and supplier relationships

4. worker empowerment.

Inditex’s score of A was averaged from an A+ rating on numbers 1–3 of the above elements and a B for worker empowerment.17

Is Zara expanding too quickly — opening about 400 stores per year?18 Will its existing logistics system carry it into another decade of intense growth? Can fast-fashion win the long-term retailing race?

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(COMPLETE QUESTION 5, A AND B)

TOPIC - Zara International

1. Background:

Zara International is one of many brands under the Inditex Group which is currently the world's largest clothing retailer (2018). Founded in spain in 1975 by Amancio Ortega and RosalíaMera, Zara International is a global fashion brand known for creating and bringing the latest styles and trends to shopfronts in 88 countries as of April 2016. zara is rapidly expanding opening “about 400 stores per year” according to ‘Zara's fast fashion edge’ article found in ‘Bloomberg Business Week’.Zaraspecialises in fast turnarounds and prices clothes to suit a younger generations and those with lower income ,

2. Issues:

Organising- A potential issue for Zara is that they source a large majority of their materials from one specific area, that being the Iberian Peninsula, which is where the company was originally established. Although this is good in a sense of corporate social responsibility, this management decision could potentially leave Zara in a crisis of sorts if their was to be a natural disaster or something along those lines which destroys the crops Zara sources for their clothes. This is becoming more and more of a threat with the unpredictable nature of climate change.

Non Stock Renewal- Zara has a reputation of not replenishing items once they have sold out. This can have both positive and negative effects on both Zara’s reputation and profits. On the one hand it creates a scarcity value as their is a limited number of stock, but it also means that a customer might be unable to repurchase the item, decreasing customer satisfaction. While a scarcity value is created by having limited stock, the profit goes to the reseller rather then Zara directly.

Management issues- The Senior Management of Zara International is Spanish and management decisions are made completely in Spain. This can create cultural barriers and potential issues for decision making as Zara expands into more and more countries. Cultural differences between countries include climate and weather, cultural influences, and fashion taste and style. By Zara International employing an entirely Spanish Senior Management team, they risk being unable to cater for all of these cultural differences of their expanding international market.

3. Key Issues: (

Social Responsibility/Ethics

One of the major issues, as of recent for Zara, is that there have been multiple reports of worker exploitation in garment factories linked to zara, most notably in Turkey where “notes” were discovered in Zara clothing claiming that workers were not being paid for their efforts. Following these reports the factory shut down overnight, leaving many unemployed. This has left a major scar on the reputation of the brand and can be linked with their very heavily customer driven management style. Zara will often rely heavily on customer feedback and on their store managers to translate what customers demand back to the designers, higher management and manufactures. This has ultimately led to the brands long-term ethical values being compromised to satisfy short-term consumer demands. Within Zara, ensuring that ethical policies are maintained is the Board of Directors’ role. Having such a high level of management who is unable to fulfil their duties can and has been detrimental to the rest of the company.

4. Theories

Ethical

Review Standards/Policies

Utilitarian view

The idea of ethical behaviour can be viewed in different ways. It seems that Zara has been implementing the ‘Utilitarian View’ which considers ethical behaviour in terms of consequences. They did not want to compromise their low prices and fast delivery and did so at the expense of their workers. The risk of the Utilitarian View is that larger ethical problems can arise such as cheap clothing resulting in child labour and poorer quality products.

Moral Rights View

The ‘Moral Rights View’ considers the wellbeing and fundamental rights of the people. Zara could implement this view to improve their ethical standards to protect its workers, improving the treatment of employees.

Individualism View

The ‘Individualism View’ focuses on ensuring that long term goals and self-interests are prioritised. This could improve the profits and growth of Zara if they address the issues such as the environment (materials coming from one place) and leadership (cultural barriers due to their undiverse leadership team).

While these different theories all address different ethical issues, they also lack in other areas. This is why the best solution and proposed theory is to incorporate a mixture. By implementing the Utilitarian, Moral Rights and the Individualism view it creates the most well rounded and inclusive theory which focuses on creating a thriving and prosperous company without compromising the quality of products/services or the wellbeing and rights of workers.

HRM

Work Life Balance

Work life balance is the idea of having a healthy balance between the working life and leisure time, as well as having a clear distinction between the two. The idea of it is to create a more productive, healthier and happier working environment when employees are at work. Its led to believe that a healthy work life balance can improve moral in the workplace and relations at home.

Employee Empowerment

Employee empowerment is defined as giving employees a certain degree of autonomy and responsibility for decision-making regarding their specific tasks. It allows employees at a lower level to be able to make decisions for the organisation as they have a unique view of the issues and problems that they are facing at that level of the organisation. If employee empowerment is not utilized well it can lead to decreased organisational responsiveness to issues and decrease in productivity. This shows how Zara International still need to work on integrating human resource management to maintain a talented and energetic workforce to support the organisation’s mission, objectives and strategies.

Autonomy

Worker autonomy is the idea of giving employees the freedom to make their own decisions and/or have a say in the way a business is run. This extra responsibility generally is able to increase job satisfaction, motivation in the workplace and workplace happiness. It is important to find a good level on worker autonomy as too much can backfire with employees abusing the benefits.

Reward systems: Remuneration and Benefits

Good salary and benefit systems improve organisations by attracting qualified staff and retaining them within the organisation. An incentive such as a higher base remuneration in the form of a salary or hourly wage can attract employees to keep them there. Other rewards can include fringe benefits

5. Objectives

a. Ethical

Create their own standards that is in line with international standards

To ensure that Zara improve their treatment of their employees, a thorough set of standards need to be outlined and implemented by all stores worldwide. This would ensure that no shortcuts could be taken, or any foreign countries flexible laws on work health and safety, child labour or pay be taken advantage of. These set of standards should incorporate a mixture of the ‘Utilitarian View’, the ‘Moral Rights View’ and the ‘Individualism View’ of ethical behaviour to ensure that it is well-balanced and maintains Zara International’s competitive prices without compromising the rights and wellbeing of employees or workers.

Have an external body that reviews and looks over their ethical policies to eliminate bias for profits

By ensuring that an external governing body enforces and maintains the set of ethical standards internationally, bias and any conflict of interest are eliminated. It ensures that corners are not being cut to improve profits because the one purpose of this governing body is to ensure that no country, worksite or store are compromising the law, or Zara’s set of ethical standards and guidelines.

Mixture of I and U view

Zara has been using the utilitarian view which entails ethical behaviors in terms of consequences. This mainly focuses on low prices and fast delivery of good but at the expense of the employee. Individualism view on the other hand focuses on a long term goal of the company and priority in self interest. Zara do not want to destroy their reputation and lose clients they should focus on combining both individualism and utilitarian views. Utilitarian view will keep Zara on track with their fast delivery and low price whereas individualism view will help in fighting ethical differences in a vast market.

b. Human resources Management

More autonomy to employees, they are the contact with the customers

Employees are in the direct link with the customers. Therefore they know best what their customers would need, what works good for them and how they would like to be served. The management should involve their employees in some of the decision making regarding client service. More autonomy will also help create trust and good relationship not only with the customers but also with the management.

Further employee development with training

Employees should be able to know how Zara is run and what principles govern their success. Therefore, the management should involve their employees in training to further develop their existing knowledge on the cloth line business. With the training, the employees will be much familiar with the success trail and how to aim for higher growth of the company.