Zara

9-703-497
R E V: D E C E M B E R 21, 2006






P A N K AJ GH E M AWAT JO S É LU I S NU ENO
ZARA: Fast Fashion


Fashion is the imitation of a given example and satisfies the demand for social adaptation. . . . The more an article becomes subject to rapid changes of fashion, the greater the demand for cheap products of its kind.
— Georg Simmel, “Fashion” (1904)

Inditex(Industria de Diseño Textil) of Spain, the owner of Zara and five other apparel retailing chains, continued a trajectory of rapid, profitable growth by posting net income of €€ 340 million on revenues of €€ 3,250 million in its fiscal year 2001 (ending January 31, 2002). Inditex had had a heavily oversubscribed Initial Public Offering in May 2001. Over the next 12 months, its stock priceincreased by nearly 50%—despite bearish stock market conditions—to push its market valuation to €€ 13.4 billion. The high stock price made Inditex’s founder, Amancio Ortega, who had begun to work in the apparel trade as an errand boy half a century earlier, Spain’s richest man. However, it also implied a significant growth challenge. Based on one set of calculations, for example, 76% of the equityvalue implicit in Inditex’s stock price was based on expectations of future growth—higher than an estimated 69% for Wal-Mart or, for that matter, other high-performing retailers.1

The next section of this case briefly describes the structure of the global apparel chain, from producers to final customers. The section that follows profiles three of Inditex’s leading internationalcompetitors in apparel retailing: The Gap (U.S.), Hennes & Mauritz (Sweden), and Benetton (Italy). The rest of the case focuses on Inditex, particularly the business system and international expansion of the Zara chain that dominated its results.



The Global Apparel Chain

The global apparel chain had been characterized as a prototypical example of a buyer-driven global chain, in which profitsderived from “unique combinations of high-value research, design, sales, marketing, and financial services that allow retailers, branded marketers, and branded manufacturers to act as strategic brokers in linking overseas factories”2 with markets. These attributes were thought to distinguish the vertical structure of commodity chains in apparel and other labor- intensive industries such asfootwear and toys from producer-driven chains (e.g., in automobiles) that were coordinated and dominated by upstream manufacturers rather than downstream intermediaries (see Exhibit 1).




HBS Professor Pankaj Ghemawat and IESE Professor José Luis Nueno prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources ofprimary data, or illustrations of effective or ineffective management.

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703-497 ZARA: Fast Fashion




Production

Apparel production was very fragmented. On average, individual apparel manufacturing firms employed only a few dozen people, although internationally tradedproduction, in particular, could feature tiered production chains comprising as many as hundreds of firms spread across dozens of countries. About 30% of world production of apparel was exported, with developing countries generating an unusually large share, about one-half, of all exports. These large cross-border flows of apparel reflected cheaper labor and inputs—partly because of cascading...