The Secret of Zara’s Success: A Culture of Customer Co-creation

Zara is one of the world’s most successful fashion retail brands – if not the most successful
one. With its dramatic introduction of the concept of “fast fashion” retail since it was founded
in 1975 in Spain, Zara aspires to create responsible passion for fashion amongst a broad
spectrum of consumers, spread across different cultures and age groups. There are many
factors that have contributed to the success of Zara but one of its key strengths, which has
played a strong role in it becoming a global fashion powerhouse as it is today, is its ability to
put customers first. Zara is obsessed with its customers, and they have defined the company
and the brand’s culture right from the very beginning.

The Zara brand offers men and women’s clothing, children’s clothing (Zara Kids), shoes and
accessories. The sub-brand Zara TRF offers trendier and sometimes edgier items to
younger women and teenagers.

The Zara brand story

Zara was founded by Amancio Ortega and Rosalía Mera in 1975 as a family business in
downtown Galicia in the northern part of Spain. Its first store featured low-priced lookalike
products of popular, higher-end clothing and fashion. Amancio Ortega named Zara as such
because his preferred name Zorba was already taken. In the next 8 years, Zara’s approach
towards fashion and its business model gradually generated traction with the Spanish
consumer. This led to the opening of 9 new stores in the biggest cities of Spain.

In 1985, Inditex was incorporated as a holding company, which laid the foundations for a
distribution system capable of reacting to shifting market trends extremely quickly. Ortega
created a new design, manufacturing, and distribution process that could reduce lead times
and react to new trends in a quicker way, which he called “instant fashion”. This was driven
by heavy investments in information technology and utilising groups instead of individual
designers for the critical “design” element.

In the next decade, Zara began aggressively expanding into global markets, which included
Portugal, New York (USA), Paris (France), Mexico, Greece, Belgium, Sweden, Malta,
Cyprus, Norway and Israel. Today, there is hardly a developed country without a Zara store.
Zara now has 2,266 stores strategically located in leading cities across 96 countries. It is no
surprise that Zara, which started off as a small store in Spain, is now the world’s largest fast
fashion retailer and is the flagship brand of Inditex. Its founder, Amancio Ortega, is the sixth
richest man in the world according to Forbes magazine.

Today, Inditex is the world’s largest fashion group with more than 170,000 employees
operating more than 7,400 stores in 202 markets worldwide including 49 online markets. The
revenues of Inditex was USD 29.4 billion in 2018. The other fashion brands in the Inditex
portfolio are:

Zara Home: Home goods and decoration objects founded in 2003. Operating 596 stores.

Pull & Bear: Casual laid-back clothing and accessories for the young founded in 1991.
Operates 975 stores.

Massimo Dutti: High end clothing and accessories for cosmopolitan men and women
acquired in 1995. Operates 760 stores.

Bershka: Blends urban styles and modern fashion for young women and men founded in
1998. Operates 1,111 stores.

Stradivarius: Casual and feminine clothes for young women acquired in 1999. Operates
1,011 stores.

Oysho: Lingerie, casual outerwear, lounge wear and original accessories founded in 2001.
Operating 677 stores.

Uterqüe: High-quality fashion accessories at attractive prices founded in 2008. Operating 90

stores.

Apart from fashion brands, Amancio Ortega has also set up a global real estate investment
fund, Pontegadea Inversiones, which manages corporate offices across 9 countries
including United States (Seattle), Britain (London), France (Paris), Canada, Italy, South
Korea. These corporate properties house large companies including Facebook, Amazon and
Apple, and prestigious luxury and retail brands.
The Zara brand strategy

In 2018, Zara was ranked 25th on global brand consultancy Interbrand’s list of best global
brands. Its core values are found in four simple terms: beauty, clarity, functionality and
sustainability.

The secret to Zara’s success has largely being driven by its ability to keep up with rapidly
changing fashion trends and showcase it in its collections with very little delay. From the very
beginning, Zara found a significant gap in the market that few clothing brands had effectively
addressed. This was to keep pace with latest fashion trends, but offer clothing collections
that are a combination of high quality and yet, are affordable. The brand keeps a close watch
on how fashion is changing and evolving every day across the world. Based on latest styles
and trends, it creates new designs and puts them into stores in a week or two. In stark
comparison, most other fashion brands would take close to six months to get new designs
and collections into the market.

It is through this strategic ability of introducing new collections based on latest trends in a
rapid manner that enabled Zara to beat other competitors. It quickly became the people’s
favourite brand, especially with those who want to keep up with fashion trends. Founder
Amancio Ortega is famously known for his views on clothes as a perishable commodity.
According to him, people should love to use and wear clothes for a short while and then they
should throw them away, just like yogurt, bread or fish, rather than store them in cupboards.

The media often quotes that the brand produces “freshly baked clothes”, which survive
fashion trends for less than a month or two. Zara concentrates on three areas to effectively
“bake” its fresh fashions:

Shorter lead times (and more fashionable clothes): Shorter lead times allow Zara to
ensure that its stores stock clothes that customers want at that time (e.g. specific spring/
summer or autumn/ winter collections, recent trend that is catching up, sudden popularity of
an item worn by a celebrity/ socialite/ actor/ actress, latest collection of a top designer etc.).
While many retailers try to forecast what customers might buy months in the future, Zara
moves in step with its customers and offers them what they want to buy at a given point in
time.
Lower quantities (through scarce supply): By reducing the quantity manufactured for a
particular style, Zara not only reduces its exposure to any single product but also creates
artificial scarcity. Similar to the principle that applies to all fashion items (and more
specifically luxury), the lesser the availability, the more desirable an object becomes.
Another benefit of producing lower quantities is that if a style does not generate traction and
suffers from poor sales, there is not a high volume to be disposed of. Zara only has two time-
bound sales a year rather than constant markdowns, and it discounts a very small proportion
of its products, approximately half compared to its competitors, which is a very impressive
feat.

More styles: Rather than producing more quantities per style, Zara produces more styles,
roughly 12,000 a year. Even if a style sells out very quickly, there are new styles waiting to
take up the space. This means more choices and higher chance of getting it right with the
consumer.

Zara only allows its designs to remain on the shop floor for three to four weeks. This practice
pushes consumers to keep visiting the brand’s stores because if they were just a week late,
all the clothes of a particular style or trend would be gone and replaced with a new trend. At
the same time, this constant refreshing of the lines and styles carried by its stores also
entices customers to visit its shops more frequently.

In the following sections, the key components of Zara’s winning formula in the fashion
retailing industry are illustrated.

Customer co-creation: Zara’s principal designer is the customer

Zara’s unrelenting focus on the customer is at the core of the brand’s success and the
heights it has achieved today. There was a fascinating story around how Zara co-creates its
products leveraging its customers’ input. In 2015, a lady named Miko walked into a Zara
store in Tokyo and asked the store assistant for a pink scarf, but the store did not have any
pink scarves. The same happened almost simultaneously for Michelle in Toronto, Elaine in
San Francisco, and Giselle in Frankfurt, who all walked into Zara stores and asked for pink
scarves. They all left the stores without any scarves – an experience many other Zara fans
encountered globally in different Zara stores over the next few days.
7 days later, more than 2,000 Zara stores globally started selling pink scarves. 500,000 pink
scarves were dispatched – to be exact. They sold out in 3 days. How did such lightning fast
stocking of pink scarves happen?

Customer insights are the holy grail of modern business, and the more companies know
about their customers, the better they can innovate and compete. But it can prove
challenging to have the right insights, at the right time, and have access to them consistently
over time. One of the secrets to Zara’s success includes using Radio Frequency
Identification Technology (RFID) in its stores. The brand uses cutting-edge systems to track
the location of garments instantly and makes those most in demand rapidly available to
customers. Additionally, it helps to reduce inventory costs, provides greater flexibility to
launch new designs, and allows fulfillment of online orders with stock from stores nearest to
the delivery location thereby reducing delivery costs.

Another secret of Zara’s success is that the brand trains and empowers its store employees
and managers to be particularly sensitive to customer needs and wants, and how customers
enact them on the shop floors. Zara empowers its sales associates and store managers to
be at the forefront of customer research – they intently listen and note down customer
comments, ideas for cuts, fabrics or a new line, and keenly observe new styles that its
customers are wearing that have the potential to be converted into unique Zara styles. In
comparison, traditional daily sales reports can hardly provide such a dynamic updated
picture of the market. The Zara empire is built on two basic rules: “to give customers what
they want”, and “get it to them faster than anyone else”.

Due to Zara’s competitive customer research capabilities, its product offerings across its
stores globally reflect unique customer needs and wants in terms of physical, climate or
cultural differences. It offers smaller sizes in Japan, special women’s clothes in Arab
countries, and clothes of different seasonality in South America. These differences in
product offerings across countries are greatly facilitated by the frequent interactions between
Zara’s local store managers and its creative team.

In the fashion world, a trend starts small, but develops fast. Zara employees are trained to
listen, watch and be attentive to even the smallest seismographic signals from their
customers, which can be an initial sign that a new trend is taking shape. Zara knows that the
quicker it can respond, the more likely it is to succeed in supplying the right fashion
merchandise at the right time across its global retail chain. Zara has set up sophisticated
technology driven systems, which enable information to travel quickly from the stores back to
its headquarters in Arteixo in Spain, enabling decision makers to act fast and respond
effectively to a developing trend. Its design teams regularly visit university campuses;
nightclubs and other venues to observe what young fashion leaders are wearing. In its
headquarters, the design team uses flat-screen monitors linked by webcam to offices in
Shanghai, Tokyo and New York (the leading cities for fashion trends), which act as trend
spotters. The ‘Trends’ team never goes to fashion shows but tracks bloggers and listens
closely to the brand’s customers.

The fact that Zara’s designers and customers are inextricably linked is a crucial part of the
brand strategy. Specialist teams receive constant feedback on the decisions its customers
are making at every Zara store, which continuously inspires the Zara creative team.

Zara’s super-efficient supply chain

Zara’s highly responsive, vertically integrated supply chain enables the export of garments
24 hours, 365 days of the year, resulting in the shipping of new products to stores twice a
week. After products are designed, they take around 10 to 15 days to reach the stores. All
clothing items are processed through the distribution center in Spain, where new items are
inspected, sorted, tagged, and loaded into trucks. In most cases, clothing items are delivered
to stores within 48 hours. This vertical integration allows Zara to retain control over areas like
dyeing and processing and have fabric-processing capacity available on-demand to provide
the correct fabrics for new styles according to customer preferences. It also eliminates the
need for warehouses and helps reduce the impact of demand fluctuations. Zara produces
over 450 million items and launches around 12,000 new designs annually, so the efficiency
of the supply chain is critical to ensure that this constant refreshment of store level
collections goes off smoothly and efficiently.

Here are some of the characteristics of Zara’s supply chain that highlight the reasons behind
its success:
Frequency of customer insights collection: Trend information flows daily into a database
at head office, which is used by designers to create new lines and modify existing ones.

Standardization of product information: Zara warehouses have standardised product

information with common definitions, allowing quick and accurate preparation of designs with
clear manufacturing instructions.

Product information and inventory management: By effectively managing thousands of

fabric, trim and design specifications and their physical inventory, Zara is capable of
designing a garment with available stock of required raw materials.

Procurement strategy: Around two-thirds of fabrics are undyed and are purchased before
designs are finalized so as to obtain savings through demand aggregation.

Manufacturing approach: Zara uses a “make and buy” approach – it produces the more
fashionable and riskier items (which need testing and piloting) in Spain, and outsources
production of more standard designs with more predictable demand to Morocco, Turkey and
Asia to reduce production cost. The more fashionable and riskier items (which are around
half of its merchandise) are manufactured at a dozen company-owned factories in Spain
(Galicia), northern Portugal and Turkey. Clothes with longer shelf life (i.e. the one with more
predictable demand patterns), such as basic T-shirts, are outsourced to low cost suppliers,
mainly in Asia. Even when manufacturing in Europe, Zara manages to keep its costs down
by outsourcing the assembly workshops and leveraging the informal economy of mothers
and grandmothers.

Distribution management: Zara’s state-of-the-art distribution facility functions with minimal

human intervention. Optical reading devices sort out and distribute more than 60,000 items
of clothing an hour.

In addition to these supply chain efficiencies, Zara can also modify existing items in as little
as two weeks. Shortening the product life cycle means greater success in meeting consumer
preferences. If a design does not sell well within a week, it is withdrawn from shops, further
orders are canceled and a new design is pursued. Zara closely monitors changes in
customer preferences towards fashion. It has a range of basic designs that are carried over
from year to year, but some in-vogue, high fashion, inspired by latest trends items can stay
on the shelves for less than four weeks, which encourages Zara fans to make repeat visits.
An average high-street store in Spain expects customers to visit thrice a year, but for Zara,
the expectation is that customers should visit around 17 times in a year.

This expectation for such a high frequency of repeat visits is evidence of Zara’s confidence
that it is keeping on top of changing consumer needs and preferences and is helping them
shape their ideas, opinions and taste for fashion. In reality, Zara is also helping in giving birth
to new trends through its stores or even helping in extending the longevity of some seasonal
styles by offering affordable lines.

Sustainability at the core of Zara’s operations

Sustainability has been a hot topic in business for the last decade and is now quickly
becoming a must-have hygiene factor for companies that want to resonate with and win the
loyalty of its global customers. For Inditex, this means having a commitment to people and
the environment.

Commitment to people: Inditex ensures that its employees have a shared vision of value
built on sustainability through professional development, equality and diversity and
volunteering. It also ensure that its suppliers have fundamental rights at work and by
initiating continuous improvement programs for them. Inditex also spends almost USD 52
million annually on social and community programmes and initiatives. For example, its
‘for&from’ programme is aimed to enable the social integration of people with physical and
mental disabilities, by providing over 167 stable employment opportunities.

Commitment to environment: Being in a business where it taps on natural resources to

create its products, Inditex makes efforts to ensure that the environmental impact of its
business complies with UNSDGs (United Nations Sustainable Developmental Goals). Inditex
has pledged to only sell sustainable clothes by 2025 and that all cotton, linen and polyester
sold will be organic, sustainable or recycled. While Zara stores do not use plastic bags,
Inditex plans to eliminate the use of plastic bags across all its brands by 2020. The company
also runs Join Life, a scheme which helps consumers identify clothes made with more
environmentally friendly materials like organic cotton and recycled polyester.
Additionally, Inditex takes wide-ranging measures to protect biodiversity, reduce its
consumption of water, energy and other resources, avoid waste, and combat climate
change. For example, it has outlined a Global Water Management Strategy, specifically
committing to zero discharge of hazardous chemicals. It has also been expanding its waste
reduction programme through which customers can drop off their used clothing, footwear
and accessories at collection points in 1382 stores in 24 markets today.

Zara’s culture: The word “impossible” does not exist

Zara has a very entrepreneurial culture, and employs lots of young talent who quickly climb
through the ranks of the company. Zara promotes approximately 90% of its store managers
from within and generally experiences low turnover. The brand has no fear in giving
responsibility to young people and the culture encourages risk-taking (as long as learning
happens) and fast implementation (the mantra of fashion).

Top management gives its store managers full liberty and control over their store’s
operations and performance with clearly set cost, profit and growth targets with a fixed and
variable compensation scheme. The variable component amounts to up to half of the total
compensation – making store level employees heavily incentive-driven.

In addition, once an employee is selected for promotion, his or her store develops a
comprehensive training program for that individual with the human resources department,
which is followed up by periodic supplemental training – reflecting Zara’s commitment to
talent development. The organizational structure is also flat with only a few managerial
layers.

Customers are the most important source of information for Zara, but like any other fashion
brand, Zara also employs trend analysts, customer insights experts, and retains some of the
best talents in the fashion world. The creative team of Zara comprises of over 200
professionals. They all embody and enact the corporate philosophy that the word
“impossible” does not exist in Zara.

For example, while many companies struggle with long lead times in discussions and
decision making, Zara gets around this challenge by getting various business functions to sit
together at the headquarters and also by encouraging a culture (through structures and
processes) where people continuously talk to each other. The sales and marketing teams
who receive trend feedback talk regularly with designers and merchandisers. It is important
that there is constant two-way communication so that sales and marketing teams can talk
about new lines to customers and designers / merchandisers have a strong visibility of
customers’ needs and preferences enacted at a store level. The production scheduling is
also closely coordinated so that there is no time wasted on approvals. The design team
structure is very flat and focuses on careful interpretation of catwalk trends that are suitable
for the mass market – the Zara customer. The design and product development teams, who
are based in Spain, work closely to produce 1,000 new styles every month.

Besides being customer centric, another important reason why Zara’s employee strategy is
so successful is the fact that it empowers its staff to make decisions based on data. Zara has
no chief designer. All its designers are given unparalleled independence in approving
products and campaigns, based on daily data feeds indicating which styles are popular.

Due to the unwavering focus on the customer, the entire business model is designed in such
a way that the pattern of needs for the finished goods dictate the terms of the production
process to follow, instead of having the raw materials determine the nature of the production
process – something that is very rare in multinational companies of similar scale.

In sum, the entire brand culture is extremely customer-centric, which has been and
continues to be a significant contributor to Zara’s success.

The Zara brand communication strategy

Zara has used almost a zero advertising and endorsement policy throughout its entire
existence, preferring to invest a percentage of its revenues in opening new stores instead. It
spends a meager 0.3 per cent of sales on advertising compared to an average of 3.5 per
cent by competitors. The brand’s founder Amancio has never spoken to the media nor has in
any way advertised Zara. This is indeed the mark of a truly successful brand where
customers appreciate and desire the brand, which is over and above product level benefits
but strongly driven by the brand experience.
Instead of advertising, Zara uses its store location and store displays as key elements of its
marketing strategy. By choosing to be in the most prominent locations in a city, Zara ensures
very high customer traffic for its stores. Its window displays, which showcase the most
outstanding pieces in the collection, are also a powerful communication tool designed by a
specialized team. A lot of time and effort is spent designing the window displays to be artistic
and attention grabbing. According to Zara’s philosophy of fast fashion, the window displays
are constantly changed. This strategy goes down to how the employees dress as well – all
Zara employees are required to wear Zara clothes while working in the stores, but these
“uniforms” vary across different Zara stores to reflect socio-economic differences in the
regions they were located. This effectively communicates Zara’s focus on the mass market,
yet another detail that reflects its close attention on the customer.

To tap into the emerging e-commerce trend, Zara launched its online boutique in September
2010. The website was initially available in Spain, the UK, Portugal, Italy, Germany and
France, and was extended to Austria, Ireland, the Netherlands, Belgium and Luxembourg.
Over the next 3 years, the online store became available in the United States, Russia,
Canada, Mexico, Romania, and South Korea. In 2017, Zara’s online store launched in
Singapore, Malaysia, Thailand, Vietnam and India. More recently in March 2018, the brand
launched online in Australia and New Zealand. As of 2018, online sales grew to constitute
27% of Zara’s total global sales.

As a fast fashion retailer, Zara is definitely aware of the power of e-commerce and has built
up a successful online presence and high-quality customer experience.

Zara’s future brand and business challenges

Mobile commerce: Zara woke up late to the potential of mobile commerce and needs to
catch up fast with competitors. Different forms of market analysis strongly point towards a
scenario wherein spends on mobile commerce will overtake desktop based ecommerce by
2021. On an average, most brands currently get about 15-20% of their website traffic via
mobile devices and this is growing rapidly. With the deluge of investments planned in the
mobile commerce space and Zara’s competitors already having an advantage on the mobile
front, Zara needs to quickly make mobile shopping not only an effortless experience but also
a delightful one.
Price is not an advantage anymore: Offering the latest fashion lines at affordable prices
continues to be a strategic advantage for Zara, but cannot continue to be the only one.
Across the world, and closer to home in Europe, competitors are cutting prices and refining
their business models to cut the competitive advantage that Zara has. Swedish fast fashion
retailer H&M launched an online store in Spain in 2014 to take own Zara in its home turf.
Again in its home market, it now faces increasing competition from brands like Mango, which
cut prices and started focusing on fashion segments in which Zara enjoyed popularity. In
addition to H&M and Mango, other competitors like Gap and Topshop are all fighting for a
share of the fast fashion retail market pie. Also with the rise of e- and m-commerce, the
number of indirect competitors has mushroomed. We now have online fashion aggregators
that bring in multiple brands under one single online platform and cut through borders and
price segments. Some examples of such aggregators who are doing well include Lyst,
Farfetch, Spring and Yoox Net-a-Porter.

For Zara to effectively compete and maintain its strategic advantage, the focus needs to shift
away from price but towards quality. Even today the Zara brand enjoys high levels of appeal,
which is evident by the serpentine queues outside its stores when it launches in new
markets. There is a need for Zara to start investing in building a strong brand positioning and
aggressively communicate it. Additionally, Zara needs to adopt, imbibe and leverage social
media and digital platforms in its advertising and communication strategies deeper going
forward.

Need for marketing strategy to evolve: As discussed above, Zara does not engage in
advertising and instead uses its store locations as a marketing strategy. However, brand
communication is crucial in attracting new customers to the brand to support its growth.
Without advertisements, Zara relies heavily on word of mouth or social media. This causes
the perception of potential customers towards Zara to be heavily shaped by family and
friends, which may not be accurate. In addition, Zara’s social media platforms such as
Facebook and YouTube exists merely as a feed for updates rather than a platform that
consumers can interact with. Its videos on YouTube are also seeing very low viewership in
comparison with its follower count, which is not ideal as videos are a powerful medium for
brands in the fashion industry. This is a gap that Zara needs to plug immediately as the
reach and impact of social media marketing gets stronger. As Zara’s target customer
segments start using more social and digital platforms for communication and for sharing
their lives, it is important for Zara to have a strong presence on such platforms.

Family business planning and succession: With various technological and business
disruptions in the past decade, leadership in the 21st century will be influenced by
constant change, geopolitical volatility, and economic and political uncertainty. For Zara’s
first 36 years in business, the brand has been controlled by its founder Amancio Ortega, who
is currently 83 years old. In 2011, Ortega passed the Chairman title on to Pablo Isla, Zara’s
Deputy CEO since 2005. Industry analysts predict that Zara is set to be succeeded by his
35-year-old daughter, Marta Ortega, who is currently senior creative consultant for all Zara
Woman’s collections. To effectively manage the above disruptions, Zara’s next generation
leadership needs to step up to the succession planing challenge by being resilient in
staying true to the brand promise to consistently produce “freshly baked clothes” for its
fashion-forward consumers, and by balancing both short-term (profitability) and long-term
goals (growing the business and reaching more consumers). More importantly, despite
Zara’s global reach and consequent product standardization, it needs to constantly find new
ways to serve local fashion needs and preferences of its consumers across the globe. This
will be a challenge for the brand’s leadership in the next decade.

Conclusion: Take Zara’s cue and listen to your customers

The Zara brand was born with a keen eye on its customer – its ability to understand, predict
and deliver on its customers’ preferences for trendy fashion at affordable prices. In addition
to its effective supply chain, the brand’s ability to have its customers co-create designs is
unique and provides it with a competitive advantage. Most fashion trends often start
unexpectedly, originate from uncommon places and grow out of nowhere. With reference to
the pink scarf trend mentioned above, it could have been that Hollywood actress Scarlett
Johansson had worn a pink scarf to a charity gala the evening before in Los Angeles, or golf
star Michelle Wie had showcased a pink scarf at a celebrity tournament in Asia. The fact that
Zara was able to quickly jump on to this trend and provide hundreds of customers with the
pink scarves they desperately wanted to buy.
In a world swamped with Big Data, and yet more collected at an even more rapid pace than
before, brands still need to be careful and observant. Big Data does not provide answers to
all business challenges, and it may be too hyped to be considered as the Holy Grail.

One of the secrets behind Zara’s global success is the culture and the respect for the fact
that no one is a better, authentic trendsetter than the customer himself or herself – and this
philosophy needs to be continually reflected in all its business strategies going forward.

So, why not consult your customers for a start? Zara always does.