Title: Zara Has a Made-to-Order Plan for Success. By: Folpe, Jane M., Fortune, 00158259, 09/04/2000, Vol.

142, Issue 5. Database: Business Source Complete. HTML Full TextZara Has a Made-to-Order Plan for Success Listen Pause Loading . American Accent British Accent Australian Accent Slow Reading Speed Medium Reading Speed Fast Reading Speed Download MP3 Help . . . Section: FIRST FASHION INDUSTRIAL COMPLEX

Long before the new economy made catchwords of speed, customization, supply-chain management, and information sharing, Spanish clothing retailer Zara was carrying out a revolution of its own. By translating the latest trends into designs that are manufactured in less than 15 days and delivering them to its stores twice a week Zara pioneered a new kind of quick, custom-made retailing that has transformed the relatively low-profile retailer into a global powerhouse. Nobody else can get new designs to stores as quickly, says Keith Wills, European-retail analyst at Goldman Sachs. "Unless you can do that, you won't be in business in ten years."

Not only has Zara the flagship store of private textile company Inditex distinguished itself by tightly integrating its design and manufacturing systems, but its clothing has filled an untapped niche. "Armani at moderate prices," says one Goldman Sachs analyst. The formula seems to be paying off: Zara, which is responsible for nearly 80% of Inditex's revenues, opened its first store in 1975 and has since expanded to more than 400 stores in 25 countries. Though it doesn't generate as much in revenues as the Gap ($11.6 billion) or Swedish clothier H&M (about $3.6 billion), Zara's parent had sales of about $2 billion last year, which represented a 26% increase from 1998. The company's profits were up 34%, to around $186 million, last year.

Zara derives its competitive advantage from an astute use of information and technology. All of its stores are electronically linked to the company's headquarters near La Coruna, a midsized city on the northwest coast of Spain. Store managers monitor how merchandise is selling and transmit this information, as well as customer requests, to headquarters. "The role of the store manager goes way beyond that of Gap and H&M," says Wills of Goldman Sachs. Together with trend-spotters who travel the globe in search of new fashion, store managers make sure their designers have access to realtime information when deciding with the commercial team on the fabric, cut, and price points of a new garment.

In addition, Inditex's production system truly differentiates Zara from its competition. While the Gap and H&M outsource most of their manufacturing, Zara produces 60% of its merchandise in-house. Fabric which comes from places like Spain, the Far East, India, and Morocco is cut and colored at the company's state-of-the-art factory. Then, using information gathered from stores, production managers decide how many garments to make and which stores will get them. Finally the fabric is sent to local shops to be assembled before being shipped around the world. This combination of real-time information sharing and internalized production means that Zara can work with almost no stock and still have new designs in the store twice a week, as opposed to the six weeks that it traditionally takes most competitors.

The question now is how far Zara, which runs almost no advertising outside of its biannual storewide sales, can go with the concept of design-on-demand retailing. The chain is well-known in South America and Europe, where it is currently expanding in Germany. (International sales accounted for almost 50% of its total.) It's less well-known in the U.S.; it has just six stores in the New York City area. But don't underestimate this Spanish giant. Inditex recently announced it was exploring a public offering, and it's probably just a matter a time before it dispatches Zara to conquer the New World.

PHOTO (COLOR): Zara uses infotech to get new fashions into stores in under 15 days.

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By Jane M. Folpe

References. Folpe, JM 2000, 'Zara Has a Made-to-Order Plan for Success', Fortune, 142, 5, p. 80, Business Source Complete, EBSCOhost, viewed 20 February 2012. .