Zara thrives by being smart

This article, Zara Thrives by Breaking All the Rules in BusinessWeek, talks about how Zara is succeeding by doing things differently. However, the fallacy is saying there are “rules”. The “rules” are how other people do it. What Zara has done is seen the weaknesses in those rules and done things differently. Zara knows that the sum is what matters, not the parts. So even if parts of its manufacturing could be made cheaper, it would add additional costs down the line. That’s smart. And that’s why they are thriving.

Of course, unlike some of their competitors, they know what to make that will sell. You can have the best supply chain in the world, but if you are delivering something people don’t want, you are dead. Zara knows what people want, and they can adjust quickly when they make a mistake. Not only that, but Zara has lots of ideas, unlike some of their competitors. They seem to produce way more styles than other clothing manufacturers, making it more likely you will find something you want. That’s also very smart.

7 responses to “Zara thrives by being smart

  1. You really like Zara and even buy your suits from them – so how much stock to you own, maybe you even have controlling interest 😛

    Yes, a good story about a smart company.

  2. Bernie, the story about Zara is intriguing. It does not sound like a company trying to leapfrog the competition through a ‘disruptive technology’ or create an insurmountable moat around the business. In fact, one might argue that the ‘designer driven’ model tries to build moats and be disruptive. Although Zara’s focus on ‘fast fashion’ may break all the rules, it strikes me as more evolutionary/adaptive than revolutionary.

    In a sense, Zara is trying to leverage the fickleness of consumers which has been the downfall of numerous companies. By being faster on its feet across the breadth of its business, Zara is better able to adapt to change and thereby becomes more resilient to the inevitable ‘shocks to the system’, at least compared to a business that believes it has a strategic edge and becomes ‘fat and happy’. That said, time will tell how resilient Zara provides to be.

  3. smartpeopleiknow

    Norbert, good points.

    I think you’re right: Zara is able to adapt well by not being locked into “seasons”: their clothes come out fast and often, not “fall” collection and “spring” collection. They have a wide range of styles, from very causal to dressy. The value is high, at least the men’s section. They are ubiquitous, too.

    But I still think the interesting thing is how they do their supply chain. I think that could be the place where businesses can innovate. It’s a no brainer to say: let’s just find the cheapest supplier and go with that. The smart thing is to say: how can we find the *best* supplier and go with that one.

  4. Bernie, supply chain management is definitely a piece of the puzzle. The problem is coming up with a useful definition of ‘best’: is it cost/price or providing value to the customer? Businesses probably have a good handle on the first, but the latter is a lot harder to pin down.

    On top of that, systems effects can make predictions tricky. You can optimise all the pieces and yet be sub-optimal overall. As the quote at the end of the Business Week article points out: “The Inditex way is an all-or-nothing proposition that has to be fully embraced to yield results.”

    It would be an interesting research project to find out how Zara developed and then maintains its business approach. Did they design it right once using a top-down approach based on the ‘fast fashion’ model? Or did they use a more evolutionary approach, tweaking this and trying that until they found something that worked?

  5. Norbert, I think Zara is one of those companies doing many things right. If it was just one thing, the GAP would copy it. Instead, Zara has now surpassed GAP.

    Zara has been around since the 1960s: I am guessing there has been a long evolution of their approach.

    This article has some interesting statistics, like:

    * time to get a new design into the store: 15 days
    * time a product has to sell or else it is withdrawn: 7 days
    * number of designs Zara produces a year: 10000
    * number of stores they have: just under 4000.

    I also think Inditex is a family business…i.e. closely held. This can provide the kind of discipline a company needs to do this.

    Fascinating stuff.

  6. Bernie, Booz&Co posted a number of papers on outsourcing/offshoring. “Is Backshoring the New Offshoring?” (http://www.strategy-business.com/li/leadingideas/li00098) focused largely on the cost side of the equation, although it did touch on quality issues and improved access to local markets in emerging countries. Even the shift from manufacturing to innovation outsourcing was primarily driven on cost advantages.

    “Knowledge-based Sourcing in China” (http://www.strategy-business.com/li/leadingideas/li00097?pg=all) took a more strategic view, contrasting the Wal-Mart approach of focusing on continuously lower prices with the more collaborative/long-term/strategic approach of GM. The sense I got was that GM treated its suppliers as part of the GM business that happened to be remotely located. That helped GM to “establish the ideal combination of world-class performance with location, scale, process technologies and automation, and success in execution. … In some cases, it might be more advantageous to select a supplier closer to home.”

    The contrasting of Wal-Mart and GM is intriguing, given the different financial performance of the two companies. Maybe GM is recognising that a ‘one-size-fits-all’ strategy is ultimately not viable over the long term.

  7. smartpeopleiknow

    Norbert, I think over the next few years, we will see more and more companies looking at “smartshoring”. People will look at Zara. They will look at the cost of transportation. Other factors will also come into play to make the decision more complex as to where to manufacture things.

    That’s my belief at this point.

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