The Role of Logistics
All production, regardless of its origin, is received at the logistical centers for the brand, from where it is
distributed simultaneously to all the stores worldwide on a highly frequent and constant basis.
In the case of Zara, distribution takes place twice a week and each delivery always includes new models, so
that the stores are constantly refreshing their offer.
The logistics system, based on software designed by the company’s own teams, means that the time
between receiving an order at the distribution centre to the delivery of the goods in the store is on average
24 hours for European stores and a maximum of 48 hours for American or Asian stores.
Putting the variety of goods on the shelves in Toronto and other North American stores requires an
unusual, though not unique, logistics strategy for the fashion industry. Zara air expresses goods from
its single distribution center in Spain, usually in small quantities. In the 1970’s, The Limited used a
similar strategy to support its test marketing, air expressing small quantities of new styles from Asia
to U.S. stores. In Zara’s strategy, however, the speedy shipments are part of the core strategy, not just
test marketing. Zara also ships frequently, allowing lower inventories while serving its multinational
market from a single distribution center in Spain.
“We receive shipments o n Tuesday and Saturday, which means that we have different items in the
store at least twice a week. While each shipment replenishes items that sell well, each also includes
new items. That’s why our customers come in often,” the Toronto store manager said. “We might get
ten of one item and five of another. We’re constantly testing.”
The density of Zara’s store locations in Europe helps achieve logistics efficiencies. They can fill trucks
for frequent shipment in markets close to production and ship larger quantities by air to more distant
stores. Zara keeps transportation costs low on the supply side, since most of the production takes
place in Spain. This contrasts radically to most large fashion manufacturers, which rely on low cost
manufacturing in Asia and South America, but then pay higher inventory costs and move goods to
market more slowly.
The air express strategy also allows Zara to maintain a multinational market presence with only one
distribution center. They trade higher transportation costs for lower warehousing and inventory costs.
Add to this the idea that fast transportation
supports the product-innovation strategy that is the heart of Zara’s marketing, and the importance of
logistics in Zara’s marketing strategy is clear.
Strategic Partnerships and Cost of Production
In comparison to competitors, Zara’s business strategy, in regards to strategic partnerships and cost of
production, provide for a strategic competitive advantage. Zara, unlike its competitors such as Gap,
Benetton, and H&M, does not use Asian outsourcing. Eighty percent of Zara’s materials are manufactured
in Europe, with 50% made in Zara controlled facilities in the Galicia region of Spain near headquarters.
Most of Zara’s competitors have 100% outsourcing to cheap Asian countries. Though the cost of
production in Spain is 17-20% more expensive than Asia, Zara does have a competitive advantage over
its competitors in regards to operations. The local strategic partnerships that Zara maintains with
manufacturers in Europe allow for a product throughput time of 3-4 weeks from conception to distribution.
To make this happen, the company designs and cuts its fabric in-house and it acquires fabrics in only four
colors to keep costs low. Zara postpones dyeing and printing designs until close to manufacture, thereby
reducing waste and minimizing the need to clear unsold inventories. The proximity of these suppliers
gives Zara great flexibility in adapting their product lines based on up to date market trends and consumer
behavior. It also decreases costs of holding inventory. Zara’s competitors, through outsourcing to Asian
countries such as China, sacrifice the benefits of proximity for low labor and production costs. Though
there is a cost advantage in their approach in regards to labor, the lack of flexibility in changing orders
based on current trends hinders their operational efficiencies. Inventory costs are higher for competitors
because orders are placed for a whole season well in advance and then held in distribution facilities until
periodic shipment to stores. This proximity effect and the flexibility that it gives Zara is fundamental to
their basic concept to respond quickly to shifts in consumer demand and has provided them with a
competitive edge in comparison to their peers.
Advertising and Marketing
Zara’s unique approach to advertising and marketing is an additional factor within their business model
that adds to their success. Zara spends 0.3% of total revenues on advertising and marketing. This is
significantly less then their competitors who on average spend 3-4% of their total revenues on similar
expenditures. Hence, Zara maintains a cost advantage to their competitors in marketing activities. In
order to effectively complete with their peers Zara uses location, store layout, and product life cycles to
act as their marketing tool to consumers. For instance, Zara strategically locates all of their stores in
prime retail districts for visibility marketing. Additionally, because of the product development cycles
mentioned earlier, customers are trained to visit Zara stores often because new items are presented
weekly and are often not restocked. This feeling of scarcity encourages customers to come to the stores
and buy frequently. Lastly, in order to keep the stores looking fresh and trendy; Zara invests heavily in
their store layouts. They have a testing facility nearby their headquarters in Spain where different types of
store layouts are tested. Each Zara store is remodeled every 5 years in order to keep up with current
trends. Zara does not invest heavily in direct marketing, though their efforts in image/brand marketing do
a great deal to attract a loyal customer base. Their cost advantage and ability to maintain brand
recognition and customer loyalty are essential elements of Zara’s capabilities that build value in the
company.
Information and Communication Technologies
Zara’s information and communication protocols are significantly different from its competitors. Zara
spends less than 0.5% of total revenue on IT and IT employees account for only 0.5% of Zara’s total
workforce. This differs from their competitors who spend on average 2% of total revenue on IT
expenditures and have 2.5% of their total workforce devoted to IT. Zara utilizes human intelligence (from
store managers and market research) and information technology (such as their PDA devices) in order to
have a hybrid model for information flow from stores to headquarters. For example, managers at Zara
stores use handheld devices to send standardized information regarding customer feedback and ordering
needs directly to in-house designers. This not only keeps Zara's designers informed of fast-changing
customer trends and demand, but also provides the company with insight on less-desirable merchandise.
Unlike Zara’s hybrid model (which incorporates human intelligence and IT applications), competitors rely
almost completely on information technology. Zara’s unique approach of human intelligence assisted IT
solutions results in well-managed inventories, linkages between demand and supply, and reduced costs
from obsolete merchandise; however, there is still room for improvement in their IT processes to realize
more effective management of inventory levels. Hence, the hybrid information and communication system
that Zara uses provides cost advantages to Zara’s operations and helps to abide by their fundamental
principle to have the ability to rapidly respond to changes in consumer demand.
