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These are the inner workings of Zara, a
successful enigma full of contradictions.
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It is by far the biggest company in Spain.
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drawing inspiration from the glitz of the runway,
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you might expect headquarters in Madrid,
one of Europe's glamorous capitals,
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but nope it's right here
in this rural corner of northern Spain
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and in an industry married to glossy full
page campaigns and costly commercials
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the company's ad spend
is basically non-existent.
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So what's making this
work so well for Zara?
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And as the global fashion
industry confronts new competition
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and existential problems, can it last?
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The retail fashion landscape
is undergoing a moment of reckoning.
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Five, six, seven, eight and switch.
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Zara is widely
considered the creator of fast fashion.
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That was a label given to them
by the New York Times when they opened
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a Zara store in New York.
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Fashion is the ability for retailers
to respond to changing
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consumer trends and quickly
churn out goods with very short lead time.
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Trendy threads,
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which usually cost little enough
that it doesn't matter if you only wear it
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for a couple of lunches
or a single evening alone
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squatting on a stove.
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Some people
would say that H&M did the same thing.
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But given the size and the presence
globally of Zara, there's
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a lot of people who would argue that
they are definitely the ones who get the crown.
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It's for those
aspirational luxury shoppers
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who can't afford to buy top-tier brands
or even mid-tier brands.
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They are for the shoppers
who want to look stylish, look chic,
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but can't consistently afford
those higher price labels.
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Zara is one of several brands
owned by Inditex, the publicly traded
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parent company created by the tycoon
Amancio Ortega.
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At the end of September.
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It was valued at $183 billion,
with brands in more than 200 markets.
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But make no mistake, Zara runs the show.
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It's the brand that gives the name
recognition to Inditex as a whole.
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And when you look at the six top brands,
which is Zara, Massimo Dutti,
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Stradivarius, Oysho, Pull&Bear and Bershka.
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Zara represents about 70%
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of overall sales.
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And the company’s approach has changed the way we shop,
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in the last two decades,
clothing production has roughly doubled
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while the global population
has increased by 30%.
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In short, people are buying more clothes,
wearing them for shorter periods, then
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repeating the process with any of a
swelling number of businesses
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with devastating consequences
for the environment,
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which don't worry,
we're going to come back to.
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One thing
that's unique to the apparel industry
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is that it is extremely fragmented.
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Nowhere in the world
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will you find a huge company
that has a huge, huge market share.
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Everyone seems to have very,
very low market shares: 1%, 2%, 3%.
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And so there is space
for many big players.
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So what makes Zara different?
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First there's its unconventional approach
to marketing.
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There's no advertising basically.
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Definitely not traditional advertising.
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We think marketing is
under 1% of sales for Inditex,
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a typical fashion retailer
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you'd be looking at marketing
spend of somewhere between a low
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to mid-single digit proportion of sales,
so you know, materially higher.
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Over the years one thing that has helped
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is that the name has become popular,
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and you have high profile figures
who wear the brand.
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A clear example is the Queen of Spain,
who sometimes wears Zara.
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It’s interesting
given that it's not a luxury brand.
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And then there's Zara’s often bizarre
promotional imagery and product shots.
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They're trying to capture the feeling that
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a shopper gets when they try on a coat.
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It makes them perhaps feel snug and warm,
and they want to capture
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that through the more
editorialized photos on the website.
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Not yet,
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but, you know, there's always a first
for everything.
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The biggest difference
between Zara and its rivals,
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though, is its approach to logistics.
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Most sportswear companies
and apparel companies in the world
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have become, over the years,
extremely reliant on factories
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in Asia, Bangladesh,
Pakistan, Vietnam and China, among others.
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Zara has also started producing
over the years in those countries,
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but more than half of their production
comes from what they call proximity.
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That would be markets
closest to its headquarters.
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So Spain, its home
market, and here and here and here.
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And what that allows for is much more
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rapid distribution into stores.
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So we think about 80% of stores within
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Inditex can have a shipment
every 4 to 5 days.
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The second part of their
uniqueness and logistics
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is that everything they produce
gets shipped back
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to distribution plants in Spain,
like this one near Madrid.
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Every Zara item you've
ever worn once came here.
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Those products get repackaged
and then they get sent out
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to stores across the globe
based on the needs from those stores.
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This adaptability helps the brand navigate
a competitive retail landscape.
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Which brings us to stores.
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Take a look at this chart.
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While Inditex, along
with the rest of the industry, closed
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some during the pandemic,
the pace has now slowed.
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But look at the other line.
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This shows its retail floorspace
and that has started
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to rise,
meaning the stores are getting bigger.
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Part of the reason has been
because of the rise of e-commerce rivals
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like Shein and Temu,
has pushed Zara to essentially
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try and find different means
to distinguish itself.
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It's allowing customers to go in
and try their offerings,
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try on their clothes
and have more of a personal interaction
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with their products rather than just
viewing it online like a catalog.
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As to what makes it
onto hangers and rails,
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that's the function of another area
at Zara HQ: product store managers,
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each of whom are responsible for a small
number of units in a particular region.
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and what they are trying to do
is constantly understand in real time
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the trends that are coming out,
the demand that they're seeing,
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you know, what is popular.
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They're feeding back that information
and trying to synthesize
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what they see
as the global trends of the moment.
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That information is then being passed
on to the designers and to the buyers.
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They basically have about six weeks
from the moment they start
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designing a product till the moment
that product is in the store.
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This allows them to be very swift,
very agile, very nimble in how
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they produce and what they produce
that helps them adapt to fashion trends.
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It also helps them adapt
to weather changes.
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In 2024
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that last part was really important,
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at least to one of Zara's
biggest competitors, H&M.
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The Swedish retailer,
is blaming poor sales
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at the start of June, due to bad weather.
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If you look at the revenue
for both companies since Covid, you'll see
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Inditex has consistently outperformed
regardless of meteorological events.
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The biggest
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challenges for Zara
and the industry as a whole are twofold.
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The rise of Chinese fast-fashion
powerhouses and fast-fashion's
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devastating effect on the planet.
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What is beyond debate
is that these companies,
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like Shein and Temu, have made
inroads, especially in the US,
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and have changed the bar
of comparison for Zara.
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Zara now has to keep an eye on those,
because these are the other brands
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that are being installed and being seen
as the go to place for a lot of consumers,
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especially at the lower end
of the age groups.
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They have also changed the bar
for environmental impact, right?
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They're not public companies in the way.
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A publicly traded company like Zara or H&M is.
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And so they also have less
a responsibility towards
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stakeholders like investors
on their environmental practices.
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And that in a way
has changed the pressure
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that a company like Zara has.
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So fast fashion undoubtedly
has an impact on the environment.
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The raw materials are used in fast-fashion
are incredibly water intensive, energy intensive.
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Fashion is responsible
for 20% of the 300
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million tonnes of plastics
produced each year.
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In the time it's taken you to get to
this point of the video,
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look how many items of clothing
were thrown away or destroyed.
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In the US alone.
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This equates to 10,000,000,000kg of waste a year.
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Given the sheer volume
that is produced by retailers
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like Zara, it undoubtedly
will impact its environment.
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It's also been criticized as promoting
overconsumption and a culture of waste.
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So throwing away your clothes
after just a few uses.
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And one of the ways that retailers
are looking to push back
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against this negative
image is by creating all sorts of pledges.
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So Zara, for example, has pledged
to reach net zero
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emissions by 2040, and it's also
introduced a repair service.
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But the question is whether or not
that is enough to offset
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the sheer volume of clothes
that it churns out on a yearly basis.
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That's one of the key challenges
for Marta Ortega, who became
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Inditex’s non-executive
chairwoman in 2022.
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She's been central to
Zara's business strategy,
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specifically in its high end
initiatives and Zara Women.
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But to prosper and continue
her father's legacy in the company,
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she'll need to evolve her playbook
to address intensifying pressure,
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fueled in part
by the group's decades of success.
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For.
