Zara's business model

Go for a shopping trip to one of H&M's clothing stores and then compare with one of the shops of the Spanish chain Zara. You won't notice a hell of a difference between their business model. But there is!

Zara, which is owned by Inditex, distinguishes itself by a number of clever business model building blocks that reinforce each other. At its heart the company is building on a vertically integrated demand and supply chain, while most other textile chains rely on outsourcing and cheap labour in China. Zara studies its customers demand in the stores and tries to instantely deliver. This allows them to have a particularly appealing value proposition: A collection that is in line with the very latest fashion. The Economist, for example, writes: "When Madonna gave a series of concerts in Spain, teenage girls were able to sport at her last performance the outfit she wore for her first concert, thanks to Zara". It takes the company only 5 weeks (!) to come up with a new garment from design to delivery and only 2 weeks for an existing model.

Of course this business model design reaching from customer demand all the way to design and production has been refined to its best. Zara's shops use Information Technology to report directly to its production centers and designers in Spain. Shop managers use PDAs to check on the latest clothes designs and place their orders in accordance with the demand they observe in their stores. Thus, they directly contribute to a streamlined fashion collection of the entire company.

I believe one of the strongest differentiators of Zara's business model is its closeness to its customers and its ability to transform this into a trendy value proposition... Other fashion chains simply can't follow this speed.