Fast fashion companies, such as H&M and Zara, often produce apparel inspired by the latest fashion trends, taking inspiration from both fashion shows, as well as from the consumption patterns of its customers. As mentioned in our previous blog post (here, if you haven't seen it), fast fashion retailers need to be able to produce and then put 'new' designs up for sale in stores in an extremely quick timeframe which is known as 'quick response' manufacturing. Different companies employ different strategies in order to do this, but in this post, we will be focusing on Zara's business model which involves vertical integration of its production process.
What is vertical integration?
In essence, vertical integration refers to the fact that several components of Zara's supply chain are directly controlled by Zara. This means that they manufacture their clothes in-house which allows for lower lead times, allowing newly designed clothing to hit the shelves in their many retail outlets with minimal delay. Furthermore, once inspected, new clothes arrive at all stores worldwide within 48 hours due to the retailer's investment into software to optimise their logistics systems.
Additionally, Zara gains the following benefits by controlling most of their supply chain:
Lower transaction costs than if Zara outsources production to other companies.
Flexibility in canceling orders of clothing that did not sell as well as expected.
Removes uncertainties involved when dealing with external parties.
A Zara factory in Spain (Source)
Quick Response Manufacturing
By leveraging on its vertically integrated supply chain, Zara can be flexible in increasing production of apparel that is selling well, while removing underperforming ones. This enables Zara to respond quickly to the the ever changing trends in fashion. Furthermore, Zara makes use of data from their retail outlets to determine what consumers want and changes production accordingly. In order to do this, Zara often reserves up to 85% of its production capacity for in-season changes.
If a style doesn't sell well within a week, it is withdrawn from shops, further orders are cancelled and a new design is pursued. - The Guardian
These factors combined enable Zara to constantly adapt to new trends and restock stores often, allowing shoppers to see new merchandise every time they visit which increases foot traffic and hence profits for Zara.
What's next?
In the next few posts, we'll be exploring how fast fashion companies like Zara are contributing to the unbelievable amount of waste and pollution that is damaging not only the Earth, but human health as well. We hope to see you there!
Yours truly,
Brem
Sources:
Tokatli, Nebahat. "Global Sourcing: Insights from the Global Clothing Industry—the Case of Zara, a Fast Fashion Retailer."Journal of Economic Geography8, no. 1 (2008): 21-38. Accessed June 29, 2020. www.jstor.org/stable/26161238.
Friedman, Thomas.The World is Flat (2006). New York: Farrar, Straus, and Giroux. p. 154.
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