Sunday, December 23, 2012

The formula that continues to make Zara, the fashion apparel retailer, profitable.

by +Karan Girotra and +Serguei Netessine, December 5, 2012
With the Winter holiday shopping season, fashion apparel retailer Zara has been the focus of media attention — the New York Times recently profiled the innovative fast fashion business model pioneered by Zara, while Elizabeth Cline's book on the costs of fast fashion has climbed up the sales charts.
Despite this very recent popularity, the novel business model of Zara has gone virtually unnoticed for over 30 years, allowing Zara's parent company, Inditex, to grow from zero to almost $20B in revenues. Why wasn't it copied immediately? How can it be so sustainable and continue growing? The answer lies in a different type of innovation that Zara used: Business Model Innovation.
We have long been fans of the Zara business model. We have written about it and have been teaching it in the classroom for years. The model is designed to enable fast response to fashion trends, which allows Zara to ensure that its store shelves are always stocked with the trendiest clothes. While most of the recent attention on the Zara model has focused on what makes the model work — we continue to be amazed by the sustainability of the gains from the model.

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