Zara: In the Fast Lane of Fashion

Zara: In the Fast Lane of Fashion

23 June 2023

Key Indicators

Index / Fund / Rate Start of Year Last week This Week % change YTD
Lunar BCI WW Flexible Fund 141.43 171.81 171.92 21.56%
JSE ALSI 73 049 78 532 74 403 1.85%
NASDAQ Composite 10 467 13 690 13 493 28.91%
S&P 500 3 840 4 410 4 348 13.24%
Prime Lending Rate 10,50% 11.75% 11.75% 11.90%
USD/ZAR 16,98 18.17 18.73 10.31%
EUR/ZAR 18,44 19.86 20.42 10.74%
Brent Crude ($’barrel) 85,95 75.62 74.45 -13.38%

Source: Iress

Weekly Stocktake with Danyaal

Zara: In the Fast Lane of Fashion

When it comes to fast fashion, Zara is undoubtedly one of the first names that springs to mind. Unlike many clothing companies and even other fast fashion brands, Zara, owned by Inditex (which is held by the Lunar Capital Offshore Portfolio Clients), operates at a rapid pace. They focus on the quick turnover of clothing cycles. The result is that Zara generally has new products on their shelves every few weeks.

How do they do it?

Vertical integration

Zara employs the vertical integration model. The company has ownership and control over a significant portion of its production, distribution, and retail operations. This approach grants Zara with a heightened level of authority within the supply chain. It enables them to effectively manage product quality and specifications; and bring their offerings to market at an accelerated pace. Notably, a substantial portion of Zara’s manufacturing operation is situated near their headquarters in Spain. This geographical proximity facilitates swift operations while also yielding cost savings by minimizing third-party shelf space expenses.

Limited Inventory

Zara maintains a deliberately low inventory level in their stores. By avoiding excess inventory, Zara avoids the need to sell products at discounted rates, safeguarding their profitability. Additionally, this strategy creates a sense of urgency among customers. Knowing that desired items may not be available during their next visit, customers feel compelled to make immediate purchases when they encounter products they like.

Fashion Shows, Influencers, and Customer Data

In the past, Zara traditionally dispatched teams to fashion shows to identify the upcoming trends for each season. They utilized this knowledge to develop their own products to sell. However, as social media rose, Zara shifted their focus towards monitoring influencer fashion choices and emerging trends. This transition provided them with a more profound understanding of current fashion movements. Zara leverage their rapid production process to have some of these new products available to sell within 5 weeks.

Furthermore, Zara collects valuable customer data from in-store purchases, enabling them to swiftly scale up production for popular items. Their streamlined inventory management practices minimized the financial impact of such adjustments.

The Other Side of Fast Fashion

Zara and other fast fashion retailers face valid scrutiny due to environmental and ethical concerns. Fast fashion heavily relies on resources like water, energy, and land, while also involving the use of hazardous chemicals. Additionally, there have been many cases of inadequate working conditions within the industry. These negative impacts can result in penalties and consumer aversion towards fast fashion companies like Zara.

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This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.
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