“Zara’s Vertical Integration Report”

(ZARA Official Website, 2021)

ZARA is the main brand of the Inditex group, in which the group operates in 1500 stores, mainly
in Europe. Zara’s success was founded in the Spanish home Society by Ortega. “Inditex has
grown steadily over the years more than 840 million garments were produced in 2019 through
6,300 different stores in 85 different countries. Due to the pandemic, 16% of the shops were
closed, which for a while was reaching 500 points per year”. (Statista, 2021)
Through Vertical Integration Zara possesses a high level of control in all its organizations, having
access and knowledge of everything that happens in different departments, where it achieves
modeling, production, delivery, display, promotion, sales, and feedback.
Flexibility shows Zara's ability to produce new trends and make quick and timely changes.
Furthermore, control and flexibility are what complement and create a Complementary of
Zara's business model where also Zara's ability, fashion, and speed to follow the latest trends is
an essential feature giving Zara a competitive advantage. Moreover, where the advantage they
enter control enables a particular advantage in its ability to create an efficient supply chain.
Zara attaches importance to the use of backward vertical integration as the feature of being fast
in the fashion market rather than in production efficiency, where dependence on the supplier
side was unacceptable by Zara and continues to this day achieving vertical integrity which helps
in integrating and dominating the company in order to control all the steps of the production
process with an innovative design with acceleration of productivity, resource allocation and
distribution of inventory. Innovative designs not unintentionally compared to other sellers of
the fashion market brings the latest trends in the market like expensive and affordable firms for
its customers focusing on the next season and has the ability to respond to fluctuations in the
current season.
Almost 40% of Zaras fabrics are produced by the company itself and more than half of its own
clothes instead of being supported by other manufacturers. Where most of its competitors
choose cheap labor from Asia, compared to them Zara produces most of its products in Europe
and obviously at a higher cost, but surrounding transportation costs in the Asian country, and
constitutes a feature that most vendors cannot copy.
Given that most of the production of products is done in Europe the cost reaches 17% to 20%
more expensive than production in Asia as Zara has a competitive advantage over its
competitors in terms of operations, as labor costs, lack of flexibility based on current trends
becomes an obstacle to their operational efficiency, and the high costs of inventories make it
impossible to be higher. Zara as we said above has a lasting advantage, having a low-cost
inventory is a favor in the production and sale of products at cheaper prices.
Spread to locations in central business districts in as many locations as possible, but without
lacking grandeur and luxury in its retail locations. Strategy to compete with luxury brands, Zara
is praised for the location strategy for the success achieved in this regard. "Zara's strategy is to
design high-end fashion from all of its retail locations and do so next to luxury brand
competitors" (Tough Nickel, 2021). For example, in Istanbul Zara "can be found a street away
from Cartier, Hermes and Chanel", three very expensive brands. (Suzy, 2012)
Being an Inditex (ZARA), where around 60% of the production is realized by the company itself,
it is very difficult for other competitors to copy the vertical integration strategy followed by
ZARA emphasizing that they would have to rebuild the company from scratch. Zara is able to
react quickly to the latest fashion trends and timely supply of customers in each season with
new feeds. Moreover, the quantity of production does not reach large quantities considering
the expectations and expectations of customers on the style brought in a certain season in this
way the losses are small and the losses through stocks are small. Also, through the vertical
integration strategy, the vertical supply chain constitutes a high cost, but in return allows the
advantage of low inventory and higher profit margins of the company.
Furthermore, Zara's advertising rates are low as no attention is paid to advertising, so it does
not advertise on its products, focusing more on opening its subsidiaries and expanding its
business in this way, investing in real estate in a magnificent but also selective way. By
functioning in this way their products cheaper than prestigious firms, offer customers the
feeling of buying a quality and prestigious product, both in terms of quality, design, and the
latest trends.
Although vertical integration is an advantage for the firm, in some cases it leads to the
impossibility of obtaining economies of scale, i.e., limitation in gaining the advantage of
producing large quantities of goods at a discounted rate, causing high costs.
As an expert in the supply of fast fashion chain, Zara is able to respond quickly to the demands
and needs of customers and also to the change in supply.
For more flexibility in its production directions, enable a high variety of items. High control in
the production process favors Zara in order to master its production stages. Its construction on
vertical integration has achieved control and flexibility, with a highly skilled workforce which
increases productivity.
(ZARA Official Website, 2021)
References:

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%20appearing%20on%20catwalks.> [Accessed 10 May 2021].
 Hansen, Suzy. "How Zara Grew into the World’s Largest Fashion Retailer. “The New York Times.
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 Inditex.com. 2021. Annual Reports - inditex.com. [online] Available at:
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 Statista. 2021. Number of Zara and Zara Home stores, by region worldwide 2020 | Statista.
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 ToughNickel. 2021. Zara's Business Operations and Strategy: How and Why They Worked.
[online] Available at: <https://toughnickel.com/industries/Business-Operations-of-Clothing-
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%20how%20it%20operates.> [Accessed 10 May 2021].
 Zara.com. 2021. ZARA Official Website. [online] Available at: <https://www.zara.com/>
[Accessed 10 May 2021].