Inspiration , hard work and vision
How zara killed its competitors in business : Imagine that you are born in a poor family where there is nothing to eat and drink and at the age of 14 you have to leave your studies and work but you do not give up, you keep going every step of the way. But you fight everything and move ahead, it takes years and years, but then one day when you open your eyes, you see that you have become the 12th richest man in the world. This is the story of a boy who, in his childhood, I had lost everything, but even after losing everything, he created such a company that no one could
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Can’t imagine Ancio Ortega Net Worth 73 Billion Dollars This is the story of Zara, the world’s biggest fast fashion brand. Do you know that today the profitability of brands is also only at 6, whereas the profitability of Zara is at 13.
Zara launches a new clothing collection every one to two weeks, which often goes out of stock within the next 15 days of its launch. And the funniest thing is that whatever clothes Zara sells, their quality is not even premium but still it is sold at such a high price.
Have you ever wondered why a 14 year old delivery boy does such a thing that today his company is ruling the entire fast fashion industry? And most importantly, what is the power business strategy that we can learn and implement in our business?
The backstory of founder
So this story starts in 1936 when Ancio Ortega is born in the house of a poor railway worker and due to this poverty, Ancio Ortega has to leave his studies at the age of 14. Because he had so many responsibilities at home that if he did not take up the responsibilities, people would not be able to even eat food at his house.
In his early days, Ancio Ortega started working as a delivery boy at a local tailor, where he got the job of delivering whatever clothes were ready to the customers. But he works so hard here that he is soon promoted to the post of an assistant, then after many years in 1960, Ancio Ortega reaches the post of a shop manager.
Now when he becomes manager, Ancio Ortega sees that many people come to his store who want to wear more expensive and more stylish clothes. But in reality, there were only a few people who could actually afford those clothes, then Ancio Ortega does in-depth research on this thing.
And while doing this they realize that all these expensive clothes are not of very high quality, people buy them by paying so much money because it is a kind of status symbol, it is fashionable. And they have a lot of variety of designs available, this was the reason that the companies that made them used to overcharge a lot for their clothes, from which Ancio Ortega gets a business idea. So let’s dive in and find How zara killed its competitors in business.
How zara killed its competitors in business
He thought that why don’t I also start providing similar expensive clothes to the people at reasonable prices, so that all the customers who can pay more will come to me. And for that, there is a city a little outside Spain, Barcelona, where they go there and buy very cheap fabric, after which they make it using cardboard patterns.
Just like premium brands make their designs, they started making clothes by making the same designs and as soon as it was time to sell these clothes, they used to go to local shops and sell these clothes by calling them premium. Then gradually, as his business grew, he opened his own factory by the name of Confessions Goa in 1963 and initially the clothes made in his factory were not sold under the name Zara but under the name Zorba.
The word Zorba was taken from a Greek movie Zorba the Greek released in 1964, but just a short distance away from his factory there used to be a beer bar named Zorba. So what started happening was that people started linking his company with beer bars, that is why Ancio Ortega changed the name of his brand from Zorba to Zara.
Now for the next 12 years, these people were making similar clothes, but in the year 1975, Ancio Ortega and his wife Rosalia Mera together opened their first Zara store. And this was the place from where Zara moved from manufacturing to retail business and in the next 10 years, Zara opened nine stores in major cities of Spain. ( How zara killed its competitors in business )
Now gradually people in Spain started considering Zara as a brand which makes very high-end clothes but sells them in a very mid size range, after which they started expanding Zara in other countries also. Then in the year 1985, Ancio opened a holding company named Itex. Now the year was 1989 and Zara had more than 100 stores in Spain alone.
The global expansion
At the same time, by 1990, Zara had also entered the rest of the neighboring countries of Spain like France and Portugal, after which they went to America, Mexico, Europe and all these countries and in the year 2010, Zara finally made its entry in the Asian continent.
And if you see today, Zara alone makes 66% of the revenue of its parent company Intex, but the question is, how did Zara achieve so much in such a short time, what did it do differently which other brands are not able to do? Look, the answer to this thing is hidden inside the business model of Zara.
Now see how this whole thing works, let us understand it in detail. If I explain it in a very simple way, then the business model canvas of Zara is mainly based on these three pillars. ( How zara killed its competitors in business )
3 Pillars of ZARA
- Fast fashion
- Customer centric approach
The first pillar is fast fashion. Now fast fashion means that as soon as any new trend comes, make designs according to it. Make many designs very quickly, even if you have to compromise a little in quality, but make them as quickly as possible.
And your product should first be ready and reach the hands of the customer. Today the whole world considers Zara as the father of fast fashion industry. Now this is because Zara is the company which gave birth to the concept of fast fashion and today Till now there has been no company that could beat Zara in this game.
It takes only one week for a Zara product from being designed to reaching the customer’s hand in the store, but the rest of the companies in the industry take 6 months to do this, but what difference does it make? So see, where Zara delivers more than 12000 designs in a year using this model, whereas another company is able to create only 2 to 4000 new designs in a year.
Now this young generation between the age of 18 to 34 years, this thing excites them a lot and especially affects the females. Today Zara’s 70 customers are mostly females. Men hardly go to Zara for shopping, but why is it so? Boys are also fond of clothes, we too are fond of shopping, then why is there such a big difference in the numbers?
So look, now if you are a boy then just try to remember the last time when it happened that you were sitting in your boy’s group and you guys talked about clothes. You have shown off each other over clothes. NEVER ?
But here in the group of girls, you often see that there is a lot of talk about clothes. In fact, it is very rare that a group of girls sits and there is no talk of clothes. Do you know why? The answer is that it is not an instrument of status for boys, but for girls, their clothes are a tool to showcase their status.
Now status here does not mean wealth or poverty, rather it means what is my personality. We all youngsters are not different from the people in our friend circle. We want to look a little different and we always like to show ourselves as modern and updated as possible.
Now whenever people go to Zara’s store, they find very new and very different designs here. Now the specialty here is that these designs which people are seeing are not just available in the market. just came for a while And this thing creates an image in people’s mind that if I have these clothes then I will automatically be different from everyone else.
I will be different because not everyone has this design and after some time this design will not be available in the market. Now see how these people take advantage of this thing. They come out with many designs. Seeing this, most of the customers often overbuy because they all feel that if they do not buy this design now, they will not get it later. ( How zara killed its competitors in business )
Now this is because Zara almost changes the entire collection of its store every one to two weeks and no stock from its old collection is given to the people, but here it is not so. Now see, because you know that Zara changes the collection of its store every one to two weeks, then whenever you get a chance, you will visit Zara’s store again and again.
Now you know that even if you don’t buy clothes, they will still earn some money from this activity. Let me tell you how these frequencies work. You will always see customers in Zara’s store, whether they buy something or come out without buying, it seems that people who are watching from outside, or those who are walking around their store, always see them like this.
That so many people have come here, then surely the clothes here will be amazing, then in this matter, those people also come inside to see and Zara has a huge collection. So people like something and buy it, so if you see here, Zara does not spend a single rupee to bring new customers. Still they got customers. Using this one technique, Zara makes and sells more than 45 crore products every year.
But have you ever wondered how it makes so many products in such a short time, from sourcing to designing, production and delivery, where other companies take months to do all these things?
How does Zara do all this in a week?
Second pillar of Zara’s business model CANVAS
So see, the secret of this thing is hidden inside the second pillar of Zara’s business model canvas, which is called The Cube. When Ancio Ortega used to work as a delivery boy at the age of 14, Since then, he started observing what are the things that increase the cost of a product from its design in the factory till it reaches the store.
So he saw that most of the money is spent in warehousing and distribution, so first of all it should be removed and then later in 1980, when he was expanding Zara globally, then he focused on the strategy.
And he said that from manufacturing to distribution, I will control everything so that speed and cost are controlled. ( How zara killed its competitors in business )
Now both the things are under my control, this is the entire distribution system of Zara, its base is The Cube, which is a highly automated distribution center spread over 50 lakh square feet. Whatever this thing is, it is inside the city of Texio in Spain, where Zara’s head quarters are also located. This thing, in a way, is the big brain of Zara, from where all the operations of Zara worldwide are done.
But there is a catch here that unlike other companies, Zara’s production does not start in the factory, but the first step in their production is the agents.
These agents are a type of fashion designers who are spread all over the world and these people themselves go to all the social gatherings, clubs and fashion shows and keep a very close eye on Instagram.
So that people can understand the taste of upcoming clothes in a better way, now as soon as they see any inspiring design or trend from all these places, they can immediately sketch it there. And send this to the fashion designers sitting on The Cube.
Then the designers sitting in the cube do proper brainstorming on it and see which fabric will be used to make the dress, how much will it cost and what should be its final price and most importantly, If we make this drug, how many people will buy it?
Level of production
Zara makes more than 40,000 designs every year using this method, in which after rejecting all the other designs, they are left with around 12,000 designs and these designs are then sent for further production. Now from here, once the designs are finalized, then comes the turn of fabric sourcing. Very few people know about it but the truth is that Zara uses only four to five types of fabrics in a year. ( How zara killed its competitors in business )
The purchase quantity of these fabrics is very high. Now the advantage of doing this is that when this quantity is purchased, then all this fabric is available from the supplier at a very cheap price. And the cost of production gets reduced considerably but here too there is a twist that they source the fabric neither this nor this. It is not of very high quality and never of very low quality, you will always get it of medium quality because Zara understands its customers very well.
Understanding customers need
Look, Zara understands that his customers do not want clothes that last for one or two years, rather they want clothes which they can comfortably wash 10 to 15 times and wear for a season and then discard it But now you must be thinking that if it uses medium quality fabric and saves money in manufacturing, then why does this company sell such expensive clothes ?
Now the fabric that this company uses in its clothes is sourced from cities like Mainly, Italy, Spain, Porch and Greece. Because this fabric is available very cheap in these countries and then from there this fabric reaches The Cube, after which Zara has 11 cloth factories for cutting and stitching this fabric.
Transportation of material and products
Now all these factories are located within a radius of 16 km from The Cube of Zara and all the factories are connected to this Cube through an underground tunnel and through mono rail. So as soon as the fabric reaches the cube, it is sent to the factories through monorails and as soon as the final product is ready in the factories, it is sent back to the cube through monorails. ( How zara killed its competitors in business )
Now after all this is done, all these products are sent to Zara’s logistics center named Zara Goose and this logistics center is located in the center of Spain. Once the product reaches here, it is transported through trucks and planes to all the Zara stores around the world.
Showcasing and sales
Now see the magic here. As soon as Zara’s products reach their stores, they are delivered directly to the shop floor. There is no need for inventory in Zara’s stores. The finished garment that comes in the truck goes directly on display in store and only a few three-four extra pieces are kept in the stock.
Now see, there are two reasons behind doing this, the first of which is Rob Stock.
Replenishment cycle means that as soon as the stock becomes empty, new stock is filled immediately, for which each store of Zara takes its deliveries twice in a week. ( How zara killed its competitors in business )
Now the second reason is the Illusion of Scarcity and Massive Inventory Turnover. See, if there is less stock in a store then there will be no need to bear the cost of inventory. Plus because the stock itself is so limited.
Scarcity of supply
So the customers always have this scarecity in their mind that this is very limited, it can end anytime, so I should buy it as soon as possible. What happens is that the speed of rotation of inventory increases a lot, it gets sold very quickly and suppose if a product is not sold for a week then it is not kept in the store after that and it is removed.
Cost of production
Now look here to understand a little detail, in Spain Zara has to pay its employees on hourly basis at 11 Euros but do you know how much this salary in Asia is only 0.80 Euros but despite this, just look at your total production. The one which is at 50 is done in Spain only and the rest at 26 is done in European countries and only at 24 in Asian continent and Africa.
Now you will ask why is this so, what is the benefit in this, then look, Zara does this because unlike other companies, it does not operate on Just in Case model but on Just in Time model.
Just in time is the famous production model, it makes it and then launches it in the market for sale, now due to this, the cost of inventory is reduced. ( How zara killed its competitors in business )
The cost increases a lot because first of all if you make the product then you will have to store it somewhere and after that if it is not sold then in that case all your money gets wasted.
But this is where Zara saves the cost of both manufacturing and inventory because Zara uses just in time model. Zara starts production only after receiving the order from its store.
And because these people are so fast in doing this thing, within a week the product is made and reaches that store.
It gets sold out quickly and in a second because the product itself is made which is in demand at the moment, so there is no cost to store that product, as soon as it reached the store it got sold out immediately.
So in such a situation, there is hardly any product of Zara which gets wasted, that is why even today, except for the Asian workers, their workers in Spain are paying 13 times more money to get their products made.
Because these people keep them ready for just in time production, but have you ever thought that Zara produces more than 12,000 designs in a year and sells clothes from around the world without any marketing?
Where do their customers come from to buy so many products? So to understand this, we have to understand the third pillar of Zara’s business model canvas and this pillar is called customer centric approach.
Customer centric approach
Look at the customer centric approach, other brands spend a lot of money to promote their products and their brands but do not spend much money. Rather, Zara actually spends money by choosing the location of its store. You will notice anytime that Zara’s store is always at a location where all the high and high profile customers are there.
In simple words, the interiors and exteriors of Zara’s stores are designed in a very luxurious style, just like other luxurious brands design their stores, meaning whether the clothes are premium or not. But the store itself should look very premium.
Due to which, the rich customers roaming around outside, seeing the store, feel that this brand is also a very premium brand like other brands. And they simply fall for the honey trap and goes to shop at zara’s. How zara killed its competitors in business
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