Economics George Tokatli

Journal of Economic Geography 8 (2008) pp. 2138 doi:10.1093/jeg/lbm035Advance Access Published on 23 October 2007

Global sourcing: insights from the global clothingindustrythe case of Zara, a fast fashion retailerNebahat Tokatli*

AbstractUntil recently, Zara, a major international clothing retailer and pioneer of fast fashionprinciples, kept almost half of its production in Spain and Portugal, earning thereputation of being one of the exceptions to globalization. Since the 1980s, theexistence of such exceptions has been fueling an expectation that the production ofhigh-quality fashion garments and tailored suits would remain in the industrialized core.Here I revisit this expectation in the light of the current seminal change in the culture offashion from ready-to-wear to fast fashion, and report that the increased variety andfashionability associated with fast fashion, represented by Zara, have tilted the balanceof competitive advantage towards, rather than away from, firms in partiallyindustrialized countries. As a number of supplier firms in countries such as Morocco,India and Turkey have gained the competence to manufacture intricately worked high-quality garments with the required flexibility and speed, Zara has turned to sourcingfrom these countries. It appears that instead of Zara changing the geography of jobs,the geography of competencies and jobs has changed Zara.

Keywords: clothing retailers, supply chains, global sourcing, fast fashion, ZaraJEL classifications: F23, D21, L14, L25, L67

Date submitted: 22 November 2006 Date accepted: 17 September 2007

1. Introduction

International retailers of clothing are believed to be the key drivers of the globalizationof the clothing industry (Gereffi, 2005a). They fuel globalization via global sourcing,thereby contributing to the flight of manufacturing jobs from the West. However, in theliterature, the variety of ways in which retailers are becoming involved in globalsourcing has not yet been thoroughly explored. Berger (2005) observes a real diversityamong the companies trying to survive and prosper in different industries, but thesubject has not received sufficient attention specifically with regard to the clothingretailersespecially when compared with, for example, the recent attention given to thesupply chain dynamics of food and general merchandise retailers (see Coe and Wrigley,2007; Dawson, 2007 and the other articles of the recent special issue of this journalentitled Transnational Retail, Supply Networks and the Global Economy). In thisarticle, I consider the extent to which Zara, a major international clothing retailer andpioneer of fast fashion principles, provides evidence concerning the variety of waysin which retailers source globally. The findings are somewhat contradictory. On the

*Milano the New School for Management and Urban Policy, The New School University, New York,NY 10011, [email protected]

The Author (2007). Published by Oxford University Press. All rights reserved. For Permissions, please email: [email protected]

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one hand, Zara, as part of a group called Industria de Diseno Textil (Inditex) that has17 manufacturing subsidiaries in La Caruna and Barcelona, looks relatively uniquewhen compared with many other fast fashion retailers that do not own manufacturingfacilities and instead network with suppliersmostly located in partially industrializedcountries. On the other hand, the supply lines of Zaras production chain now extendinto many such countriesfrom Morocco to Vietnam, a development which providesstrong evidence for the effects on the retailer of what Berger (2005) calls the cross-fertilization of business practices. As a result, Zara is now less of an exception toglobalizationa reputation that the retailer gained as a result of its business model,which some believed had the potential to shape the future geography of jobs(Newsweek, 2001, 36; see also New Yorker, 2000 and Christian Science Monitor, 2001).

This last point is important because the exceptions to globalization in the clothingindustry (the Italian Benetton being another) have been fueling an expectation, since the1980s, that the production of high-quality fashion garments and tailored suits wouldremain in the industrialized core. Here I revisit this expectation in the light of thecurrent seminal change in the culture of fashion from haute couture and ready-to-wearto fast fashion, and report that the increased variety and fashionability associated withfast fashion, represented by Zara, have tilted the balance of competitive advantagetowards, rather than away from, firms in partially industrialized countries.1 Morespecifically, I explain how, as supplier firms in countries such as India, Morocco andTurkey have gained the competence to manufacture intricately worked high-qualitygarments with the required flexibility and at high speeds (competencies even includingdesign capabilities as suppliers have learned how to prepare collectionssee Tewari,2006 and Tokatli and Kzlgun, 2008, in press), Zara has turned to sourcing from thesecountries. It appears that instead of Zara changing the geography of jobs, thegeography of competencies and jobs has changed Zara.

2. The change in the culture of fashion from haute couture andready-to-wear to fast fashion

Even though clothing retailers in the industrialized core have favored a strategy ofincreased variety and fashionability since the 1980s, fast fashion principles haverecently reinforced that strategy even further. This is a consequential development,essentially because the production presuppositions (such as lead times, minimumproduction runs and rhythms) associated with fast fashion are different from thoseassociated with haute couture or designer ready-to-wear (Reinach, 2005; Dunford,2006). Fast fashion dictates that retailers have five fingers touching the factory and fivefingers touching the customer (the founder of Zara cited in Ferdows et al., 2004).Unlike the retailers of haute couture and ready-to-wear, fast fashion retailers do notdirectly invest in design but instead are inspired by the most attractive and promising

1 The concept of fast fashion is centrally related to the quick response considerations of retailers whoseemergence was traced by Abernathy et al. (1999, 2006) to the mid-1980s. However, the quick responsedemands were then essentially only revolving around replenishment dynamics. There are differencesbetween the quick response considerations revolving around replenishment dynamics and the quickresponse considerations driven by fast fashion dynamics (where there is low or no replenishment). For afurther discussion of these differences and their theoretical and policy implications, see Tokatli andKzlgun (2008, in press).

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trends spotted at fashion shows and by cues taken from mainstream consumers (Agins,1999; Reinach, 2005). They then transform these trends into products that can be puton the market almost immediately, freeing themselves and the consumers from theseasonal collection trap, and in the process changing the conditions surroundingproduction (Reinach, 2005, 48).

Fast fashion requires that, first, the retailers have rapidly increasing numbers ofstores worldwidepreferably directly owned and operated outlets in secure countriesand franchised outlets in risky onesso that they can reach more and more customersaround the globe. Second, there is the need to connect customers demand with theupstream operations of design, procurement, production and distribution. This meansthe development of an information infrastructure with highly responsive communica-tion channels to ascertain better transfer of hard data and anecdotal information fromtrend setters/spotters and customers to designers and production staff. Third, fastfashion requires short development cycles, rapid prototyping, small batches and varietyso that customers are offered the latest designs in limited quantities that ensure a sort ofexclusivity. Fourth, a very fast and highly responsive supply chain (a super-responsiveor rapid-fire supply chain) is needed to make certain that deliveries are sufficientlyfrequent (Ferdows et al., 2004; Reinach, 2005, 49; Dunford, 2006). Finally, becausemost fast fashion retailers are publicly traded companies and their success is nowmeasured by stock performance, they are increasingly under pressure to perform wellon the stock markets. All this means that retailers channel significant parts of theirinvestments and creativity into the construction of information infrastructures and ofshort, tight [and innovative] supply chains that are flexible and fundamentallycollaborative, and worry constantly about their stock market performance (DAvanzoet al., 2004; Reinach, 2005).

There is now a race between a significant number of fast fashion retailers to increasethe number of their stores while maximizing the speed, synchronicity and responsive-ness of their supply chains. The Spanish Zara, the Swedish Hennes & Mauritz (H&M)and the US-based Gap now have around 1000, 1400 and 3000 stores, respectively. TheItalian Benetton retails its garments through over 5000 franchised stores. These, andmany others such as the Spanish Mango, the American Anthropologie and Forever 21and the British Topshop, focus their energies on judging tens of thousands of newdesigns every year, making smart selections, turning them into marketable productswith remarkable speed and sending them to their stores almost immediately (DAvanzoet al., 2004; Reinach, 2005). Shipping fewer pieces, in a great variety of styles, moreoften requires shorter lead times and high-level flexibility. As a consequence of offeringfewer pieces more often, fast fashion retailers collect larger percentages of the full priceand thus achieve higher net margins on sales. By doing so, they also replace values suchas exclusivity, glamour, originality, luxury and life style, which were once the fulcrumof . . . fashion, with the values of trend, massclusivity and planned spontaneity(Reinach, 2005; Trendwatching.com, 2006).

Maximizing the speed, synchronicity and responsiveness of the supply chain involvesmaintaining a rhythm of flexibility, whereby budget interpretations of catwalk styles arewhisk[ed] into . . . stores with breathtaking speed (Tungate, 2005, 50). The idea is tobeat the high-fashion houses and ready-to-wear designers to the market (Ferdows et al.,2004). This requires greater integration of the supply chain, a development which hasalready had profound implications for the structure and geography of the clothingindustry, the distribution of value-added along the chain and the nature of the power

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relationships (Dunford, 2006). There are now implications for cities as well: for

example, New Yorks Fifth Avenue, once home to haute couture and designer stores

such as Gucci, Prada, Versace and Ferragamo is now becoming a street of fast fashion.2

3. Fast fashion retailers: some with factories, some without

Fast fashion retailers can be divided into two categories: while some are retailers, in the

true sense of the term, with no manufacturing competencies of their own (represented

by Gap, H&M and Mango), others (represented by Benetton and Zara) are retailers

with factories. Retailers without factories obviously do not manufacture their own

clothes, but instead outsource them to other firms and increasingly to firms from

partially industrialized countries. Thus, they are the key drivers of the globalization of

the clothing industry (Gereffi, 2005a). They fuel globalization via global sourcing,

thereby contributing to the flight of manufacturing jobs from the West. For example,

H&M has 21 production offices (10 each in Europe and Asia, another in Africa) with a

total of more than 700 employees who are responsible for liaising with around 750

factories, 60% of which are in Asia, the rest being in Europe (Tungate, 2005, 46).

Another example is the US-based retailer Liz Claiborne which in 1999, sourced 93% of

its products from full-packaged manufacturers in a large number of partially

industrialized countries, ranging from Turkey to China (Collins, 2003, 119).On the other hand, at least until very recently, retailers with factories have been

credited with keeping jobs in the West. For example, in the 1990s, the Italian Benetton

was seen as something of a home-sewn exception to globalization, and, during

20002001, the Spanish Zara also rose to prominence as an exception (Christian Science

Monitor, 2001). At a time when most retailers were outsourcing the bulk of their

manufacturing to partially industrialized countries, where labor is significantly cheaper,

Benetton and Zara, with their manufacturing facilities in Italy and Spain, respectively,

were considered to be flout[ing] much of the conventional wisdom regarding the global

economy (New Yorker, 2000, 74). As retailers with factories, they were defying the

supposedly inexorable force of globalization . . . demonstrating that market flexibility

and lean inventories may be more important than cheap labor, an insight that just

might reverse the long exodus of manufacturing jobs from the West (Newsweek,

2001, 36). This was regarded as evidence for the claim that succeeding in the world of

global competition was still a matter of choices, not a matter of searching for the unique

best way; and that faced with similar challenges, firms could still thrive or fail in

different ways (Berger, 2005). But to what extent do retailers with factories, such as

Benetton and Zara, contribute to reversing the balance of competitive advantages,

which has been tilting towards firms in partially industrialized countries? Before

considering this question in more detail, I will first explore the assumptions behind

the idea of this reversal in the light of the changing geography of the clothing industry,

and explain the extent to which these assumptions now seem less plausible.

2 See, for example, The new face of fifth: populist movement hits luxe street of retailers (WWD, 2004). Theretailers behind this movement are Abercrombie & Fitch, Zara, H&M, Liz Claiborne, Gap, BananaRepublic, Club Monaco and possibly Mango and American Eagle Outfitters. See also The New YorkTimes (2005).

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4. The changing geography of the clothing industry

While it may now seem an implausible idea, in the 1980s many students of the clothingindustry assumed that the expertise necessary for high-quality items, such as fashiongarments and tailored suits, was possessed only by US and European firms andworkers. Therefore, it was believed that countries outside the United States and Europewould grow their production volume in medium- and low-quality items, while high-quality fashion items (especially those retaining many of the elements of tailoring)would remain in the USA or Europe (Waldinger, 1986; Zeitlin and Totterdill, 1989;Agins, 1999). In countries outside the USA and Europe, even the managers (not tomention the workers) were thought to be disadvantaged because they had neverpurchased high-quality garments themselves and consequently did not know how theyshould look or feel (Abend, 2001 cited in Collins, 2004).

Supposedly, only firms in London, New York, Paris and Milan had the expertisenecessary to provide the design input and flexibility for high-end fashion items (Green,1997, 2). Also, it was assumed that firms in partially industrialized countries had longlead times, minimum production runs that were too large and poor quality control(Waldinger, 1986; Zeitlin and Totterdill, 1989). Moreover, even though fabricatingtechnologies in clothing were notoriously archaic and remain[ed] essentially atthe rudimentary level of such simple mechanical devices as the cutting knife andsewing machine (Scott, 1984, 4), partially industrialized countries were a little tootechnologically backward; and it was not clear how they could improve. Newlyemerging technologies (such as sophisticated computer-aided design systems) wereprobably too expensive for firms from these countries, as they were for small firms incities such as London (Zeitlin and Totterdill, 1989).

Therefore, when it was noticed in the late 1980s that retailers were changing theirstrategy towards increased variety and fashionability across a number of marketsegments, this was considered a new and potentially favorable opportunity for firms inthe industrialized core (Zeitlin and Totterdill, 1989,156). Some observers wonderedwhether this might reverse the industrial decline in the USA and Europe (Zeitlin andTotterdill, 1989). However, as retailers expanded their demand for better-quality, morefashionable garments, the balance of competitive advantage continued to tilt towards,rather than away from, low-wage suppliers in the partially industrialized countries. Thiswas basically due to two developments. First, especially in the 1990s, more and morefirms from countries such as China, Morocco and Turkey acquired (with the help oftechnological developments which made possible the production of a variety of styles inshorter runs) the competence to manufacture intricately worked, high-quality garmentswith the required production flexibility. This became painfully obvious with theproliferation of counterfeit versions of luxury goods, manufactured by Chinese andother partially industrialized country firms, that were, at least to an untrained eye,indistinguishable from the originals. Since then, the idea that the expertise necessary forhigh-quality items is possessed only by US and European firms and workers havebecome even more antiquated: some fakes are now called super fakesitems identicalto originals in quality (Tungate, 2005, 207).

Retailers are now increasingly noticing that countries such as India and Turkey areexactly where quality is to be found, because of the availability of a large supply ofhighly skilled tailors, who have only recently been pushed out of business by largecompanies. For example, see The Wall Street Journal (2005) for an example of how a


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US manufacturer of mens suits looks for these tailors in Turkey and employs them inits Tennessee factory. In fact, the increasing competencies of suppliers in unlikelycountries, especially indicated by the involvement of these suppliers in design, have nowbeen acknowledged by others. For example, Bair (2006, 2237) has recently stated thatfull-package manufacturers occasionally contribute to . . . the design of a particulargarment. Similarly, Gereffi (2005b) has recounted a change in the definition of fullpackage production in the Laguna region of Mexico, where some jeans-manufacturingfirms have started to depend on their own teams of designers. Also, in a recent article,Tewari (2006, 2325) observes the striking emergence of design as a source ofcomparative advantage in the Indian clothing industry.

Second, in the last five to six years, there has been a transformation in the consumermarket that put [f]ashion back in fashion (The Guardian, 2003). The new fashionculture with its emphasis on trends, copying and speed is tilting the balance ofcompetitive advantage with respect to high-end products even further towards countriessuch as Morocco, India and Turkey.

There may have been a time when fashion was constructed like a pyramid, with haute couture

at the apex, designer ready-to-wear just below, challenger brands in the middle, and a big slab

of mass retail at the base. This is no longer the case today . . .Consumers . . . rather than being

content to stay in their allotted sectors, scurry promiscuously from one to the other (Tungate,2005).

On the one hand, Chanel, Dior, Gucci and other haute couture or ready-to-weardesigner brands have weathered the storm of the 1990s, which caused Agins (1999) towrite that fashion was finished: in fact, sales of these luxury brands have surged since20022003. On the other hand, H&M, Zara and Mango all doubled their sales between1998 and the end of 2002, despite slowing growth in the market (the market researcherMintel cited in Tungate, 2005). This is partly because consumers are now told to projectthe message that they are intelligent people, in charge of their own imagenot dazzledby marketing. This requires paying for a designer item, and then seeing no shame inadding a trendy but inexpensive item from a fast fashion retailer, and completing themwith yet another item, say, from a young designer. This trend is supposed to turnconsumers into their own stylists and end the era of slavish brand worship.3 Partlybecause of this, fast fashion is now gradually winning over consumers of all ages andbuying power throughout Europe, as indicated by the fact that fast fashion salesincreased by more than 45% between 2001 and 2005, compared with a market averageof 3% (Reinach, 2005, 55; analysts at Fashion Trak cited in The Observer, 2005).

Partially industrialized countries enter the picture of fast fashion not only asmanufacturing sites but also as important markets. For some time, Hong Kong has beenconsidered the most important emerging market for fashion brandsfast or not. Thenthere are also Brazil, Russia, India and China (designated by the acronym BRIC) whichrepresent fashion industrys juiciest targets. China especially, with a population of 1.3

3 In the words of the marketing director of H&M, [y]ou can dress from head to toe in Gucci if you like that proves youre rich, but it doesnt prove you have taste. Its more imaginative to wear your Gucci withsome H&M. Thats why Vogue readers are among our most loyal clients (Tungate, 2005, 45). Similarly, inthe words of the chairman and chief executive officer of Abercrombie & Fitch: The way people buyfashion has changed. Theyll buy a Gucci jacket and Abercrombie & Fitch jeans. Thats why we thinkwere the perfect fit for Fifth Avenue. (WWD, 2004).

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billion and an ever-growing middle class, makes retailers pulses quicken and their palmssweat (Tungate, 2005, 198). Pierre Cardin organized its first fashion show in Beijing in1993. Hugo Boss opened its first store in China in 1994 and now has more than 60 outletsthere (Tungate, 2005), while Ermenegildo Zegna has over 30 sales points (mostly whollyowned and some franchised) with a turnover of around $25 million in 2001 (Verga, 2003cited in Reinach, 2005). Benetton, Ferragamo, MaxMara, Furla, Prada, Armani, BrunoMagli, Gucci and Versace also have stores in China (Reinach, 2005).

These countries quicken pulses as manufacturing sites as well. The Italians havebeen setting up production networks in the Jiangsu and Zhejiand provinces of China forthe last 30 years. More interestingly, according to Reinach (2005), several of the mostprestigious made in Italy brands are, in reality, entirely manufactured in China. Chinahas already mastered copying in an extremely subtle and competent manner (Reinach,2005). The same is true for Turkey that gained experience in copying thanks to theillegal trade opportunities with Russia that followed the dissolution of the Soviet Unionin 1991 [and approached an annual volume of US $10 billion in the mid-1990s](Yukseker, 2007; Tokatli and Kzlgun, 2004).

Mastering the development of trends is still difficult, but the firms from thesecountries are working hard towards this goal. Chinese companies whose core businesshad been manufacturing others brands have started setting up their own brands(in what is sometimes called parallel production), examples of which includeElegant.Prosper [one word] and Li-Ning, Nikes greatest rival in China, which sells$200 million of sports shoes a year (Reinach, 2005; Tungate, 2005). There are also ahandful of Turkish firms which have set up their own brands (Tokatli and Kzlgun,2004).4 According to Reinach (2005, 48), once the Chinese firms master trend spotting,the game will be over.

Recently, more and more students of the industry have been discussing this questionof when the game will be over. This is interesting because as recently as the 1990s, theexpectations (looking from the perspective of Europe and the USA) were much moreoptimistic. The following case study of Zara should help us understand why thisoptimism is now fading.

5. Zara and fast fashion

Zaras first store was opened in 1975 in La Caruna, Spain and the chain grew steadilythroughout the 1980s. In 1985, the retailer was reorganized as part of a group calledIndustria de Diseno Textil (Inditex), and in 1988 opened a store in Porto, Portugal. Thiswas followed by store openings in New York and Paris in 1989 and 1990, respectively.

In the 1980s, taking advantage of its position as a relative latecomer to the market,Zara was able to harness the latest information technology without having to scrape oldtechnologies. For old companies such as Gap and H&M, heavy capital investmentis one consideration, but implementation of a new information system while thebusiness is running on the old one is probably a more important issue (Lo et al., 2004).

4 For partially industrialized country firms, manufacturing own brands (at least for the domestic market)simultaneously with manufacturing on order for others is now so common that the term CM (contractmanufacturer) needs to be re-defined [see Tewari (2006) for the Indian case]. Berger (2005) still gives thefollowing definition: a company that manufactures on order for a lead or brand firm but has no brands ofits own (xiii).


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During this period, retailers and brand-owners from Germany, France and Britain hadalready outsourced production to cheaper countries and some had even paid costs aspioneers. It had become clear that what mattered was not just labor costs but ratherunit labor costs. For example, when Ermenegildo Zegna (Zegna), the Italian retailer ofmens tailored suits, opened a factory in Greece in 1975, this turned out to be a mistake:

We believed that Greece with its very low labor cost would provide . . . advantages . . .But wehit many problems, the main one being that during harvest times the women working in the

factory just walked out and we literally had no workers for weeks! We realized that this just

would not work and that we had to be realistic and cut our losses. After two years we closed

the operations. (Angelo Zegna cited in Schwass, 2000).5

In the 1980s, the unit labor costs in Spain and Portugal were low enoughand, infact, stayed so until recently. For example, as recently as 2001, Forbes Magazine wrotethat Zaras Spanish and Portuguese suppliers were employing some 11,000 gray-economy workers (mothers, grandmothers and teenage girls looking to supplementtheir household incomes in the hardscrabble towns and villages of Galicia and northernPortugal) and warned about a possible EU crack down on Europes informaleconomies.6 Also, Zara and other similar Spanish businesses such as Mango wereforced early on into vertical integration, that is control of production, distribution andsales, because the existing channels to Spanish consumers were insufficient and arecession had left many wholesalers bankrupt (International Herald Tribune, 2005). Wedeveloped late, and that was an advantage . . .Now you have more action in Spainbecause of a local assembly line that works and concepts that are less stale than the restof the EU (a Spanish marketer cited in International Herald Tribune, 2005, 9).

While Inditex adopted a multi-brand approach by developing other brands (includingPull and Bear) and purchasing shares in others (such as Massimo Dutti), Zara remainedthe flagship brand. The secret of Zaras appeal was that, although shopping at Zara wasrelatively inexpensive, it did not feel cheap. Zara stores were large, swish and centrallylocated, the clothes as well as customers were given room to breathe, and garmentswere presented as if they were upscale (Tungate, 2005, 50; International Herald Tribune,2005). In this regard, there is a visible difference between the stores of H&M and Zara,with Zaras stores actually resembling the upper scale stores of Esprit (Germany) andClub Monaco (owned by the US-based Polo Ralph Lauren). In fact, some observerscannot even see a difference between a Zara and an Armani window (InternationalHerald Tribune, 2005).

Zara sold [and continues to sell] trendy items that could be mixed with expensive,classic pieces. This worked especially well after 2001 when, as I explained earlier,fashion magazines started discouraging consumers from being decked from head to toein clothes from the same source, and instead encouraged them to buy designer, fastfashion, and vintage items all at once and throw them together in a style that wasuniquely personal (Tungate, 2005, 228).

Zara stores with their upscale air are refitted every four or five years with specialattention to facades, interiors and window displays (a press officer of Inditex cited

5 Ermenegildo Zegna now has manufacturing facilities in Turkey.6 See http://www.forbes.com/global/2001/0528/024, 56.

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in Tungate, 2005, 51). Full-size store windows set up in the Inditex headquartersbuilding, complete with display platforms with variable lighting, show what Zarasactual store windows all around the world would look like at night and on dim daysand bright (Forbes.com, 2001). Actual window presentations are exactly like thepresentations created in La Caruna, but different Zara stores in different cities stillmanage not to stock precisely the same products. The clothes are supposed to encourageindividuality and reflect the profile of specific groups of customers at specific places.

More importantly, Zara is whisking budget interpretations of catwalk styles into itsstores with breathtaking speed (Tungate, 2005, 50). A designer dress photographed ona model during fashion week does not arrive in department stores for monthsbutsomething very like it can be spotted hanging in Zara in a couple of weeks (Tungate,2005). This infuriates the designers, not only for the obvious reasons but also becausechampioning individuality in this way seems, in practice, to be encouraginghomogeneity in fashion: While all fashion is to some extent derivative to start with,fast fashion retailers take this to a different level as they ignore the differences betweenthe designer collections, concentrate on the similarities and select only the mostmarketable trends before go[ing] off and cop[ying] them (Financial Times, 2004).In the process, they receive help from fashion journalists, who also prefer to ignore thedifferences between designers and concentrate on similarities, as they look for themesand the chance to say that this seasons look is . . . (Financial Times, 2004). Moreimportantly, what infuriates designers delights customers who cannot afford theoriginals, or no longer see the point of trying (Tungate, 2005).7

Styles, colors, fabricswe dont guess any of these things. We are a business catering todemand, and weve never made any secret of that. But we need to know what the trends are, so

we follow them through magazines, fashion shows, movies and city streets. We use trend-

trackers and forecasting companies. We keep our eyes open (a press officer of Inditex cited in

Tungate, 2005, 52).

Spotting trends and copying the whim of the day are now easier thanks to digitalphotography and websites such as Firstview.com that post photos of new coutureminutes after being shown on the catwalk to be downloaded by subscribed members(Financial Times, 2004; International Herald Tribune, 2005).

In the 1990s, long-term sales forecasts were already becoming difficultone musicvideo was sometimes enough to generate a sudden wave of fashion. Thus, instead ofinvesting in influencing trends and forecasting sales, Zara invested in, first, aninformation infrastructure with highly responsive communication channels, andsecond, a short, tight, flexible and innovative supply chain, that some called therapid- fire supply chain or the vertically-integrated dash (Ferdows et al., 2004; TheObserver, 2005; tdctrade.com, 2001).

Trend spotters constantly traveled the world or surfed the Internet in search oftrends and ideas, and Zaras store managers instantly sent customer feedback viahandheld devices, keeping Zaras in-house designers abreast of fast-changing trends.Stores were not only sales points but also Zaras eyes and ears [I]f enough shoppers

7 The French organization representing haute couture and ready to wear designers has for sometime beencalling for a crackdown to stop the designers fall and spring collections being imitated by fast fashionretailers and presented in shops within days of fashion shows (Financial Times, 2004).


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ask[ed] for a top or shirt in coral rather than the available turquoise, Zara [could] oftenhave that color in stores in less than two weeks (tdctrade.com). The tight andinnovative supply chain made this possible and helped Zara cull less desirablemerchandise.8 After receiving real time information, Zaras 200 plus designers were ableto decide on the designs very quickly, finalize the choice of fabrics, and send out dyedand cut fabrics for sewing and finishing to 400 near-by suppliers in Spain and Portugal,where labor costs were lowest in Europe.

By means of this process, Zara was able to judge almost 30,000 designs each year, fromwhich 11,000 items (in five to six colors and 57 sizes) were selected (which translatedinto 1216 collections), dwarfing the traditional fall and spring collections of highfashion designers. In fact, Zaras performance eclipsed those of other fast fashionretailers (for example, H&M and Gap introduced 2,0004,000 new items each year).Moreover, Zara did so with a three- to six-week lead time and with costs that weremarkedly lower than those of its competitors. This was despite the fact that, in 2001,Zara spent 15%more to produce garments in Spain and Portugal than its rivals spent inChina, mainly due to labor costs. Relatively higher labor costs were clearly more thancompensated for by reduced advertising and inventory costs (0.3% of Zaras costs weredue to advertising as opposed to 34% of traditional retailers) and by shorter lead times(Ferdows et al., 2004; Newsweek, 2001). Shorter lead times led to more accurate short-term forecasts about what and how much would sell. As a rule of thumb, marketersbelieve that by reducing the lead time by half, the forecasting error is reduced by roughlythe same amount (Stalk and Hout, 1990 cited in Lo et al., 2004). Short lead times notonly dealt with inventory obsolescence, thereby lowering sale mark-downs, but alsomade possible the postponement of fabric dying, ultimately contributing to larger profitmargins.9 Shorter lead times also enabled Zara to deliver new items to stores twice aweek, a rate of delivery which might have been common in the grocery business,but . . .was unheard of in fashion retailing (New Yorker, 2000, 74; Ferdows et al.,2004).10 Store managers in Spain and southern Europe placed orders twice weekly, by3:00 pm Wednesday and 6:00 pm Saturday. The rest of Zaras stores did the same by3:00 pm Tuesday and 6:00 pm Friday, and received shipments twice a week. Twice-weekly deliveries made Zara as much as 12 times faster than the competition and thus apioneer for the fast fashion idea (Newsweek, 2001, 36).11

8 One innovation being the acquisition of fabrics via its own buying office in Beijing in only four colorsand postponing dying and printing until close to manufacture at Zaras own facilities in Spain.

9 Zara is reported to collect 85% of the full ticket price while the industry average is 6070 %.10 Receiving and displaying new clothing items twice a week is still impressive today, even though there are

now many other fast fashion retailers in the market. For example, the stores of the US-basedAnthropologie (a Philadelphia-based retailer with other brands called Urban Outfitters and Free People)receive and display new clothing items every day of the week except for the weekend. (This informationwas provided to me by an Anthropologie manager in New York in April 2006. A few days later, a salesperson confirmed that shipments were indeed received every morning during weekdays: you should seewhat a mad house the store becomes every single morning before we open the doors to customers.)Similarly, the German Esprit (originally from San Francisco) considers over 20,000 designs a year beforeselecting the most marketable ones, a number not as large as that of Zara perhaps but comparable.

11 The Swedish H&M has already taken the idea of fast fashion to the next level: disposable fashionthepractice of selling low-quality versions of the latest designs (so that some of the items become ripped ascustomers try them on) somehow manages to make H&M even more profitable than Zara. The BBCcredits journalist Hilary Alexander for the phrase disposable fashion. This was also my independentobservation when, one afternoon in April 2006, I entered an H&M store in midtown Manhattan: the firstdress I touched was already ripped at the shoulder.

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Behind the unusually quick rate of delivery was Zaras centralized distribution center,where products were inspected and immediately shipped in accordance with time zonesusing a logistics system whose software was designed by the companys own teams. Thetime between receiving an order at the distribution center and the delivery of the goodsto the store was, on average, 24 hours for European shops and a maximum of 48 hoursfor American and Asian stores. Moreover, Zara shipments were 98.9% accurate withless than 0.5% shrinkage, partly due to the practice of having all items prepriced andtagged. Also, most items were shipped hung on racks so that store managers could putthem on display the moment they were delivered, without having to first iron them(Ferdows et al., 2004).

Zaras practises of sending a half-empty truck across Europe, paying for airfreighttwice a week to ship coats on hangers to Japan, or running factories for only one shiftwent against the usual principles of efficiency, but Zaras management clearly valuedglobal responsiveness more than efficiency (Ferdows et al., 2004). This strict rhythmmade Zara stores look endlessly fresh and original. Here, the primary objective was notonly to cater to demand as soon as it appeared but also to stimulate it by constantlydelivering new styles or teasing the customer (a director at Adolfo Dominquez cited inInternational Herald Tribune, 2005, 9). In addition, Zaras runs were limited and itsinventories were strictly controlled. This created a climate of scarcity, the message beingthat if you dont buy it now, you will lose your opportunity. This message enabledZara to sell more items at full price. For example, in 2000, it was reported that theinventories-to-sales ratio was 7 for Zara, and 12 and 14 for its competitors H&M andGap, respectively (The Economist, 2001).

6. The changing sourcing strategies of Zara

In the early 2000s, Zara received unusual press coverage partly because of thecompanys rapid expansion into international markets and partly because of its uniquebusiness model which ostensibly prevented the retailer from becoming entangled in aplethora of different suppliers (Sunday Business, 2002, 1). It was reported that Zarabought 40% of its fabric from another Inditex firm Comditel (Inditex accounted foralmost 90% of Comditels total sales); and manufactured complicated productsin-house (tolerating lower capacity utilization if necessary) and outsourced the simpleones such as sweaters in classic colors (Ferdows et al., 2004). By keeping some of itsproduction capabilities in Spain, Zara was also less subject to the criticism of exploitinglow-cost labor in emerging economies (Quelch cited in Newsweek, 2001). The decisionmakers of Zara believed that it made sense to produce closer, not cheaper: Even if yousave a couple of bucks an hour by shipping the stuff off to the Third World, you end uppaying more in the end, because it destroys your flexibility (a management consultantcited in New Yorker, 2000, 74). By producing closer, Zara could quickly cancel lines thatdid not sell, and avoid the inventory backlogs and clearance sales that were a regulardrain on the profit of rivals, particularly in seasons of imminent recession (Newsweek,2001, 36). Zaras approach excited those who believed that while the pressures ofglobalization forced virtually all actors to transform their activities, they did notnecessarily dictate a single best way of doing business. Zara demonstrated that theremay be a real diversity of successful approaches to decisions about outsourcing andpeeling of manufacturing (Berger, 2005). Some even expected Zara to defy the


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inexorable force of globalization, and reverse the long exodus of manufacturing jobs

from the West (Newsweek, 2001, 36).In retrospect, it is possible to argue that Zara, regarded as a possible exception, was

less impressive than it initially appeared in the early 2000s. This was not just because

only approximately half of the garments sold at Zara stores were actually manufactured

at home (either in Inditexs own vertically integrated facilities in Galicia in northwestern

Spain or by a large number of near-by suppliers located in Spain and Portugal12), but

also because this practice was not necessarily a moral stance (a company spokesman

cited in Christian Science Monitor, 2001, 8). The decision makers of Zara were simply

following a business model which required Zara to take only a few weeks to

manufacture clothes so that frequent deliveries to stores became a possibility.

Moreover, producing closer not cheaper, was possible partly because the Galician

and Portuguese labor force was cheap enough: the Spanish and Portuguese suppliers

employed seamstresses who received something less than half the average industrial

wage, maybe $500 a month, according to a Forbes Magazine estimate, if they were

lucky; and nobody knew whether or not these suppliers paid the social security

premiums and taxes to the state.13

It is possible that Zaras reputation of being somewhat exceptional played a role in

the unusually successful initial public offering of stock by Inditex in May 2001, which

followed the widespread positive press and analyst coverage during 2000 and 2001. By

the time of the initial public offering, Zaras growth and international expansion were

already impressive: By 2001, Zara stores were already available in 40 countries, with

52% of its sales being abroad.14 (Zaras parent company Inditex entered into one or

two countries a year between 1992 and 1997 and at least four countries a year between

1997 and 2001.) The global expansion of the firm accelerated even further after Zara

became a publicly traded companythe further expansion probably had something to

do with the pressure of having to maintain steady and predictable growth for its

shareholders.15 In fact, eight months after the initial public offering, and soon after the

press started reporting that the multiple Spanish public stock listings demanded greater

urgency for growth, the chief executive officer of Inditex announced in New York that

Zaras percentage of global sourcing would grow, initially to 60%, to take advantage of

partially industrialized countries, principally China (Fraiman et al., 2002). The group

set up three low profile companies in Hong Kong (Inditex Asia, Vastgoet Asia,

and Zara Asia) with a strategy that encompasses buying and intelligence gathering,

12 One source reports that as early as 2000, 56% of production of Inditex was done externally, not inhouse53% of which being in Asia, in countries neighboring Europe and rest of the world (Fraimanet al., 2002).

13 See http://www.forbes.com/global/2001/0528/024, 4.14 The order of the first 40 countries is interesting (Cyprus was entered long before Italy, Mexico was

entered long before Switzerland). The following is the order of country entries after Spain, Portugal,USA and France: Mexico (1992), Greece (1993), Belgium and Sweden (1994), Malta (1995), Cyprus(1996), Norway, Turkey, Japan and Israel (1997), Argentina, UK, Venezuela, Lebanon, United ArabEmirates and Kuwait (1998), The Netherlands, Germany, Poland, Saudi Arabia, Bahrain, Canada,Brazil, Chile and Uruguay (1999), Andorra, Qatar, Austria and Denmark (2000) and Puerto Rico,Jordan, Eire, Iceland, Luxemburg, Czech Republic and Italy (2001). Zara stores are mostly owned byInditex and only franchised in risky countries.

15 Because I have no inside information concerning the circumstances which surrounded the companysIPO decision in 2001 [partly because, as Newsweek (2001) puts it, Inditex is a secretive company], I needto point out the somewhat speculative nature of my interpretation here.

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and also signed an agreement with a Hong Kong garment supply agency called Bigi,

which basically meant that designs would originate in Japan, South Korea, Malaysia,

Indonesia and the IndoChinese peninsula with manufacturing on the Chinese

mainland (cited in tdctrade.com, 2001). [S]uits from the Asian and especially China

markets [were already] the most appreciated among Spanish shoppers (tdctrade.com,

2001). We do not know whether the Forbes Magazines warning about a possible crack-

down of EU bureaucrats on Europes informal economies played a role in these

changing sourcing strategies; but it is likely that it did.The retailer now has more than 1000 stores in 64 countries, the latest store opening in

Guatemala in 2007. The total number of stores belonging to the parent company

Inditex is currently 3200 in 65 countries, with Zara contributing the largest number

followed by three other Inditex brands (Push and Bear, Massimo Dutti and Bershka).16

By 2009, Inditex expects to open an additional 1500 new shops, a rhythm of more than

one a day, and to invest $250 million to bolster its distribution centers (International

Herald Tribune, 2005, 9).However, Zaras rate of growth worries some analysts: a few years ago, a warm fall

season and some fashion misses led to disappointing sales and lower profit margins,

harming Inditexs share price (Financial Times, 2005a, 2005b). A new distribution

center at Zaragoza, in central Spain, had problems with logistics software. For a

company that prides itself on the seamless flow of information, the mistakes were a

reality check (Financial Times, 2005a, 2005b). Meanwhile, the International Herald

Tribune (2005, 9) wrote that stock turnover has slowed in recent years in Inditex,

probably because of the expansion of non-Zara brands and the increased proportion of

goods produced in Asia. Credit Suisse First Boston downgraded Inditex to under-

perform from neutral as a rise in costs outstripped growth in sales. It is faster fashion,

not quite fast fashion. I cant overstate how complicated it is to open a store a day

(an analyst at Credit Suisse first Boston cited in International Herald Tribune, 2005, 9).In 2006, the reports on the company were mixed. On the one hand, it was reported

that Zaras sales reached $5.6 billion in 2005 with the third-quarter gross margins

reaching 58.3% compared with an average of around 50% for US specialty retailers

(Daily News Record, 2006). On the other hand, a 30-year Inditex executive, someone

who was closely identified with the creation of the global brand Zara, resigned

unexpectedly, and Inditex has replaced its heads of IT systems, human resources,

communications and investors relations. The new team insists that the Inditex business

model is scalable and will not lose its fast-fashion reflexes when it stocks 5,000 stores

around the globe.17 Some of the indicators are positive: for example, Inditex shares

recently gained 1.04 Euros to 31.44 after the group gave a positive outlook for 2006

16 The countries that were added after 2001 are El Salvador, Finland, Dominican Republic, Singapore andSwitzerland (2002), Russia, Malaysia, Slovenia and Slovakia (2003), Hong Kong, Morocco, Estonia,Latvia, Hungary, Romania, Lithuania and Panama (2004), Costa Rica and Indonesia (2005) and China,Serbia, Sweden and Tunisia (2006). Inditexs other brands included Pull and Bear (since 1991), MassimoDutti (since 1991), Bershka (since 1998), Stradivarius (since 1999), Oysho (2001), Zara Home (2003) andKiddys Class (whose name was changed to Skhuaban in 2006 before the brand was launched in Greece).Inditexs first South Korean store will be opened by the end of the current financial year through a jointventure with the local retail giant Lotte (see Inditexs web site as well as various articles in Forbes.com).

17 The latest financial information about Inditex include 6.74 billion Euros revenue in 2006, 11.86% netprofit margins, 15.99% operating margins, 18.08% return on average assets, 29.52% return on averagingequity, and 59,793 employees (source: Forbes.com, 2006).


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(more bullish than its peer H&M) following its 2005 results (see Forbes.com, 2006).However, some observers are skeptical: the question of whether it will be trickier tocater for instant fashion whims, as Inditex moves further from home, is now beingopenly asked. In fact, some wonder how many more million dollars Zara will makebefore getting into the cemetery of European retailers (International Herald Tribune,2005, 9). Behind this concern is the idea that Zara was until recently unusuallyprofitable because of the success of its managers at not only adjusting to quixoticconsumer demands but also at resisting management fads and ever-shifting industrypractices (Ferdows et al., 2004, 107). In the words of a Spanish managementconsultant, Zara did not achieve its success by imitating the business practices of othersuccessful retailers, but rather by being contrarian to industry norms (cited in just-style.com, 2004). This quality seems now to be fading.

According to Inditex, in 2006, 64% of the groups production was carried out inEurope and neighboring countries, while 34% was carried out in Asia (Inditex PressDossier on the web, 2007). Products with a greater fashion component weremanufactured in the groups own factories18 or by suppliers whose processes aresignificantly integrated with the groups dynamics (Inditex Annual Report, 2005, 18).It is not clear how many of the external suppliers of Inditex (over 1000) are consideredsignificantly integrated with the group or where these suppliers are located.Information specifically related to Zara is even scarcer. China seems to account for12.5% of Zaras production, less than that of its rivals perhaps (including the otherexception to globalization: Benetton19), but still considerable for a firm with thereputation of being an anomaly to globalization (The Economist, 2005). Today Zarastores are full of garments made in India, Pakistan, Bangladesh, Sri Lanka andIndonesia. And, the supply chains of Zara also include Morocco, Bulgaria, Lithuaniaand Turkey.20

The literature contains no information on the partially industrialized countrysuppliers of Zara; and our knowledge is also limited. In August 2006, during fieldresearch in which we were interviewing Turkish suppliers of the British Marks andSpencer (M&S), we met a Turkish manufacturer of childrens jeans, trousers and skirts,30% of whose production is devoted to Zara. According to this manufacturer, Zara, alow-price buyer, which insists on short lead-times (34 weeks) but is more tolerant thanother European buyers about justifiable delays and quality problems, works with 2030

18 Inditexs 2005 Annual Report lists 17 manufacturing subsidiaries (mostly textile-design and finishingoperations with some in-house apparel production) in Spain and one manufacturing subsidiary inLithuania.

19 In 2002, Benetton still procured 70% of its production in Italy, 30% of which was made in-house(Berger, 2005). Three years later, in 2005, Benetton opened an office in Hong Kong partly in order tomonitor the Chinese suppliers upon which it increasingly relied (The Economist, 2006, 73).

20 On an afternoon in April 2006, I checked many labels in a New York Zara store which had threedepartments: Basic, Womans and Mens. The manager told me that new shipments were displayed everyTuesday and Friday. The pieces made in Spain and Portugal did not constitute the majority of thegarments in the store. In fact, the most elegant and relatively more expensive ($129$149, as opposed toZaras usual $59$79 range) womens garments (silk and linen jackets and dresses) were all made inMorocco. There were also denim garments from Turkey, leather jackets from Pakistan and embroideredgarments from India, Indonesia, Sri Lanka and China. In the mens department, there were suits fromTurkey, Portugal, Morocco, and Lithuania, shirts from these countries as well as Romania and Brazil,knitted sweaters from Bulgaria and swimwear from Morocco. The sales person who offered me help wassurprised to see the Made in Bulgaria label on a knitted sweater: after reading the label, he quicklyexplained thats Europe maam, and then added the brand is Spanish, you know that.

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agent firms in Turkey that mediate between the buyer and its hundreds of Turkishcontractors and sub-contractors. The manufacturer reports that they visit Zara in Spainevery 34 weeks presenting collections of 2030 items each time and, upon receivingorders, manufacture for Zara with the understanding that second-quality items will alsobe bought by Zara to be sold at Zaras Lefties store.

The fact that Zaras supply chains now extend to Turkey and similar countries hasreceived almost no attention in the literature, partly because of the manner in whichInditex, Zaras parent company, presents its information. The groups web-page isvague about what is meant by Europe and its neighboring countries, whichpresumably includes Morocco, Turkey and the Eastern and Central Europeancountries. The companys desire to appear committed to Europes manufacturingbase is clear, but this commitment is now becoming less convincing. Consider, forexample, the following: In April 2005, 79 workers were killed when a Bangladeshigarment factory collapsed . . . [bodies were found] in a grave of fragmented concrete,crushed bobbins, childrens red pullovers ordered by the Spanish textile chain Zara . . .(Spiegel Magazine, 2005). Similarly, see the Financial Times (2006) article on VietnamsVinatex whose buyers not only include Nike, Liz Claiborne and M&S but also Zara.In fact, it is somewhat surprising that the retailer is still known for manufacturing alarge proportion of its garments in its own factories in Spain (Berger, 2005, 49theitalics are mine).21

7. Conclusion

This investigation of Zara, a major international clothing retailer and pioneer of fastfashion principles, has resulted in somewhat contradictory findings. On the one hand,Zara, as part of a group called Industria de Diseno Textil (Inditex), which has 17manufacturing subsidiaries in La Caruna and Barcelona, indeed still looks relativelyunique when compared with many other fast fashion retailers, which do not ownmanufacturing facilities and instead network with suppliersmostly located in partiallyindustrialized countries. On the other hand, the supply lines of Zaras production chainnow extend into many such countriesfrom Morocco to Vietnam, a developmentwhich provides strong evidence for the effects on the retailer of what Berger (2005) callsthe cross-fertilization of business practices. As a result, Zara is now less of anexception to globalizationa reputation that the retailer gained as a result of itsbusiness model, which some believed had the potential to shape the future geographyof jobs.

Today even the complicated and highly tailored fast fashion items of Zara aresourced from firms in close-by Morocco, Bulgaria and Turkey, and the relativelyfaster items from firms in far away places such as China, Sri Lanka, India, Pakistan,Vietnam and Indonesia. What still differentiates Zara from other fast fashion retailers isits relatively small dependency on China. But even this might be changing thanks toInditexs recently established purchasing subsidiaries, Inditex Asia in Hong Kong andZara Asia in China.

21 The idea also lingers in popular and less scholarly outlets. For example, the popular Internet siteWikipedia introduces Inditex as the group [which] designs and manufactures almost everything by itself (see http://wikicompany.org/wiki/Inditex).


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In this article, I have called special attention to the fact that firms in countries such asIndia, Morocco and Turkey are now perfectly capable of manufacturing high-qualityand tailored clothes with the flexibility required by Zara; and argued that Zara issourcing from these countries partly because of the increasing competencies in thesecountries. How plausible is this argument? Those who consider the change in Zarasstrategy to be a standard exercise in the new international division of labor, followingFrobel et al.s (1980) conceptualization, will not necessarily include this increasingcompetence as a factor in their analysis, along with falling unit labor costs anddecreasing tariffs, transportation and transaction costs. On the other hand, others suchas Scott (2006, 1520) who find Frobels conceptualization too rigid and describe globalgeographic space as something very much more than just a division between two[or three] broad developmental realms will be more willing to add the factor ofcompetency to the other cost-related factors. Scott (2006, 1533) has already observedsurprising levels of performance in some countries as they push industrial upgradingprocesses forward. Examples include India where suppliers are able to contribute todesignnot only in preparing samples and prototypes, but also in translating conceptsinto varieties of finished designs, as well as introducing designs of their own inconsultation with the buyer (Tewari, 2006, 2326); as well as Turkey where a supplierhas recently redefined full-package manufacturing to include not only the procurementof the fabrics but also the preparation of collections (cited in Tokatli and Kzlgun,2008, in press). This article, together with Tewari (2006) and Tokatli and Kzlgun(2008, in press), supports Scotts (2006) position concerning the increasing importancein the global economy of socially and politically constructed competitive advantages(including firm competencies), and also further undermines the expectation that themanufacturing of high-quality fashion items (especially those retaining many ofthe elements of tailoring) can remain in the USA or Europe.

Acknowledgements

I am grateful to Robert Beauregard, Susan Christopherson, Neil Wrigley and Henry Yeung whoread an earlier version of this article and made many helpful comments. I am also grateful toOmur Kzlgun, who kept Zara in mind when she was interviewing a number of Turkishsuppliers, during 20042006, for a larger project partially financed by the Scientific and TechnicalResearch Council of Turkey (TUB_ITAK).

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