Zara is different from competitors in that it uses a vertically integrated model for its company. Therefore, the firm controls most of the activities in the supply chain. For instance, Zara relies on “local Spanish sourcing for a large proportion of garment manufacture.” The combination of the local garment manufacturers with Zara’s over 200 designers in house leads to a flexibility unrivaled in the high-end clothing industry. Zara produces an astonishing 11,000 different styles—or almost five times as many styles as competitors produce. Yet, while “mass-designing,” Zara does not mass-produce. Instead, it produces a relatively small amount of each design. Therefore, customers understand that if they see a product in store in the first week of the month, it most likely will not be there at the end of the month. Not only does this almost force customers to buy the clothing they like immediately, it also compels them to come back to the store more often. Zara estimates that its customers visit its stores approximately 17 times a year to see the constant stream of new product, whereas these same customers may only visit Zara’s competitors 3-4 times a year. Because of the aforementioned flexibility, Zara can quickly react to customer demand. For instance, if a certain sweater is not selling well, Zara can quickly eliminate production on it without having a huge excess inventory. And not only can Zara take a smaller loss on unsuccessful products than its competitors, it also can quickly introduce a new style that hopefully will be more successful. For instance, as Hugo Alvarez Gallego, of the Inditex capital markets group says, “We were able to tilt the in-store inventory from equestrian themes to black within 2 weeks of the September 11 terrorist attacks. In the actual retail-stores, new styles come in several times a week, thus generating an unrivaled customer anticipation. One store manager in Barcelona says “[The customers] know when the trucks are expected at their local store so they can be the first to see the new merchandise.]

Competitive threats to Zara are most likely to come from retailers that outsource enough to provide lower prices for similar quality goods to Zara. Common sense dictates that the customer would buy the cheaper product. Yet, Zara gains its competitive edge by having so many more styles than its competitors. Therefore, a top competitor to Zara would need to develop a system that allows them to outsource as much as possible (therefore generating lower selling costs) while somehow generating a similar amount of styles to Zara. Also, Zara does not have many sales. Therefore, budget shoppers are less likely to choose Zara than other companies with similar quality products that happen to discount their styles 30-50 percent.

Zara’s approach to establishing its sourcing mix must be based on lowering production costs as much as possible while still maintaining the fluidity, flexibility, and high-end products that have defined Zara through the years. Therefore, Zara must maintain the same lead-time between design and production that separates it from its competitors. To do this, it almost seems that Zara would need to establish some design operations in Asia in order to produce the 11,000 styles a year that it currently does. At the same time, Zara needs to realize that in moving to Asia, it will lose some of the prestige associated with being a western European manufacturer. Therefore, if Zara does choose to outsource more to Asia, it must make sure that its reputation does not take a hit with its client-base (primarily fashion-forward people looking to buy top products.) Factual assumptions being made are that production is cheaper in Asia than it is in Europe and that lead time will increase if most manufacturing is moved to Asia.

Zara’s competitive advantage as being relative to the kinds of advantages pursued by other retailers is mainly in its flexibility and amount of different styles it produces. Therefore, Zara will take a smaller loss on unsuccessful products while having substantial gains on successful products. Also, because of the smaller amounts of each product being manufactured, Zara will lose less money in holding and overstock costs. This model is very sustainable if the brand holds its appeal among customers. Loyal customers will always buy if they continue to like the product as illustrated by the article “Zara Grows as Retail Rivals Struggle.” But if Zara loses its consumer appeal, then its business model is considerably less sustainable than its rivals because it is facing higher production costs while also selling at higher costs. Shoppers simply will not buy goods at a higher cost if they do not like the product.