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In theory, taking a view on what we will all be wearing is exactly the job of a fashion company. The very best create a new product or aesthetic that consumers didn’t even know they wanted. Inditex’s Zara has built its success on being a fashion taker, rather than a fashion maker.
The Spanish giant, which owns brands such as Massimo Dutti, Bershka and Oysho alongside Zara, is a standout in the retail sector. It is powering its way through a choppy consumer environment, with a 10.6 per cent increase in November sales, which drove the stock up 9 per cent on Wednesday.
And this follows years of consistent delivery. At €6.3bn, its earnings this year are expected to be 3.5 times those it made in 2010, according to S&P Capital IQ. Swedish rival H&M’s, meanwhile, have fallen by roughly 50 per cent in the same 15-year period, as it has struggled to compete with the rock-bottom prices of Chinese rivals Shein and Temu.
Zara’s secret sauce is its supplier network. About 45 per cent of what it sells is made in Europe or nearby regions, according to Bernstein research. H&M “farshores” much of its production from Asia. The result is that Zara is able to turn its products around from conception to the rack in about six weeks, while for H&M, this lead time is about six months.
This has two benefits. For one thing, it means Zara has to take little or no fashion risk. It can largely react to the trends that fashion companies showcase on the runway, and what flies off its own shelves in stores.
Unsuccessful products are only given two weeks of shelf life before they get replaced. The group doesn’t even employ a single creative director to take a forward view, but rather relies on a network of designers to draw its products. H&M, meanwhile, has to take a six-month bet on where Scandi minimalism may be heading.
Secondly, newness doesn’t just mean higher sales and lower end-of-season markdowns. It also gives Zara a certain pricing power. If consumers see something they like, they have an incentive to buy it. That, along with the perception of quality from its supplier network, helped it climb the premiumisation ladder and dodge the fast-fashion scramble that did for H&M.
Zara, it turns out, is always in style because it never insists on being any one style at all. That may be the only fashion philosophy built to last.