Zara: How can you thrive in a declining industry?

In Europe, textile industry has been considered for decades as a declining industry, mostly because of price competition. But in his book A Manager’s Guide to Disruptive Innovation, Philippe Silberzahn, analyses the example of Zara and shows that a disruptive business model can help a company thrive even in an industry considered as doomed:

« Zara was founded in Spain in 1963 and its sales revenue has now reached 5 billion euros. Not bad for a young company in a sector in continuous crisis for the last 20 years. What is Zara’s secret? In short, responsiveness and implementation of an incredibly sophisticated supply chain to create what The Economistcalls “fast fashion”, similar to fast food. Everything is based on close monitoring of trends and the expectations of customers in its different stores. The idea is to react immediately to any changes, and to ensure the renewal of permanent collections, not every six months for the winter and the summer as is traditionally done in the industry, but every week! Thus, a customer can frequently return to the store and each time can see a different collection.

The implementation of this system requires a complete integration of operations, from design (Zara employs 300 designers) to manufacturing, (largely entrusted to a myriad of small subcontractors in Galicia). This approach is interesting: only by having nearby manufacturing centers can the company be so reactive. Offshoring in Asia would lower costs but would require substantial lengthening of the delay, which is in direct contradiction to the economic concept. Zara creates small series to avoid unsold goods (disastrous in this sector) and it targets having zero inventory. The keys are speed and agility. The stores themselves are fully computerized, allowing the head office to monitor real-time sales and to react quickly.

Zara illustrates that, thanks to innovation, it is possible to remain competitive or even be the leader in sectors said to be in crisis. Zara also illustrates that there is no mature sector, there is no sector that is in natural decline, and nothing is inevitable. Innovation, in the case of Zara, is not technological. This is not a case of creating high fashion, or more sophisticated fashion. Zara’s innovation revolves around its process and its business model, which is to offer its customers clothing that, is fashionable and cheap. In short, Zara mastered a good economic concept backed by an original organization and a perfect implementation. »

We usually link innovation with technology but this example shows that innovation can also consist in renewing a worn out business model, in finding new ways to create value. Maybe you consider your industry as declining or your market as saturated. Your first impulse was to look for any technical innovation or new services to add to your current offer. But what about re-thinking the core of your business model before it is too late?

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