Zara has 'the best business model in apparel' - and traditional retailers are scrambling
For the nine months ending in October, Inditex's net profits increased by 20%, Reuters reports.Inditex is so profitable that its founder has reaped the benefits. Amancio Ortega surpassed Warren Buffet to become the second richest man in the world. (He was the richest man in the world for a few minutes in October, Forbes reported.)
Zara rapidly churns out new styles that resemble those on the runway.The risk of trying to predict fashion trends a year in advance is weighing on the success of retailers like Gap, Abercrombie & Fitch, Ann Taylor, American Eagle, and others.
If these retailers have a "fashion miss," it means markdowns, which hurts profits.Zara's unconventional business model eliminates this risk. The company's strategy involves stocking very little and updating collections often. Instead of other brands that only update once a season, Zara restocks with new designs twice a week, reports Suzy Hansen at The New York Times.
Traditional retailers are scrambling to catch up. For instance, Gap is working to shorten the time between when products are designed and when they appear in stores. This process typically took six to nine months.
While there are other companies that operate in the fast fashion space - like Forever 21 - the competition doesn't have as steady as a grip on speed or quality as Zara does.
Zara "[tends] to be a little faster on the fast fashion in terms of interpreting trends that are on the runway or from much higher end designers," Liz Dunn, CEO of Talmage Advisors, said to Business Insider in an interview earlier this fall, referencing Forever 21. "Zara is very rapid at interpreting those trends and incorporating them.""So there's both the quality...and the interpretation of fashion," she said.
Analysts expect Inditex to continue to grow."We believe that Inditex has the best business model in apparel and expect Inditex to deliver double-digit earnings growth per year over the next five years," Bernstein analysts wrote, according to The Wall Street Journal.
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