"Zara: A Global Success Story" By Kenneth A. Fox, MBA

http://gbr.pepperdine.edu/blog/2011/12/15/4396/ 

Zara, the flagship retail unit of Spanish parent, Inditex SA, represents a remarkable retail success story. The company now has over 1,500 stores in 81 countries. Zara offers mostly unique women’s stylish clothing and accessories at reasonable prices. The chain was started in Spain in 1975 and has never used advertising to promote its stores or goods. Instead it spends on prime locations for its stores.
The most amazing thing about Zara is their vertical integration and ability to design and launch a new fashion item quickly. They use their store staffs to identify fashion trends and styles that sell well. In turn, Zara designs, produces, and ships new fashions to its stores in limited quantities. They typically dispatch new styles to their stores twice a week.
Zara’s success concentrates on three winning aspects:

1. Short lead times=more fashionable clothes
2. Lower quantities=scarce supply
3. More styles=more choice, and more chances of hitting it right

Zara launches approximately 12,000 new designs a year. Counter to industry trends, the company does not outsource production to low cost countries but instead uses labor from Spain and other European countries for at least 80 percent of its production. There is an excitement when you walk into a Zara retail stores. Their fashions are unique. One sees styles not seen in other department or specialty clothing stores.
Zara can move from identifying a trend to having clothes in stores within 30 days. This represents offering fashions when they are “hot,” yielding higher sales and margins. Zara has a large design team in Northwest Spain that works exclusively in identifying the latest styles and trends and converting these ideas into new fashion items. Zara limits the availability of each style, which often makes it more desirable. A fashion seen one week may not appear in the store the next week. Reorders are rare and in-store stocks look fresh every three to four days.
Zara owns its own manufacturing facilities, mostly in Spain. It has the latest equipment for fabric dyeing and processing, cutting and garment finishing. This allows Zara to have processing capacity available “on demand.” It does outsource the labor-intensive process of garment stitching to a network of subcontracted workshops in Spain and Portugal.
An invaluable resource is the store managers and staff members who send orders and provide intelligence on styles that sell to Zara headquarters in Spain. They utilize handheld computers to send information on what they hear and see from customers. Zara uses state-of-the art distribution systems. Approximately 2,000 kilometers of underground tracks move merchandise from Zara’s manufacturing plants to 400+ chutes that ensure each order reaches its proper destination. Optical scanning devices sort and distribute more than 60,000 items of clothing an hour.
Zara seems to deliver fashions when they are hot, often at much lower prices than comparable designer brands. They also sell men’s clothing and accessories.
I did not know that Zara offered a “Home Store” until I recently shopped one in Turin, Italy. This line extension now has 284 stores globally, but currently none are in the U.S. The Home Store felt different than other comparable “home stores,” extending Zara’s unique atmospherics.
The Zara clothing stores are in most major markets; even in Chengdu, China, where I  taught during the first quarter of 2011. This interesting retailer also benefits from its parent company (Inditex SA), which manufacturers other clothing lines, under brand names such as: Massimo Dutti, Berska, Oysho, Pull & Bear, Stradivarius, Tempe, and Uterque.
Sources:
1. The Secrets of Zara Success, The Telegraph (UK), June 22, 2011
2. Case Study: retail @ the speed of fashion, by Devangshu Dutta, 2002
3. Inditex, Wikipedia