Business is about doing what others do, better than they do it or doing something completely new. Get ahead. Improve what your competitors do or how they do it, and force them to adapt.
And that’s just what Amancio Ortega, the Spanish businessman behind the clothing line Zara, does. Ortega, 81, is currently the fifth wealthiest billionaire on earth, with a net worth in the region of $72 billion.
Since its establishment in Spain in 1975, the brand has now expanded to possession of more than two thousand stores around the world. The company now produces hundreds of millions of items every year, which generate billions of dollars.
So how do they achieve success? Zara thrives on a supply chain which ensures that its stores stock what consumers actually want and not just any clothes, and secondly, that the clothes get to the consumers faster than other competitors.
One major tactic is on-site production. A significant portion of Zara’s clothing is produced in the stores, instead of making them all in factories and transporting to the shops. Making all the clothes in factories and carting them to the shops will mean the shops have to slowly sell off what they have in stock regardless of what is in vogue. In-house production ensures that Zara can react quickly to consumers’ demands and enquiries and maintain greater control of their inventories.
High inventories are a worry to businesses. When you’ve spent money to buy or make products which are sitting in your stores, and people are not buying fast enough, it’s not a pleasant situation.
Closely tied to making the clothes in their stores, Zara does not produce all the clothes it expects to sell ahead of time. Keeping some of the clothes close to the end of the pipeline, but not actually made yet, enables them to respond to new fashion trends in the course of the year without putting pressure on their inventories. When a fashion trend breaks, they’re able to ride it without having to worry about
Another consequence of Zara’s strategy is that by avoiding the build-up of stock that is not in demand, the company is then able to avoid pressure to discount the prices of its clothing. There’s also some sort of a “shortage” created by this strategy which helps their prices.
Good businessmen know that you won’t last long if you go into business to do what everyone is doing already. How much can you make if you’re not very strategic? Amancio Ortega knows that. It’s one of the reasons why he’s sitting on $72 billion of wealth.