Hi everybody! Zara is by far one of the greatest brands in the fashion industry and it is so hard to believe that a venture that was started by a school dropout has now become so huge that it employs more than 100,000 people and has more than 2,000 stores spread across 80 countries. And the most fascinating thing about Zara is that it had not incurred a loss since 19 years until the pandemic showed up. The question is What is so special about Zara and what exactly are the core philosophies of this company that turned it into such a dominating force in the fashion industry and most importantly, what are the business lessons that we need to learn from this extraordinary company?
This is a story that dates back to late 1950s Spain when 14-year-old Amancio Ortega dropped out of school and found a job at a local shirt maker store in order to support his family. And for the next 10 years, he worked at multiple jobs at the garment business starting from being an assistant to the tailor all the way up to delivering clothes directly to the customers. And during these 10 years of experience, Amancio Ortega made three very very important observations that went on to change the fashion industry forever. And even today, Zara operates on the basis of the same lessons.
The question is, what are these observations and what was so special about those lessons? that they turned this ordinary boy into one of the richest people on the planet. The first thing Amanci Ortega understood is that all human beings depending on whichever age group they belong to they put in extra money and they put in extra efforts onto something called the instruments of status. In simple words, when we were kids, especially the 90s kids we would go the extra mile just to get a Shakala Ka Boom Boom pencil or to get a MRF bat or even the Benton watch. And whoever had these instruments of status was considered to be a cool kid.
And as we grew up, smartphones became an instrument of status. And if somebody has an iPhone, it suddenly gave you this slight impression that he or she is rich. So at every age, we have our own instruments of status. And just like that, Mr. Amancio understood that the most important instrument of status among women between the age group of 20 to 34 were nothing but the clothes that they wore.
Secondly, he also understood that along with these instruments of status, human beings also have critical parameters that define the value of those status instruments. For example, nobody cared how well the Shakalaka Bum Bum pencil actually wrote. In fact, most of those pencils did not even write properly.
Similarly, nobody cared about the quality of the wood that the MRF bat was made of. In fact, most of these bats were duplicate bats with only an MRF sticker. and we bought it only because Sachin had it.
So if you see, the parameter to judge the status instrument was never the quality or the utility value of the product. It was all about just a sticker or a stupid doll. And just like that in clothing, women have two primary parameters that define their status in the social circle. And those parameters are variety and design.
And the culmination of these parameters is what makes them great status instruments. For example, even if it's a Manish Malhotra lehenga, if you wear it for two weddings, it kind of loses its value, right? And obviously, variety is useless if all the clothes are badly designed.
And the most interesting point to be noted over here is that just like nobody cared whether your MRF bat was original or duplicate, very few women cared about the quality of clothes as much as they cared about design and variety. So hardly a few people wanted a dress that would last for 10 years because they anyways wouldn't wear it frequently. And third and most importantly he also found out that women were extremely fascinated by fashion icons like Marl, Munro and other fashion models.
But at the same time the existing clothing stores never catered to this need of the customers in order to get the latest designs of clothing. They only had a new stock every 2 or 3 months. And on the other hand The designer clothing that actually caught up with these trends they were quite desirable and yet very very expensive. So clearly, there was an unfulfilled demand in the market.
Therefore, by using these three insights, Aman C. Altega built an agile supply chain which looked something like this. Instead of buying high quality clothes in less quantity he would buy medium quality material in high quantities and then bargain with the seller to get it at a discount. Then he would do an extensive research to find out what type of designs are trending in the society and what type of designs are doing well at the most premium outlets. On top of that, he would even travel the city and also kept a very close eye on the pop culture.
And as soon as he spotted a lucrative design, he would immediately get the designers to design something similar, pass it on to the next generation of designers. onto the tailors and get the clothes on display within the shortest possible time. And this speed was so high that while normal shops had a new stock every two months, Zara had a new design every two weeks.
This is what is known as the fast fashion supply chain. And not just that, he even marketed his Zara store to be selling medium quality fashion clothing at affordable prices and obsessively focused on design and the variety of clothes. And this strategy, ladies and gentlemen, gave Amanci Ortega three incredible superpowers over the rest of the competition.
Number one, the customers were extremely delighted to find trending designs and a huge variety of clothes. The best part was all these clothes were available at an ultra low price because the material itself was bought at a very cheap rate. On top of that, the number of visitors skyrocketed to the store because with new designs coming every two weeks it sparked curiosity of the customers to such an extent. that Zara stores had 3-4 times more visitors as compared to the rest of the stores.
And this again increased their sales. Secondly, because of more footfall and fast moving products Zara also got the superpower of something called discounting. If you watched the Walmart episode, you know what I'm talking about.
If not, use the i button to learn about this concept. And third and most importantly, Zara achieved the golden equation. of just-in-time production and just-in-case consumption.
Now, listen to this very very carefully. There are two types of operations in supply chain management. In fact, this mode of operation is not just applicable to supply chain but many other aspects of life also. I'll be making a separate video on this but for now listen to this over simplified example, alright.
This concept comes from the automobile industry. So, if a car company operated with just-in-case method They will focus on keeping their inventory stocked up all the time. So if they wanted to manufacture cars, they would by default have 300 red cars, 300 yellow cars and 300 black cars. So regardless of what the customer wants, they will be able to deliver the products immediately. But the major disadvantage of this strategy is that it leads to exorbitant storage costs and the inventory gets wasted if all stock does not sell.
Whereas in the second mode of operation that is just in time, It is all about producing only what is needed. So only after you place the order for a black car, the production line will start manufacturing the car and then paint it black. This way, there is very less storage cost because the product moves very quickly out of the inventory and the supply chain in general becomes extremely efficient. Now here's the best part of Zara.
Zara manufactures all the clothes in just-in-time approach wherein they push out new designs every 15 days. So they end up saving a ton of money by not keeping inventory. But the customers tend to buy products with a just-in-case mindset and end up spending more than needed.
Which means what? If a girl sees a great Zara dress, she knows that within 15 days, this will be out of stock. Therefore, she will have the natural tendency to buy the dress even if she doesn't need it because she will buy it with the mindset that Just in case I have a friend's birthday, I will need this dress.
Just in case I need to go to that trip, I would need that dress. And hence, she will have more clothes than needed eventually saving Zara's inventory cost but will end up loading her own inventory cost. So even if a supposedly flop design comes in it still gets bought by someone because they think they might need it at that moment merely because of the fear of missing out. Cherry on the cake While the rest of the clothes are made to last for a year, Zara clothes are designed to last for merely 10-15 washes.
Therefore, people bought 3-4 times more clothes at Zara and also shopped with 3-4 times more frequency as compared to the rest of the stores. These principles along with an insane supply chain evolution turned Zara into a super profitable company and accelerated its growth. And even today, while normal brands have 2-3 thousand designs a year. Zara and even H&M release more than 12 thousand designs in a single year. This is the reason why today Zara is a 13 billion dollar company with more than 2 thousand stores spread across 88 countries.
So on the outside, Zara seems to be the perfect capitalistic miracle, right? Customers get a ton of variety, companies make billions of dollars, people get jobs and government makes billions of dollars in taxes. But you know what guys, here's a very very important parameter that nobody takes into consideration. And this is what it looks like. There are huge environmental costs that are hidden by an inexpensive price tag.
The fashion industry is now the second highest polluter of fresh water. Average American buys 68 new pieces a year. Fast fashion is about making trendy clothes quick, cheap, and disposable. Every single piece of polyester is still in existence today, which is how we end up with mountains of clothing like this.
People as much as H&M and Zara are capitalistic fairy tales it is equally important for us to realize that it also leads to an environmental nightmare. And if we don't strike a balance, the nightmare is going to be worse than the fairy tale. So the question is what do we exactly do about it?
Three simple steps. Number one, take a step back and analyze your instruments of status and always make sure that you're not so exploited by brands that you end up spending more than needed and then eventually end up broke. Zara is definitely important but not so important that you end up swiping your credit card more than needed and then struggle with your debt. Number 2, assess the ordinary things in your life and find out how are the brands exploiting you to purposefully increase consumption.
It starts from a disposable razor all the way up to your apparels. And make a conscious choice to support brands that decrease your consumption. So, if you know an eco-friendly brand related to any day-to-day products Please drop a comment below to help us support those brands and give them the visibility that they deserve. And in order to practice what I am preaching, we have chosen a very very special partner for today's episode and that is Tickles.
Did you guys know that an average parent throws out a staggering 4500 diapers per baby? And this leads to disastrous environmental impacts and generates a ton of carcinogenic chemical waste. And the worst part is A single-use diaper takes 500 years to decompose in a landfill and this is what Tickles wants to change. So they came up with the idea of designing a premium quality reusable diaper that is as comfortable as the most premium brands in the market like Pampers and Huggies and will also reduce the waste produced by a whooping 60 times.
Fun fact, while parents spend 60,000 rupees on disposable diapers they only have to spend 8,000 rupees on tickles. Now I know that 99% of you are not parents but the reason why I'm telling you this is because parents like my own sister will be skeptical to spend on such green items. Why? Because these brands are not big enough to have flashy advertisements.
But we can make their adoption easier by giving them these green products as a thoughtful gift. So if you're looking for a gift for your sister's baby shower or something very similar to gift it to your brother or sister, please use the link below. to give them a pair of tickles and make a conscious choice both for the environment as well as to support this wonderful company. Now, let's talk about the most important part of the video and that is from a business standpoint, what are the lessons that we need to learn from this extraordinary business case study of Zara? Lesson number one, if you want to sell a high margin product try to find out what exactly are the instruments of status in your customer's life.
And more importantly Find out what are the parameters that makes those instruments of status important. In this case, the instruments of status were nothing but clothes and the parameters were design and variety. Lesson number two, there is always a thin line between what your customers want and what you think your customers want.
In this case, while on the outside it looks like quality is always the most important metric for any product, it's quite counterintuitive that in the context of fashion, Quality is actually secondary as compared to design and variety. And last and most importantly, once a great man said while everybody in this world learns how to see, very few learn how to observe. And that is what makes the difference between ordinary and extraordinary. In this case, the extraordinary observation of Amancio Ortega gave rise to not just a fashion company but a fashion revolution that changed the way the world dressed. That's all from my side for today guys.
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