Zara: Managing chain of value and driving CSR with consumers

The fast fashion Spanish company Zara and its Inditex Group has become a milestone after revolutionizing its sector and has succeeded in becoming one of the few brands in the country which stands among the best in class in the world but, is it a responsible brand, has it been a pioneer in the control of the supply chain or in the establishment of the ecological label?

There are several consumer trends in recent years which are especially infl uencing in a special manner the relationship that companies establish with their stakeholders, especially with their consumers and clients:

• Convergence of middle class: exponential population growth and narrowing of social classes.
• Low cost/free era: price is a key competitive factor.
• Changes in behavior: adolescents are those who do not work yet, although they are more than 25 or 30 years old.
• Sustainability: different use of natural, human, social, fi nancial and productive resources.

These trends are fi xing FMCG brands behavior in the market, but especially this last one has forced companies to review their corporate policies, to reconsider the way in which they engage with their suppliers (a common source of problems for global brands, as in the famous cases of Nike, Nestle or Cargil) and, above all, with their clients.

Consumers, in the opinion of Jose Luis Nueno, professor at the Marketing Department of IESE, ask companies to collaborate in the solution of social problems which, they consider, governments can no longer solve and, many of them, do not change their attitude nor their actions in relation to how consumer expect them to.

What is Zara’s secret 
Zara’s strategy has always been to drive the creation of value for clients. Today it is one of the most profitable fashion businesses in the world. The leading fashion brand of Inditex Group opened its first store in La Coruna in 1975 and began by designing and selling dressing gowns to be worn at home. Today, there are Zara stores in international cities such as New York, Paris, Tokio or Buenos Aires with a total of nearly five thousand. National barriers are not an obstacle for a globalized fashion culture such as Zara’s but, how did they achieve it? What is their secret?

Zara is a brand which sells three types of fashion: basic, fast and seasonal. The model, actually, is based  on attracting fashion traffic with copied designs placed on the market in a very short time, in order to sell fundamentally, basic and seasonal fashion.

Inditex was one of the first manufacturers in the world which implemented in integrally the concept of vertical integration, based on logistics and the whole of the operation. Most of the production is carried out in it completely automated factories and the tailoring is subcontracted to independent workshops, which allows for great flexibility to increase or reduce production according to demand.

The stores are located in city center streets, are owned by the company, thereby having a total control on its image and sales data. The sores are the best display and advert for Zara, its brand image is its store. Its information is permanently transmitted to design teams and the stores regularly receive consignments of garments in a short space of time, speeding up the renewal of stock. The majority of models (about 20,000 a year) are in the market no more then two weeks, in that way consumers purchase while stocks last.

The key of Zara’s success is, therefore, to have at its disposal a system of rapid response, a leading edge technology, to have great experience at the point of sale, anticipate the competition, neutralize the impact of the changes on consumers which  we described at the beginning and, above all, the systemic nature of its competitive advantage: its way of operating and working is the advantage itself, therefore, the most difficult to copy.
From being a company of accessible fashion in the 70s, it became a disintermediated company in the 80s, a quick company in the 90s and in search of sustainability in 2000. How does it try to achieve it, considering its model and its presence in so many countries with such a significant pressure in the market and on its clients?
Business model Young clients Daily world reports No advertisement, presence in key placements Provokes new trends in fashion Little or no stock Good price/quality relationship Innovation in products delivery Mobility.

Zara’s socially responsible policy
How do you combine a business model based on selling the maximum amount and producing as close as possible to the tastes of consumers, to the sales needs? Doesn’t this provoke overconsumption in customers, something that does not seem very responsible? Can its main social contribution be limited to maintenance of its immediate surrounding, its community, jobs created and a type of determined professionals that would not have otherwise existed?

The main milestones in the implementation of CSR in Inditex are as follows:
• 1995: establishment of an environmentally friendly policy commitment and creation of a specific area for the CSR management.
• 1996-1998: first plans for energy efficiency and cogeneration plant put into operation.
• 1999: plans for emission control, dumping and waste.
• 2001: internal code of conduct centered on responsibility towards employees, partners, suppliers and society, and the first Spanish company to sign the Global Compact.
• 2002: admission to the Dow Jones Sustainability Index and GRI adoption.

The company uses, in this sense, a triple system to manage the sustainability and responsibility of its business model, following the traceability of its vertical and horizontal integration model form its origin to the final presentation to clients, what is known as the 3 pillars of responsible behavior in the production chain:
1. The DNA of its offices: tied to its employees (legality, respect and diversity).
2. The DNA of its factories: tied to its suppliers and business partners (transparency, legality and traceability).
3. The DNA of its stores: tied to its clients (quality, security and health).
Zara has achieved three great milestones in search for a management model and the most sustainable business:
1. Design of the business: creation of value for consumers, for society and especially for the community.
2. Operations: control of suppliers’ responsible policies.
3. Logistics: sustainable mobility plans following the principles of Kioto.
4. Sales: teaching for a more responsible way of consumption.

To end this section, one must highlight the task developed by Inditex in the permanent control of its supply chain, specifi ed in its Code of Conduct for Manufacturers and External Workshops, structured around respect, control or eradication of 10 key points:
1. Forced labor.
2. Child labor.
3. Discrimination.
4. Freedom of association and collective bargaining.
5. Abuse or inhuman treatment.
6. Security and hygiene.
7. Payment of salary.
8. Working hours.
9. Environmental commitment.
10. Regular work.
The green label and care for the environment
In relation to the consumer and the tractor effect that it can exert so that the entire supply chain applies to the maximum extent and with the maximum attention to detail the sustainable principles that form part of CSR, Zara has incorporated on the label of its products the ecological information about its manufacture, the materials used and what type of treatments applied, in line with what retail stores had already carried out also with clothing, but going further in order to achieve something that until now seemed impossible: being fashionable without giving up respect for environment. That is the slogan of ecological clothing.

There are three ways to recognize ecological clothing using environment labels which certify that the textile products and the treatment used are nature-friendly:
1. European Union green ecological label: applied to all textile products except wall and apartment coverings.
2. “Made in Green” stamp: certifi es that the products do not contain harmful substances and that environment and labor rights have been respected.
3. Oeko-Tex Standard 100 badge: guarantees the absence of harmful substances in textile products during their entire transformation process.

Zara, for its part, began to include some years ago in its collections items that had been made from raw materials cultivated without pesticides or chemical agents and entire collections made of sustainable clothing, with more then 15 million items of clothing manufactured worldwide in 2006, and it is developing a project for ecological shoe design, in line with what Camper, another Spanish company, is also doing.

The objective, ultimately, is to analyze the entire lifecycle of the product to understand the environmental impact which Zara has from the cultivation of raw materials and the design, to the manufacture and fi nal recycling, looking for an approach to sustainability centered on the client and educating new consumers (especially in emerging markets) to consume in a different manner than until now in the West.
Conclusions: to integrate CSR management in the business model
Managing Corporate Social Responsibility entails integrating social, labor and human rights concerns within companies management, giving rise to policies, strategies, procedures and business models which satisfy consumers, as in Zara’s case, because in the end CSR has to answer an important question: what type of society do we want to build and what role do companies play in it?

©2011 Corporate Excellence – Centre for Reputation Leadership

Tags: , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *