A customer-funded organization
Inditex has funded its fast growth largely on its client’s cash. How is that possible?
In accounting, this is referred to as “negative working capital”. Inditex delays payment to its vendors in a way that, by the time they pay the bill, the goods have already been sold in the stores. This means that Inditex has very little money “stuck” as goods and has a healthy cash flow to finance its expansion.
The scarcity model
Fast-fashion is based on newness—but every style is retailed in limited supply. The average product sells out in under two months.
Zara´s sales on full price account for 85%, while the industry average is between 60% to 70%.
The store’s elevated layout and visual merchandising inspire a sense of exclusivity.
Zara has educated its clients to know that, if they don’t buy what they like today, it will be gone tomorrow. This motivates Zara’s clients to come back more often.
In a study, shoppers visited the average store once every 3 months, but Zara’s customers came back 17 times a year.
High traffic in the stores makes advertising unnecessary.
Why aren’t others copying the model?
First, Innovation in the business model is not directly visible to competitors. Copying a business model is much harder than imitating product design. Business model innovations are in the brand’s DNA. It can be hard for any business to change who they are.