Comparing Zara and UNIQLO Using Supply Chain Analysis Deshmukh

Comparing Zara and UNIQLO Using Supply Chain Analysis Deshmukh 1
Comparing Zara and UNIQLO Using Supply Chain Analysis
Introduction
Topshop, H&M, Gap—global apparel companies must fight to remain dominant in the
global apparel market. This paper will compare two global mass apparel retailers: Zara, a brand
of Inditex, S.A., and UNIQLO, and brand of Fast Retailing Co., Ltd. Headquartered in Arteixo,
Spain, Zara attracts customers with its well-priced, cutting-edge trends. A Japanese brand,
UNIQLO emphasizes high quality and technologically innovative products for a low price. This
comparison is founded upon the global reach of both companies, and their presence in the lower-
cost, mass retail market of the apparel industry. Both Zara and UNIQLO have supply chains
based on the regional clustering of each stage in the apparel value chain (VC). These three
fundamental similarities between Zara and UNIQLO lay the foundation for an analytical
comparison.
This paper will first position Zara and UNIQLO within the apparel global value chain
(GVC) through a discussion of their activities in stages that they participate in. Following this,
will be a discussion of how each company has responded to increased pressures regarding
corporate social responsibility in recent years. The next section of the paper will compare the
companies’ success in the U.S. and global markets. There will be a subsequent discussion of the
fundamental differences between Zara and UNIQLO regarding geographical location, product
philosophy, and company culture, emphasizing each company’s competitive advantages. Finally,
competitiveness recommendations for each company’s U.S. market presence will be discussed.
Zara within the apparel GVC
Predominantly vertically-integrated, Zara participates in every stage of the apparel GVC,
which is unusual in a buyer-driven chain where production and distribution are often outsourced.

Even more unique is Zara’s fast product cycle; designs can be transformed from ideas to
products in store in as short as 15 days (Makori, 2014). Essentially all of Zara’s activities are
coordinated and controlled from the company’s headquarters in Arteixo, Spain.
Zara is truly a fast-fashion retailer, adapting most of its designs, which are all produced at
company headquarters, from looks seen on the runway. Designers conduct “field research” at
universities and night clubs, and track the activities of fashion bloggers, to gain insight into the
demand for specific styles (“The Secret of,” 2016). Zara invests heavily in information systems
and technology to facilitate communication between designers and in-store staff, who serve as
market researchers. They note customer comments, purchases, and needs, transmitting this
information to designers in Arteixo. Store managers examine sales and replenishment reports on
an hourly basis (Zhelyazkov, 2011), also sending this quantitative data to headquarters. The
frequent communication between both ends of the apparel VC contributes to the speed of Zara’s
product turnover and on-trend products.
Zara orders undyed fabrics, which are cheaper and more flexible, to accommodate for the
uncertainty of fashion trends (Zhelyazkov, 2011). The company manufactures small batches of a
diverse range of products in order to avoid leftover inventory and loss from forced markdowns.
Zara’s production network combines in-house manufacturing, regional partners, and offshoring.
There are 11 Zara-owned factories in the A Coruña region (Berfield & Baigorri, 2013) that,
along with factories throughout Spain’s Galicia region and Portugal, manufacture cutting-edge
products requiring proximity to headquarters to keep up with customer demands. Labor-heavy
tasks are sent to partner companies close to Arteixo, such as sewing coops throughout Spain and
Northern Portugal (Sheffi, 2012). Although this labor is not as cheap as it would be in Asia, it is
more time-efficient. Zara’s “basics” line, which is ordered about 6 months in advance (Berfield

& Baigorri, 2013), is outsourced to partner factories in Morocco, Turkey, and Asia (“Secrets of,”
2016), since those products are not trend-dependent.
Every Zara product passes through its distribution center in Zaragoza, Spain before being
sent to stores worldwide. Products are allocated to stores based on biweekly orders placed by
store managers (Berfield & Baigorri, 2013), reiterating the company’s emphasis on close
communication between both ends of its supply chain. With savings from optimized distribution
operations, products can be delivered within Europe in 24 hours, and worldwide within 40 hours
(Makori, 2014), keeping stores on top of demand and trends.
Once in stores, new products are only available for three to four weeks (“The Secret of,”
2016), which brings Zara customers back to stores frequently. Despite Zara’s popularity, the
company barely spends on advertising, instead investing in technology and information systems.
Inditex, S.A.’s “marketing” philosophy is to rely on quantitative and qualitative data to make the
perfect products that customers will want to buy without any marketing persuasion. The aim is to
tailor production as precisely as possible to demand to avoid having too much inventory (Amed
& Abnett, 2015). As a result, Zara is able to get 85% of full price on its products, as opposed to
the industry average of 60% to 70% (Berfield & Baigorri, 2013).
UNIQLO within the apparel GVC
UNIQLO exerts considerable control over its supply chain to ensure that its products
measure up to Fast Retailing’s Japanese philosophy of superior quality. The company uses
proximity to its advantage in locating R&D centers and production hubs near target markets
around the world to better respond to demand (Coban, Koch, Yoo, Zaheer, & Zormpas, 2015).
Although the company sources most of its supply chain, its commitment to quality and
innovation are clear in its supervision over every stage of its VC.

UNIQLO’s R&D centers are located around the world in NYC, Tokyo, Shanghai, Paris,
and LA. The purpose of these R&D centers are to reduce the time it takes to design and develop
products; track localized trends; confirm the quality and pricing of raw materials; and streamline
coordination with manufacturers and distribution centers that are also clustered around those
cities (Adachi, 2016). Unlike fast-fashion mass retailers, UNIQLO’s designs are finalized about
a year before product release (Coban et al., 2015). In general, UNIQLO’s R&D and design
processes are geared towards technological innovation and the idea of “upgrading” their textiles
and products (Kansara, 2013) with continuous improvements to design and quality.
UNIQLO does not manufacture its own materials, but rather partners closely with high-
quality textile factories. The company has close relationships with Kaihara Corporation and
Toray Industries in Japan, which supply UNIQLO with materials for their signature denim and
HEATTECH lines (UNIQLO Business Model, 2017). UNIQLO is able to sell their products at
relatively low costs by purchasing materials at a lower expense through direct negotiations and
mass orders (Adachi, 2016). In addition to sourcing their materials, UNIQLO completely
outsources its production to partner factories, 90% of which are located in China (Adachi, 2016).
Similar to its R&D centers, UNIQLO has production hubs that are close to its target markets in
Turkey, China, Southeast Asia, India, and the Americas (Coban et al., 2015). Although it does
not own the factories in these production hubs, there are offices of takumi engineers located in
major cities nearby. These takumi (meaning “skilled artisan” in Japanese) engineers are
employed by UNIQLO and work with manufacturers to implement efficient processes and
quality production that align with the company’s Japanese values. In this way, UNIQLO utilizes
regional clusters and strong partnerships to regulate the quality of its products.

UNIQLO has external distribution centers in each regional cluster. Once an external
transportation company ships product to stores, post-production activities are centered around the
Inventory Control Department, whose main responsibilities are monitoring sales and stock
weekly and dispatching the necessary products to fulfill orders (UNIQLO Business Model,
2017). This department also collaborates with the marketing and merchandise departments to
optimize inventory storage, ensure products sell out, and adjust production according to demand
(Coban et al., 2015). The three departments coordinate the timing of markdowns and limited
period sales that usually take 20% to 30% off of full-price products (UNIQLO Business Model,
2017). UNIQLO’s marketing campaigns are the most pervasive in Asia, where the company
dominates the apparel market.
The social and environmental responsibilities of Zara and UNIQLO
Corporate social responsibility (CSR) involving social and environmental upgrading is
crucial for lead firms in any industry to consider. Bad labor conditions, negative environmental
impacts, discrimination, etc. can permanently damage a company’s reputation. Both UNIQLO
and Zara have been accused of partnering with factories that use slave-like labor, and have been
subject to criticism regarding sustainability. In order to preserve their brands, they have enacted
CSR initiatives to upgrade the social and environmental aspects of their supply chains.
Inditex’s annual report from 2015 details its latest initiatives to achieve ethical
manufacturing, community development, and sustainability. The company has a Compliance
Programme to verify that the labor conditions in partner factories comply with its Code of
Conduct for Manufacturers and Suppliers, as well as international standards. This program
focuses on ensuring laborers earn living wages and is currently running pilot programs in partner
factories in Bangladesh to test worker participation councils. The 2015 report also details

Inditex’s efforts to be more eco-efficient through environmental management. The company’s
“Green to Pack” program works to decrease packaging used and to source more sustainable
materials for packaging. Inditex also has an Eco-Efficient Store Manual with environmental
impact guidelines for waste management, electrical installation, etc. that Inditex facilities must
comply with. Inditex is also invested in social programs, having donated 24.2 million euros to
different community organizations around the world in 2015 alone.
In contrast to Inditex’s extensive strategy, the CSR section in Fast Retailing’s 2016
annual report is brief. The company employs external institutions to monitor working conditions
in partner sewing factories, and has members of its Sustainability Department visit factories in
need of improvements. In September 2015, Fast Retailing began monitoring the working
conditions and environmental impact in their partner fabric manufacturers, as well. In July 2015,
the firm joined the Fair Labor Association, which promotes adherence to international and
national labor laws. Fast Retailing also runs a recycling program for garments donated by
customers, and gives these clothes to populations in need worldwide. As can be seen, Fast
Retailing does not have as strong of an action plan regarding social and environmental aspects of
their supply chain, leaving the potential for negative perceptions of their brand.
Success in the global and U.S. markets
1
This information is from Fast Retailing, Co, Ltd.’s annual reports from 2012 to 2016
2
This information is from Inditex, S.A.’s annual reports. The 2016 annual report will be released in June 2017.

As can be seen by the global net sales values above, Zara has already had success in the global
apparel market, while UNIQLO is struggling to hit stride outside of Asia. Inditex’s 2015 annual
report indicates that Zara has stores in 88 countries, while Fast Retailing’s 2016 annual report
records UNIQLO stores in just 17 countries. The vast disparity between the number of markets
each company participates in demonstrates Zara’s global popularity. That being said, UNIQLO
had 154 net store openings worldwide in 2016 (Fast Retailing Co., Ltd., 2017), while Zara only
had 77 net openings in 2015 (Inditex, S.A., 2016). This shows UNIQLO’s efforts to establish its
company globally and cement its presence in the apparel industry.
Both Zara and UNIQLO are relatively new to the U.S. apparel market. However, there is
no concrete basis for a U.S. revenue comparison, since neither Fast Retailing nor Inditex
publishes revenue from UNIQLO or Zara stores in the U.S. Despite this lack of data, it can be
concluded from U.S. store numbers, as well as other information from the annual reports, that
UNIQLO is struggling to capture the U.S. market, while Zara is thriving in it.
UNIQLO has increased its number of stores in the U.S. rapidly in the last five years in an
effort to establish itself in the U.S. market. From 2013 to 2014, the number of stores in the U.S.
more than tripled, and from 2014 to 2015, the number of stores was nearly doubled. UNIQLO’s
global net sales steadily increased from 2012 to 2016 due to growing revenues in China and
Europe (Fast Retailing Co., Ltd., 2014). Despite this success, UNIQLO has operated on a loss in
the U.S. since 2012. The 2013 and 2014 annual reports attribute some of this to “unseasonal
weather” (Fast Retailing Co., Ltd., 2013) and a “cool summer” (Fast Retailing Co., Ltd., 2014),
reflecting the rigidity of UNIQLO’s product lines and its slow-response supply chain. From 2013
to 2015, UNIQLO USA’s operating loss was primarily a result rapid store openings. The 2015-

2016 financial year, however, involved store closures, and inventory and cost controls in an
attempt to improve stores’ profitability (Fast Retailing Co., Ltd., 2016), which still resulted in a
loss equivalent to $7 million attributed to, “impairment losses on stores and losses related to
asset retirement and store closures” (Fast Retailing Co., Ltd., 2016).
UNIQLO’s affordable prices are attractive to customers, but there are many U.S. retailers
that sell apparel at lower prices. While the company’s purpose is to offer products that are high-
quality and technologically innovative, its brand identity has not yet been established or
communicated to U.S. consumers. They are not visiting new UNIQLO stores and buying
UNIQLO products because they do not understand the UNIQLO “lifestyle” or the positive
aspects of the company’s products. Additionally, UNIQLO’s limited product lines that shy away
from fashion trends do not instantly captivate the fast-fashion mentality among U.S. consumers
looking to shop at lower-cost retailers. Due to this lack of brand awareness and inability to get
new customers to try its products, UNIQLO is not doing well in the U.S. market.
Zara, on the other hand, is having much more success in the U.S apparel market, which it
entered in 1989 when it opened its first U.S. store in New York City. Although Inditex does not
include any specific financial data regarding the U.S. sector of Zara in its financial analyses, its
annual reports from 2012-2016 inform that new stores were well-received and that its U.S. e-
commerce platform drew consistent business. This increasing popularity and stability contributed
to the opening of 15 new U.S. stores from 2014 to 2015. Zara is gaining ground in the U.S.
market because it is committed to being a customer-centric, fast-fashion brand. The company
pulls product designs off of the runway and streets, while also paying attention to what
customers shopping at Zara are looking for in stores. In this way, Zara gives customers the
apparel they want at the moment they want it. Quick product turnover creates a feeling of limited

opportunity, bringing customers back to stores much more frequently than other apparel retailers.
These factors, paired with Zara’s affordable prices, all contribute to the success of the company
in the U.S. market.
Differences and competitive advantages
The primary differences between Zara and UNIQLO lie in the geographic location of
their regionally clustered supply chains, their product philosophies, and their company cultures.
Contrasting these three aspects of the two companies reveals some competitive advantages of
one over the other, but overall how different the they are.
Zara’s operations are centered around Inditex’s company headquarters in Arteixo, Spain
and distribution center in Zaragoza, Spain. The location of these centralized operational facilities
has led to most of Zara’s manufacturing to be clustered in Spain, Portugal, Morocco, and Turkey
(Berfield & Baigorri, 2013). This is beneficial because products can be produced, or changed
quickly, and shipped to the distribution center in Zaragoza. However, the labor in these countries
is much more expensive than that in Asia, where UNIQLO’s regional supply chain cluster is
located. For this reason, Zara outsources the production of its “basics” line to partner factories in
Asia, since speed is less of a necessity. In this way, UNIQLO has a competitive advantage over
Zara because of its location in a region where low-cost labor is easily accessed.
Zara and UNIQLO greatly differ on the philosophy behind their products. UNIQLO
concentrates on creating high-quality products made from luxurious, technologically innovative
textiles. The company frequently draws parallels between its company and Apple, incorporating
an “iterative approach to product development embraced by the technology industry” (Kansara,
2013). This parallel can be seen in UNIQLO’s focus on updating and improving its core clothing
lines, like HEATTECH and Lifewear, a line that mixes casual and athletic styles. UNIQLO aims

to appeal to customers of all economic levels with this cutting-edge product technology. Zara’s
product philosophy is completely different. The company’s founder, Amancio Ortega, has
referred to its products as “freshly baked clothes” capturing fashion trends for a couple of
months; he views apparel as a perishable commodity that people should enjoy for a short period
of time, throw away, and replace (“The Secret of,” 2016). Although this philosophy has been
criticized as the epitome of the wasteful fast-fashion mentality, it gives Zara a competitive
advantage in a global consumerist culture where customers want to stay on top of trends and
constantly refresh their wardrobe. UNIQLO’s philosophy does not set its products up to meet
this demand for a continuous cycle of new and trendy products.
Zara and UNIQLO also differ greatly on company culture. UNIQLO’s culture revolves
around maintaining traditional Japanese qualities throughout its supply chain, namely integrity,
customers’ needs, and superior quality and services (Adachi, et al., 2016). This can be seen in the
partnership of takumi engineers with outsourced production factories, and rigid guidelines for all
stores. Employees undergo a two-week training program about maintaining the Japanese feel
within a store, where they are instructed on protocol like the “Six Standard Phrases” to be used
with customers. They are also held accountable for precise folding guidelines and color
organization. This adherence to Japanese business traditions forms a reputation of quality and
dependability that gives UNIQLO a competitive advantage over Zara’s throw-away fast-fashion.
Zara’s company culture is centered on a young, entrepreneurial spirit and “customer co-creation”
(“Secrets of,” 2016). Zara hires a lot of young people in its stores and as designers, giving them
responsibility, focusing on talent development, and encouraging risk-taking. Designers scout
trends and draft designs themselves; there is no chief designer, so they submit designs based on
their discretion and the data collected. Similarly, store managers have full control over their

store’s operations, from arranging products to ordering more of a certain design. Zara’s dynamic,
entrepreneurial, youth culture gives it a competitive advantage over UNIQLO in scouting trends
and generating new products.
Competitiveness recommendations for the U.S. market
Both Zara and UNIQLO have made great strides in infiltrating the U.S. mass apparel
market, specifically in threatening other lead firms like Gap and H&M in the past five years.
They have respective competitive advantages that have already helped them tackle the global
apparel market. In this section, recommendations for improving each firm’s competitiveness in
the U.S. market within the next three to five years will be introduced and rationalized.
Zara is already succeeding in the U.S. market; however, there are changes that could be
enacted in its supply chain to further improve competitiveness. Although Zara’s advantageously
quick product cycle and vertically-integrated operations stem from the regional clustering of its
supply chain, if it wants to have a strong presence in the U.S. market, it should create a second
regional cluster in the Americas. The firm should open a distribution center in the U.S. and
create a network of partner factories in Mexico, where low-cost labor is abundant. The
distribution center in the U.S. would be able to communicate seamlessly with designers in
Arteixo because of Zara’s advanced technology and data systems. A regional supply chain
cluster close to the U.S. would optimize Zara’s U.S. operations and allow the company to
respond quickly to customer demand. Additionally, Zara should increase the number of stores in
the U.S. There are many states with only one Zara store, or none at all. If Zara is serious about
dominating the U.S. apparel market, it needs to make itself more accessible. The company would
have to spend the next two to three years investing a significant amount in setting up a
distribution center, finding partner factories in Mexico, and opening up more stores. However,

this supply chain expansion would yield a sure increase in competitiveness in the U.S. market
within five years.
In contrast to Zara, UNIQLO has yet to establish itself in the U.S. market. While
UNIQLO stores have rapidly opened in the U.S., the company’s U.S. sector has had operational
losses for almost five years. In order to build a U.S. customer base, UNIQLO must establish a
definitive, recognizable brand identity. The company can achieve this in part by establishing a
strong social media presence, using mediums like Instagram to showcase their products and
creating promotional creative content on platforms like YouTube that will attract new customers
to stores or UNIQLO’s website. Fine-tuning its e-commerce will also help UNIQLO establish a
customer base in the U.S. This would require an analysis of e-commerce strategy of other similar
firms and the implementation of such strategy for UNIQLO’s website and e-commerce
operations to strengthen its visibility amongst U.S. customers that increasingly purchase apparel
online. UNIQLO also needs to produce apparel more that customers are excited to buy.
Championing high-quality, innovative textiles is not enough to get customers keep buying
products. The company needs to produce limited-edition collections two or three times a year
that feature products that stay true to UNIQLO’s philosophy, but also reflect current fashion
trends. By using the next two years to strengthen brand identity and e-commerce presence in the
U.S., as well as adding products that entice fashion-oriented customers, UNIQLO would see an
increase in competitiveness in the U.S. market within the next five years.
Conclusion
An examination of Zara and UNIQLO’s supply chains demonstrates the advantages of
regional clusters and a strong sense of the kind of product a company wants to put on the market.
Comparing the two companies brings up differences in geographical location, product

philosophy, and company culture; despite these contrasting aspects, both apparel companies have
become lead firms in the apparel GVC. Although Zara is ahead of UNIQLO in the U.S. apparel
market, it has nowhere near the reach and popularity that UNIQLO does in Asia. It is uncertain
how the competitiveness of both companies will evolve in different regional or national markets,
and the global apparel market, in the near future. While Zara and UNIQLO are both grouped
under the moniker of “global mass clothing retailer,” it is important to recognize that their
respective supply chain strategies are products of distinct company philosophies, cultures, and
products. It is therefore quite possible that both companies will increase in market dominance
and competitiveness in the future without directly threatening or eradicating the other.

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