I was reading an article in the NY Times about a woman’s international search for discount knock-offs and her worldwide obsession with Zara.

First and foremost, there is a distinction between a knock-off and a counterfeit. Counterfeits are the bags you see on Canal Street that are direct copies of the designer bags sporting the designer’s name and/or logo. Counterfeits are illegal to produce in the US. Knock-offs are items that make look like designer clothing styles (which are unprotected under US intellectual property laws), but do not claim to be made by the designer. A famous exampleis the A.B.S. label copies of celebrities Oscar dresses that are available the day after the Oscars at a cheaper price and greater availability than the real designer dresses.

That being said, Zara’s business model, which is loosely based of many designer’s style, is unique – different than the H&Ms and Forever 21s of the world. Even Daniel Piette –  the  fashion director of LVMH, one of the most litigious brand owners - comments that Zara is  ”possibly the most innovative and devastating retailer in the world”.  The company is unique in that it produces over 10,000 designs a year (compared to its competitors that make 2,000-4,000 designs each year) in a process where the designing is done in house by groups of designers (rather than individual designers).

Zara was started in Spain in 1975 by Amancio Ortega Gaona under his INDITEX Group company in Spain. There almost 1,500 stores  in over 73 countries, with worldwide revenues reaching almost 10 billion in 2008 (more than Gucci, Ralph Lauren and Louis Vuitton combined). Their business model includes designing, manufacturing and distributing all their clothing. Most of their designs – about 75% – are manufactured in Europe. The other unique feature about the company is that it does not put any money into advertising, rather allocating its revenues towards opening stores.

Zara shows us that the knock-off business can be very lucrative as long as a company doesn’t infringe on any designers intellectual property rights. It makes European-made, designer-inspired clothing without the high-end designer prices, which is poured into ad campaigns and runway shows promoting the luxury lifestyle. It’s easy to see way Zara can be an obsession for any fashionista and fright to fashion designers.