Think delivering working software every 30 days is difficult? Got an idea for a great new outfit? How long would it take to see that idea become a piece of clothing available in 1000 stores? As we look to improve our businesses’ ability to respond quickly to its customer needs, its helpful to look at other businesses that have used speed to generate huge advantages and gain marketshare from much larger rivals. An unlikely place to look is fashion retailing.
When Madonna gave a series of concerts in Spain, teenage girls were wearing at her last performance the outfit she wore for her first concert. When Spain’s Crown Prince Felipe and Letizia Ortiz Rocasolano announced their engagement in 2003, the bride-to-be wore a stylish white pant suit. Within a few weeks, hundreds of European women were wearing something similar. All thanks to Zara, the pioneer of fast fashion. In April 2006, the company owned by the Inditex Group, took the lead in fast fashion apparel away from giant Swedish retailer, Hennes & Mauritz (H&M) by posting $8.15 billion in sales in 2005, compared to H&M’s $7.87 billion.
How can Inditex thrive when Europe’s entire textile industry is under threat from cheap imports from China? After all, labor costs in Europe are 17-20 times higher than in Asia. In a word – speed. It takes Zara four weeks to go from identified consumer need and fashion concept to clothes in its stores. Most of Zara’s inventory is sourced through this fast channel. To enable this speed Zara owns the complete supply chain, from manufacturing through distribution and retail. Some 300 designers work at the firm’s head office in La Coruña in Galicia in northern Spain, producing 1000 new styles per month. They are in daily contact with store managers to discover bestselling items. The remaining inventory is sourced through low cost off shore manufacturers, similar to other retailers.
Zara’s fast products are deliberately created in small batches to avoid oversupply. Most lines are replaced quickly with yet more new designs rather than with more of the same. This in turn generates scarcity of supply. Shoppers cannot be sure that something that has caught their eye will appear in the store again—or can be found at another Zara store, even in the same city. A higher average selling price is maintained.
Zara’s production cycles are much faster than those of its nearest rival, Sweden’s Hennes & Mauritz (H&M). While an entirely new Zara garment takes about four to five weeks from design to delivery; a new version of an existing model can be in the shops within two weeks. This process takes six to twelve months for an average retailer. In a typical year, Zara launches some 11,000 new items, compared with the 2,000-4,000 from companies like H&M or America’s giant casual-fashion chain, Gap.
Don’t try to predict, react.
The fast production chain at Zara removes a significant amount of risk that comes with fashion forecasting. So Zara finds itself in the “blessed” position of not really having to take a bet on fashion as much as follow it. A 2004 Bain & Co. study found that fast-fashion outlets in Spain and Britain posted average double-digit sales growth, compared with 4% growth in overall retail sales in those countries.
Zara’s design work space is open concept and highly collaborative.
Fashion trend identification is a daily constant effort. All of Zara’s shops use point-of-sale terminals to report directly to La Coruña. On top of that, every evening store managers consult a personal digital assistant to check what new designs are available and to place their orders according to what they think will sell best to their customers. In this way, its store managers help shape designs. Zara does not employ star designers but often unknowns, many of whom are recruited directly from top design schools. Inditex is extremely clever in how it uses technology, says Andrew McAfee, a Harvard Business School specialist in the corporate use of information technology. The company keeps its technology simple—even a little old-fashioned—but as a result spends five to ten times less on information technology than its rivals.
Zara is also more parsimonious with advertising and discounts. It spends just 0.3% of sales on ads, compared with the 3-4% typically spent by rivals. “We try to avoid markdowns” says JM Castellano, Inditex’s deputy chairman. For many retailers 35-40 percent of total merchandise is sold at hefty discounts. “This business is all about reducing response time” says Castellano. “In fashion, stock is like food, it goes bad quick.”
This article contains material from various internet business news sources including The Economist, 3isite.com, AMR Research, and others.