Zara and Quick Fashion and Good Business

Volume 5 Letter 3

As the star takes the stage and the cameras flash don’t think it’s just the press taking pictures. Before the concert is over hundreds of images of Britney Spears, Christina Aguilera or who ever the star performer is will be electronically transmitted to Zara design houses. As the concert goers sleep off the effects of their late night out, the star performer’s outfits will be sketched out, complete with patterns ready for cutting. Within days knock offs of their outfits will appear in selected Zara stores around the world.

One may think that Zara is in the teen fashion industry but in fact they’re in the distribution industry. While most of their competitors plan their fashion lines nine months in advance, Zara will have turned their stock 18 to 20 times before their competitors’ designs hit the shelves. Zara’s stock turnover is so fast that it regularly sells out in the first few days making their fashions somewhat exclusive. In any other industry stock outs are bad news; however, in the zany world of teenage fashion empty racks don’t drive customers away, they drive them to purchase other items before they too are sold out. Fashion crazy teenage customers, who cruise the shopping malls with great regularity, know if they find a product they like they better buy it now because it won’t be there tomorrow.

To keep this ferocious cycle of product moving through the retail outlets Zara controls everything from the fashion design (or knock off if you prefer) through to fabric dying and printing to production, shipping and retailing. The design people work in the same space as the production, merchandising and patterns groups so ideas and design changes are easily shared. Production is in small batches and each product line has its own separate production operation.

Incredibly Zara sells 85% of their clothing at full price which is 15% -20% higher than the industry average. Store sales and order data is constantly updated mitigating over stocking and the subsequent sales and discount cycle that is prevalent in the clothing industry. To accomplish this Zara is focused on maximizing its response to the fashion market and they have heavily invested in flexible capacity. Store managers place their orders twice weekly (compared to the industry average of twice yearly). Orders arrive at the store within 24 hours pre-priced and pre-racked so they can be rolled directly onto the store floor for display. Young fashion conscious customers familiar with the pattern time their weekly shopping excursions to the twice weekly new product arrivals. Priced for the teen budget clothes needn’t be high quality as they’ll be lucky to last in the consumers’ closet for more than a few weeks. (One must wonder if some of these outfits even see the laundry). As Zara has proven, cheap knock offs for fashion conscious teens on a budget are big business!

The owner of Zara, Amamcio Ortega started his business back in 1975 after almost going bankrupt when a German retailer canceled a large lingerie order. Having all his capital tied up in that one order and no other buyers he opened his own shop to sell the merchandise and called the shop Zara. Here are some of the lessons he learned from his early brush with bankruptcy to running a 650 store empire:

 

    1. Control what happens to your product until your customer buys it: Zara controls every step of the fashion process from design to fabrics and dying, to production and retailing. How much of your core product / service do you control?

 

    1. Tight communication: Zara transfers both hard data and anecdotal data from shoppers to designers, the production team and merchandising staff. The goal is to keep the customer (teenagers) as close to the upstream operations as possible. When is the last time your R&D and production people met with your customers?

 

    1. Good investing: Zara spends money on anything that will increase their market responsiveness. What’s your business strategy and where should you be investing to better serve your customers?

 

  1. Increase supply chain flexibility: Zara invested in production and distribution faculties that increased their flexibility and responsiveness to customers’ changing fashion needs. How is your company using technology to better serve your customers to reduce inventory and lag time in deliveries?

Zara chose a segment to serve and designed their business strategy brilliantly around that segment. Zara captures its key market information through a camera lens – how do you capture yours?

For further reading see
Zara: A Model Fashion Retailer; Paula Hancock CNN.com/2004/ tech/07/19/Spain.zara
“Rapid Fire Fulfillment; K.Ferdows, M. Lewis and J. Machuca; HBR Nov 2004 pp104 – 110

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