Chapter 3: Zara: Fast Fashion from Savvy Systems. Medium quality “fast” fashion clothing at affordable prices. A Zara store in Manhattan. Why Study Zara?. To understand and appreciate : The counterintuitive and successful strategy of Zara The technology, which has made all of this possible.
Medium quality “fast” fashion clothing at affordable prices.
A Zara store in Manhattan
ZARA · Fall / Winter 2011 - TRF - Young http://youtu.be/pyMQ3eOwwx0
"TRF" is short for Trafaluc- offered by Zara for the youth/teenage
(Store in Sydney)
lingerie production firm.
the first garment-making factory of Inditex
In the early 1960s Ortega became the manager of a local clothing shop, where he noticed that only a few wealthy residents could afford to buy the expensive clothes. Thus he started producing similar items at lower prices, purchasing cheaper fabric in Barcelona and cutting out pieces by hand using cardboard patterns. Ortega then sold his items to local shops; he used the profits to start his first factory in 1963 at the age of 27.
When Amanciao Ortega was 13 years old he worked as a delivery boy for a shirt maker who produced clothing for the rich. He later worked as a draper's and tailor's assistant. In seeing firsthand how costs mounted as garments moved from designers to factories to stores, Ortega learned early on the importance of delivering products directly to customers without using outside distributors. He would later employ such a strategy with great success at Zara, attempting to control all of the steps in textile production in order to cut costs and gain speed and flexibility. Read more: Amancio Ortega 1936— Biography - Early career, The zara phenomenon, Inditexhttp://www.referenceforbusiness.com/biography/M-R/Ortega-Amancio-1936.html#ixzz1bfL4MMA6
Inditex, one of the world’s largest fashion distribution groups, has more than 5,000 stores in 77 countries. In addition to Zara, the largest of its retail chains, Inditex has seven other formats: Pull &Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe.
Its unique management model, based on innovation and flexibility, and its vision of fashion – based on creativity and quality designs, together with the capacity to react quickly to market demands – has enabled it to enjoy rapid international expansion and an outstanding reaction to its various commercial concepts.
The Inditex Group is made up of more than 100 companies operating in textile design, manufacturing and distribution.
Net Worth $31 B As of March 2011
The richest person in Spain
The #2 richest person in Europe
The #7 richest person in the world
Sales in 2000• Inditex $2.43 billion• H&M $3.2 billion• Gap $13.6 billion
€12.5 billion in global sales 2010
2010 €1.73bn ($2.45bn) of net profit
1 euro = 1.3948 US dollars
What is the similarity?
Jobs fostered an approach to product design that evoked haute couture as much as high-tech.
Zara as a "fashion imitator" companyand low cost products.
Instead of setting the trends, Zara follows them.
The Zara brand is well regarded among the core 25- to-35-year-old consumers?
Fashion is the imitation of a given example and satisfies the demand for social adaptation. .
The more an article becomes subject to rapid changes of fashion, the greater the demand for cheap products of its kind.— Georg Simmel, “Fashion” (1904)
“Fashion is what seems beautiful now but looks ugly later;
art can be ugly at first but it becomes beautiful later.”
Zara 12000 styles a year.
Apple 10 or so product lines, very focus.
-- Louis Vuitton Fashion Director Daniel Piette
"Zara is possibly the most innovative and devastating retailer in the world."
Zar’s factory workers in Spain make an average of $1,650 a month, vs. $206 in China's Guandong Province. But the company saves time and money on shipping.
ultimate fashion faux pas -- wearing the same dress as someone else.
Prevents Same-Dress Embarrassment
As any fashionista can tell you, it’s not just being “in fashion” that matters, it’s being “in fashion” when few others are.
Zara Thrives by Breaking All the Rules
Industry average markdown ratio is approximately 50%, while Zara ration is about 15%.
Clothes are ironed in advance and packed on hangers, with security and price tags affixed.
More than 2.6 million items move through the distribution center each week, See pictures at http://images.businessweek.com/ss/06/08/zara/source/1.htm
Zara's ability to quickly bring the latest designs to its stores rests on its unique business model.
Zara's design team monitors fashion trends and store sales. Based on this they come up with 1,000 designs a month.
They send these out for manufacturing around the world.
Completed designs are shipped back to Spain.
Local store managers in each country tell the Zara head office in Spain what the store needs and how much.
The design team then flies or trucks out consignments for each of Zara's over 1,608 stores based on local needs and trends. A store gets consignments twice a week.
The cross-functional teams can examine prototypes in the hall, choose a design, and commit resources for its production and introduction in a few hours, if necessary
Watch the BBC news video below!
What is the risk faced by Zara?
Spotting trends everywhere from the street to movies to couture fashion shows and,
Information from its customers to keep its merchandise fresh.
Zara has higher manufacturing costs than rivals.
Inditex gross margins are 56.8 percent compared to 37.5 percent at Gap.
Ferdows, K., M.A. Lewis, J.A.D. Machuca.
Harvard Business Review, 82(11), 2004.
5 fingers on production & 5 fingers on customers
Zara relies more on location of a retail establishment rather than advertising to attract customers.
Only .3 percent of sales are spent on advertising for the company compared to that of its competitors who spend around 3.5 percent.
Close the communication loop:
Customer Store Manager/Staff Market Specialists (i.e., Fashion Buyer)Designer Production Staff Buyer (Procurement Specialist) Subcontractor Warehouse Managers/Distributor
Inditex Executive PresidentJesus Echevarria stated that “Everything is happening in stores”.
From customers to designers. “It turns the customer into the starting point of the fashion chain and not the designer.”
People on the street is the runway that Zara studies.
Zara's factories use sophisticated just-in-time systems, developed in cooperation with
that allow the company to customize its processes and exploit innovations. (Flexible Manufacturing)
For example, like Benetton, Zara uses
to gain more speed and flexibility, purchasing more than 50% of its fabrics undyed so that it can react faster to midseason color changes.
Zara: Roughly half of the cloth arrives undyed!
Operations reversal at Benetton: Single product Style with 4 colors choices
For Faster Response,
Have Extra Capacity on Hand
Zara welcomes shoppers in 78 countries to its network of 1.557 stores in upscale locations in the world's largest cities.
The retailer's international footprint proves that national borders are no hindrance to a shared fashion culture.
“There's no such thing as borders when it comes to sharing a single fashion culture.”
Spain: 335 stores (159 with Zara Kids)France: 115 stores (4 with Zara Kids)Italy: 87 stores (12 with Zara Kids)China: 77 storesJapan: 68 storesUnited Kingdom: 65 stores Germany: 64 storesPortugal: 61 stores (21 with Zara Kids)Mexico: 51 storesRussia: 51 storesGreece: 48 stores (6 with Zara Kids)United States: 48 storesPoland: 33 storesBrazil: 31 storesSouth Korea: 30 storesTurkey: 29 storesBelgium: 27 storesSaudi Arabia: 24 storesCanada: 19 storesIsrael: 19 storesNetherlands: 18 stores
Earlier this year, Inditex spent $324 million on a New York property slated to become its new global Zara flagship store. The purchase of the National Basketball Association's old store on Fifth Ave. is the country's most expensive real-estate transaction, measured in dollars per square foot.
In another recent deal also at 666 Fifth, Japanese clothing retailer Uniqlo agreed to pay $300 million over 15 years, in one of the most expensive leases ever in New York.
When the economy was at it’s worst, online retail sales were the one area that either grew or didn’t suffer as much from the downturn. Not having an e-commerce operation at this point is inexcusable for a global retailer.
Read more: http://online.wsj.com/article/SB10001424053111903895904576546651628934210.html#ixzz1bZd2uqxM
The bottom line: Inditex is counting on online sales rather than store expansion to power sales at its Zara chain and trump rival H&M in the U.S.
Inditex’s annual online sales will be €1.4 billion ($2 billion), or 7 percent of group sales by January 2014.
And Gap, which has sold goods online for more than a decade, gets 9% of its sales online (now).
Zara cited sourcing and logistics for their lack of online presence until now.
The fashion retailer also reported that their clothes sell quickly, making it difficult to offer them online.
"It basically follows the same model as our regular store expansion," Mr. Isla says of the online rollout. "For us to enter a new country has a very small cost because, with our twice-a-week delivery model we have few start-up costs. We don't need large logistical infrastructures, marketing departments or big central operations. The model allows us to have a light structure, and that applies to online as well."Read more: http://online.wsj.com/article/SB10001424053111903895904576546651628934210.html#ixzz1bZbsLbaD
Inditex spent €24 million over the past two years in preparation for its online launch in the U.S. and it has high hopes for online demand.
Some 200,000 people have downloaded the Zara application for Apple Inc.'s iPhone or iPad from the U.S., according to the company.Read more: http://online.wsj.com/article/SB10001424053111903895904576546651628934210.html#ixzz1bZdM1Bet