chapter 3 zara fast fashion from savvy systems n.
Skip this Video
Loading SlideShow in 5 Seconds..
Chapter 3: Zara: Fast Fashion from Savvy Systems PowerPoint Presentation
Download Presentation
Chapter 3: Zara: Fast Fashion from Savvy Systems

Chapter 3: Zara: Fast Fashion from Savvy Systems

281 Views Download Presentation
Download Presentation

Chapter 3: Zara: Fast Fashion from Savvy Systems

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Chapter 3: Zara: Fast Fashion from Savvy Systems Medium quality “fast” fashion clothing at affordable prices. A Zara store in Manhattan

  2. Why Study Zara? • To understand and appreciate : • The counterintuitive and successful strategy of Zara • The technology, which has made all of this possible

  3. Latest Fashion ZARA · Fall / Winter 2011 - TRF - Young "TRF" is short for Trafaluc- offered by Zara for the youth/teenage (Store in Sydney)

  4. Humble beginning: Amanciao Ortega Gaona • At age of 13, worked as a gofer in a shirt store • In 1963, he started his own lingerie production firm. • In 1972 he founded Confecciones Goa, S.A., the first garment-making factory of Inditex • 1975, he started Zara • When a German wholesaler suddenly canceled a big lingerie order in 1975, Amancio Ortega thought his fledgling clothing company might go bankrupt. All his capital was tied up in the order. There were no other buyers. In desperation, he opened a shop near his factory in La Coruña, in the far northwest corner of Spain, and sold the goods himself. He called the shop Zara.

  5. Fashionable But Not Pricy 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.

  6. Impacts of Amanciao Ortega’s Earlier Experiences 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, Inditex

  7. Inditex 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.

  8. OEM ODM  OBM OBM CreativeConceptualization BRANDING ODM R&D OEM (Supply Chain) Demand Chain

  9. Net Worth Net Worth $31B as of March 2011 The richest person in Spain The #2 richest person in Europe The #7 richest person in the world

  10. Went Public in 2001 Sales in 2000• Inditex $2.43 billion• H&M $3.2 billion• Gap $13.6 billion • In May 2001, a particularly tough period for initial public offerings, Inditex sold 25% of its shares to the public for €2.3 billion. • Inditex's sales—70% of which come from Zara. • Zara's sales and net income have continued to grow at an annual rate of over 20%. • Ortega's owned 59% share of the company.

  11. Gap versus Inditex at a Glance €12.5 billion in global sales 2010 2010 €1.73bn ($2.45bn) of net profit 1 euro = 1.3948 US dollars

  12. Zara in Australia 2011

  13. Apple Beijing Store

  14. Apple vs. Zara What is the similarity? Jobs fostered an approach to product design that evoked haute couture as much as high-tech.

  15. Apple

  16. Zara’s Positioning • Price • Fashion • Quality • Customer segmentation • “Armani at moderate prices!” • Fashions are more “Banana Republic,” prices are more “Old Navy.” • Look like high fashion but are comparatively inexpensive. • Cheap Chic

  17. Zara Zara as a "fashion imitator" companyand low cost products. Trends setter? Instead of setting the trends, Zara follows them.

  18. Zara Positioning The Zara brand is well regarded among the core 25- to-35-year-old consumers?

  19. What Is Fashion? Trend Classic bellwether Fad 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)

  20. Fashion Diffusion 60s-70s

  21. Fashion vs. Art • Steve Jobs’ philosophy of aesthetics reminds me [Mona Simpson] of a quote that went something like this: “Fashion is what seems beautiful now but looks ugly later; art can be ugly at first but it becomes beautiful later.” •

  22. Apple vs. Zara Zara 12000 styles a year. Apple 10 or so product lines, very focus.

  23. Innovation -- Louis Vuitton Fashion Director Daniel Piette Apple Commercial "Zara is possibly the most innovative and devastating retailer in the world."

  24. Zara as a Rule Breaker • Contract Manufacturing (Outsourcing, offshore outsourcing)? • factory workers in Spain make an average of $1,650 a month, vs. $206 in China's Guandong Province • 34% manufacturing is outsourced to Asia, and 14% to parts of Europe (mainly Italy and Turkey), those tend to be the more basic items. The high-fashion stuff, 49% of what it sells, is cut and finished in “proximity” (Spain, Portugal and Morocco), though some sewing is done by small local cooperatives. [ H&M 75% to Asia][[Check label]] • Marketing? (Budget) • 0.3% vs. 3.5% of revenue • Batch Size? • Zara produces in small batches which creates a sense of scarcity with consumers. (Buy now or never) • Fail products% (10% vs. 1%)

  25. Pros and Cons of Contact Manufacturing • Costs • Controls/Coordination • Use IT for centralized planning & decentralized execution • Reduce a single point of failure? • Risks • Sweatshop • Environmental issues • Quality

  26. Labor Costs 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.

  27. ultimate fashion faux pas -- wearing the same dress as someone else. Prevents Same-Dress Embarrassment Outfit Clashes 撞衫 As any fashionista can tell you, it’s not just being “in fashion” that matters, it’s being “in fashion” when few others are.

  28. Zara as a Rule Breaker Zara Thrives by Breaking All the Rules • Markdown? • Markdown legend (?) • 50% vs. 15% • Frequency of new products arrival & store layout? • Ship twice a week (Z-Day) • Like walking into a new store every two weeks (with store layout changed – directed from the Cube) • Out of stock (Good or Bad)? • Encourages customers to visit often(# of store visit per year 3 vs. 17) • Store product mix decision • Zara retail store managers, not headquarters, determine their own store’s product mix.

  29. Markdown Industry average markdown ratio is approximately 50%, while Zara ration is about 15%.

  30. Zara as a Rule Breaker • Store Ownership? (Rent vs. Own) • Location of warehouses/distribution centers? • Spain • Get merchandise to European stores within 24H hours, flying goods via commercial airliners to stores in the Americas and Asia in 48H. • Some clothes it has made in China are shipped to Spain and then back to shops in China. • Design Team (Star Designer?) • Rotation (why?) • Cross-functional teams

  31. The Cube

  32. Shipping of Clothes from Distribution Center 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

  33. The quick change artist 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.

  34. Co-location leveraged at Zara 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 Production Planner Buyer Marketing Specialist Designer

  35. Zara Headquarter

  36. The Apparel Lifecylce Watch the BBC news video below! What is the risk faced by Zara?

  37. Fashion Reconnaissance Spotting trends everywhere from the street to movies to couture fashion shows and, Information from its customers to keep its merchandise fresh.

  38. Results Zara has higher manufacturing costs than rivals. Inditex gross margins are 56.8 percent compared to 37.5 percent at Gap.

  39. Information and IT • Zara Store • Hard data: POS data • Soft data: Ask customers their preferences (PDA) • Firm data: Nonsale data  What is this called in e-commerce? • Design/Production Team • fabric is cut and dyed by robots (laser cutting) • Not mentioned specifically: • ERP, SCM, CRM, e-commerce web site

  40. Rapid-fire Fulfillment Ferdows, K., M.A. Lewis, J.A.D. Machuca. “Rapid-fire fulfillment”, Harvard Business Review, 82(11), 2004.

  41. Ten Fingers: Both Hands • “You need to have five fingers touching the factory and five touching the customer.” • Translation: • Control what happens to your product until the customer buys it. • Do everything possible to let one hand help the other.

  42. Vertical Integration 5 fingers on production & 5 fingers on customers 43

  43. Man’s Department (ZARA store in Almere, The Netherlands)

  44. Marketing and Store Locations 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.

  45. Zara Has A Self-Reinforcing System ..

  46. Communication Loops Close the communication loop: Customer  Store Manager/Staff  Market Specialists (i.e., Fashion Buyer)Designer  Production Staff  Buyer (Procurement Specialist)  Subcontractor  Warehouse Managers/Distributor

  47. Customer  Design 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.

  48. Fast Fashion • Just-in-Time  Quick Response  Fast Fashion • Information Technology • Push vs. Pull • Reactive Capacity • Fast Fashion Competitors • Forever 21 • Uniqlo • Renner (Brazilian)

  49. Just-In-Time • Zara's factories use sophisticated just-in-time systems, developed in cooperation with Toyota, • that allow the company to customize its processes and exploit innovations. (Flexible Manufacturing) • For example, like Benetton, Zara uses "postponement" • to gain more speed and flexibility, purchasing more than 50% of its fabrics undyed so that it can react faster to midseason color changes.