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- 1 - © Minder Chen, 1993-2011 Chapter 3: Zara: Fast Fashion from Savvy Systems A Zara store in Manhattan.

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Presentation on theme: "- 1 - © Minder Chen, 1993-2011 Chapter 3: Zara: Fast Fashion from Savvy Systems A Zara store in Manhattan."— Presentation transcript:

1 - 1 - © Minder Chen, Chapter 3: Zara: Fast Fashion from Savvy Systems A Zara store in Manhattan

2 - 2 - © Minder Chen, Why Study Zara? To understand and appreciate : –The counterintuitive and successful strategy of Zara –The technology, which has made all of this possible

3 - 3 - © Minder Chen,

4 - 4 - © Minder Chen, Latest Fashion ZARA · Fall / Winter TRF - Young "TRF" is short for Trafaluc- offered by Zara for the youth/teenage (Store in Sydney)

5 - 5 - © Minder Chen, 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.

6 - 6 - © Minder Chen, 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.

7 - 7 - © Minder Chen, Impacts of Amanciao Ortegas 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 Amancio Ortega 1936 Biography - Early career, The zara phenomenon, Inditex

8 - 8 - © Minder Chen, Inditex Inditex, one of the worlds 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.

9 - 9 - © Minder Chen, OEM ODM OBM BRANDING Demand Chain (Supply Chain) Creative Conceptualization R&D ODM OEM OBM

10 © Minder Chen, Net Worth 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

11 © Minder Chen, Went Public in 2001 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 sales70% 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. Sales in 2000 Inditex $2.43 billion H&M $3.2 billion Gap $13.6 billion

12 © Minder Chen, Gap versus Inditex at a Glance 12.5 billion in global sales euro = US dollars bn ($2.45bn) of net profit

13 © Minder Chen, Zara in Australia 2011

14 © Minder Chen, Apple Beijing Store

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

16 © Minder Chen, Zaras Positioning A.Armani at moderate prices! B.Fashions are more Banana Republic, prices are more Old Navy. C.Look like high fashion but are comparatively inexpensive. D.Cheap Chic Price Fashion Quality Customer segmentation

17 © Minder Chen, Zara Zara as a "fashion imitator" company and low cost products. Trends setter? Instead of setting the trends, Zara follows them. 2-17

18 © Minder Chen, Zara Positioning 2-18 The Zara brand is well regarded among the core 25- to-35- year-old consumers?

19 © Minder Chen, What Is Fashion? 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) Classic Fad Trend

20 © Minder Chen, Fashion Diffusion 60s-70s

21 © Minder Chen, Innovation "Zara is possibly the most innovative and devastating retailer in the world." -- Louis Vuitton-- Louis Vuitton Fashion Director Daniel PietteDaniel Piette Apple Commercial

22 © Minder Chen, 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 Check –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%)

23 © Minder Chen, 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

24 © Minder Chen, Outfit Clashes

25 © Minder Chen, Zara as a Rule Breaker Markdown? –Markdown legend (?)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 stores product mix.

26 © Minder Chen, Markdown Industry average markdown ratio is approximately 50%, while Zara ration is about 15%.

27 © Minder Chen, 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

28 © Minder Chen, The Cube

29 © Minder Chen, 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

30 © Minder Chen, 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 Designer Marketing Specialist Production Planner Buyer

31 © Minder Chen, The Apparel Lifecylce Watch the BBC news video below! What is the risk faced by Zara?

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

33 © Minder Chen, Results Zara has higher manufacturing costs than rivals. Inditex gross margins are 56.8 percent compared to 37.5 percent at Gap.

34 © Minder Chen, 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

35 © Minder Chen, Rapid-fire Fulfillment Ferdows, K., M.A. Lewis, J.A.D. Machuca. Rapid-fire fulfillment, Harvard Business ReviewHarvard Business Review, 82(11), 2004.

36 © Minder Chen, 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.

37 © Minder Chen, Vertical Integration Design/ Production/ Logistics StoreCustomer 37 5 fingers on production & 5 fingers on customers

38 © Minder Chen, Mans Department (ZARA store in Almere, The Netherlands)

39 © Minder Chen, Zara Has A Self-Reinforcing System.. Close communication/ information loop Stick to a rhythm Leverage Your Assets

40 © Minder Chen, 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

41 © Minder Chen, Fast Fashion Just-in-Time Quick Response Fast Fashion Information Technology Push vs. Pull Reactive Capacity Fast Fashion Competitors –Forever 21 –Uniqlo –Renner (Brazilian)

42 © Minder Chen, 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.

43 © Minder Chen, Postponement Strategy Operations reversal at Benetton: Single product Style with 4 colors choices Zara: Roughly half of the cloth arrives undyed!

44 © Minder Chen, Production Planning 2-44

45 © Minder Chen, Capacity Utilization For Faster Response, Have Extra Capacity on Hand Capacity Utilization Waiting Time

46 © Minder Chen, Zara Global Presence Zara welcomes shoppers in 78 countries to its network of 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.

47 © Minder Chen, Inditext There's no such thing as borders when it comes to sharing a single fashion culture.

48 © Minder Chen, Global Presence SpainSpain: 335 stores (159 with Zara Kids) France: 115 stores (4 with Zara Kids) Italy: 87 stores (12 with Zara Kids) China: 77 stores Japan: 68 stores United Kingdom: 65 stores Germany: 64 stores Portugal: 61 stores (21 with Zara Kids) Mexico: 51 stores Russia: 51 stores Greece: 48 stores (6 with Zara Kids) United States: 48 stores Poland: 33 stores Brazil: 31 stores South Korea: 30 stores Turkey: 29 stores Belgium: 27 stores Saudi Arabia: 24 stores Canada: 19 stores Israel: 19 stores Netherlands: 18 stores France Italy China Japan United Kingdom Germany Portugal Mexico Russia Greece United States Poland Brazil South Korea Turkey Belgium Saudi Arabia Canada Israel Netherlands

49 © Minder Chen,

50 © Minder Chen,

51 © Minder Chen, Fifth Avenue Flagship Store 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.

52 © Minder Chen, Why Going Online? When the economy was at its worst, online retail sales were the one area that either grew or didnt suffer as much from the downturn. Not having an e-commerce operation at this point is inexcusable for a global retailer.

53 © Minder Chen,

54 © Minder Chen, Zara Online Strategy 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. Inditexs annual online sales will be 1.4 billion ($2 billion), or 7 percent of group sales by January And Gap, which has sold goods online for more than a decade, gets 9% of its sales online (now). Read more:

55 © Minder Chen, Why Is Zara Late for the E-Commerce Party? 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.

56 © Minder Chen, Online Start-Up Costs "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:

57 © Minder Chen, Costs of US Online Initiative 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:

58 © Minder Chen, res/servlet/product/us/en/zara-us- W2011/119504/605502/STRIPED%2 BSHIRT

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