Innovative Retailer – Zara

The Name: Zara

The Place: All over the world pretty much, with more than 2,000 shops in just about any place where young women own bank cards. Actually there is a menswear line too so the other half of the population is also catered for.

The Story:  Founded in 1975 by one fashion-loving Spaniard Amancio Ortega, is there really anyone out there who has not heard of the legendary supply chain at Zara?

Um. Yes. Me: Well, prepare to be amazed by stories of turnaround times to take your breath away, how fast fashion went supersonic, how over capacity and sales ended, and how one season will see new additions to the range every week. Zara works to an incredibly tight ‘Just in Time’ principle whereby just enough stock is delivered just in time constantly. It’s not for the faint hearted, trust me but owning their own manufacturing and supply processes does give them supreme visibility down the production line and insure them against sudden disasters.

Crumbs. Fire away: Let us begin with the very rare system of design used by Zara known as ‘asking the customer what they want before you make it’.

Is that a technical term? No. Consider the situation at a normal High Street retailer – the fashion week shows six months in advance of the season herald the looks that people are told they will want, retailers go away and form a range from those designs, they ask manufacturers to make them, the retailer promotes and then sells them. And finally right at the end the customer gets a say in whether they like it or not.

Just the way it should be, nice and steady. We don’t want the punters getting above themselves: Now at fast-fashion Zara this is what happens – feedback and data on preferences is taken from customers in the shop, fed back to designers who begin work immediately on new additions to the basic range. These are then manufactured mainly in house in Spain, and then it gets pushed straight into the shops. There is no advertising, the items are just there for a bit and then they are gone again. Geddit?

That’s all sounds quite tiring doesn’t it? Turnaround time on introducing new garments in-store is typically 10-14 days. The industry standard is nine months. Every Zara store manager on the planet puts in an order for replacement stock twice a week and twice a week they receive their replacement stock. Every year fashion retailers put 2,000 to 4,000 items on their shelves, while Zara puts 11,000 to 12,000 on its shelves. The way it predicts supply and demand has to be seen to be believed, store managers are especially crucial and well paid for their role in feeding back customer preferences directly to the design centres and it was also a pioneer in the use of PDA’s.

And they are? Personal Digital Assistants. And it if does make a mistake then the effects are very short lived because not much of any one thing is made and the shelves will soon be full of the next thing. And blink and you will have missed it.

I really do think I need a lie-down: Man up. We’re not done. One of the great advantages to the brand of constantly changing its designs is that it creates a sense of scarcity – customers know that if they want to definitely get an item they have to buy it now at full price because next week the stocks might have run out or it’s been replaced by a new thing. And for the image hungry 25-year old you just can’t buy that sense of ‘I’ve got it and no one else has’. There is precious little stockpiling at Zara and if you’re waiting for the sales then forget it.

But I love a rummage: Then go elsewhere, pal. More than 85% of Zara stock is sold at its intended price, which compares very favourably with the usual womenswear retail rate of as low as 50%. Correspondingly sales and profits for Zara were both up by over 15% in last year’s results and the company is opening new stores like…

It’s going out of fashion: Precisely. For Zara owning so much of its manufacturing and distribution network is the key to everything. It only has to commit to 15/25% of its new range six months in advance, and maybe 50% by the beginning of the season – all the additional capacity can be used to design new stuff right in the middle of the season. If something suddenly happens on the fashion front then the company is poised to react.

But there must be a problem somewhere, how does all this speedy delivery stuff play out across the world for instance? Goodness, it’s almost like someone has been prepping you. It’s true, Zara is most densely represented in Europe where its design and delivery hubs are (mainly Spain and Portugal so it incurs the higher European wages but keeps everything nice and close) so it is at its most efficient here. It can trade off the frequent transportation costs against the fact that it does not need to warehouse vast amounts of stock. Orders are delivered within 24 hours in Europe compared to 40 hours in the rest of the world. And certainly in the US where Zara hopes to make great inroads, the store density is far less and transporting will be more of a headache.

Aha. I knew there would be something. And can I now mention the C word: Absolutely not.

By which I mean China, of course. I presume even Zara had time to stop and hear about the slowdown in that market: Sorry to disappoint but fast fashion is one of the few areas that China is not giving up on. It is the luxury brands that are closing as the rich increasingly use them as a showroom to see what they will buy when they go abroad. Mid-market Zara wants to open loads more stores in China to compete with its close rival H&M.

Well, this Ortega fellow has done terribly well hasn’t he. I think he might make a bob or two out of this supply chain business if he plays his cards right: For four hours in 2015 he was by market capitalisation the richest man in the world.

Right.

PCMS is a global provider of IT software and services for the retail industry. PCMS offers a full-range of integrated commerce solutions across selling touch points and also provides turnkey managed services and cloud hosting. Its client list includes John Lewis, Marks & Spencer, Waitrose, Whole Foods, as well as Walgreens in the US and fashion brands including Prada and Ferragamo across Europe.