Shhh

#2

Retailer in the w

Inditex Lineup

Skhuaban

Who is Zara?

ZARA
For fashion conscious adults ages 25-35, Zara Clothing is the clothing retailer that incorporates modern telecommunication technology in its marketing research & supply chain in order to deliver fresh customer inspired fashion designs at less than designer prices.

Zara
Marketing
Binging Sexy Back

Manufacturers approach to Fashion Retailing

Management

Fashion is

Fun

Again ! ! !

Exclusivity on rarity . . . instead of Price

Zara shoppers gold

Pro fit M arg in

Profit Margin

Pro fit M arg in

PM

Rt ea il

M ark dow n

Rt ea il

Markdown

Regular Retail

Zaras Model

Consumers in central London visit the average store four times annually, but Zara's customers visit its shops an average of 17 times a year. The high traffic in the stores circumvents the need for advertising

by Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca Editor's note: With some 650 stores in 50 countries, Spanish clothing retailer Zara has hit on a formula for supply chain success that works by defying conventional wisdom. This excerpt from a recent Harvard Business Review profile zeros in on how Zara's supply chain communicates, allowing it to design, produce, and deliver a garment in fifteen days. In Zara stores, customers can always find new productsbut they're in limited supply. There is a sense of tantalizing exclusivity, since only a few items are on display even though stores are spacious (the average size is around 1,000 square meters). A customer thinks, "This green shirt fits me, and there is one on the rack. If I don't buy it now, I'll lose my chance." Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Zara's designers create approximately 40,000 new designs annually, from which 10,000 are selected for production. Some of them resemble the latest couture creations. But Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower prices. Since most garments come in five to six colors and five to seven sizes, Zara's system has to deal with something in the realm of 300,000 new stock-keeping units (SKUs), on average, every year. This "fast fashion" system depends on a constant exchange of information throughout every part of Zara's supply chainfrom customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy that can bog down communication between departments. But Zara's organization, operational procedures, performance measures, and even its office layouts are all designed to make information transfer easy. Zara's single, centralized design and production center is attached to Inditex (Zara's parent company) headquarters in La Corua. It consists of three spacious hallsone for women's clothing lines, one for men's, and one for children's. Unlike most companies, which try to excise redundant labor to cut costs, Zara makes a point of running three parallel, but operationally distinct, product families. Accordingly, separate design, sales, and procurement and production-planning staffs are dedicated to each clothing line. A store may receive three different calls from La Corua in one week from a market specialist in each channel; a factory making shirts may deal simultaneously with two Zara managers, one for men's shirts and another for children's shirts. Though it's more expensive to operate three channels, the information flow for each channel is fast, direct, and unencumbered by problems in other channelsmaking the overall supply chain more responsive. Zara's cadre of 200 designers sits right in the midst of the production process.In each hall, floor to ceiling windows overlooking the Spanish countryside reinforce a sense of cheery informality and openness. Unlike companies that sequester their design staffs, Zara's cadre of 200 designers sits right in the midst of the production process. Split among the three lines, these mostly twentysomething designershired because of their enthusiasm and talent, no prima donnas allowedwork next to the market specialists and procurement and production planners. Large circular tables play host to impromptu meetings. Racks of the latest fashion magazines and catalogs fill the walls. A small prototype shop has been set up in the corner of each hall, which encourages everyone to comment on new garments as they evolve. The physical and organizational proximity of the three groups increases both the speed and the quality of the design process. Designers can

I Havent Heard of Zara

2%

50%

25%

2%

13%

8%

% of Sales

Benetton Diesel H&M Gap Macys

3 4 4 5.5 6

Ad Budgets of Retailers

Zara

0.3

Perceptual Map

ec r P i

X X

prices Everyday Low quality

Fashion Value

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Birkin Bag

$3999.00

$65.00

Versace Dress

$1995.00

QuickTime and a TIFF (Uncompressed) decompressor are needed to see this picture.

$125.00

Gucci Handbag

$1150.00

QuickTime and a TIFF (Uncompressed) decompressor are needed to see this picture.

$73.00

Z A R A

Imitation
Is the sincerest form of flattery.

Turnaround Times
30 26 24

24 12 10 5

Zara
Marketing
Control Freak

Lean Mean Managemet Machine

Management

Sale Promo

Feedback Design

Control

Zara
Display

Cut

Production Shippment Sale Outsource Outsource Design Outsource

Armani
Display

Outsource Co-OP Outsource Promo None Outsource

Hilfiger
Outsource

Outsource

Outsource Outsource

Simplicity is the ultimate sophistication.

-Leonardo Da Vinci

Office & Design lab

Manufactu ring

Logis tics

Europe Production Cost: $$$$$$$$$$ Cost:

Asian Production $$

Fashion Value: ZZZZZZZZZZ

High fashion suits & skirts

Fashion Value: ZZZZZ

Commoditized eyeware and plain shirts

Winning the Battle of Minutes

Tags at the Factory - 3 Hours

PDA for Ordering - 2 Hours

Computer Scheduling 2% reduction

Inditex Inditex and fast fashion Jun 16th 2005 From The Economist print edition WHEN Spain's Crown Prince Felipe and Letizia Ortiz Rocasolano announced their engagement in 2003, the bride-to-be wore a stylish white trouser suitwhich raised some "The point of sale does not close the process but rather eyebrows among those concerned with royal protocol. But within a few weeks, hundreds of Europeanit, acting as a market information collection system women were wearing something similar. Welcome to the world of instant renewswhich a Spanish company is defying conventional wisdom and building a fashion, in that provides feedback to the design teams and reports the global brand: Zara. Instead of demandeddemand forcustomers. " seasons trends trying to create by the new trends in the summer and winter its storesusing the catwalks of fashion shows, Zara studies the demands of the customers in and then tries to deliver an appropriate design at lightning speed. In the process, Zara has become the most profitable arm of Inditex, a holding company of eight retail brands, and one of the biggest success stories in Spanish business.

Minimal Markdowns Exclusive Inventory Higher ROI

Immitaters of Fashion

Innovators of Management

Competitors Copying

Zara

Management

H&M Target Benetton Patagonia

Once a week shipments

Limited supply designers

Mid-season lineup adjustments

Tripled seasonal shipments

60% Spain

20% Europe

20% Asia

Production Facilities

15

10

0 2003 2004 2005 2006 2007

Zara Gap H&M Benetton

Sales in

Billions

of $

2000

Zara Gap

Profit in millions

1000

0 2003 2004 2005 2006 2007

Zara . . .

Now available in all sizes

Small Boutique

Mid-sized storefront

Colosal sized department store