Deconstructing Zara - India Fashion Forum (2004)

1

© Devangshu Dutta, 2004

BRAND WATCH

ZARA Images Fashion Forum

12 February 2004


2

Introduction to Zara

Zara is part of the €4 billion Inditex Group. Over 80% of the group’s sales are contributed by Zara’s 600 stores.

Other labels include Pull & Bear, Massimo Dutti, Bershka, Stardivarius, Oysho, and the recently added Zara Home

Founded in 1963 by Amancio Ortega, with a small lingerie business.

The first Zara shops opened in 1975 selling low-priced imitations of more upmarket fashion houses.

Ortega thought that consumers would regard clothes as a perishable commodity – no different from yogurt or bread – to be consumed, rather than stored in closets.

Teamed up with José María Castellano, an IT buff who made Ortega's dream of freshly baked clothes a reality.


3

On the Fashion Life Cycle

Time on a Fashion Product Life Cycle

Innovators

Early Adopters

Early Majority

Late Majority

Fashion Laggards Leading Edge

Mainstream Followers


4

Key Success Factors for Zara

Business is built on quick response Production responds to trends

Deliveries are twice weekly, unlike most fashion stores’ weekly schedule

KSFs: Market research

Ready raw material base

Multi-functional quick decision making

Vertical integration to ensure control over supply chain, and proximity

Technology

Cost Control, despite flexibility

Technology and Infrastructure


5

Product Execution

Feedback from the stores:

-Sales reports

-Qualitative comments

Market research on

university campuses,

discos and other

venues

At HQ regional managers collect

and analyse the feedback.

Commercial team sits with

designers to use the

information to create new

lines and tweak existing ones

- deciding with the

commercial team on the

fabric, cut, and price points

of a new garment

Fabrics from

stock

Dyeing/finishing

(if required) Production

Fleet to

stores

Line in

Stores

Close watch on trends & buying behavior

Quick decisions

Vertical integration & Proximity

Report to HQ

daily

Distribution


6

Learnings: Product Development Process

Forecast Plan

Fabric

Buy

Sales

Trends

Fashion Dyeing

Finishing Style

Produce Stock

Colour

Fabric

Decision on Fabric Response to Demand


7

Impact

Minimizes the risk of being saddled with unsold stock

Maximizes full prices due to low remainder stock.

It takes 10 to 15 days, on average, for a design to go from the drawing table to the showroom floor

Style variability: Produces styles in short runs with 20,000 different designs a year

Stores constantly refreshed (twice weekly deliveries), maintaining fashion edge


8

Traditional Season for High Street Store


9

Moving At The Speed Of Fashion

../../../../../../WINDOWS/TEMP/Styleled.gif


10

Process Pointers

“Design and respond quickly” rather than “source quickly”

Buy continually rather than in batches

Develop “colour and fabric collections” Buying / stock plans based on that rather than apparel

collections

Design styles from in-stock fabrics (already in house or available with vendor)

Quick response manufacturing – “virtually owned” capacity

Standardisation is a major enabler to adopt a quick response approach


11

Continual Product Introduction

Major Strengths

Each style is a response to a specific trend More accurate response to

market trend and inventory status – improved sales

Higher margins Lower risk of stockouts

Lower / minimal discounts as “poor” buy and overstocking is minimised

Based on investments / commitments in capacity and raw material that are of lower value than finished goods at stock or retail

Lower costs

Major Weaknesses

Repeats are a limited possibility unless standard fabrics and colours are used in the specific style; this means that styles that do well using other fabrics may not be able to maximise margins

Assumes some, probably a significant, amount of fabric and trim inventory in-house


12

Zara’s Vertical Structure

18% of product related

inventory

* (Source: Zara Annual Reports)


13

Trade-Offs

Repeat Order Limitations:

Repeats are a limited possibility unless standard fabrics and colours are used in the specific style

Hot styles using non-standard fabrics will be one-offs and will not maximise margins

Inventory Position:

Assumes about 15-20% of fabric and trim inventory in-house for providing base for quick design and manufacture.


14

Learnings: Product & Capacity

Own design Control on specifications

Impact on fabric sourcing

Better margins

Controlled Fabric sourcing: Book loom and dyeing & processing capacity with +/-20% flex during season Flexible quantities

On-time deliveries

Cost control

Fabric sourcing mix includes 50-60% own design, balance are mill designs


15

Learnings: Continuum of Control

Owned Outsourced

Control

Space Management

Finished Goods Logistics

Finished Goods Production

Finished Goods Capacity

Design

Parameters to Control

Raw Material

Raw Material Capacity


16

Getting it Right

Right Product Design

Timing / Speed

Assortment

Right Price Full price sales

Cost Control

Low markdowns


17

Questions for Emulators…

In what shape do we need to be?

Are we ready to do what it takes to get there?

Are we “genetically programmed”?

Are we “mentally prepared”?

Are we “physically ready”?


18

Thank You!

Website: www.thirdeyesight.in

http://www.thirdeyesight.in/

Deconstructing Zara - India Fashion Forum (2004)

Business

Transcript of Deconstructing Zara - India Fashion Forum (2004)