FAST FASHION:

THE DEFINITIVEGUIDE TO ZARA 'SSUPPLY CHAIN

1 | Zero Ads

2 | How Does Zara Do It?

3 | What Makes Fast Fashion So Fast?

FAST FASHION : THEDEFINIT IVE GUIDE TOZARA SUPPLY 'S CHAIN

TABL E O F CO N T E N T S

4 | It's All About Spend Culture

J A N U A R Y 2 0 1 7

ZERO ADS

CHAPTER 1

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CHAPTER 1 | ZERO ADS

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In September 2016,Microsoft founder Bill Gatesslipped to #2 in Forbes’annual list of the World’sRichest Billionaires. Gates’premier position, which hehad steadfastly maintainedfor many years, wasusurped — if only for a fewdays — by an AmancioOrtega. In comparison toGates’ public stature andcelebrity, Ortega was arelative unknown and ittook market watchers,entrepreneurs andbusiness journalists a fewincredulous Googlesearches to discover thatthe 80-year-old Spaniardwas actually the founder ofclothing giant Zara.

On closer inspectionthough, it seems hardlysurprising that a figure asunknown and low-key asOrtega helms one of theworld’s largest fashionempires. For one, Zara, inkeeping with Ortega’sreluctance to do interviewsor court any kind ofpublicity, invests little to nomoney in advertising.

Unlike competing brandsand fashion houses, Zarascarcely appears onbillboards; its collectionsdo not figure in fashionshows; neither does itlobby for Vogue’s gildedpages, nor does it associateitself with any celebrities orhigh-profile fashiondesigners.

Indeed, it bends all therules and defies all theconventions that haveendured since the timefashion, as it were,emerged from thearistocratic salons andbohemian boutiques of19th Century Paris, andentered the mass market.And yet, Zara is thriving.

With over 2,100stores across theworld and arevenue of $15.9Billion (2016), it isone of the mostvaluable companiesin the world.

HOW DOESZARA DO I T ?

CHAPTER 2

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CHAPTER 2 | HOW DOES ZARA DO I T ?

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The answer is Fast Fashion.Fast Fashion, pioneered byZara, is both the dynamo ofits success and its mostdistinguishing factor. Incontradistinction, legacyfashion brands, whoseproducts are priced higher,follow the more orthodoxand time-honoredapproach of SeasonalFashion, wherein the bulk oftheir inventory is designedand manufactured beforethe beginning of everyseason, allowing no roomfor design improvements orchanges mid-season.

Before proceeding, let’sstrike a clear distinctionbetween Fast Fashion andSeasonal Fashion clothing.While most apparel brandsreserve 80% of theirinventory towards SeasonalFashion clothing, Zara doesthe opposite, reserving only50% for its seasonal line anddevoting the rest to FastFashion items. From hereon,all facts, figures and detailswill relate to Zara’s FastFashion clothing and notthe other 50% of itsinventory.

What is FastFashion?

Frugal

Since it came en vogue,Fast Fashion has beenadopted by several otherbrands — H&M, notably,commits up to 20% of itsinventory towards FastFashion items — with theresult that the concept hasbecome elastic and looselydefined. We’ve, however,tried to delineate it byexamining its core features.

Zara’s approach to FastFashion can be traced toOrtega’s earliest businessventure in 1963 — when hesold quilted bathrobes andlingerie that were inspiredfrom designer brands. To thisday, Zara stays true toOrtega’s thrifty designprocesses. Compared to itscompetitors, the companydoes not hire high-profiledesigners or invest too heavilyin crafting wholly originaldesigns. In contrast, itsdesigners, young, anonymousand enthusiastic, work inconcert to create and modifydesigns with strict adherenceto market demands.

CHAPTER 2 | HOW DOES ZARA DO I T ?

Zara’s genius lies inidentifying the latest fashionfads; it keeps an army offashion watchers who keepan eye on what’s trendingon runways, what couturebrands are producing andwhat avant-garde designersare exhibiting, andaccordingly tailoring itsfabrics to stay on top oftrends. In doing so, Zara hasrun afoul of the storiedgatekeepers of fashion aswell as indie designers. In2012, luxury brand ChristianLouboutin took legal actionagainst Zara for allegedlyimitating one of its shoedesigns and selling it at halfthe price. Although the casewas dismissed, fashionjournalists surmised thatZara manages to steer clearof trouble by tweaking itsdesigns just enough toavoid copyright violations.Similarly, young andemerging designers haverailed against Zara forselling alleged knockoffs oftheir work.

in the later months of 2001,chances are that youpurchased a pair that wasblack in color. This isn’tmere coincidence; instead,it is a part of Fast Fashion’score strategy. A few daysafter the September 11attacks rocked NYC, Zara’sstore managers realizedthat the bulk of theircustomers were in a sullenmood. The observation wasrelayed to Zara’s designers,who quickly swung intomotion. Only a few weekslater, Zara rolled out a newcollection that was entirelyin black.

In fashion parlance,turnaround timerepresents the time it takesfor a current collection tobe replaced by a new one.For most fashion retailers,the turnaround time is 3-6months. In comparison,Zara, as it demonstrated inthe aftermath ofSeptember 11, can push acollection from the canvasto the store shelf in twoweeks.

Imitative

If you had been shoppingfor jeans at any of Zara’soutlets in New York City

Responsive

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WHATMAKES FASTFASHION SOFAST ?

CHAPTER 3

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CHAPTER 3 | WHAT MAKES FAST FASHION SO FAST

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Arteixo is a quiet townlocated in A Coruña, on theSpanish coastline. With itsGalician architecture andhistorical landmarks, itseems hardly indistinct fromthe dozens of heritagetowns dotting the Spanishcountryside. Under itscobbled streets, though,runs a 124-mile-longnetwork of high-speedmonorail tracks thatconverge under a colossaland forbiddingmegastructure called TheCube. Given its enormity andfuturistic design, The Cubeseems like something out ofthe sets of 2001 A SpaceOdyssey. It is, in actuality,the nerve centre of Zara’sworldwide operations.

The Cube is where Zara’s200-member design team,its procurement andproduction teams work incoordination. Tokyo,Mumbai, Rio de Janeiro orLondon — no matter whereyou shop, at least 50% ofevery Zara outlet’s inventory(in other words, its FastFashion inventory) begins itscourse at The Cube.

How ZaraOperates the MostAgile SupplyChain in theWorld

The key to understandingFast Fashion lies indeconstructing thiselaborate supply chain thatbegins at The Cube beforespanning out to thousandsof Zara stores locatedacross the globe.

There are 5 crucial phasesin Zara’s supply chain —Procurement, Supply,Production, Manufacturing,Distribution. And, inkeeping with Zara’sdistinctive edge, each ofthese steps makes adecisive departure fromthe industry norm.

Procurement

As mentioned earlier, mostfashion retailers commit upto 80% of their inventory atleast 6 months before thebeginning of the nextseason.

CHAPTER 3 | WHAT MAKES FAST FASHION SO FAST

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This industry-wide practiceddemands that procurementmanagers make advancedforecasts of the number ofclothes that would need to bemanufactured in theseintervening months. Zarahandles procurementdifferently. It does not forecastthe number of finished goods;rather Zara’s procurementteam, operating out The Cube,forecasts the quantity of fabricthat would be needed tomanufacture clothes, beforeplacing orders with thecompany’s suppliers. Thisemphasis on fabric overfinished goods is rooted inZara’s Fast Fashion philosophy.Unlike finished goods, fabricdoes not go waste — it canalways be used to sew newclothes. The year-longavailability of fabric allowsZara to respond to itscustomer needs and changesin fashion trends realtime, andmanufacture new collectionsaccordingly.

why — consumers flock toZara in droves because itsells the same kind ofproducts as the moreexclusive fashion brands —only at cheaper rates. Oneof the reasons why it’s ableto keep its prices low isbecause Zara does notseem to place a premiumon fabric quality. Whereasolder and posher fashionbrands do not tire ofemphasizing the qualityand provenance of theirtextiles, Zara prefers buyingfabric from suppliers whosell it inexpensively andabundantly.

Supply

Zara has often been giventhe moniker of “affordableluxury”.And there's a reason

Production

This is where Fast Fashioncomes into full effect. Afterthe fabric orders are readiedby the suppliers, the fabric isreceived at The Cube. TheCube is ground zero for Zara— it’s where its team ofmarket specialists, designteam and production teamcoordinate with each otherwith clockwork precision. Allof Zara’s design andproduction processes operateout of this central location.

CHAPTER 3 | WHAT MAKES FAST FASHION SO FAST

At The Cube, marketspecialists — many of whompreviously worked as storemanagers — man allcommunications streaming infrom store managers stationedacross thousands of Zaraoutlets around the world.Store managers — who aretrained specifically to engagecustomers and suss out theirreactions to the clothes ondisplay — relay sales figuresand customer feedback on adaily basis to the marketspecialists. Additionally, inputsare also received from runwaywatchers and fashionobservers who are paid to stayon top of latest trends hittingfashion capitals across the globe.

The information is thenconveyed by the marketspecialists to the design andproduction teams. Once theseinputs are obtained, andconclusions are drawn, thedesign team gets to work ontweaking its original designs inaccordance with the inputs.After ideas are sketched out,all the final tweaks are tabledfor consideration — thesetweaks typically relate to coloror the cut of the design.

After the designs areapproved by the motley ofteams, the torch is handedover to the productionteam. Often, the timebetween ideation andapproval can be as little as afew hours.

Zara’s production processleaves no room for delayeither. This is because,unlike other fashion retailers, Zara colors anddyes its fabric in house.Coloring and dying facilities,located inside The Cube, aredeployed, and the supplychain advances to the nextstage.

It is, arguably, Zara’smanufacturing methodologythat makes it such an outlier,when compared to everyother fashion retailer in theworld. It is commonknowledge that almost allmajor fashion brandsoutsource theirmanufacturing to China, andparts of south-east Asia andthe Far East. Predictably,Zara follows a radicallydifferent approach. | 1 1

Manufacturing

CHAPTER 3 | WHAT MAKES FAST FASHION SO FAST

Ortega’s business began in1975 when he opened the firstZara store in downtown ACoruña. As his business turnedinto a global fashion empire,he cultivated a circle of hispreferred manufacturerslocated in the area, along withbuying factories and openingsome of his own across theGalician expanse. To this day,Zara either utilizes Ortega’sown factories and those of hisearliest associates who rodethe wave of Zara’s astonishingrise for close to the last 50years. All of Zara’s Fast Fashioninventory is manufactured inthese factories — most ofwhich are located in thevicinity of The Cube.

Once the sheets of fabric arecut and colored inside TheCube, they are dispatched tothese factories where they aremanufactured into finishedclothes. The mechanism thatis used to dispatch them iswhere the sheer scale, muscleand operational feat of Zaracomes into full view. The 124-mile-long underground trackthat had been mentionedearlier in this article is notused for ferrying passengers;indeed, it is the fabrics, cutand colored, that aretransported on these high-speed monorails to the 11Zara-run factories surroundingThe Cube.But there's more.

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Yes, there’s more — somethingwhich may astonish evenmore than Zara’s feats insubterranean engineering. Atany day or time of the year, upto 85% of Zara’s factoriescould possibly be sitting idle.Indeed, Zara has a peculiartake on capacity utilization.And that’s because when itcomes to fast fashion, thereare two factors that are pivotal— time and changes indemand.

Let’s try to understand this:because this is Fast Fashion, adrop in demand — whichreflects the failing popularityof a particular design —triggers a response from theteams stationed at The Cube.

This response would either be atweak in the design or itscomplete overhaul. To maintainits swift turnaround time, whichstands at two weeks, Zara needsto deploy its resourcesimmediately. It can’t, forinstance, afford any lags becauseone of its factories happens to bebusy. Zara realized there existeda direct relationship between thedegree of capacity utilization ofits factories and their length ofturnaround times. In otherwords, the busier a factory, thelonger it would take tomanufacture a Fast Fashion item.And that’s why Zara keeps 85%of its manufacturing capacityidle so it can respond with moreagility to any changes in demandanywhere in the world.

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CHAPTER 3 | WHAT MAKES FAST FASHION SO FAST

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CHAPTER 3 | WHAT MAKES FAST FASHION SO FAST

Once the fabrics are turnedinto finished clothes, they areloaded into the monorail andfreighted back to The Cube.As mentioned earlier, TheCube serves the globaldisruption centre for all ofZara’s Fast Fashion items. It isat The Cube, where they areinspected, packed and thenshipped out to Zara’s storesacross the world.

Distribution

I T 'S ALLABOUTSPENDCULTURE

CHAPTER 4

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Indeed, Fast Fashion is atthe very centre of Zara’sstrategy; it is what gives itan edge over legacyfashion retailers like CalvinKlein, Armani etc. — ingeneral the gatekeepers offashion that are investedwith enormous culturalcapital by virtue of theirfamous designers, theirelaborate ad campaignsand their association withcelebrities. But, Zaradispensed with suchmarketing practices andpioneered Fast Fashioninstead.

Zara’s meteoric rise in thecourse of the last 50 yearsis grounded in OperationalEfficiency — an unlikely andsomewhat unexcitingfactor behind its successgiven the fashion industry’sglamorous connotations inthe popular imagination.

In Zara’s case, money thatwould have beenchannelized intoadvertising and marketingwas utilized towardscreating a lean and agilesupply chain.

In this respect, Zara has apredecessor in the automativeindustry; Toyota, famous for itsLean Manufacturing model,was one of the first companiesto look inward and optimizeits internal processes toeliminate wasteful andreactive spending.

Central to this analogybetween Zara and Toyota isSpend Culture. Historically,companies kept a hawklikevigil over money coming inbut developed neither thebusiness principles nor thepractices to address the otherside of the coin — the moneygoing out of the company orspend.

Spend Culture notonly mitigates acompany’s spendingproblems but bringsabout a fundamentalchange in mindset —a pivotal changeoverfrom reactive toproactive spending.

CHAPTER 3 | I T 'S ALL ABOUT SPEND CULTURE

Traditionally, NorthAmerican companies havebeen slow to realize theimportance of building aSpend Culture in theorganization. But, as theworld economy grows,more companies havebegun looking for newways to boost theirrevenue. But, revenue, atthe end, is a zero sumgame; finding news ways ofmaking money andcapturing market share arefinite and are reaching acritical mass.

Forcompanies tosurvive in thefuture, aproactiveSpend Cultureis inevitablythe best wayforward.

CHAPTER 3 | I T 'S ALL ABOUT SPEND CULTURE

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process and diligence into company spending.

How Your Company Spends is as Important as How It Earns.

Talk to one of our Spend Management experts today andassess the state of your Spend Culture.

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