Imagine that you have a hot new product. You display it in your store window believing that you have beaten your competitors to identify a key trend in themarket. Good things can only come your way. But just a couple of days later your biggest competitor has responded with its own take on this hot new product.
It’smorale-sapping – intentionally so. And the ability to do that is just part of the Zara concept of fast fashion, says Prof Jose Luis Nueno, professor ofmarketing at the IESE Business School, who has worked closely with Zara’s parent Inditex as it has developed its strategy. Of course, this is an extreme example – it is very expensive tomove that quickly even for an organisation as agile as Inditex.
Inditex started out as a garment manufacturer selling through the traditional wholesale system in Spain and it wasn’t until two big wholesalers went bankrupt that, in 1975, it decided to open its first store. It has since gone on to become one of the largest apparel retailers in the world with sales of more than ten billion euros. It now has 4,264 stores around the world and sales outside pain now account for 66 per cent of the total.
Professor Nueno says that none of this would have been possible if the company had not developed its “Fast Fashion” logistics. “It is easy to predict style for a business garment – but much less easy for a leisure garment,”he says highlighting the importance of speed in this market.
Zara, Professor Nueno points out, has a big offer in basic goods. These are low price products such as T-shirts and are positioned in the centre of the store. Crucially, although prices are low,margins for these products are high.
The Fast Fashion goods are positioned around the edges of the store, attracting the buyers.With the Fast Fashion products stock rotation is rapid and if a product doesn’t sell, it is eliminated and something else brought in.
In general, products turn around fromnine to 30 days which enables it to have fresh stock in the store. By staying one step ahead of the fashion trends in this way, the retailer keeps customers interested. If customers understand that a store is constantly being updated with new products, they get into the habit of visiting regularly. There is less need to advertise.
And, critically, the systemresults inmuch less unsold stock whichmust then bemoved out and discounted to get rid of it. A conventional retail systemcan have up to 40 per cent of stock being discounted. For Inditex, the figure is much lower – ten to 20 per cent. Professor Nueno points out that the resultingmargin depletion is alsomuch lower – only a quarter of the conventional level.
Inditex aims to outsource as much of its logistics as possible and has a matrix based on the functions that are most important to the client and those that it does well. So a lot of IT is carried out in-house, says Professor Nueno. “There is one programmer for every three designers.”
This philosophy means that most of the transport is contracted out. Inditex has the benefit of a private facility at Zaragoza Airport which it can make use of 24 hours a day. As a result a container of goods flown in from a factory in the Far East can be unloaded and goods loaded on another aircraft for the final destination within an hour.
So far, 2009 has been another challenging year for the sector but Inditex expects to continue outperforming the industry.
The Group expects to add 230,000 square metres of retail surface area, approximately 95 per cent of it in international markets, the company says.