Zara is Fastest in Fashion
By George Anderson
By U.S. standards, Chico’s FAS is fast when it comes to getting new fashions from the drawing board to store shelves. The retailer can often complete the full cycle in only six months.
Compared to the Europe’s fastest retailers, however, Chico’s is moving at a glacial pace. Spain’s Zara store chain uses an in-house design staff, its own factory and tightly controlled distribution network to get new product to the stores in as little as two weeks – no typo – two weeks.
According to a column on BusinessWeek Online, Zara has higher costs using its own factories paying European wages, but it saves by reducing shipping time and expenses. The company is also able to protect itself against fashion mistakes by producing goods in small quantities and removing sales laggards off store racks quickly.
Kris Miller, a retail analyst with Bain & Co., said Zara shoppers know they need to buy something they like because, while it is here today, it could very well be gone by tomorrow.
“They’ve built up an excitement around snapping up new clothes before they go,” she said. “As well as keeping sales high throughout the year, it also keeps margin-stripping markdowns to a minimum.”
While Zara and others, such as H&M, have enjoyed success, the impact fast fashion retailing has had in the U.S. lags behind what has taken place in Europe. According to NPD Group, fast fashion represents only one percent of all U.S. clothing sales compared to 18 percent in Spain and 12 percent in the British market.
Today, Zara has only 19 of its 1,200 stores in the U.S., leaving it plenty of room for growth.
Moderator’s Comment: What sector of apparel retailing is most at risk from the emergence of fast fashion businesses
such as Zara? Do you expect that fast fashion will grow to the point where it accounts for a similar or higher percentage of apparel sales in the U.S. than it does in European
markets? – George Anderson – Moderator
With the dynamic success of Chico’s FAS in delivering current fashions to its U.S. stores in only 6 months, and Zara doing likewise in only a few weeks in Europe, we’re seeing a consumer trend toward instant gratification in fast fashion access.
And as consumers realize that purchasing decisions must be made quickly in order not to lose a desired timely fashion item, fast fashion retailing will become like skating on thin ice in which one’s safety is in one’s speed.
But with the implicit limitations in the volume of fast fashion merchandise can be produced in a shorter time span, it would seem that this trend is a boon for boutique retailers who do not need the massive amounts of fashion merchandise that mass retailers require for their many stores. Thus as Zara increases its presence in the U.S. beyond 19 stores, and assuming fast fashion gains greater credence in the U.S., it will be an interesting retailing game to observe — and even play in.
Everybody OUGHT to be threatened — inside the fashion industry and out. When consumers get used to the idea of quick response as an industry standard, who knows what other industries they may begin to hold to a higher standard?
Fast fashion isn’t new and it isn’t a guaranty of success… and the two week cycle time is the exception, not the rule. In the 1980’s, Benetton bragged that they would take over the fashion world because they held prepared grey goods ready for color dye and then instant replenishment to their stores. Benetton’s popularity peaked and then declined, like most fashion brands. They’re still in business, they still have factories and stores, and they didn’t take over the world. Why? Because people’s tastes are quite varied, they change, and supply chain engineering can only take a retailer so far. Before Benetton, in the period 1895 to roughly 1970, almost all major retailers bought women’s clothing from factories in New York City. Many of these stores bought items with a 1 to 4 week lead time. At its peak, New York City was manufacturing something like 40% of the women’s clothing sold in America. Since almost all the factories were small (100 people or less), and they were concentrated in Manhattan, supply chain speed and flexibility was maximized. This certainly was fast fashion. Lastly, Zara didn’t say they make everything in 2 weeks, just that they are capable of that speed. Given their size and resources, they should be capable, just like others with similar size and resources, for the exceptional case.
The question strikes me as being just a bit paranoid – just because there’s a new kid, or style, on the block doesn’t necessarily mean everyone else is at risk. People who buy from the likes of Zara are not necessarily already shopping in Wal-Mart or some of the other cheaper outlets. We’re talking about people who consider style over price; as far as I’m aware, Zara is not about bargains, it’s about cool. Their success does not mean that someone else will suffer just that, dare I say it, consumers will have more choice.
Any retailer that has trendy consumers among its group of best consumers is at risk. For years, people have been talking about how to change the cycle of having US consumers wait for items to go on sale. Being afraid the item is no longer available sounds like a good motivation to make that change. Once consumers see a quick response with new, trendy items as possible at one place, that becomes the “new normal” expectation against which all other retailers are judged in those consumers’ minds.
I visited a Zara store in Santa Monica recently. It was very busy with twenty- to forty-somethings. (The Gap across the street was comparatively empty.) Shoppers were buying and not just looking, prices were very reasonable as was the quality, and I found only two racks with markdown merchandise. The merchandise was trendy and was flying off the racks.
Speed to market is valued when the product is “perishable”. Fast fashion retailers are re-defining fashion to meet consumer demand for continuous freshness in fabric, colors, and design. By establishing processes that can execute a blazingly fast two-week design-to-shelf cycle, Zara is pushing fast fashion (and business processes) to the limit and delivering unique value to their consumers. When you deal in weeks instead of months to design and deliver fashion, you are eliminating a huge amount of risk from the business while simultaneously getting many more opportunities to get the right products in your stores.
This model concedes higher distribution costs, but delivers lower inventory carrying costs and markdown dollars and does require streamlined design to store processes – while delivering the variety and excitement that consumers seek in the store. U.S. fashion retailers have complex systems, processes and supporting organization structures that will keep them from leveraging the “Zara model”. Instead, they will tweak their existing processes to make faster drawing board-to-store shelf cycles, but will never match Zara’s speed unless they jettison existing assumptions and organization structures.
Fast fashion supplements and does not replace basics, and in the U.S. it is likely to grow at a slow pace until you have many more Zara stores, Zara copy cats, or enlightened established retailers rethink how they identify and deliver value that meets the needs of certain consumer segments.
I would assume that the segments with the fastest design turnover will be the most vulnerable — the segments where trends change quickly. These segments are those serving the 15 to 34 year old females in low- to moderate-priced lines. These are the segments where a new idea hits the market because of what one of the celebrities wore yesterday, for example.
Zara is doing a terrific job. This is a great example of an industry where, for decades, everyone did everything just about the same as each other. A six-month design-to-store lag is extremely slow, but no one did it any differently and so the industry came to see this a how things must be. The organizations in the industry saw themselves as very strong and healthy, misunderstanding that the traditional financial measures (revenues, margins, market share, etc.) do not show INTRINSIC strength but strength compared to the environment. As long as the environment stayed the same, everything seemed to be great; but in reality, the organizations had a critical problem they were not seeing and not addressing. Then Zara comes along, and becomes a disruptive element, and suddenly these very long lag-times come to be seen as the critical problem they always were. Lag-times may not in itself be a business-buster, but combine it with the other unseen problems in apparel, and you have a very vulnerable industry indeed. And one that doesn’t know it.
Every organization we have studied (1100 out of 1100 studied) is in this situation. The full report is here. The lesson from Zara may be this: traditional financial measures of organization strength show COMPARATIVE strength, not INTRINSIC strength, and now is the time to find out just how strong your organization really is — before your own Zara comes along.
Zara is a case study in strategic trade-offs. The company accepts higher per-unit production costs and a larger sunk investment in design and manufacturing infrastructure in exchange for a much leaner inventory pipeline. As a result, its cost of money is lower than that of traditional retail organizations since it keeps far less capital tied up in perishable goods. Markdown losses are reduced to nearly non-existent and the organization is uniquely nimble in responding to trends and in making merchandising adjustments at the store level. All this is supported by a superb communications system.
Zara’s system works because it keeps the production decentralized and close to the stores. As it expands in the U.S., it may have to cede some of its edge due to the lengthening of its supply lines. For right now, it can succeed in a few units by using overnight couriers to ship goods direct from Europe. What it gives up in cost of goods, it may regain in gross margins in the nation’s prime fashion markets like L.A. and New York. To grow to large numbers of U.S. stores, it will have to clone its system locally, by planting design and production facilities in this geographic market.
The segment of the fashion business most at risk with the emergence of Zara stores in the USA are companies such as the Limited brands and Kenneth Cole which target similar, young, trend-conscious customers, but in a less nimble way.
Zara provides a great shopping experience and good value for the money – I expect continued growth here and abroad. Competitors will likely borrow what works from the Zara model and evolve.
Fast fashion already has grown in the U.S. but not necessarily by vertical apparel retailers. The Metro 7 line hit a new fast-fashion record for Wal-Mart, eight months from sketch to sales floor, and they plan to keep designs open for longer periods of time in order to react to late-breaking trends. J.C. Penney’s launch of a.n.a. was unprecedented, not only because it rolled out to all stores right away rather than being tested in a few hundred, but also because they managed to reduce cycle times from seven to four. How? By using their own in-house design teams, advanced color technology, and leveraging their considerable clout to grab fabric and factory space early-on. Fast fashion may have been modeled after Zara and H&M but it is here nonetheless…and it’s getting faster.
Fashion is, by definition, perishable. Like, bread, eggs and milk. Or is it?
When bread turns stale, eggs turn rotten or milk turns rancid, you do have to throw it away. Fashion is different, because its perishability is artificial, driven by popular perception that something is “out-of-date” or that something else is “the look of the day”. You don’t really have to throw that blue peasant skirt out in the garbage or in the Salvation Army bin…but you do anyway, because it is so yesterday…or that’s what everyone else is saying.
Earlier, perceptions took time to spread, today they can be spread instantaneously through the web, TV and cell phones, and pretty quickly, even through slow media like print magazines.
So ‘Fast Fashion’ is really a product of fast media and communications technologies.
Having said that, it is here to stay, and regular (mainstream) slow-coaches do need to be worried about customers being seduced away by the ever-fresh look of a Chico’s or a Zara.
I can’t even begin to estimate the millions of dollars that must have been spent on “studying the Zara model”. However, while Zara’s model seems to scream “best practice” and everyone wants to emulate it – is it really for everyone?
Inditex (Zara’s parent company) has grown over 40+ years of evolution, in a specific market and business context. It may have “exploded” on the global scene when it floated its IPO in 2001, but the business model has been brewing a long time.
It has such significant investments in production that Inditex is as much a manufacturer as a retailer. Its people and process model almost diametrically opposite the command and control, “buying director – driven” model of other retailers. Its technology investments are focused better than most of its peers. (See case study and presentation on www.3isite.com/articles.htm)
Would your company’s DNA allow you to invest in and manage fabric and apparel manufacturing? Would it allow young people to be sent out to take bigger-ticket purchase decisions with fewer approvals than they do now? Would your design team really trust your frontline store staff with feeding them relevant trend information every day?
And yet, and yet…As labour costs rise in Europe, Zara is also being forced to rethink its model of local or regional production. As it does move more production to places like India and China, the big question is whether it can maintain the sanctity of its business model.
I won’t advise other retailers to breathe easy, but they don’t need to roll over and die just yet.