ZARA Leads the Way With Its Lean Speed of Response Business Model
With reports of unprecedented amounts of fashion stock piling up in warehouses dating by the day this coronavirus pandemic is surely a wake up call to the traditional retail business model.
The Times reported (14th April 2020) that due to shop closures and lockdown restrictions up to £15 billion worth of fashion stock could be written-off. If that wasn’t alarming enough many retail supply chains using factories as far afield as India have suddenly ceased orders the knock-on effect is heart-breaking with factory workers now struggling to feed and support their families. The days of cheap, mass production where stock is flown all over the world are surely numbered?
Spanish retailer Zara, however has hit on a supply chain formula that is responsive and is minimal in waste and unwanted piles of stock. As published in the Harvard Business Review Zara can design and distribute a garment to market in just fifteen days. So how do they do it?
Shoppers in Zara stores will always find new products but this is where they keep things tight – they will always be in limited supply. This not only makes the customer think ‘this is exclusive and there’s only one left in my size so I need to buy it now’ but it lets the retailer understand what style in what size is selling. When a sale goes through the tills the data is fed back where the team can analyse and decide on further replenishment of that style. This retail concept relies on regular creation and rapid replenishment of small batches. It’s is ‘speed of response’ regular and often.
Zara have always been ahead of the curve in this respect as they have implemented excellent systems of communication at every stage of the supply chain. From customers to store managers, from store managers to market specialists and designers, from designers to production staff and so on. Zara’s single centralised design and production centre in Spain ensures the transfer of information is organised and simple.
Lean (made in smaller quantities) and ‘speed of response’ is a concept that CEO Jenny Holloway endorses at Fashion-Enter Ltd situated in North London. Jenny comments: “Nearly 20% of global waste water is produced by the fashion industry according to the United Nations Partnership on Sustainable Fashion. We need to be leaner, smarter and cleaner in fashion and that means making to demand and not guessing demand. It’s about speed of response and being joined at the hip with retailers so we work in unison. Making in the UK means we can keep volumes low so a product sells out at full price – so garments are cherished and worn for as long as possible. Sustainable short run fashion beautifully made in the UK is the way ahead.”
Additionally Zara fully understands their core market. The design teams work alongside the market specialists and production planners and there is constant communication. Information from its global stores is constantly fed back to this main hub including soft data such as reactions to a new style.
Zara’s ability to react quickly allows them to adjust up to 50 percent of their orders in season therefore avoiding costly overproduction and following sales and discounting. It’s a model that clearly works for them, unsold items account for less that 10 percent of Zara’s stock, whereas for other retailers the figure is double at 20 percent. The regular small batches of stock also increases footfall, with customers in central London Zara stores visiting on average 17 times a year, compared with four times annually for many other major brand retailers. Getting the business model right also ensures that the brand is less reliant on advertising spending just 0.3 percent of its sales on ads, compared to 3 – 4 percent from its competitors.
The coronavirus crisis has exposed the old business model of producing in bulk, pre-season is costly and damaging for business, production workers and the environment. It is surely time to adapt, take note and implement new strategies that work with today’s market.