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Title: Chapter 3: Zara: Fast Fashion from Savvy Systems


1
Chapter 3 Zara Fast Fashion from Savvy Systems
Medium quality fast fashion clothing at
affordable prices.
A Zara store in Manhattan
2
Why Study Zara?
  • To understand and appreciate
  • The counterintuitive and successful strategy of
    Zara
  • The technology, which has made all of this
    possible

3
(No Transcript)
4
Latest Fashion
  • ZARA Fall / Winter 2011 - TRF - Young
    http//youtu.be/pyMQ3eOwwx0
  • "TRF" is short for Trafaluc- offered by Zara for
    the youth/teenage
  • http//www.youtube.com/user/zarap/u/4/fm0TpEMKDFI
  • (Store in Sydney)

5
Humble beginning Amanciao Ortega Gaona
  • At age of 13, worked as a gofer in a shirt store
  • In 1963, he started his own
  • lingerie production firm.
  • In 1972 he founded Confecciones Goa, S.A.,
  • the first garment-making factory of Inditex
  • 1975, he started Zara
  • When a German wholesaler suddenly canceled a big
    lingerie order in 1975, Amancio Ortega thought
    his fledgling clothing company might go bankrupt.
    All his capital was tied up in the order. There
    were no other buyers. In desperation, he opened a
    shop near his factory in La Coruña, in the far
    northwest corner of Spain, and sold the goods
    himself. He called the shop Zara.

6
Fashionable But Not Pricy
  • In the early 1960s Ortega became the manager of a
    local clothing shop, where he noticed that only a
    few wealthy residents could afford to buy the
    expensive clothes. Thus he started producing
    similar items at lower prices, purchasing cheaper
    fabric in Barcelona and cutting out pieces by
    hand using cardboard patterns. Ortega then sold
    his items to local shops he used the profits to
    start his first factory in 1963 at the age of 27.

7
Impacts of Amanciao Ortegas Earlier Experiences
  • When Amanciao Ortega was 13 years old he worked
    as a delivery boy for a shirt maker who produced
    clothing for the rich. He later worked as a
    draper's and tailor's assistant. In seeing
    firsthand how costs mounted as garments moved
    from designers to factories to stores, Ortega
    learned early on the importance of delivering
    products directly to customers without using
    outside distributors. He would later employ such
    a strategy with great success at Zara, attempting
    to control all of the steps in textile production
    in order to cut costs and gain speed and
    flexibility. Read more Amancio Ortega 1936
    Biography - Early career, The zara phenomenon,
    Inditex http//www.referenceforbusiness.com/biogra
    phy/M-R/Ortega-Amancio-1936.htmlixzz1bfL4MMA6

8
Inditex
  • Inditex, one of the worlds largest fashion
    distribution groups, has more than 5,000 stores
    in 77 countries. In addition to Zara, the largest
    of its retail chains, Inditex has seven other
    formats Pull Bear, Massimo Dutti, Bershka,
    Stradivarius, Oysho, Zara Home and Uterqüe.
  • Its unique management model, based on innovation
    and flexibility, and its vision of fashion
    based on creativity and quality designs, together
    with the capacity to react quickly to market
    demands has enabled it to enjoy rapid
    international expansion and an outstanding
    reaction to its various commercial concepts.
  • The Inditex Group is made up of more than 100
    companies operating in textile design,
    manufacturing and distribution.

9
OEM? ODM ? OBM
OBM
Creative Conceptualization
BRANDING
ODM
RD
OEM
(Supply Chain)
Demand Chain
10
Net Worth
  • Net Worth 31B as of March 2011
  • The richest person in Spain
  • The 2 richest person in Europe
  • The 7 richest person in the world

11
Went Public in 2001
  • In May 2001, a particularly tough period for
    initial public offerings, Inditex sold 25 of its
    shares to the public for 2.3 billion.
  • Inditex's sales70 of which come from Zara.
  • Zara's sales and net income have continued to
    grow at an annual rate of over 20.
  • Ortega's owned 59 share of the company.

Sales in 2000 Inditex 2.43 billion HM 3.2
billion Gap 13.6 billion
12
Gap versus Inditex at a Glance
12.5 billion in global sales 2010
1 euro 1.3948 US dollars
2010 1.73bn (2.45bn) of net profit
13
Zara in Australia 2011
14
Apple Beijing Store
15
Apple vs. Zara
What is the similarity?
Jobs fostered an approach to product design that
evoked haute couture as much as high-tech.
16
Apple
17
Zaras Positioning
  • Armani at moderate prices!
  • Fashions are more Banana Republic, prices are
    more Old Navy.
  • Look like high fashion but are comparatively
    inexpensive.
  • Cheap Chic
  • Price
  • Fashion
  • Quality
  • Customer segmentation

18
Zara
  • Zara as a "fashion imitator" companyand low
    cost products.
  • Trends setter?
  • Instead of setting the trends, Zara follows them.

19
Zara Positioning
The Zara brand is well regarded among the core
25- to-35-year-old consumers?
20
What Is Fashion?
Trend
  • Fashion is the imitation of a given example and
    satisfies the demand for social adaptation. .
  • The more an article becomes subject to rapid
    changes of fashion, the greater the demand for
    cheap products of its kind. Georg Simmel,
    Fashion (1904)

Classic
bellwether
Fad
21
Fashion Diffusion
60s-70s
http//www.eurbanista.com/the-history-of-fashion-d
iffusion-in-pictures/
22
Fashion vs. Art
  • Steve Jobs philosophy of aesthetics reminds me
    Mona Simpson of a quote that went something
    like this
  • Fashion is what seems beautiful now but looks
    ugly later
  • art can be ugly at first but it becomes beautiful
    later.
  • http//www.nytimes.com/2011/10/30/opinion/mona-sim
    psons-eulogy-for-steve-jobs.html?_r1

23
Apple vs. Zara
  • Zara 12000 styles a year.
  • Apple 10 or so product lines, very focus.

24
Innovation
  • "Zara is possibly the most innovative and
    devastating retailer in the world."

-- Louis Vuitton Fashion Director Daniel
Piette Apple Commercial http//www.youtube.com
/watch?vWyGT2F74p_Afeaturerelated
25
Zara as a Rule Breaker
  • Contract Manufacturing (Outsourcing, offshore
    outsourcing)?
  • factory workers in Spain make an average of
    1,650 a month, vs. 206 in China's Guandong
    Province
  • 34 manufacturing is outsourced to Asia, and 14
    to parts of Europe (mainly Italy and Turkey),
    those tend to be the more basic items. The
    high-fashion stuff, 49 of what it sells, is cut
    and finished in proximity (Spain, Portugal and
    Morocco), though some sewing is done by small
    local cooperatives. HM 75 to AsiaCheck
    label
  • Marketing? (Budget)
  • 0.3 vs. 3.5 of revenue
  • Batch Size?
  • Zara produces in small batches which creates a
    sense of scarcity with consumers. (Buy now or
    never)
  • Fail products (10 vs. 1)

26
Pros and Cons of Contact Manufacturing
  • Costs
  • Controls/Coordination
  • Use IT for centralized planning decentralized
    execution
  • Reduce a single point of failure?
  • Risks
  • Sweatshop
  • Environmental issues
  • Quality

27
Labor Costs
  • Zaras factory workers in Spain make an average
    of 1,650 a month, vs. 206 in China's Guandong
    Province. But the company saves time and money on
    shipping.

http//www.businessweek.com/magazine/content/08_42
/b4104066866245.htm
I began working in Bangladesh's garment industry
at the age of 12, making just 3 a month.Kalpona
Akter
28
97 of clothes are not made in the United States.
http//whereamiwearing.com/curriculum/
How many people does it take to make a pair of
Jeans? http//www.youtube.com/watch?vqHev86ELF2w

http//shopfairtrade.wordpress.com/2011/09/29/wher
e-does-your-shirt-come-from/
29
High Cost of Cheap Fashion
  • http//www.npr.org/2013/05/02/180557959/ethical-fa
    shion-is-the-tragedy-in-bangladesh-a-final-straw
  • Garment factory fire Bangladesh, April 2013 death
    toll reached more than 400.
  • CSR pressure aims to force firms to meet a
    triple bottom line that considers not just
    profit but working conditions and impact on the
    environment.
  • http//www.forbes.com/sites/howardhusock/2013/05/0
    2/the-bangladesh-fire-and-corporate-social-respons
    ibility/

30
http//www.cnn.com/2013/05/02/world/asia/banglades
h-us-tshirt/index.html?hpthp_t1
31
Outfit Clashes ??
ultimate fashion faux pas -- wearing the same
dress as someone else. www.Dressregistry.com
Prevents Same-Dress Embarrassment
As any fashionista can tell you, its not just
being in fashion that matters, its being in
fashion when few others are.
http//news.xinhuanet.com/english2010/entertainmen
t/2010-06/22/c_13363544.htm
32
Zara as a Rule Breaker
  • Markdown?
  • Markdown legend (?)
  • 50 vs. 15
  • Frequency of new products arrival store layout?
  • Ship twice a week (Z-Day)
  • Like walking into a new store every two weeks
    (with store layout changed directed from the
    Cube)
  • Out of stock (Good or Bad)?
  • Encourages customers to visit often( of store
    visit per year 3 vs. 17)
  • Store product mix decision
  • Zara retail store managers, not headquarters,
    determine their own stores product mix.

Zara Thrives by Breaking All the Rules
33
Markdown
Industry average markdown ratio is approximately
50, while Zara ration is about 15.
34
Zara as a Rule Breaker
  • Store Ownership? (Rent vs. Own)
  • Location of warehouses/distribution centers?
  • Spain
  • Get merchandise to European stores within 24H
    hours, flying goods via commercial airliners to
    stores in the Americas and Asia in 48H.
  • Some clothes it has made in China are shipped to
    Spain and then back to shops in China.
  • Design Team (Star Designer?)
  • Rotation (why?)
  • Cross-functional teams

35
The Cube
36
Shipping of Clothes from Distribution Center
  • Clothes are ironed in advance and packed on
    hangers, with security and price tags affixed.
  • More than 2.6 million items move through the
    distribution center each week, See pictures at
    http//images.businessweek.com/ss/06/08/zara/sourc
    e/1.htm

37
The quick change artist
  • Zara's ability to quickly bring the latest
    designs to its stores rests on its unique
    business model.
  • Zara's design team monitors fashion trends and
    store sales. Based on this they come up with
    1,000 designs a month.
  • They send these out for manufacturing around the
    world.
  • Completed designs are shipped back to Spain.
  • Local store managers in each country tell the
    Zara head office in Spain what the store needs
    and how much.
  • The design team then flies or trucks out
    consignments for each of Zara's over 1,608 stores
    based on local needs and trends. A store gets
    consignments twice a week.

http//www.forbes.com/2010/07/29/forbes-india-zara
-business-model-tweak.html
38
Co-location leveraged at Zara
  • The cross-functional teams can examine prototypes
    in the hall, choose a design, and commit
    resources for its production and introduction in
    a few hours, if necessary

Production Planner
Buyer
Marketing Specialist
Designer
http//www.innovel.net/?cat6
39
Zara Headquarter
40
The Apparel Lifecylce
  • Watch the BBC news video below!
  • What is the risk faced by Zara?

http//www.fashionnetasia.com/en/IndustryNews/Busi
nessResources/Detail.html?id1891
41
Fashion Reconnaissance
  • Spotting trends everywhere from the street to
    movies to couture fashion shows and,
  • Information from its customers to keep its
    merchandise fresh.

42
Results
  • Zara has higher manufacturing costs than rivals.
  • Inditex gross margins are 56.8 percent compared
    to 37.5 percent at Gap.

43
Information and IT
  • Zara Store
  • Hard data POS data
  • Soft data Ask customers their preferences (PDA)
  • Firm data Nonsale data (clothes abandon at the
    fitting room area)? What is this called in
    e-commerce?
  • Design/Production Team
  • fabric is cut and dyed by robots (laser cutting)
  • Not mentioned specifically
  • ERP, SCM, CRM, e-commerce web site

44
Rapid-fire Fulfillment
  • Ferdows, K., M.A. Lewis, J.A.D. Machuca.
  • Rapid-fire fulfillment,
  • Harvard Business Review, 82(11), 2004.

45
Ten Fingers Both Hands
  • You need to have five fingers touching the
    factory and five touching the customer.
  • Translation
  • Control what happens to your product until the
    customer buys it.
  • Do everything possible to let one hand help the
    other.

46
Vertical Integration
5 fingers on production 5 fingers on customers
46
47
Mans Department (ZARA store in Almere, The
Netherlands)
48
Marketing and Store Locations
  • Zara relies more on location of a retail
    establishment rather than advertising to attract
    customers.
  • Only .3 percent of sales are spent on advertising
    for the company compared to that of its
    competitors who spend around 3.5 percent.

49
Zara Has A Self-Reinforcing System ..
50
Communication Loops
  • Close the communication loop
  • Customer ?? Store Manager/Staff ?? Market
    Specialists (i.e., Fashion Buyer)??Designer ??
    Production Staff ?? Buyer (Procurement
    Specialist) ?? Subcontractor ?? Warehouse
    Managers/Distributor

51
Customer ? Design
  • Inditex Executive President Jesus Echevarria
    stated that Everything is happening in stores.
  • From customers to designers. It turns the
    customer into the starting point of the fashion
    chain and not the designer.
  • People on the street is the runway that Zara
    studies.

52
Fast Fashion
  • Just-in-Time ? Quick Response ? Fast Fashion
  • Information Technology
  • Push vs. Pull
  • Reactive Capacity
  • Fast Fashion Competitors
  • Forever 21
  • Uniqlo
  • Renner (Brazilian)

53
Just-In-Time
  • Zara's factories use sophisticated just-in-time
    systems, developed in cooperation with
  • Toyota,
  • that allow the company to customize its processes
    and exploit innovations. (Flexible
    Manufacturing)
  • For example, like Benetton, Zara uses
  • "postponement"
  • to gain more speed and flexibility, purchasing
    more than 50 of its fabrics undyed so that it
    can react faster to midseason color changes.

54
Postponement Strategy
  • Operations reversal at Benetton Single product
    Style with 4 colors choices

Zara Roughly half of the cloth arrives undyed!
55
Production Planning
56
Capacity Utilization
  • For Faster Response,
  • Have Extra Capacity on Hand

Waiting Time
Capacity Utilization
57
Attributes Competitors Zara
New Items Designed 2,0004,000 (HM,Gap) 30,000
From concepts to products 35 months (HM), 6 months (Gap) , 9 months (others) 15 days
Manufacturing No factory (HM) 60 produced in house
Batch size Hugh batch size everything is the same (Gap) Small batches Youll never end up looking like someone else.
average markdown ratio approximately 50 15 (85 full price)
of store visit per year 3 17
Marketing /Revenue ratio 3.5 0.3
Failed product introductions 10 1
gross margins 37.5 56.8
IT Investment ¼ of the industry average
Stores 3,076 stores WW with 2,551 in US (Gap) 3,900 stores across 70 countries.
58
Zara Global Presence
  • Zara welcomes shoppers in 78 countries to its
    network of 1.557 stores in upscale locations in
    the world's largest cities.
  • The retailer's international footprint proves
    that national borders are no hindrance to a
    shared fashion culture.

59
Inditext
There's no such thing as borders when it comes
to sharing a single fashion culture.
60
Global Presence
  • Spain 335 stores (159 with Zara Kids)France
    115 stores (4 with Zara Kids)Italy 87 stores
    (12 with Zara Kids)China 77 storesJapan 68
    storesUnited Kingdom 65 stores Germany 64
    storesPortugal 61 stores (21 with Zara
    Kids)Mexico 51 storesRussia 51 storesGreece
    48 stores (6 with Zara Kids)United States 48
    storesPoland 33 storesBrazil 31 storesSouth
    Korea 30 storesTurkey 29 storesBelgium 27
    storesSaudi Arabia 24 storesCanada 19
    storesIsrael 19 storesNetherlands 18 stores

61
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62
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63
Fifth Avenue Flagship Store
  • Earlier this year, Inditex spent 324 million on
    a New York property slated to become its new
    global Zara flagship store. The purchase of the
    National Basketball Association's old store on
    Fifth Ave. is the country's most expensive
    real-estate transaction, measured in dollars per
    square foot.
  • In another recent deal also at 666 Fifth,
    Japanese clothing retailer Uniqlo agreed to pay
    300 million over 15 years, in one of the most
    expensive leases ever in New York.

64
Why Going Online?
  • When the economy was at its worst, online retail
    sales were the one area that either grew or
    didnt suffer as much from the downturn. Not
    having an e-commerce operation at this point is
    inexcusable for a global retailer.

65
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66
Zara Online Strategy
  • The bottom line Inditex is counting on online
    sales rather than store expansion to power sales
    at its Zara chain and trump rival HM in the U.S.
  • Inditexs annual online sales will be 1.4
    billion (2 billion), or 7 percent of group sales
    by January 2014.
  • And Gap, which has sold goods online for more
    than a decade, gets 9 of its sales online
    (now).

Read more http//online.wsj.com/article/SB1000142
4053111903895904576546651628934210.htmlixzz1bZd2u
qxM
67
Why Is Zara Late for the E-Commerce Party?
  • Zara cited sourcing and logistics for their lack
    of online presence until now.
  • The fashion retailer also reported that their
    clothes sell quickly, making it difficult to
    offer them online.

68
Online Start-Up Costs
  • "It basically follows the same model as our
    regular store expansion," Mr. Isla says of the
    online rollout. "For us to enter a new country
    has a very small cost because, with our
    twice-a-week delivery model we have few start-up
    costs. We don't need large logistical
    infrastructures, marketing departments or big
    central operations. The model allows us to have a
    light structure, and that applies to online as
    well."Read more http//online.wsj.com/article/S
    B10001424053111903895904576546651628934210.htmlix
    zz1bZbsLbaD

69
Costs of US Online Initiative
  • Inditex spent 24 million over the past two years
    in preparation for its online launch in the U.S.
    and it has high hopes for online demand.
  • Some 200,000 people have downloaded the Zara
    application for Apple Inc.'s iPhone or iPad from
    the U.S., according to the company.Read more
    http//online.wsj.com/article/SB100014240531119038
    95904576546651628934210.htmlixzz1bZdM1Bet

70
http//www.zara.com/webapp/wcs/stores/servlet/prod
uct/us/en/zara-us-W2011/119504/605502/STRIPED2BSH
IRT
71
Prada Fancy Technology Use by IDEO
http//www.ted.com/talks/david_kelley_on_human_cen
tered_design.html Around 354
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