The New York Times Magazine has a long article on how Inditex and its main brand Zara have grown to be one of the world’s most influential fashion players (How Zara Grew Into the World’s Largest Fashion Retailer, Nov 11). They even have a spiffy video.
Not surprisingly, both play up the role of operations in the firm’s success.
A traditional ready-to-wear fashion company in the West sends the designs for its clothes to independent factories in countries like China and India, where the labor to make them is cheap. These clothes are then shipped back and stocked in stores in spring and fall, with smaller shipments throughout the year.
But a brand at Inditex will make a fall collection, for example, and then ship only three or four dresses or shirts or jackets in each style to a store. There’s very little leftover stock, few extra-smalls or mediums hiding in the back. But store managers can request more if there’s demand. They also monitor customers’ reactions, on the basis of what they buy and don’t buy, and what they say to a sales clerk: “I like this scooped collar” or “I hate zippers at the ankles.” Inditex says its sales staff is trained to draw out these sorts of comments from their customers. Every day, store managers report this information to headquarters, where it is then transmitted to a vast team of in-house designers, who quickly develop new designs and send them to factories to be turned into clothes.
More than half of Inditex’s manufacturing takes place either in the factories it owns or within proximity to company headquarters, which is to say in Europe or Northern Africa. Inditex owns factories in Spain and outsources production to factories in Portugal, Morocco and Turkey — considered costly labor markets, typically. The rest of its clothes are produced in China, Bangladesh, Vietnam and Brazil, among other countries. The trendiest items are made closest to home, however, so that the production process, from start to finish, takes only two to three weeks. Inditex’s higher labor costs are offset by greater flexibility — no extra inventory lying around — and on faster turnaround speed.
That means that if Inditex stores in London, Tokyo and São Paulo all have customers responding enthusiastically to, let’s say, sequined cranberry-colored hot pants, Inditex can deliver more of these, or a variation on hot pants, sequins or that cranberry color, to stores within three weeks. The company tries to keep the stock fresh; one promise its stores make is that you will always be buying something nearly unique. Merchandise moves incredibly quickly, even by fast-fashion standards. All those thousands of Inditex stores receive deliveries of new clothes twice a week.
So is there really much new here?
Arguably, no. Much has been written about how Zara has grown and how their operations supports a business model that encourages customers to buy now and at full-price as opposed to waiting for an inevitable sale. Indeed, there is a Harvard case on the firm that has been around for almost ten years. Even some of the more interesting parts of the article — such as speculation on whether Inditex needs to replicate their Spanish operations in Asia in order to support their ambitious growth plans for China — have been talked about before. See, for example, this post.
Still it’s nice whenever The Old Gray Lady talks operations. Also, there is an interesting assertion about how Zara has affected traditional, high-end fashion houses.
“They broke up a century-old biannual cycle of fashion,” Golsorkhi says. “Now, pretty much half of the high-end fashion companies” — Prada and Louis Vuitton, for example — “make four to six collections instead of two each year. That’s absolutely because of Zara.”
Now there are a couple of ways of taking that quote. One is that Prada has had to stagger the launch of its designs to keep Zara from copying all of them. That is, if Prada wants its window display to look different from Zara’s it needs to be constantly tweaking its offerings. If it doesn’t, its looks are too close to the cheap duds down the street. In this telling, more frequent updates are purely a defensive move.
However, there may be a more optimistic view. Specifically, Prada and Louis Vuitton may be benefitting from how Zara has trained to customers to shop more frequently. If fashionistas now are willing to visit stores on, say, a monthly basis as opposed to making one trip a season, then retailers can capture a greater share of their clothing budget by offering them innovative designs on a regular basis. But does that add cost? Yes and no. If all of your systems are set up to make infrequent deliveries of large quantities, then this a switch to frequent new designs and deliveries is probably pretty painful. On the other hand, it is generally cheaper and easier to run at a level rate so smoothing out how items move through the system may be beneficial in the long run.