{"id":23339,"date":"2017-11-15T00:33:40","date_gmt":"2017-11-15T05:33:40","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/digitalization-of-zara-and-fast-fashion\/"},"modified":"2017-11-21T12:49:27","modified_gmt":"2017-11-21T17:49:27","slug":"digitalization-of-zara-and-fast-fashion","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/digitalization-of-zara-and-fast-fashion\/","title":{"rendered":"Digitalization of Zara and Fast Fashion"},"content":{"rendered":"

Over the past five to ten years, the retail industry has changed radically. These changes are clearly seen in the fashion industry, with the advent of e-commerce and fast fashion. While Amazon has transformed the e-commerce space and forced apparel companies to establish themselves online, fast fashion brands, of which Zara is one of the most synonymous, have transformed retail stores.1<\/sup><\/p>\n

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The value of Zara\u2019s \u201cfast fashion\u201d model is that it allows retailers to deliver designer products to mass markets at relatively low prices and with extreme speed \u2013 bringing trends virtually straight from the catwalks to retail locations. Traditional fashion retailers are not able to manage or achieve this, as they operate on a seasonal basis and require several-month-long lead times for the production and distribution of collections.1<\/sup> Zara, on the other hand, has, through the use of digitalization and data analytics, managed to develop a nimble, efficient supply chain that cuts this production cycle down to less than three weeks.2<\/sup> The ability to master this speedy production cycle has catered to demanding, instant-gratification-minded consumers and caused Zara to thrive over the past several years while other retailers have faced declining or stagnant growth.1<\/sup><\/p>\n

 <\/p>\n

Now some of those other retailers and other fast fashion companies are attempting to replicate Zara\u2019s quick production cycle strategy.3<\/sup> In order to remain ahead, Zara has focused on continuing to use digitalization and big-data analysis in the short term to further increase sales turnover and operate with even leaner working capital. Every piece of clothing, for example, is tagged with a radiofrequency identification (RFID) microchip before it leaves a centralized warehouse, which provides real-time tracking of inventory right up until it is purchased by a consumer at a retail location.4<\/sup> Therefore, the data about each store\u2019s inventory levels, and the popularity of and speed with which each SKU sells is constantly being provided to the Company\u2019s central data processing center.5<\/sup> The center, which operates 24 hours a day, collects data from Zara\u2019s 2,100-plus retail locations across 80-plus countries,6<\/sup> allowing for bi-monthly product deliveries that are tailored to individual stores based on SKU-specific inventory data.7<\/sup> Zara can then constantly refine and optimize its inventory management, distribution and design to minimize waste in the production cycle and eliminate fashion risk.<\/p>\n

 <\/p>\n

Through these practices, Zara has managed to streamline its supply chain to the point where approximately 50% of its SKUs are designed and produced during the relevant season. In the coming year, the percentage may rise even higher.3<\/sup> By creating a nimble supply chain driven by digitalization and data analytics, Zara will continually improve its ability to order small batches of any given SKU from its distributors, track the success of the designs, and immediately order more inventory of the specific SKU and size for the locations that demand it, making Zara \u201chyper-local\u201d in its inventory planning.<\/p>\n

 <\/p>\n

In the longer term, Zara is becoming increasingly focused on digitalization every aspect of a consumer\u2019s shopping experience. This can be seen in its implementation of online \u201cclick and collect\u201d in its key flagship locations,6<\/sup> which allows customers to order items online and pick them up in-store, providing a win-win for the customer and Zara. From the customer\u2019s perspective, it is incredibly convenient, and for Zara it provides even more immediate knowledge about inventory management and consumer preferences for individual SKUs. In order to remain competitive, I believe that Zara should focus on and expand this initiative. If this method of shopping continues to be popular with consumers, and Zara is able to quickly analyze and process the data, this channel could operate as a just-in-time supply chain. The Company could manufacture and distribute only the guaranteed number of items to be sold at specific locations, reducing its inventory to effectively zero.<\/p>\n

 <\/p>\n

I think that Zara could go even further by developing its e-commerce presence. While the Company does not distinguish between online and in-store sales, I would expect that e-commerce contributes less to its revenue.2<\/sup> However, having a large portion of its customer experience digitalization could help Zara collect even more sales data than it already does, and allow it to compete with retailers such as Amazon that have helped shift customer preferences to e-commerce.<\/p>\n

 <\/p>\n

The question I would like to propose is: Going forward, do you think Zara\u2019s supply chain strategy is not that difficult to replicate, and that it is only a matter of time before more traditional apparel retailers, such as Gap or Michael Kors, are able to successfully catch up and put pressure on Zara? Or does Zara, as one of the first movers in the space, have enough experience and expertise in developing and refining its supply chain that the learning curve is too steep for larger, more established and less nimble companies to truly catch up?<\/p>\n

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Word count: 793<\/strong><\/p>\n

 <\/p>\n

Sources<\/p>\n

(1) McKinsey & Company. \u201cThe State of Fashion.\u201d https:\/\/www.mckinsey.com\/industries\/retail\/our-insights\/the-state-of-fashion<\/a><\/p>\n

(2) Inditex Annual Report, 2016.<\/p>\n

http:\/\/static.inditex.com\/annual_report_2016\/en\/<\/a><\/p>\n

(3) Hiiemaa, Kris. \u201cIn the Success Stories of H&M, Zara, Ikea and Walmart, Luck Is Not a Key Factor.\u201d<\/p>\n

http:\/\/erply.com\/in-the-success-stories-of-hm-zara-ikea-and-walmart-luck-is-not-a-key-factor\/<\/a><\/p>\n

(4) Digitalist. \u201cZara\u2019s Agile Supply Chain Is the Source of Its Success.\u201d http:\/\/www.digitalistmag.com\/digital-supply-networks\/2016\/03\/30\/zaras-agile-supply-chain-is-source-of-competitive-advantage-04083335<\/a><\/p>\n

(5) Refinery 25. \u201c15 Zara Secrets the Press-Shy Brand Hasn\u2019t Made Public\u201d http:\/\/www.refinery29.com\/2016\/02\/102423\/zara-facts?utm_campaign=160322-zara-secrets&utm_content=everywhere&utm_medium=editorial&utm_source=email#slide-11<\/a><\/p>\n

(6) Inditex 1H, 2017. Report and Transcript. https:\/\/www.inditex.com\/documents\/10279\/342864\/Transcript+-+1H2017+Results.pdf\/2ce7e3e8-e194-45e9-9655-b5398abc9b69<\/a><\/p>\n

(7) Bloomberg. \u201cZara\u2019s Recipe for Success: More Data, Fewer Bosses.\u201d https:\/\/www.bloomberg.com\/news\/articles\/2016-11-23\/zara-s-recipe-for-success-more-data-fewer-bosses<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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