Inditex (Zara, Massimo Dutti, Pull&Bear) has revolutionized the fashion industry with its fast fashion approach to the extent that its founder, Amancio Ortega, became the world\u2019s richest man on August 30 [1]. Rather than producing in low-cost countries such as China and Bangladesh, Inditex has their production centers in countries such as Portugal and Turkey, close to the European market where they are bought by the consumers [2]. The drawback of this supply chain is higher per unit production costs; however, these are outweighed by the benefits of a faster supply chain. Inditex\u2019 most successful brand, Zara, have exploited the advantages of their fast supply chain by:<\/p>\n
This system has been very effective and has fueled Inditex\u2019 rapid growth and profitability over the past decades. Seeing Inditex\u2019 success, fashion brands across the board are changing their supply chain to fast fashion to limit Inditex\u2019 competitive advantage [4]. Even more concerning, there is now emerging a new group of successful fashion brands, often referred to as ultra-fast fashion, including Boohoo, ASOS and Missguided. Boohoo grew sales 51% last year and improved net profit margin to more than 10% [5]. These brands are even producing in the UK to deliver new products in two weeks compared to Inditex\u2019 six weeks, but more importantly they are selling only online [6]. Selling online only gives the ultra-fast fashion brands an edge on the younger customers, however, the long term strategic edge may be even more important. The ultra-fast fashion brand can beat Inditex at their own strengths by:<\/p>\n
Inditex\u2019 short and mid-term response has been to see online as a new sales channel as customer demand is shifting online. To mitigate the impact of this shift they have increased their investment in their online presence at the expense of store expansions [8]. Their increased focus on online could be seen by the opening of new markets and improving the customer experience by reducing delivery time from 3-5 days to 2-3 days in the UK and adding next day delivery for free on orders above GBP50 [9] [10] [11]. Inditex is also experimenting with their lingerie and athleisure brand Oysho selling on Zalando\u2019s marketplace in Europe, which they potentially could expand to other brands to further increase online sales [12].<\/p>\n
However, online is not just another sales channel as the ultra-fast fashion players are posing a real threat to Inditex in the medium term. An adequate response would be to alter their supply chain and business model to compete. Inditex has developed several brands to address different customer targets e.g. Massimo Dutti for classic style and Pull&Bear for younger, edgier style. Similarly, by combining current capabilities with outside talent Inditex is in a great position to develop strong ultra-fast fashion brands to fight off the new competition.<\/p>\n
Contrary to Inditex, other fast fashion brands such as Primark have stayed away from e-commerce as customers can only browse products online and not buy [13]. The rationale is not that they do not see the value in online, but rather that the low-priced items cannot cover the high variable costs in e-commerce [14]. Zalando reported in 2016 fulfillment costs of 23% of sales [15]. Inditex does not break out their numbers, but they are likely higher as Zalando has larger orders. On the other hand, Inditex had operating expenses of 35% of sales, driven by the high fixed costs of running their vast store network [16]. As online sales are cannibalizing offline sales, Inditex will increasingly find themselves getting the high fixed costs from operating their stores and the high variable costs from fulfilling online orders.<\/p>\n
The key question for Inditex is what to do with their existing brands: Should they embrace online to capture all demand, or should they rather focus on offline to capture demand in a cost-efficient manner?<\/p>\n
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[1] Ginsberg, Leah. The founder of Zara briefly knocked out Bill Gates to become the richest person in the world. (2017, Aug 30). CNBC. https:\/\/www.cnbc.com\/2017\/08\/30\/zara-founder-amancio-ortega-is-now-the-richest-person-in-the-world.html<\/a><\/p>\n [2] Butler, Sarah. Inditex: Spain’s fashion powerhouse you’ve probably never heard of. (2013, Dec 14). The Guardian. https:\/\/www.theguardian.com\/fashion\/2013\/dec\/15\/inditex-spain-global-fashion-powerhouse<\/a><\/p>\n [3] Howland, Daphne. Report: ‘Ultra-fast’ fashion players gain on Zara, H&M. (2017, May 22). RetailDive. https:\/\/www.retaildive.com\/news\/report-ultra-fast-fashion-players-gain-on-zara-hm\/443250\/<\/a><\/p>\n [4] Milnes, Hilary. Luxury brands are changing how they operate internally to react faster to customers. (2017, Nov 2). Glossy. http:\/\/www.glossy.co\/evolution-of-luxury\/luxury-brands-are-changing-how-they-operate-internally-to-react-faster-to-customers<\/a><\/p>\n [5] Williams-Grut, Oscar. Fast fashion retailer Boohoo grew sales by a huge 51% last year \u2014 but shares are falling. (2017, Apr 26). Business Insider. http:\/\/www.businessinsider.com\/boohoo-2017-full-year-results-revenue-up-51-profits-up-97-2017-4<\/a><\/p>\n [6] Wynne, Ophelia. Is British Fast Fashion Too Fast? (2017, May 16). Racked.\u00a0 https:\/\/www.racked.com\/2017\/5\/16\/15643246\/asos-boohoo-british-fast-fashion<\/a><\/p>\n [7] Cocozza, Paula. Faster fashion: \u2018If a trend comes, we need to have it on our site in under a week\u2019. (2015, April 7). The Guardian. https:\/\/www.theguardian.com\/fashion\/2015\/apr\/07\/fast-fashion-online-labels-boohoo-missguided<\/a><\/p>\n [8] Neumann, Jeanette and Garcia, Ana. Zara Parent Inditex Slows Store Expansion as Online Sales Grow. (2016, Mar 9). Wall Street Journal. https:\/\/www.wsj.com\/articles\/inditex-profit-boosted-by-zara-stores-1457512394<\/a><\/p>\n [9] Inditex Annual Report 2016. https:\/\/www.inditex.com\/documents\/10279\/319575\/Inditex+Annual+Report+2016\/6f8a6f55-ed5b-41f4-b043-6c104a305035<\/a><\/p>\n [10] Goudie, Brenda. Fulfilment customer experience: Zara. (2013, February). EcommPoint. http:\/\/ecommpoint.com\/blog\/retailer-fulfiilment-roadtest\/fulfilment-customer-experience-zara\/<\/a><\/p>\n [11] Accessed 2017, Nov 13. https:\/\/www.zara.com\/uk\/<\/a><\/p>\n [12] Zalando Press Release 2017, June 19. https:\/\/corporate.zalando.com\/de\/newsroom\/en\/pressemitteilungen\/full-access-and-availability-products-weekday-nike-and-tommy<\/a><\/p>\n [13] Howland, Daphne. Report: ‘Ultra-fast’ fashion players gain on Zara, H&M. (2017, May 22). RetailDive. https:\/\/www.retaildive.com\/news\/report-ultra-fast-fashion-players-gain-on-zara-hm\/443250\/<\/a><\/p>\n [14] Howland, Daphne. Eschewing e-commerce, Primark is holding out for brick-and-mortar. (2015, Sept 15). RetailDive. https:\/\/www.retaildive.com\/news\/eschewing-e-commerce-primark-is-holding-out-for-brick-and-mortar\/405618\/<\/a><\/p>\n [15] Zalando Annual Report 2016. https:\/\/annual-report.zalando.com\/2016\/fileadmin\/user_upload\/20170307_zalando2016_geschaeftsbericht_en_mit_schutz.pdf<\/a><\/p>\n