Let'sbegin by reiterating the key successfactorsin Zara'sbusiness
that we identified in the first part of the article. These were:
Shorter lead timesfor conceptsto reach the market Smaller quantitiesper style and Many more stylesduring a year. In combination, these keep the store looking fresh and desirable for the consumer. Obviously, all of these factorsare closely interlinked. The elementssupporting Zara's businessstructure and strategy are also greatly interlinked and interdependent. The following three factorsstand out: 1. Extensive market research providing a constant stream of inputs into the product development process, rather than in batchesor discrete seasons. 2. Locating variousbusinessfunctionsin close proximity of the headquarters, and tight control, allowsthe variousfunctionsto coordinate and take joint-decisionsvery quickly. Control also refersto early investment in raw material, and direct or indirect ownership of processing and production capacities. These provide the capability to respond very quickly to the market research-influenced decisions. 3. Communication and Information Technology are absolutely vital to managing the constant interface of variousfunctionsand management of the huge variety of product information. By Devangs hu Dutta, Zara's success is as much a result of its history and location, as of its counter-intuitive business strategies. While it may not be possible for another company to exactly duplicate the conditions under which Zara flourished, one can certainly learn from its experiences, and its business structures. In the second instalment of this article, we probe the core strategies underpinning Zara's success - and the key factors enabling these strategies - as well as the learnings possible for Indian companies. retail @ the s peed of fas hion part-II Lead Time Scarcity Variety Market Research Comm. & IT Key Enablers Key Success Factors Proximity & Control cas e STUDY Growing the scale isa tough part, because most Indian brands With thisismind, let'ssee how Indian companiescould aim to don't have a market reach that iswide and deep enough to do a Zara. achieve quick volumes. The distribution channelsare also built in multiple layers, each of which influencesorder-placement, and therefore quantitiesand lead-time. That' san easy question to start with. Othersinvest in setting a trend; Zara doesn't. It just respondsto them very quickly. Remember, we are talking about following the innovators, not about being one. Thisneedsa capability to understand design, but an even stronger capability to be a stylist- that is, re- creating, rather than creating first. Yes, there are successful design-oriented retail businessesthat set fashion trends- they are very creative, but typically small. The capability to create new design trends, and the capability to distribute that design in large volumesquickly and profitably, typically don't exist in the same company. For those who want to be large and profitable rather than niche and profitable, the mantra isto follow early. And, yes, unpleasant asit may sound, knock-offs (re-interpreting someone else'sdesign) are a fact of life. But can Indian fashion brandssuccessfully re-interpret trends? The answer would be a loud yes - that iswhat most of them do, anyway. The key is: do you know how to do it early enough, have the capability of growing it quickly to a certain scale, and then dropping it to catch another trend? Contrastingly, Zara not only Certainly you need to invest in market research. Not having an createsthe merchandise, but MR agency doing consumer surveysand giving you research sellsin itsown stores. The reports, but actually feet on the street - your own people who people who decide the can spot trends, and communicate them to people who can product styling and those who interpret the trendsinto stylesthat fit into your look for your decide the distribution sit in consumers. the same office. Anything Trendsare visible on individualswho adopt looks early. The that isnot seen to reach a extra flare, the strap going thinner - if you are trained to observe, requisite level of volume isnot you can. In a fashion cycle, there are alwaysinnovatorswho pick ordered. So that isa strategy the trendsup first, and early adopterswho quickly follow. which Indian brandswith captive distribution can follow (those with own-managed stores, franchise-managed but company-stocked stores, or shops-in-shop), not those which sell by booking ordersfrom retailers. The other thing about Zara - while it follows, it doesso very quickly. It'smerchandise hitsthe stores15 daysafter being designed. How can an Indian brand do thingsequally quickly, when fabric lead timescan vary from 30 daysto 60 days(mill made)? And when apparel production lead timescan be 10-30 days? Have designerswho can identify fashion-forward people - the Well, for one discussionsand decision-making takesup a lot of innovators- and identify what kind of stylesthey are wearing that time - what to sell, where to buy the fabric form, whether the which can spread in the larger population. If you can identify specificationsare being met etc. Zara getsaround thisby having who are the innovatorsin your segment, you can follow the trend variousbusinessfunctionssitting together at the headquarters, up to part of the early majority level. At some point remember and also having a culture (or structure and process) of having also to drop it. Because after that there will be other companies, people talk to each other. (It'sshocking how many companies many others, who will quickly follow. Then marginsbecome just don't have the culture where different functionsare low, and profitability becomeseven lower, because there ismuch constantly in touch, despite sitting a few feet from each other.) more competition. Setting a Trend or Responding Early to One? Doing it Fast Needs Close Control ( o r
v o l u m e
o f
s a l e s ) Time Innovators Early Adopters Early Majority Late Majority Laggards A c c e p t a b i l i t y
o f
s t y l e
For those who want to be large and profitable rather than niche and profitable, the mantra is to follow early. And, yes, unpleasant as it may sound, knock-offs (re-interpreting someone else's design) are a fact of life. 108 August 03 In Zara'scase, the sales& marketing people who are receiving The needsmust flow from trend feedback are regularly talking to the designersand the the finished product merchandisers, and the production scheduling isclosely backwards, rather than coordinated aswell. There isnot much time wasted on approvals. being dictated by the raw material. Zara wasnot a Secondly, even if everything else isfine, production capacity may spinner first and it did not or may not be available at that specific time. There may be integrate forward; it built a another customer'sorder that may be handled on priority. The garment businessand then work-around for thisisto have your own production capacity, or integrated backwards. captive production capacity owned by someone else (i.e. Therefore, everyone isclear contracted production capacity). It isexpensive, but the cost of which end of the business lost salescan be higher. Thiscan work both for garment paysthe bills. capacitiesaswell asfor fabric capacities- one could take a position by leasing a fixed number of loom-hours and thisisfeasible in not just the Indian powerloom sector which isvery flexible, but also in the mill-made sector. Thisisnot new to India - several Just sitting close together in companieshave worked on thisprinciple, including Zodiac. one place isfine with a small team of a few people, doing a handful of styles. Asthe businessgrows, keeping in touch needsmore than a shout acrossthe room. Thisiswhere information technology comesin. The only problem isthat for most companies, IT seemslike an investment without returns, and they just don't invest. Many otherswho do spend on IT may leave the actual definition to the vendor, and the buying to an EDP manager who hasvery little understanding of the businessasit is, or a vision of where it could go! So they end up buying something that isnot enough, too much or just incorrect reinforcing the perception of investment without return. Those who do understand what piecesof IT platformsthey need, what can afford, and how to prioritise and guide the effort, will find success. Here isthe formula: Invest in the right software, hardware and people Update them frequently (including training the people) Spend enough, but just enough not too much nor too little Thirdly, what do you do to cut fabric lead time which isthe Identify your critical areas, and draw up a consciousroadmap or biggest chunk? Buying a capacity reducesonly part of the lead blueprint for how you will invest in upgrading your IT time. Zara buysfabric in advance, in accordance with the forecast infrastructure. Keeping track of salesinformation, product trends. Much of it isin greige form thisgivesthe flexibility to information, controlling capacitiesand production scheduling, colour or print the fabric to the desired effect, asand when it is managing distribution - all of these are areasthat IT can help needed. By buying relatively standard qualitiesfrom specified tremendously in. My guideline for IT implementation would be: vendors, the lead-time of deciding the vendor and approving First pick an area that ishugely important in termsof quality can be reduced drastically. The famed 15-day lead-time is improving salesor saving costs- thismay be putting a sales possible only when the fabric isin stock. update and analysispackage, or an inventory management Also, for printing and processing the greige, again Zara operates system. Whatever it is, it should be something that impacts itsown capacities- thisallowsit to schedule and prioritise your current businessmodel hugely. according to itsbusinessneedsrather than being hostage to Put something in place that getsyou some return quickly - you someone else. and your organisation will feel more confident about further However, remember that only being vertically integrated will not investments; then go step-by-step down the prioritisation list. solve the problems. There are enough vertically integrated Indian Try not to fall into the trap of re-inventing the wheel - if companieswhere the spinning department doesnot know or care someone hasalready developed something and it fits70% of what the scheduling needsof the weaving department are, let your needsthen customise, don't re-develop. alone any knowledge of garments! Thisculture needsto change. Keeping It Together is As Important cas e STUDY 108 August 03 Zara hasnot built itsIT infrastructure in a year or two what we are seeing isa product of several yearsof consistent and constant investment, one functional area after another. And they must have had their share of failures. Indian brandswill need to do the same, without expecting that IT will help them create a large and profitable businessinstantly. While emulating the internal elementsand back- end strengthsexist among Indian companiesto Thirdly, while styling of women'sclothing does re-create a Zara, we have to acknowledge that its change asfrequently in India aselsewhere, the current market context isdifferent from India. low cost of custom tailoring allowsthe consumer Zara existsin a market where fashion - the rise to update her wardrobe on budget. And let's and decline of the desire for a specific look in a face facts, Indian consumerspay double of what season or less- isa fact of life. Secondly, there isa they would be if their garment price/income large population of consumerswho can afford to ratio were the same in Europe and the US. Can change their wardrobe with changing stylesevery Indian ready-to-wear brandsmake clothing season - thiscan help to build scale. Thirdly, the affordable to more Indians? After all, that isone cost of custom tailoring isvery high in that of the cornerstonesof Zara'sbusiness market. philosophy. By contrast, the Indian ready-to-wear market is dominated by menswear that hasa longer fashion-change cycle than womenswear. In the Aswith people, when companiesfollow role menswear cycle carry-oversare not asmuch of an models, they must create the conditionsthat will issue. Fashionability isnot asmuch a fact of life, enable them to fit into the same mould asthe for most consumers. In fact, most consumersare role model. The market conditions, the supply willing to wait several monthsfor the sales, to side, the internal elementsmust fit just-right. pick up off-season merchandise that they may However well you might follow the internal elements, business end up wearing only the next year. and market conditionsare not easily reproduced, and they are Of course, there isa segment that isvery fashion conscious, but typically not within one company'scontrol or influence. If you their numbersare too small asyet to provide a good enough base believe you have the elementsall worked out, by all meansgo for an organised quick-in-fashion retailer. That isthe second ahead and do a Zara. market reality, which differsfrom Europe. The global income And if you don't, there isstill a bright side: Zara'snot the only standard middle-classisstill a tiny fraction in India, even by successful retail model in the world - there are many other Purchasing Power Parity. For many companiesor conceptsthat businessmodelsfrom which to learn. By all means, pick target the middle-class the Indian consumer segment may only elementsfrom different retailers. After all, it isa time honoured be 1-5 million consumers. practice for successful retailersto wander into other stores, and find out what they could or should be doing - from Sam Walton in Arkansasto many Indian retail CEOs. Maybe you could even create your own unique blend of success elementsthat create a model that perfectly fitsyou and your team and what'smore, isnot easily copied by anyone else! Maybe in a few yearstime we could be reading articlesglobally about your phenomenally successful model. Indian Market Realities Differ In Conclusion NOTE: Benefits will vary for different organisations, process areas or business environments. Creatnet Lower Costs Lower Costs Higher Topline based decision support Performance- P Lower inventory and WIP Lower Financial factory costs Lower ex- Reduced development costs Reduced quality rejections -factory costs Management Higher team productivity Reduced overheads Synchronise processes = Innovative products Customer focus Lower lost-sales -sales t y t y V a l u e - C h a i n P r o f i t a b i l i V a l u e - C h a i n P r o f i t a b i l i Lower Product Cost cas e STUDY Zara's not the only successful retail model in the world there are many other business models from which to learn. By all means, pick elements from different retailers. After all, it is a time honoured practice for successful retailers to wander into other stores, and find out what they could or should be doing from Sam Walton in Arkansas to many Indian retail CEOs. Devangshu Dutta is a retail and fashion industr y professional, and CEO of Third Eyesight (website - www.3isite.com). He has worked with several manufacturers andretailers in India, Europe, North America and the Far East, assisting them in the development and implementation of new business strategies, market entry, new product development, sourcing andsupplier management and other areas. He has been a speaker at several industry forums in India, Europe and Asia. Article copyright (c) Devangshu Dutta 2003