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
(
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Innovators
Early
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Early
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Late
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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
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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.thirdeyesight.in).
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