Zaras Fast Fashion Essay Example for Free

Zaras Fast Fashion Essay Absrtact This paper was written for the purpose of researching and illustrating fast fashion strategies which include strategic integrated supply chain, manufacturing and sourcing methods. Fast fashion is explained as a system that involves more control over operations and customer â€Å"strategic behavior† by using the combined benefits of both the â€Å"quick response production capabilities† or â€Å"short production and distribution lead times†, which minimizes clearance items by finding more reasonable balances between supply and demand, and the â€Å"enhanced product design capabilities† or â€Å"highly fashionable product designs†, which plays homage to customer values. This paper also analyzes methods used by fast fashion leader, the Spanish, Inditex owned Zara. A closer look at Zara’s supply chain, market responsiveness, flexibility, technology, pricing and costs strategies and methods are examined and compared to other fast fashion retailers that can appropriately be deemed as competition for Zara. Also, globalization and other operational strategies are discussed that all come together to show the remarkable success of the Spanish company. When thinking of the term fast fashion, one may think of the change in fashion trends and how quickly certain styles can be deemed as in, and the next second, those same styles are no longer looked at as having any resemblance of being fashionable. That would be the definition of a trend or fad in itself; â€Å"an intense but short-lived fashion; craze† (Dictionary.com 2012) . However, â€Å"the phrase ‘fast fashion’ refers to low-cost clothing collections that mimic current luxury fashion trends† (Joy, Sherry, Venkatesh, Wang, Chan, 2012) . It is a system that enables young, trendy customers to quickly attain and keep up with the ever changing latest fashions and trends from the runway, celebrity styles and other trendy inspirations for reasonable prices. Fast fashion is a system that involves more control over customer â€Å"strategic behavior† by using the combined benefits of both the â€Å"quick response production capabilities† or â€Å"short production and distribution lead times†, which minimizes clearance items by finding more reasonable balances between supply and demand, and the â€Å"enhanced product design capabilities† or â€Å"highly fashionable product designs†, which plays homage to customer values, which in-turn persuades customers to purchase full priced items rather than shopping around or waiting for items to go on-sale (Cachon Swinney, 2011, p. 778) . Globalization, Manufacturing and Sourcing Strategies for Fast Fashion Firms According to Mihm (2010) , supply chain, market responsiveness, flexibility, technology, pricing and labor costs are all factors in globalization and manufacturing and sourcing strategies. For instance, firms that are mainly involved with outsourcing and other third parties have less control of their supply chain and hands control to those third parties. On the other hand, firms that predominantly sell their own brands and designs are generally more vertically integrated and have minimal involvement with third parties. These firms can have control over all aspects of their supply chain and are also capable of controlling their sourcing. Fast fashion firms are generally vertically integrated. Mihm (2010) also states that â€Å"fast fashion and market responsiveness seem to be inseparable† and stresses the importance of supplying correct quantities in order to support demand for each individual store. In terms of fast fashion, market responsiveness refers to the speed of respond ing to consumer demand and accurately distributing and supplying appropriate quantities and styles in each store at the right times (p. 56) . Firms can achieve this by research and development (R D), technology, and forecasting. R D normally is in charge of coming up with new products and innovations and an alternative to research is â€Å"imitation† or copying outside products and ideas (Meredith Shafer, 2010) . The imitations strategy is one that mirrors the strategies of fast fashion firms in that ideas and designs for new merchandise often come from runway designs, celebrity fashions and customer input and ideas. Furthermore, fast fashion firms often allow individual stores and locations to have control over store merchandise by using a pull system rather than a push system. The pull system uses the just-in-time (JIT) concept mentioned by Meredith Shafer (2010) . The JIT system lowers lead times and merchandise orders by allowing quick and instant deliveries of exact order quantities, which eradicates having over stock and the need for â€Å"safety stocks† (p. 258) . With many fast fashion firms implementing major globalization initiatives, technology is a key factor in communication, efficient logistics, and business success. Information technology (IT) systems provide the ability to collect and share important information, such as trends, orders, â€Å"production and shipping data†, using constant transfer and communication throughout the entire supply chain. IT systems help mitigate â€Å"real-time† communication from consumers to store managers to market specialists and designers, to suppliers and to manufacturing and production facilities, then to distributors, and back to stores and the customers (Mihm, 2010, p. 56) . Moreover, IT systems product lifecycle management (PLM) software, and sourcing programs can keep track of all sourcing and development activities and are designed to react to and handle change and conflict, which helps with flexible suppliers and positively effects production. These technologies speeds up production time, placing communication and processes in real time and allows an ease to the supply chain (Speer, 2006) . Mihm (2010) states that firms in the fashion industry use a technology known as computer-aided design (CAD), which includes laser cutting machines and automated sewing machines that ultimately â€Å"eliminates wasted fabric† and cuts production time; allowing companies to be more efficient by saving time and money. Another way fast fashion firms make use of flexibility â€Å"also includes changes in the construction and coloring processes used to make garments.† â€Å"For example, garments are often dyed after they are constructed thus allowing the manufacturer to produce the best selling colors quickly† (Mihm, 2010, p. 56) . Furthermore, â€Å"improved logistical programs including air freight and expedited customs clearance for imports also fall within the technology factor.† Many fast fashion companies are leaning towards globalization and have highly vertically integrated supply chains and therefore provide their own world-wide souring, and manage their own design, manufacturing, and logistics models. â€Å"All of these influences have dramatically changed the way the apparel business operates in the age of globalization, making the fashion industry appear borderless† (Mihm, 2010, p. 56) . Mihm (2010) states that â€Å"lower labor costs are a major contributing factor to fast fashion since cutting, sewing and fitting are labor intensive, and are integral parts in constructing need high levels of education† and therefore do not require salary or high wages. For example, in China, labor rates are only around 60 cents per hour. â€Å"Additionally, capital equipment costs are very low, making it easy to open an apparel plant almost anywhere† (p. 56) . Along with lower labor costs, it is also important to manage labor times to further mi nimize labor costs and increase efficiency and profitability (Desai, Nasar, Chertow, 2012, pp. 71- 72) . Lastly, a major factor influencing fast fashion and fast fashion retail strategies has to do with keeping merchandise prices at least moderately low. Mihm (2010) mentions that a key factor in keeping prices low is by maintaining low labor costs (p. 56) . Additionally, Desai et al. (2012) discusses the impacts and importance of maintaining control over all costs including; production, materials, labor, transportation, manufacturing and overhead and other costs. Maintaining control over all costs is essential to efficiency, maintaining low product costs and business success. However, many items that may be considered basic and require less production costs, and labor costs and time may still be sold for premium price points do to customer perceived value and brand value (pp. 64-72) . All about Zara Zara, the Spanish fast-fashion retailer belonging to â€Å"Inditex, one of the world’s largest distribution groups†, is one of the leading international fashion companies in the world (Zara, 2012). In 1975, Chairman and founder of Inditex, Amancio Ortega, opened the first Zara shop in Spain and he came up with a philosophy for business success which states, â€Å"‘you need to have five fingers touching the factory and five touching the customer’† (Ferdows, Lewis, Machuca, 2004, p. 106). The philosophy can be said to be the basis for Zara’s business model and retail strategy that successfully runs a fully vertically integrated supply chain by vertically integrating all features of the sourcing and manufacturing process (Mihm, 2010) including, design, production, distribution and sales. By providing constant information about consumer’s demands and desires, customer actions and feedback are the soul of the Zara model (Inditex, 2012), whi ch ultimately allows the company to maintain control of its products from the design stage until the customer purchase stage. Zara has taken retail globalization by storm and now has 1,721 stores all in prime locations in great cities spread across eighty-seven countries. A Closer Look into the Zara Model Because Zara has full control over its supply chain, their sourcing strategy differs from the strategies normally used by companies in the industry (Mihm, 2010). For instance, Zara purchases many of its fabrics and other supplies from Inditex owned companies. The company also owns its own manufacturing and production facilities, which allows the majority of profits stay within Zara and the Inditex group; it also boosts overall company flexibility and allows the full control over the supply chain system that would otherwise be unattainable if the firm did not embody the fast fashion method and mainly outsourced to third parties (Ferdows, 2004, p. 109) . Moreover, only basic items like T-shirts and common woolens are out sourced to, or bought from, manufactures in low- cost areas like Asia, Africa and Eastern Europe (Capell, 2008); the rest of Zara’s products, which are more fashion sensitive, are designed by the 300 in-house designers and are manufactured in Zara manufacturing facilities. â€Å"All finished products pass through the five-story, 500,000-square-meter distribution center in La Corufia, which ships approximately 2.5 million items per week† (Ferdows, 2004, p. 109). Furthermore, Zara production facilities maintain stock piles of neutral fabrics that can be dyed, printed on, or altered for the purpose of speed and convenience to help mitigate design and production times (Mihm, 2010). In terms of production and labor times and costs, Zara has the ability to easily adjust production to the change in demand. The company is able to do this because many of their facilities are highly innovated and specialized, and normally run one single shift per day (Ferdows, 2004, p.109) . It seems that Zara operates its manufacturing facilities using a combination of transformation systems to maximize efficiency. For instance, job shops would be used for smaller facilities that produce more basic and/or custom items. Cellular production systems, that also utilizes JIT, would largely be used for a fast fashion firm like Zara because the system allows the facility to reduce production time and costs, reduce labor time and costs and increase flexibility and market responsiveness and minimizes waste and excess stock. For instance, Meredith Shafer (2010) state that the advantages of cellular production include; reduced setup times, increased equipment capacity that results in lower eq uipment and maintenance costs, and increased floor space. The system also allows increased efficiency to produce small batches of varieties, which ultimately increases flexibility to respond to customer demand, reduces over stock and excess inventory that can take up space, and minimizes lead times and increases throughput times, which improves forecasting and market responsiveness and enhances revenues. Other advantages include greater operational control, lower overall costs and an exclusivity value sense from customers that discourages purchase postponement (pp. 71-72) . Furthermore, like other fast fashion firms, Zara utilizes innovation and IT systems to communicate information through every part of the organization. These IT communication systems are especially important to Zara because their products go from the design stage to store shelves in as little as two weeks. To make this happen, store managers record selling trends, determine customer desires and quickly sends the information to the design headquarters where ideas, innovations and designs for new fashions are created and more appropriate forecasting can be made. The speed and this system automatically gives â€Å"Zara a competitive advantage† (Capell, 2008) . Competition and Competitive Advantage The term competitive advantage refers to any factor that will give a firm a lead on its competitors. This can mean anything ranging from new innovations, ideas and products, costs and pricing, locations and market share, to marketing and operational strategies, and so on. Zara is recognized as being a leader in the fast fashion retail industry and has steam rolled ahead of competitors such as Gap, Express, Uniqlo, and H M. Compared to its competitors, Zara is completely vertically integrated and uses sophisticated IT communication systems for constant and speedy communication, whereas competitors are less involved in ease of communication and still heavily outsource to third parties, which significantly reduces their control over process, time and quality (Desai, 2012 ). This is where Zara gains their biggest competitive advantages, which are speed, quality and customer value. Customer value is a huge advantage for Zara wherein the receive customer support, repeat, satisfied custome rs, and increase revenue. The fact that Zara often produces trends at super speeds, even before they show up in luxury shops, induces Zara as an innovative firm which further attracts â€Å"early adopters† who desire the freshest looks and don’t mind paying higher prices for items that they may value as exclusive (Meredith Shafer, 2010, pp. 14-15). Additionally, Inditex and Zara factory workers are paid more that the industry average (Capell, 2008) . Also, with the smaller quantities of vast varieties of the freshest trends, Zara gains â€Å"85% of the full ticket price on its retail clothing, while the industry average is 60% to 70%.† Because of this, Zara is also able to gain â€Å"higher net margins on sales than its competitors†. For instance, in 2001, Inditexs net margin was 10.5%, Benettons was only 7%, HMs was 9.5%, and Gaps near zero (Ferdows, 2004, p. 106) . Conclusion and Recommendations Overall, Zara is the perfect example for fast fashion retailing. The company truly has taken a step forward in strategies for successful operations, management, globalization and supplying and selling the latest trends at lightning fast speeds with minimal costs and wastes. The only negative that I find with Zara is with their pricing strategy in nations outside of Spain. According to Kumar Linguri (2006) , Zara is considered a low-cost retailer, whereas in countries such as the US, Japan and Mexico, Zara is considered more of a luxury retailer due to pricing differences (p. 82) . Even though pricing differences are based on individual country economics, there still should not be such a disparity in pricing and perceived value between countries. One final suggestion is for Inditex to consider investing in opening distribution centers and/or manufacturing facilities in other market areas to continue the speed in supply chain and lead times in all markets throughout the world. References Capell, K. (2008). Zara Thrives By Breaking All the Rules. Businessweek, (4104), 066. Cachon, G. P., Swinney, R. (2011). The Value of Fast Fashion: Quick Response, Enhanced Design, and Strategic Consumer Behavior. Management Science, 57(4), 778-795. Desai, A., Nassar, N., Chertow, M. (2012). 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Apparel Magazine , 47(12), 32-35. Retrieved from http://ezproxy.limcollege.edu:2357/ehost/detail?sid=4b23db26-6002-4704-9709-23540fa18525%40sessionmgr111vid=1hid=127bdata=JnNpdGU9ZWhvc3QtbGl2ZSZzY29wZT1zaXRl#db=bthAN=22112593 Zara. (2012). Investors. Retrieved from http://www.zara.com