Zara and Lean Retail

Now that the size of Zara’s product development has been whittled down to size in my previous post, we can address Zara’s retail machine. At first glance, there are admitted commonalities between Zara and push manufacturers but this does not mean that Zara is not lean. An analysis of the “8 weeks” article shows that these are the things that push manufacturers think are common to their own organizations:

  • Zara retails their own stuff.
  • Zara is huge, manufacturing in many countries around the globe.
  • Zara does not sew their own stuff; it’s farmed out to contractors.

So in their minds, push manufacturers think they should be able to compress their design calendars which is what they assume Zara has done. Unfortunately, that expectation is naive, cursory, absurd and bordering on the arrogant when you consider what the Zara retail machine does not have in common with push manufacturers:

  • Zara ignores the traditional seasonal market calendar.
  • Zara produces in small batches which creates a culture of scarcity with consumers.
  • Zara retail store managers -not headquarters- determine their own store’s product mix.


In summary, Zara works a lot harder. Their design functions are fully integrated vertically, keeping everything in house rather than outsourcing. With this structure, one could imagine that Zara’s product development is characterized by internal design competition rather than externally with other companies. Lastly, Zara’s core customer must be considered. Zara’s customer can be described as young -teenagers- consumers who’s tastes and consumption patterns change quickly and voraciously. These customers want something new -daily were it possible. In this light, defining Zara’s products as disposable would not be far-fetched. This is not an offensive description, not when Zara’s designed their entire machine to meet the demands of disposable fashion. Zara knows their garments aren’t keepsakes and replenishes them accordingly (and profitably).

Zara ignores the traditional seasonal market calendar.
[A brief aside: many of you will read the statement “Zara ignores the traditional seasonal market calendar” and say “but Kathleen, in the Entrepreneur’s Guide, you said we have to follow that” and all I can say is I’ve learned a lot since I wrote that and I will be making appropriate corrections and revisions. The retail landscape has changed considerably since then.]

How is ignoring the concept of launching according to seasonal calendar changing things? For one, styles are evolving slowly over the calendar year as opposed to abrupt cut-off dates mandated by wholesale markets. This is more aligned with how consumers need apparel according to natural cycles of everything from regional weather forecasts to international events to the vagaries and whims of admired social figures. Styles, like fit and sizing, evolve. Incremental product creep more accurately reflects the evolving tastes of young consumers. Internally, deadlines are never a far-off date in the future by which time everyone’s got to come through. Deadlines are weekly, keeping everyone on target performance. Working in an environment like this is energetic and revitalizing rather than its presumed opposite. People are happiest, most productive and least error prone when working in flow. Zara has successfully designed product releases to encourage a vibrant productive design environment.

Zara produces in small batches which creates a culture of scarcity with customers.
The production of small batch sizes has pivotal implications in retail creating a culture of scarcity. Due to small batch size, most styles aren’t replicated -they’re new, not homogenous- but replaced with entirely new styles twice each week. Traditional retailing dictates if something is selling well, you make more of them to continue making money but Zara does none of that which begs the question: How does the cycle of internally produced scarcity affect retail margins? As with anything, people are willing to pay more for a product of limited supply; it’s scarce. It may seem counterproductive to run a chain of stores on scarcity but as mentioned in the Economist:

“Shoppers cannot be sure that something that has caught their eye will appear in the store again-or can be found at another Zara store, even in the same city. On the other hand, they also know that everyone they meet will not be wearing it.”

Paco Underhill says much the same in Call of the Mall:

“The key to the store’s success is the degree to which it gets its customers to buy at full price, a concept that has almost disappeared in the American market. Its high-fashion, modest-cost positioning trains you to buy it, if you find it, because two weeks from now it not only will not be on sale, it will be gone forever”.

Small batch size is precisely the element that has created a culture of scarcity -and consequently- full retail price amongst their core customers. Push manufacturers can only dream of getting full MSRP; their budgets are rife with markdown projections well before they’ve even ordered the piece goods.

Lastly, as far as marketing is concerned, Zara’s been described as “parsimonious”. This same article from the Economist says Zara’s advertising budget is .3% which is ten times less than their nearest competitor. So obviously, small batch sizes -typical of lean manufacturers- is more profitable rather than less. Rather, it would appear their retail budget focuses on a pleasant shopping environment.

“The store is given priority in its interior and exterior design….it is motivated by the aim of creating a space with plenty of light where the clothes take centre stage, eliminating any barrier between the garments and the customers” and “Zara’s stores have won awards for their decoration and their shop windows”.

Zara retail store managers -not headquarters- determine their own store’s product mix.
In effect, allowing managers autonomy in style selection means managers are acting more like buyers or store owners than they are corporate employees. This is vastly different from a company such as the Gap where inventory is decided months beforehand and by several levels higher. Again from the Economist:

“The point of sale does not close the process but rather renews it, acting as a market information collection system that provides feedback to the design teams and reports the trends demanded by the customers. “In order to segment its approach to the market each [unit] has great autonomy in the management of its business; their management teams are independent in commercial decision-making and in the way that they administer their resources.”

Store managers consult the range of style choices ready for purchasing from the home office and select styles that are more representative of their local customer mix twice each week. With this system, perhaps you can see that this would drive internal design competitiveness amongst the design teams back in product development. This is why I said that environment would be invigorating and exciting rather than driven and cruelly demanding. Leaving autonomy in the hands of store managers is what makes Zara’s system pull driven rather than push driven because stores don’t have to take products foisted upon them by corporate headquarters.

Still, I see a weak link between order placement and delivery. With few distribution centers (not needed owing to twice weekly deliveries), the pull generated by store managers pulls the cut tickets through, then the cutting which is then sent off to each small sewing co-operative. Upon completion, the products are returned to Zara’s central location for pressing and final processing. It seems to me that failing to ship direct from the contractor to the store could be a weak link in the entire chain; it’s muda for lack of a better term. It seems to me that having Zara staff assigned to each contractor location would facilitate the final steps and from there ship to stores.

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10 comments

  1. Carol says:

    This info would never be accessible to me if I had to try to find it myself – you’re not only an amazing resource, but you have cogent insights and comments!

  2. MW says:

    >>.It seems to me that failing to ship direct from the contractor to the store could be a weak link in the entire chain; it’s muda for lack of a better term. It seems to me that having Zara staff assigned to each contractor location would facilitate the final steps and from there ship to stores.< Knowing what I know about small US based contractors and retail store preparation (SKUs, tagging, entering in POS systems), that would be a tough task to manage here in the US, I can only imagine it would be tougher in other small sewing contractor shops where they are producing product for different parts of the world. In a perfect world, it would be a great value added service if contractors could offer such features, but considering how antiquated most are, with respect to computer and retail technology, it seems far fetched. When you have a domestic industry built entirely upon the task of taking garments from a contractor and getting them ready for retail, you start to realize that could be a huge undertaking. I'm just wondering how you could make that work. It would be a flawless system if you could, but it seems logistically easier to just have one central location for distribution.

  3. If you’re going to compare ZARA to an American apparel manufacturer, L.A.’s “Forever 21” seems like a more apt comparison than Gap. Styles change really rapidly, and they target the teen crown ( with plety of spillover for the young at heart) I don’t watch TV so I can’t rule out commercials, but since I’ve never seen an ad in any magazine, I assume they don’t spend much on advertising. They recently opened a huge flagship store in downtown SF (across the street from Gap’s, actually!) after sales at local malls proved very brisk. I don’t know anything about their manufacturing practices, though. Except that the quality is really poor… (the kids don’t care–they’ll be bored of the style in 3 months, anyway. Or so the rationale goes.)

  4. natlee says:

    I think that the product has gotten better. How many times have you bought something in a dept. store full price with a designers label made in chine and fell apart.

  5. Neil Adams says:

    I want to start my own label, where can i find a good quality garment contractor to do small groups? like” gap like clothing”

  6. Bill Longfellow says:

    Do you have any information on lean six sigma in the retail sector (I’m looking for warehouse / reditribution centers).

    I read that Tesco cut throughput time from 20 days to 5? Is that correct?

    Is this a one off example or can you provide other retail companies that have reduced throughput time by half (who are these guys???).

    Thanks,
    Bill

  7. Kathleen says:

    Do you have any information on lean six sigma in the retail sector

    Lol…many of us in Lean would take umbrage at your placement of “six sigma” after “Lean”. Lean is an entirely different philosophy. I realize a lot of enterprises don’t want to leave six sigma by the wayside after having invested so heavily in it (I’m not the only one who thinks the green-black belt thing is lame :)) but Lean is a cleaner, older and more holistic philosophy.

    There is a book you may find useful, it’s called _A Stitch in Time_ by Abernathy et al. I have it but haven’t read it yet. It’s all about “lean retail”. Personally, I cannot see how the consumption end can be substantively improved without tracking backwards into the supply chain. If you wanted to go vertical, then minimally you’d need to make serious intellectual commitments (and more, of course) to get into our end of the business.

    (I’m looking for warehouse / reditribution centers).

    My co blogger Miracle has written quite extensively on this topic. Use the search box on this site with the key words “distribution”, “fulfillment” and “product identification”.

    I read that Tesco cut throughput time from 20 days to 5? Is that correct? Is this a one off example or can you provide other retail companies that have reduced throughput time by half (who are these guys???).

    I’m out of my element in these matters. I don’t know much about retail, much less lean retail. Coming from the back end, I have a hard time seeing how retailers can go lean -really- without backtracking and helping their suppliers go lean too. Anything else is only lip service; flogging suppliers -who must in effect, warehouse excess inventory to supply retail on demand, which is definitely NOT lean- to prop up the front end of the business. There is no other way. I’d suggest reading _Lean Thinking_ for a discussion of what Lean is as opposed to the darling distortions promulgated by glee (and greed) of the potentiality of increased margins ;).

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