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Zara is Transforming The US Fashion Industry


The leader in fast fashion, the Spanish firm Zara, along with international retailers such as Uniqlo, Topshop and H&M are proving tough competition for US retailers Abercrombie & Fitch [ANE], American Eagle Outfitter and Aeropostale.


Fast fashion has been around for some time. When Harvard Business Review looked at Zara in 2004, it called Zara’s management practices “questionable, if not downright crazy.” That was because “Zara defies most of the current conventional wisdom about how supply chains should be run.” And yet, strangely, even then, the performance was there: “The company can design, produce, and deliver a new garment and put it on display in its stores worldwide in a mere 15 days. Such a pace is unheard-of in the fashion business, where designers typically spend months planning for the next season.”


The fashion industry obviously faces extraordinary challenges. The industry that is mercurial and trend- driven. Zara’s fast fashion business model exploits consumer and cultural changes, with dramatically improved financial results. The key is the familiar Agile technique of “postponement:” transforming a product into its final form at the latest possible moment.


Whereas Zara’s markdowns are typically around 15%, the markdowns at US apparel retailers and department stores are typically in the 50-70% range. These markdowns and stockouts are very costly for fashion companies.


“Fast fashion is a business model tailor-made for the multi-channel ‘I want it now’ Internet-driven buyer of today. It offers significant business value to a range of retail companies whose product cycles are accelerating and influenced by celebrities, luxury brands, and media hype.


Fast fashion links upstream inventory commitments with a brand’s downstream profitability. The critical elements include postponing commitments on finished goods to reduce lead times and inventories; using real-times sales to determine production during the selling season; optimizing total profit to include the financial impact of markdowns and offering fresher and more frequent new products.


The superior performance of agile management in fast fashion is now well-documented. Yet as in other sectors, many US managers are still in the grip of traditional management thinking and are slow to respond.


Thorbeck cites the example of “one of the largest specialty apparel retailers that had completed a pilot trial for supply flexibility, certainly one of the first in the industry. The success and returns of the pilot were dramatic, driven by a 90-day lead time reduction. The executive vice president leading the initiative was convinced of speed-to-market benefits where demand forecasts improve with time. However, the case experience was not rapid roll out of the pilot, but rather the description of organizational rigidity, which confronted the EVP. The proven ‘pot of gold’ was not enough to motivate consensus and change across company functions.”


Thorbeck lists the excuses that US retail executives offer:


“That’s not our customer. We don’t worry about getting from the catwalk to the stores in the same way.”

“Our factories don’t have that capability. We’re not vertical.”

“Speed-to-market is something we’re thinking about for next year.”


Thorbeck suggests that the appropriate quote is from Pogo: “We have met the enemy and he is us.” Instead of embracing a better way, the US fashion industry asks “why?” and “how much will it cost?”


In effect, they are still living in the world of traditional management, with the vertical mindset of shareholder value and command-and-control. The more agile, horizontal mindset with a total focus on delighting customers through continuous innovation has yet to take a hold in an industry that is crying out for it.




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