Seasonal Line-Cycles:Going, Going…Gone

by Robin Lewis

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Zara’s Process Innovation Trumps Product Innovation

Zara was first in envisioning what the newly emerging techno-empowered 21st-century consumer would be demanding of the fashion world. They acted on it almost two decades ago, while the rest of the old world was sleeping. Today, while retailing past is playing catch up (or imploding), Zara continues to be the largest, best, and fastest. Their key ingredient, which most retailers do not understand—or if they do, could not pull off anyway—is Zara’s invention of a totally controlled value chain that is so quick to respond to consumers’ fashion desires that it proves that process innovation does indeed trump product innovation. Ironically, while process innovation is king, the ultimate result is product innovation, faster and more often.

The Business of Fashion recently coined the phrase, “see-now, buy-now, wear-now (SNBNWN),” emblematic of today’s consumer culture. Hellooo! The traditional four/six season line-cycle apparel world is finally waking up from a decade-long deep sleep to see that their market share has been gobbled up in larger and larger bites by fast fashion leaders Zara, H&M, Forever 21, and others. Just like lemmings, there’s a mindless urgency among slow-moving designers, brands, and retailers to catch up before they plummet over the edge. How blind could the leaders of these old models be? Abercrombie & Fitch, Aéropostale, and American Eagle Outfitters all hit the wall a couple of years ago when their core consumers aged and moved on. Was it not obvious to these asleep-at-the-wheel brands that their leaders had failed to pivot in the direction of millennials who were rushing to the fast-fashion guys like there was no tomorrow? Did it not occur to them that this generation, larger than that of their boomer parents, is going to account for about 40 percent of all retail sales by 2020? And did they not understand that the next generation wants to see everything new now, more often, over and over? In fact, Zara opened 231 new stores last year and sales increased by 16 percent; H&M opened 413 new stores in 2015 and sales grew a whopping 19 percent! How many retailers can say that? H&M is planning 425 additional new stores this year, which will bring them up to 3,500 brick and mortar locations in 66 global markets. Zara parent Inditex is now up to nearly 7,000 stores in 88 global markets. They are obviously on to something, but it will be interesting to see if they know what they are doing or if they will become another Gap of the 2000s: overstored and out of touch.

Yes, the cadence of fashion has been speeding up over the past several years. This is driven largely by the millennial herd racing forward insisting on instantaneous access to a 24/7 overload of information including non-stop runway shows, celebrity images, and a constant array of new stuff streaming through smartphones and social media. Fashion really has morphed into entertainment. Celebrity icons are fueling the millenials’ appetite for newer, better, more famous.

Zara parent Inditex Quartz quoted Emily Gordon-Smith, head of fashion at research firm Stylus, “…it’s [SNBNWN] a post-digital phenomenon. Obviously manufacturing has sped up, but it’s about the information flow. People want the product now, and they want it as it’s happening, so lead times in stores have become massively reduced.”

As there’s a continuous stream of new products assaulting everyone’s eyeballs every nanosecond, consumers expect what they see to be available for immediate purchase, either online or in store. If a retailer is not moving at warp speed, consumers lose interest and the store loses a customer. As industry expert, Ed Gribbin, president of ?apparel and retail consultancy Alvanon says, “Speed alone is not the goal, it’s all about customer engagement and customer excitement. Yes, the process enables speedier, quicker product innovation. But, it also enables a ?continuous flow that the customer can anticipate coming into the store on a regular basis, which of course, keeps them coming back to the store, over and over again. Today, if you’re not getting new, fresh product out continuously, you will not keep your customer’s attention. They’ve got too many other distractions, not only from your fashion competitors but from every other consumer product category competing for their disposable income. The year 2015 saw record car sales; how many apparel brands suffered at the hands of a competitor they weren’t even anticipating; who had more exciting product and deals month after month after month?”

Zara Is the Model to Beat or Meet

Zara raised the fashion-apparel ante several years ago. Stupidly, most of us didn’t understand at the time that this branded-apparel specialist was redefining innovation for the entire industry. As a great knockoff artist, Zara fully understood that you could not win in the apparel game solely by creating unique new styles on a four/six season basis. Zara taught us that with the ubiquity and speed of communications in print, on air and on the ground, combined with high-tech rapid-response supply chains directly connected and instantaneously responsive to consumers, they could knock off and deliver the hottest new looks overnight. And the rub to the rest of the industry was that these creations were often copies of designers and merchandisers’ products from competing firms.

It’s the Process, Stupid

You can call it fast fashion, disposable fashion, or whatever you want. But what’s happening in this phenomenal, not-so-new-anymore business model is that they’re matching 21st-century technology with what 21st-century consumers really want. And these hungry customers want more, more, and more; faster, faster, and faster. It’s the McDonald’s factor: Customers want fashion value meals that keep them salivating for more—often for a daily fix. Zara delivers a constant stream of new stuff providing choice and quality. And you have to get there fast to get what’s new. Unlike typical merchants in the United States, Zara’s business model is based on running out of what customers crave, quickly.

It’s their supply chain process that makes it all possible. Of course their own design staff would certainly call themselves innovators. In fact, not all of their designs are knockoffs. But their enormous innovation to the process of making and delivering apparel does indeed trump product innovation. Ed Gribbin of Alvanon has a slightly ?different perspective on what they’re doing: “Yes, you could call Zara an innovator and in many areas they are. But their supply chain strategy is actually a bit of ’Back to the Future.’ They’ve gone back to an era when brands and retailers actually planned and bought fabric and manufactured locally. Back in the ’80s retailers could have reacted quickly but they did not, mainly because competition and consumers did not force them to. Now consumers control the retailer, not the other way around. Zara recognized that, went back to the future and invested in eight million meters of fabric sitting right there in Spain and decided to make most of their product, not in Asia, but in Spain, the Mediterranean region, and Eastern Europe. No plant is more than one day from their state-of-the-art distribution centers. No wonder no other retailer can match their speed!”

Furthermore, when a consumer visits any one of Zara’s some 3,000 stores anywhere in the world and finds completely new lines to select from twice a week, this is choice and quality on steroids. In fact, in the consumers’ eyes, this is product innovation, so much so that they feel compelled to buy something every time they shop because they risk not finding it if they come back the next day.

On top of that, they also feel compelled to come back twice a week at the risk of missing out on something new. Talk about generating new traffic and getting existing customers to buy more! On average, Zara’s customers shop in their stores 17 times a year, versus three to four for competitors. How do they do it? Zara is 80-90 percent vertically integrated, owning and/or controlling both the creation and distribution of their brand. Their staff of about 200 designers/merchandisers is constantly checking the world for new styles. They also hear back every single day from each store manager about what sold and what didn’t (a humongous communications and aggregation matrix to deal with daily).

Zara creates about 11,000 styles a year, about five times more than comparable retailers. They organize lines into very small lots and are able to go from start to finish on style production within as few as 10 days, producing only 50-60 percent in advance of the season, with the remainder manufactured on a rolling basis. Small lines go out twice a week. What doesn’t sell quickly is reallocated to other stores or marked down immediately.

Zara experiences a 15-20 percent markdown sale of season volume versus 30-40 percent for much of the industry. And of course, they can ramp up production to replace winning styles or like-styles. Gribbin adds: “As far as critical apparel/retail business metrics go, all of that translates to higher full price sell throughs, higher conversion rates, fewer lost sales, more inventory turns, and, no surprise, more profit to the bottom line.” Every retailer and wholesaler in the industry should be looking to emulate this model, particularly the apparel specialty retailers who are already mostly integrated. It’s a win-win 21st-century business model, an innovative process that consumers perceive as a steroidal product innovation machine. Call it what you will, but the success of these fast-fashion businesses is based primarily on their superior implementation of process over product, product, product, which many of the old-school guys will ride into the sunset, maintaining it to be the key to success. Zara’s process and business model is what has made it the world’s biggest fashion retailer. Investment firm Bernstein has acknowledged that they have “the best business model in apparel.”

The traditional retailers may end up dead on arrival if they do not understand what today’s consumer is really demanding. And more to the point, if they cannot adapt and evolve their business models to meet the wants and needs of today’s impatient, voracious consumers, they may not survive.