3 Lessons in Retail Operations from the Largest Clothing Retailer in the World
In 2014, Spanish retailer INDITEX sold $20.3 billion worth of clothing. That’s like if every man, woman, and child on earth gave them $3. Maybe they bought socks — who knows?
Most of those sales came from Zara, the company’s headline brand. Zara has been so successful because it’s cracked the fast fashion code. The company can design a product, order it, and get in on shop floors in around two weeks. It takes most other fashion retailers well over a month to get new products in.
So how does Zara do it, and what can everyday retailers learn from the largest fashion company in the world?
Flexibility is the name of the game
Fast fashion is the genre of “here today, gone tomorrow” clothing adored by the 12 to 24 set. Paisley rompers, this year’s flavor of plaid shirt, leopard print boots, and cardigans that stretch from shoulder to knee are all basically fast fashion. You can imagine a shopping bag full of this stuff that gets worn for a few months and then never thought of again.
The key to fast fashion lies in operations. To catch a trend while it’s still hot, every step has to be optimized. Zara makes its products closer to its stores, employing factories in Europe, South America, and Asia to fill short term demand. The company also plans for the unknown, by keeping production queues unfilled until the last minute.
Zara also keeps less inventory on hand, meaning that it has less to sell through or markdown. Instead, it manufactures inventory as needed, ensuring that it can fill its shelves with today’s hottest trends, instead of last season’s cowl necked hoodies.
It’s clear that Zara and other fast fashion retailers have managed to do more with less time. That doesn’t mean that no planning goes into the operation, or that everything is done on the fly.
Zara plans out around 50% of its seasonal line-up ahead of time, just like everyone else. But, the company has clear lines in place to refill with new designs when the time rolls around. It takes months of planning to have that kind of spare capacity, but the payoff is huge.
Tips for small businesses
Maybe you don’t sell billions of dollars of clothing each year — that doesn’t mean that there’s no lesson to be learned from Zara’s success. If I think back to the hobby store I worked in as a college kid, I can think of three clear actions we could have taken to keep the shelves full of hot merchandise.
- I would have changed my weekly orders to arrive on Friday. The most popular shopping day was Saturday, with Sunday a close second. Having a fully stocked store on Saturday would have given me a better idea of what was truly popular, as opposed to what was selling because it was what we happened to have in. It also would have kept shelves looking full and fresh on the busiest days. This is a great way to shorten a link in the supply chain, by shortening the amount of time merchandise sits on your shelves — converting it to cash as quickly as possible.
- I would have worked with a smaller, local supplier. Our deliveries came from a massive warehouse, about five hours away. It meant that we could get anything our hearts desired, but it added days to the delivery process, since they only sent out huge, honking shipments. With internet shopping a click away, having that hot item tomorrow as opposed to next week could have been a huge selling point. Cut down on those delivery times and move faster, faster, faster.
- I would have planned less of the store. Taking Zara’s 50% preordering to heart, let’s keep a sizeable chunk of the best in-store real estate free for what’s hot right now. That might mean moving the everyday items to a centralized spot or adding more display tables around the store. Make the merchandising match the ordering process to get the most bang for your buck. This is another way to minimize time by having designated space for rotating merchandise, instead of reworking large portions of your layout for every new promo.
Final thoughts and one last tip
One of the most important things Zara does isn’t in operations– they research. A lot. The company can put out lines based on Paris fashion week two weeks after the show. It pays attention to the market to find the little holes that it can exploit.
Maybe your competitor is talking up big changes coming in the fall. Maybe you can act now and steal their thunder. This doesn’t need to be a time-consuming process. You want to make sure you’re ready for the biggest trends and the biggest announcements from competitors. Don’t get lost in the weeds trying to predict every little change in customer behaviour.
Find the points in the supply and sales chains that can be shortened or skipped and do it. Cut down on time, run your business lean, and maybe you’ll be the next Zara. It all starts with one store and a drive to be the best.