Fashion and Big Data

Using Zara as a case study for the adoption of advanced analytics in Fashion Supply Chain and Inventory Management

Image by F. Muhammad from Pixabay

The application of Big Data in Fashion is no longer news but probably what still remains vague is the “HOW”. How do brands already adopting Big Data leverage this technology to stay ahead of the game?

Perhaps you are not sure how Fashion meets with Big Data / Advanced Analytics or Data Science, have a look at my article on “Re-Imagine The Business Of Fashion”

Re-Imagine The Business Of Fashion-part 1

Despite the numerous advantages ‘promised’ by Advanced Analytics, Fashion Brand/ Retailer should have a good grasp of the Business Strategy, Industry, and Business needs before adopting any Advanced Analytics Technology.

Not clear?

Here is an example:

Take for instance, as the owner of a low-cost Fashion Retail Store called “Ur_Style.com”, you are concerned about improving sales and then decide to adopt Advanced Analytics to aid customer retention and personalization.

Before you read the next paragraph, take a minute to understand the challenge Ur_Style.com has and give your response to the question below.

Do you think adopting Advanced Analytics in customer retention and personalization is what a low-cost store needs?

Drop a “YES” or a “NO” in the comment section.

Now continue reading…

In the first instance, the reason customers would patronize a low-cost store is most likely for the low price it offers and not necessarily to build a personal relationship with the brand.

Moreso, as a low-cost fashion store, Ur_Style.com’s focus would likely be to increase profit margins while maintaining the low price. If you however try to adopt advanced analytics into customer retentions and personalization, here are some of the situations that might arise;

• Need for skilled employees (Data Science Professionals)
• Increase in maintenance cost
• Investment in Softwares
• Shrinkage in profit margins

To break even, you would need to increase Ur-Style.com’s selling price too and this forfeits the reason customers patronize your store in the first instance.

More importantly, the advanced analytics approach you have chosen would appear to be a loss rather than an investment.

Take a few seconds break…

QUESTION:

What area of your business(Ur_Style.com) do you think you should adopt Advanced Analytics considering the type of Business goals and needs you have?

Answered the question? Talk to me in the comment section!!!

To answer this question, you consult with a Specialist that advises adopting analytics in your “supply chain and price optimization”.

Aha!!!

Sounds like a better plan yeah?

Photo by Clem Onojeghuo on Unsplash

Here is what the situation would look like.

• Improve what is most relevant to your business needs, i.e, increase profit margins.
• Offer products at low prices.
• Optimize your stock, i.e know what amount of Fashion products to stock up at the right time and duration.

Eventually, you will conclude that investing in advanced analytics was worth it.

This brings me to my next question,

What Are The Requirements To Adopt Big Data Analytics in Fashion?

Before adopting analytics in your Fashion business, here are 5 key questions you need to ask yourself;

1. Business Strategy- What is your business’ immediate need?
2. Data-driven leadership- Do you have leaders (CEO, Managers, team leads) that are passionate about data?
3. Data Source and Management- What are your data sources (website, surveys, POS transactions, credit programs, etc). How do you intend to integrate and manage internal and external data?
4. Employee skill level- Do you have a team that can implement this technology or can you afford to hire an external Data Science team?
5. Company Size and Scalability- Can your company afford to invest in advanced analytics, people development and also have the potential to grow?

Taking a moment to ponder on these five questions will go a long way to contributing to the success of embedding advanced analytics in your company.

Would you like to know specific areas Advanced Analytics can be embedded in Fashion?

Then don’t stop reading!!!

Here are some specific areas Advanced Analytics can be applied in Fashion

1. Price Optimization
2. Product Recommendation
3. Digital and Web Analytics
4. Supply Chain Analytics
5. Consumer-Driven Marketing
6. Integrated Demand Forecasting
7. Store Localization
8. AI for Predicting Fashion Trends

For a better grasp of this concept of analytics application, I will explain a few of these areas using “Zara” as a case study.

Who is Zara???

Photo by Highlight ID on Unsplash

Here are a few key things to know about Zara.

1. Zara is a Spanish fast-fashion clothing retailer based in Galicia.
2. It was founded by Amancio Ortega and his wife in 1975.
3. It is the largest company of the Inditex group.
4. Zara is a pioneer in fast fashion based on a highly responsive supply chain.
5. Examples of Zara products include; shoes, clothing, swimwear, accessories, beauty, and perfumes, home goods and decorations, etc

(SOURCE: Business Of Fashion, Wikipedia, Inditex)

In this section, I will elaborate on the following key aspects;

• Business Strategy
• Data Sources
• Data Usage
• Advanced Analytics in Supply Chain Optimization

Zara’s Business Strategy

This brings me back to this question ;

Business Strategy- What is your business’ immediate need?

A well-defined business strategy and objective are crucial for the successful application of advanced analytics in your business.

Let’s have a look at Zara’s four main Business Model Areas

1. Design:

Zara’s design team is in constant touch with the customers and very attentive to even the slightest change in trend, creating close to 40,000 designs of which only 12,000 are released each year.

This team does not work in silos, they sometimes visit university campuses, nightclubs, and other locations where trends can be easily spotted. Even though they do not attend fashion shows, the Trend team tracks bloggers and pays close attention to the brand’s customers.

Did you grab all of that ?

If no, go over it again and then proceed to the next paragrapgh

2. Sourcing and Manufacturing:

About 80–90% of the production process occurs in Europe and 50% of this takes place at the Headquarters. The fabrics used are mainly sourced from Italy, France, and Spain.

Computer-Aided Design pattern-drafting techniques and other state-of-the-art technologies are adopted in the pattern and garment cutting process to reduce waste.

Note, the design process and cutting are done in-house, while some major parts of the stitching are done by contract staff hired by Zara.

After production, comes the Quality Assurance check and the packaging processes.

3. Distribution:

The team ensures the packages received at the warehouse match what is being ordered by the stores, codes them respectively, and distributes them to the necessary locations.

Photo by Ciel Cheng on Unsplash

4. Retailing:

Zara retail stores are located in strategic premium places to attract the ideal audience with a well-organized store layout.

Now might be a good time to grab a cup of hot chocolate drink

* winks

Big Data Application In Zara Supply Chain Optimization.

GIF via GIPHY

Part of the few things I questioned about the Fashion Industry was why we had two major seasons and why designers always had to produce outfits about 6 months earlier so as to showcase in the fashion week.

In some instances, the clothes from the previous season have not been sold or just arriving from the factory. Consequently, the design process and development begin towards the next Fashion Season.

And this cycle continues year in year out.

It just didn’t add up…

and still doesn’t!

What really is the essence of spending so much time, energy, labor, and other resources in producing a garment, and then it lies in the store ???

Personally, I am not a fan of fast fashion and I preach sustainability. But I think sometimes we fail to realize that making sales and good profit margins are also a part of building a sustainable business.

Or what do you think?

When I read about Zara’s strategy of first releasing only 50% of its collection and releasing the rest based on the insights from data collected in the initial release, I marvelled at the idea and got more curious.

You can read more on how Data Science can help the Fashion Industry become more sustainable.

Re-Imagine The Business Of Fashion: Part 2

…back to Zara

Zara’s strategy to optimize the supply chain involves applying big data from gathered customer interests, feedback, surveys, and other insights used to guide the design and production processes.

Hence, a lower production lead time.

Just try to follow my story, it will become clearer soon.

Are we good?

In the traditional design process, there are two major fashion cycles and the process begins from design to fabric sourcing, sampling, final production, logistics, and finally to distribution. In most cases, Fashion brands source for cheaper labour in places like China, Bangladesh, and some parts of Europe.

Hence the reason for the long production lead time (6 months). This process causes the clothes to arrive late thus forcing designers to sell them off at cheaper prices.

So how does Zara optimize its supply chain to avoid this?

As I mentioned earlier, Zara releases only 50% of its estimated production line, and the remaining 50% will be designed and produced in the middle of the season.

Furthermore, only small amounts of stock-keeping units (SKU) are ordered and each order takes about 2–3 weeks.

Now, here comes the magic …

Zara began a Radio Frequency Identification (RFID) project in 2005, which became full-blown in 2015 with a 17% sales boost in the first half. This project involves placing an RFID chip within each clothing tag before distributing them to the appropriate stores.

“And this is what drives the tracking of Zara’s sales data collection.”

These data provide information such as ;

1. How often the clothing item moved in and out of the dressing room.
2. How many of it got to the point of sales.
3. The speed at which the item moves from the shelf to the POS.
4. The sales of each SKU from the inventory levels in each store.

Basically, the chip present in each tag tracks the clothes from the warehouse to the store, and the data generated by these chips are processed in the Inditex central data processing unit , which operates round the clock (24 hours).

This RFID is what is used to determine which item is the best selling and needs restocking in all the 6000 plus outlets of Zara.

Photo by Sara Kurfeß on Unsplash

It gathers all the data and analyzes the different SKUs’ features’ performance. Zara then uses the insights from these data to guide its design, then manufacture models that have the most popular features to satisfy customer demand.

“With Zara, you know that if you don’t buy it, right then and there, within 11 days the entire stock will change. You buy it now or never.”

In other words, Zara uses Big Data and Analytics to track demand on a real-time, localized basis and push new inventory in response to customer pull.

How does that sound???

Zara places high importance on store localization rather than investing in Ads and sales campaigns. From the onset, the stores are located in premium places even though Zara’s products are not luxury items.

These tactics enable them to be close to their target audience and also beside some major Top Fashion brands

The data from the RFID not only tracks what happens to the clothes, but it can also track from what location(specific) the data is coming from.

Thus, the supply to each Zara store is tailored to their specific needs based on real-time updates.

If for instance, you have two Zara stores on the same street, it does not necessarily mean you will get the same items in each store because each store has its unique needs.

According to Inditex;

The retail giant invests its money in opening new stores in strategic locations instead of spending a lot on ad campaigns. Also, in an article in The New York Times Magazine, Zara has an estimated 5900 stores and an annual sales estimation of 21.3 billion in 2018 (Source: Inditex).

Whew!!!!

Been a long ride… thanks for staying with me this far.

We are rounding up soon.

Check out this interesting headline from a recently published article on Fashion United;

“Zara owner Inditex swings to Q1 profit as sales rebound” which talks about how the giant retail brand sales have increased post covid despite having several stores closed down.

You are probably wowed by all these and thinking Kiitan is that all?

ABSOLUTELY NOT!!!

But I would like you to go over this article again, make some notes, have a look at the extra links and resources I added.

I hope you enjoyed this article as much as I enjoyed writing it for you. Give it a clap and share so that it can get across to more people.

I have a gift for you so read to the end!!!

GIF via GIPHY

CONCLUSION:

Accessibility to quality data is an important aspect of adopting advanced analytics. There is no data-driven strategy without data.

Moreso, understand your business needs, customers and consult with the professionals on what works best for you.

Perhaps you feel overwhelmed by all these and you are like how do I start?

Here is my gift for you;

1. Build a strong online presence…I mean a website, not just social media accounts.
2. Grow a team with a data-keeping and driven culture.
3. Get familiar with Google Analytics. Don’t know where to start? Check this course by Google Analytics Academy, it is free! This article by STARTUP Fashion can give you an overview of what you can learn from Google Analytics.
4. Meet with your team and come with a business strategy that will work.
5. Have an open mind and an agile system.
6. Reach out to a consultant if you are not equipped for that.
7. Finally, don’t forget to ensure all the tasks are well assigned, monitored and results are analyzed to make a more informed decision.

As much as I would love to tell you more and give you statistics on Zara’s progress compared to its competitors…I think here would be a best place to stop.

Got some questions for me? Drop them in the comment section and don’t hesitate to reach out to me on LinkedIn.

CHEERS!!!

RESOURCES:

I have added some links to great resources (courses, statistics, videos, and articles) on Zara, fashion analytics, data analytics, and a non-fashion related case study.

• Inditex 2021 Report
• Inditex Financial Data
• Zara Uses Supply Chain To Win Again — Forbes
• Short Video on Zara’s RFID System.
• Video on Zara Agile Supply Chain
• Application of Data Analytics in Fashion
• 7 Rules Of Fashion Supply Chain- SupplyChain247
• Zara Clothing Company Supply Chain SCM Globe
• Here is a quick digression from Fashion, let’s consider the American multinational supermarket, WALMART that promises its consumers “Everyday Low Prices”.