Thursday, June 19, 2014

Inditex and iterative adaptation in fashion retailing

FT has a nice feature on the spectacular success of fashion retail brand Inditex, the world's largest fashion retailer, which retails using its over 6400 Zara shops spread over 88 countries. One area where it outclasses competition is in the speed with which it reacts to fashion trends, using its efficient information feedback mechanisms to swiftly turn sketches into products ready for shipment. It churns out over 30000 individual designs on nearly 900 clothing items every year,
The essence of the Inditex model is to push the moment of production as close as possible to the moment of sale... Many of the items you see in Zara stores today will have been designed back in Arteixo as little as two weeks before... Inditex’s success is based not on speed but on accuracy, on understanding exactly what customers want, week by week, and store by store. Take the new trenchcoat. Once it goes on sale, Mr Ruyman Santos and his colleagues will know almost immediately how it is faring with shoppers around the world. Every day, tens of thousands of customer reactions are fed back to the design teams. Is the sleeve too tight? Are the fringes too long? Does your bottom look big in this? The answers are analysed and swiftly incorporated into new designs, creating a never-ending cycle of iteration and innovation. Even successful designs will never get a second run. You need to evolve, and you must never repeat...
Every Inditex store receives fresh deliveries twice a week – a feat of logistics that helps encourage customers to return to the store as often as possible... Zara customers typically visit the shop four or five times more often than clients of a more traditional fashion store. They sell in small batches and they are producing what they already know will sell. This means, crucially, that Inditex has much lower inventories than its rivals, and less need to discount unsold goods. According to research by Société Générale, the investment bank, only 15-20 per cent of Inditex stock is marked down, as opposed to 45 per cent for a competitor like H&M.
This is a very good example of what Jim Collins calls "empirical creativity", where when faced with uncertainty, firms respond by relying upon "direct observation, practical experimentation, and direct engagement with tangible evidence". This strategy of "experiment, collect evidence, learn, iterate, and adapt" is equally relevant to social policy making as is to business management.

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