Introduction
Technology enabled strategy was their key to dominating the fashion industry
Shuns advertising and rarely runs sales
Highly vertically integrated
Keeps huge swaths of its production in house
Most other fashion companies outsource to low-cost countries
Why study Zara?
Zara is currently undergoing one of the fastest global expansions that the fashion world has ever seen
Has one of the highest profitability’s in the industry
Clothing looks high fashion but is actually inexpensive
Gap: An icon in crisis
Former industry leader
Overseas contract manufacturers require hefty lead times
But trying to guess what customers want months ahead is tricky
Typical fashion industry montage: inventory=death
Too much excess product on hand leads to markdowns and write-offs
Kills profits
When sales started to decline, Dexler(former CEO) began to chase the youth market
Miniskirts and low rise jeans
Strategy didn’t work and old customers went to similar competitors
The excess inventory crushed the firm
Gap’s old strategy of attracting customers through big-budget television promotion had collapsed
Contract manufacturing: lower costs at what cost?
Traditionally thought that leveraging cheap contract manufacturing in developing countries can keep the cost of goods low
Can lower price and sell more or maintain a higher PM
Global competition among contract firms has led to race-to-the-bottom cost-cutting measures
To have the low cost bid, contract firms:
Skimp on safety
Ignore environmental concerns
Employ child labor
Gap has been singled out because it is one of the largest importers of clothes from Bangledesh
Big firms=big targets
Should ensure products are made under acceptable labor conditions to avoid brand damaging backlash that may
Turn off customers
Repel new hires
Leave current staff feeling betrayed
Must ensure their own ethical practices but also those of suppliers and partners
Tech for Good: Fair Factories Clearinghouse
Reebok
Developed an in-house information system to track audits of its hundreds of suppliers along dimensions such as labor, safety, and environmental practices
Donated this system to create the Fair Factories Clearinghouse nonprofit
Share audit information on contract manufacturing
Suppliers now know that if they behave irresponsibly, the Fair Factories system will record it and notify all members to avoid the firm
Key takeaways that book wrote
Zara has used technology to dominate the retail fashion industry as measured by sales, profitability, and growth.
Excess inventory in the retail apparel industry is the kiss of death. Long manufacturing lead times require executives to guess far in advance what customers will want. Guessing wrong can be disastrous, lowering margins through markdowns and write-offs.
Contract manufacturing can offer firms several advantages, including lower costs and increased profits. But firms have also struggled with the downside of cost-centric contract manufacturing when partners have engaged in sweatshop labor, poor working conditions, and environmental abuse.
Firms with products manufactured under acceptable labor conditions face multiple risks, including legal action, brand damage, reduced sales, lower employee morale, and decreased appeal among prospective employees.
Questions
1) what is the conventional wisdom of the fashion industry with respect to design, manufacturing, and advertising?
a. Design: put out new designs very infrequently
i. Designs are created and ordered months in advance and makes it hard to adapt to consumer wants and needs ii. Hard to guess that far in advance iii. New designs once or twice a season
b. Manufacturing: outsourcing with hefty lead times
i. Inventory=death ii. Contract manufacturing in low income countries to keep costs of goods low
c. Advertising
i. Typically spend 3%-5% of revenue on advertising
2) In what way is the Zara model counterintuitive? In what ways has Zara’s model made the firm a
