Raising the roof in fast-fashion

(1) With its bright-red H&M logo on 1,200 stores, Swedish retailer Hennes & Mauritz has long been the world’s leading purveyor of cheap-chic apparel. No more. On Mar. 29, Spanish retail group Inditex, best known for its Zara stores in Europe, reported 21% sales growth in 2005, to $8.15 billion. That puts Inditex ahead of H&M, which posted $7.87 billion in sales last year.

(2) Zara’s secret? It moves fast. With an in-house design team based in La Coruña, Spain, and a tightly controlled factory and distribution network, the company says it can take a design from drawing board to store shelf in just two weeks. That lets Zara introduce new items every week, which keeps customers coming back again and again to check out the latest styles.

(3) Zara’s success is all the more surprising because at least half its factories are in Europe, where wages are many times higher than in Asia and Africa. But to maintain its quick inventory turnover, the company must reduce shipping time to a minimum. The fast-fashion approach also helps Zara reduce its exposure to fashion faux pas. The company produces batches of clothing in such small quantities that even if it brings out a design that no one will buy, which happened during an unseasonably warm autumn in 2003, it can cut its losses quickly and move on to another trend.

(4) Zara’s fast pace means that some popular items appear and disappear within a week, creating an image of scarcity that many shoppers find irresistible ‘They’ve built up an excitement around snapping up new clothes before they go,’ says Kris Miller, a New York-based retail analyst with Bain & Co. ‘As well as keeping sales high throughout the year, it also keeps margin-stripping markdowns to a minimum,’ Miller says. That helps explain why Inditex profits soared 26% last year, to $973 million.

(5) H&M uses a slightly different strategy. Around one quarter of its stock is made up of fast-fashion items that are designed in-house and farmed out to independent factories. As at Zara, these items move quickly through the stores and are replaced often by fresh designs. But H&M also keeps a large inventory of basic, everyday items sourced from cheap Asian factories.

(6) To add pizzazz to its lineup, the Swedish retailer has also struck deals with high-fashion designers Stella McCartney and Karl Lagerfeld to create limited, one-time collections, which generally sell out within days. H&M is a strong financial performer too. Sales during the first three months of this year were up 20%, after rising 14% in 2005.

(7) No wonder fast-fashion companies such as H&M, Zara, Spain’s Mango, and Britain’s Top Shop, are among the brightest stars in Europe’s retail landscape. A 2004 Bain & Co. study found that fast-fashion outlets in Spain and Britain posted average double-digit sales growth, compared with 4% growth in overall retail sales in those countries.

(8) These companies are expanding rapidly. Zara’s parent, Inditex, whose other retail chains include Massimo Dutti and Bershka, opened 448 new stores last year, while H&M inaugurated 145. This year Inditex expects to add as many as 490 stores, which includes its first Chinese outlet, opened recently in Shanghai. By 2010, its global total could grow from 2,700 to 5,000.

(9) So far, Inditex and its European counterparts have expanded cautiously in the U.S. Zara has only 19 stores stateside. H&M has 91, but that’s tiny compared to the company’s 1,200 worldwide total. NPD Group, a New York-based market research outfit, says that fast-fashion accounts for only 1% of the $181 billion U.S. apparel market. That compares with 18% in Spain, 12% in Britain, and 8% in France, according to Bain&Co. estimates. ■From Business week 2006

►Case task:

1. Map out Zara’s supply chain and marketing strategy. Make sure to include in this analysis the role of product design, production, distribution and retailing processes. Use other sources for additional info.

►Case questions:

1. What are the reasons behind Zara’s success? To what extent is this success explained by its supply chain and marketing strategy?
2. What does Zara do especially well in implementing its marketing strategies? What aspects of its implementation might be improved?
3. Compare Zara’s supply chain and marketing strategy with those of H&M. What are the major differences and/or similarities? Can these differences be explained by differences in strategy? What can H&M learn from Zara, if anything?

‘THE ECONOMIST-2’ POINT

The claim that ‘the customer is king’ has always rung hollow. But now the digital marketplace has made it come true.

(1) It is the biggest advertising event of the year. On February 6th, half the households in America sat down in front of their televisions to watch the 2005 Super Bowl. Never mind the game: the Super Bowl is a showcase for television commercials, and more than a quarter of the viewers tune in just to watch the ads. For days before and after the event, these are discussed in the newspapers, on radio and on TV. At an average cost of $2.4m for a 30-second slot, a Super Bowl commercial is the most expensive pitch an advertiser can make. For some, such as Anheuser-Busch, it has become an institution. The brewer's decision to drop one of its ads from the ten slots it had booked made headlines. The commercial was a cheeky take on Janet Jackson's “wardrobe malfunction” (a slipping top) during the half-time show at the 2004 game. The resulting publicity prompted large numbers of people to visit Anheuser-Busch's website to look at the ad, which meant that probably as many saw it as if it had been screened.

(2) The Super Bowl is a great excuse for a party, especially for the advertising industry. It shows that people still enjoy ads that are creative and entertaining. But it raises an awkward question: does it actually sell any more bottles of beer, cars or pills for erectile dysfunction? Although TV viewers tend to be able to recall a particularly good commercial, many cannot remember the product it featured. And for the most part they try to avoid the rising barrage of ads. Getting their attention is becoming increasingly difficult, because audiences are splintering as people use different kinds of media, such as cable television and the internet. The choice of products and services available is multiplying, but at the same time consumers have become more skeptical about claims made for products. In today's marketplace, consumers have the power to pick and choose as never before.

►Find words/phrases having the same or similar contextual meaning with those boldfaced. Insert them into sentences in the appropriate form. Now translate the sentences into Russian.

Date: 2016-01-14; view: 1403