Will Inditex be alive in 10 years?

“Like it or not, digitization is here”. Zara is renowned for its ability to master the design and management of the supply chain. Is Zara going to be able to leverage the digital tools to increase its competitive advantage?

“Like it or not, digitization is here” [1] It is widely renowned that the agile supply chain from Inditex has been its main competitive advantage. Digitization is impacting all industries and all geographies. If Inditex wants to remain as a leader in the clothing and apparel industry, it should perfectly leverage the benefits of the digitization. According to Pablo Isla, CEO of Inditex, “our business model is based on the ability to react during the season” [2]. Exactly, the design of its supply chain allows Inditex to have a twice-per-week delivery to all the stores in the world in comparison to once every two months from most competitors [3]. However, as he pointed out, it is not only important to be fast: “it is not just a question of being fast. It is (…) trying to know what our consumers want” [2]. In this sense, digitization plays a key role. Digitization to better understand what the consumers want and digitization to improve and accelerate the supply chain. Will Inditex accomplish these two goals and thus continue to be a reference in the clothing and apparel industry?

Is Inditex moving fast enough?

Inditex is using digital tools to keep improving its time to market (and reducing its supply-chain costs) and to better understand consumer needs.

Advanced analytics and big data is helping the company to better understand its consumer preferences. For example, social media and PDAs (personal digital assistant) “let Inditex capture real-time consumer data, not only in transactions, but also on preferences underlying perceptions of value” [4] [5].  With the PDA, the staff enters the customer input information at the very same moment. This input helps determine what Zara’s designers will create next [6].

In addition, digitization let Inditex to improve its supply chain.  One main change is attaching radio-frequency identification (RFID) tags to every item of clothing. Ten staff members can now update a store’s inventory in a couple of hours—work that used to take 40 employees more than five hours—by waving small handheld computers at racks of clothing [7]. In addition, all these information is shared simultaneously with the rest of the supply chain so the inventory costs are drastically reduced.

Another improvement is the point of sale system (POS). This transaction process immediately records a customer’s purchase information, which is used to plan ahead for new styles or send more inventories to existing stores [6].

What should Inditex do next?

In order to improve the consumers’ preferences I would suggest Inditex to let the consumers be the designers. What do I mean with this? I believe that it would be a great idea to create an app in which consumers could vote for the clothes they would like to see produce. In this sense, Inditex could easily collect this information and produce only those clothes most voted. In addition, since customers’ preferences vary from region to region, Inditex would have the ability to send the clothes based on the preferences of each region. Another feature I would add to the app would be the answer to que question: How much you will be willing to pay for this cloth? This will position Inditex in a position where consumers would be willing to use the app (and thus opportunities of cross-selling) and, moreover, it will reduce the inventory costs since Inditex will only produce clothes that it know in advance that will be sold.

In the area of improving the supply chain, I believe that Inditex should start making the first steps to leverage block chain to improve the information running through its supply chain. It is a faster a safer mechanism and the total benefits from it are yet to discover. In order to keep a leadership position, Inditex should at least explore how this new technology can improve its supply chain.

Biggest threats/opportunities for Inditex?

Many companies are copying their model and the growing importance of the technology is changing completely the traditional notion of supply chain. As discussed above, Inditex is trying to improve its competitive advantage, but the question is: are the steps taken enough? How is going to be able Inditex to maintain its competitive advantage? Should Inditex establish a partnership (i.e. technology company)?

Another important threat/opportunity that Inditex will face is the rise in ecommerce. Inditex is performly well in ecommerce but would it be able to face new competitors such as Amazon. For example, Amazon PrimerWardrobe allows consumer to try for free clothes in their home and pay after only for those the consumer want to buy. Will Inditex be able to compete against these competitors? Which actions should Inditex take to increase the entrance barriers?

[1] Charan, Ram. Boards can´t wait for CEOs to prioritize digital change. (2017, September 6). Harvard Business Review. Retrieved from   https://hbr.org/2017/09/boards-cant-wait-for-ceos-to-prioritize-digital-change

[2] 2017’s Top-Performing CEO on Getting Product Right. (2017, October 24). Harvard Business Review. Retrieved from https://hbr.org/ideacast/2017/10/2017s-top-performing-ceo-on-getting-product-right

[3] Praven, Sai. Zara Clothing Company Supply Chain (2016, October). SCM Globe. Retrieved from http://blog.scmglobe.com/?page_id=1513

[4] Hartmann, Brian and Narayanan, Subu. Digital manufacturing: the revolution will be virtualized. (2015, August). McKinsey & Company. Retrieved from https://www.mckinsey.com/business-functions/operations/our-insights/digital-manufacturing-the-revolution-will-be-virtualized

[5] Breuer, Peter and Moulton, Jessica. Applying advanced analytics in consumer companies. (2013, May). McKinsey & Company. Retrieved from https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/applying-advanced-analytics-in-consumer-companies

[6] Sawyers, Rachel. The Zara Methord. (2011, March 7). Retrieved from https://rachelsawyers.wordpress.com/2011/03/07/the-zara-method/

[7] O’Marah, Kevin. Zara uses supply chain to Win again. (2016, March 9). Forbes. Retrieved from https://www.forbes.com/sites/kevinomarah/2016/03/09/zara-uses-supply-chain-to-win-again/

 

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5 thoughts on “Will Inditex be alive in 10 years?

  1. In overall, I agree with your proposal of letting the consumers be the designers. The impact on inventory levels, efficiencies and customer knowledge would be significant. However, implementing this approach could have important implications in Zara’s operational model and supply chain:

    1-One of Zara’s greatest competitive advantages is its time to market with exclusive designs. By having an application that shows future designs to consumers, Zara would be showing at the same time future potential designs to competitors. While consumers decide which model, they want for their next Zara outfit, competitors could be copying all the models and launching in the market previous to Zara.

    2-Another great aspect of Zara is that its designs are appealing to the masses. What would happen to a consumer that voted for a T-shirt model in the App but then because that model was not the most voted is not produced? Probably that person would not come back to Zara since his opinion was not heard. Therefore, with this approach Zara would could be potentially losing and important part of their sales.

    3-What if the models that consumers select are more complex in terms of production and have in overall higher average lead times? This could have important implications for Zara in terms of cost (since it would require to source more expensive supplies), production complexity and time to market.

  2. While I really like the solution you propose – an application for consumers to vote which designs they prefer – I wonder if this will be a hindrance to Inditex’s key advantage of speed. While getting the votes would help reduce inventory of unpopular items, it would slow down the speed with which runway items are available in stock at stores as it would need to go through an extra filter of consumer preferences. Moreover, I wonder whether this would make Inditex more vulnerable to competition, especially if all retailers start producing the same set of designs that the consumers prefer. We already see little differentiation in some of the mass designs produced by some retailers, and this differentiation may become even narrower with digitization.

  3. As you mentioned, Zara in particular is able to dominate the fast-fashion market through a) speed to shelves and b) low costs. I agree with your assessment that digitization (especially blockchain technology and IoT / RFID) will improve their cost structure. The inventory management and stocking issues you mention are particularly interesting to me. I wonder if Zara could use these tools to predict trends, as Gap was considering in our marketing case. Specifically, could Zara apply advanced analytics to the sales and inventory data they can receive instantaneously in order to predict trends and capitalize on popularity of certain design features? The fact that Zara can get new designs on shelves so quickly means that they could produce multiple lines within the lifetime of a given trend, making this kind of data more powerful for them than for a slower-turn company like Gap.

    Further, Zara could use data on what customers are searching in the app to inform which types of products they should develop next. For example, if many customers are searching for a “tulle midi skirt” and the results come up empty, Zara would know to design this item and get it into stores as soon as possible. Zara could also aggregate this kind of information with location data of app users to predict where to ship what volume of merchandise.

  4. Thanks for the commentary, Javier. I wrote my TOM Challenge on Stitch Fix using big data and artificial intelligence to predict future trends and demand. I think adopting artificial intelligence might apply well for Zara given the value that can be derived from the use artificial intelligence. In addition, the use of artificial intelligence is being adopted by Zara’s competitors. Within the last year, Uniqlo announced that to compete in the retail space, it will attempt to shorten its design-to-delivery cycle to 13 days, on par with Zara. One mechanism Uniqlo is utilizing to manage this critical timing is artificial intelligence. “That cobalt blue hoodie or coral dress shirt, for example, will hit Uniqlo a moment or two before it actually becomes ‘a thing’”. [1] Therefore, to address your question “How is Inditex going to maintain its competitive advantage?”, I think in order to stay competitive, Inditex should investigate and likely adopt the use of artificial intelligence.

    [1] https://www.gq.com/story/uniqlo-fast-fashion-speed-zara-competition

  5. Thanks for the interesting thoughts Javier!

    The app concept is interesting, I wonder whether Zara might already be doing some of the predictive analytics based on the delivery retail store customers choose on Zara.com, like “Just-In-Time” delivery to reduce inventory cost. Also, I’d be curious to see how effective – aka honest – customers are in indicating their Willingness-To-Pay for certain clothes.

    Zara’s key competence is its time to market with affordable fashion fresh off the stage, I wonder whether they would need to compete with Amazon PrimerWardrobe head-to-head, or whether they should leverage technology to focus other part of the value chains to understand customers’ need better (big data), manage logistics & supply chain (JIT delivery, virtual reality to let customers try on clothes at home and order online).

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