Zara: Managing Stores for fast fashion

By:Ravish Kumar Agarwal 09IT-024Kartik Satija 09IT-034Anup Kumar 09IT-003Apoorv Dhavan 09FT-194Vaibhav Ratra 09FT-196Nishant Dubey 09IT-016

Content

• History, Structure and Code of conduct• Challenges• Zara• Zara Supply Chain• Zara Store Management• Zara In-house logistics

History

In 1975, first store opened in A Caruna, SpainIn 1985, Corporate group, Inditex was formedIn 1990, opened several stores across the worldBy 2008, Revenue was 10 billion euro, 4264

stores across the globe and 89112 employees.Approx. 80% of the employees and 80% of its

management were women

Structure

• Headquarter in A Coruna• Sets strategy, co-ordinated the brands, managed shared functions such as HR,

IT, real estate etc

• Country level offices• Country level supervising, coordinating the operations of various brands,

autonomy as per Inditex code of cunduct

• Brand management team• Independently manages network of stores, logistics centers and production

facilities• Design of fashionable clothes, analysis of sales figures of 4o stores were done

by commercials• Regional network DTs who oversaw operations and performance for 15 store

each• Bonus is based on sales figure, labor productivity, shrink and team motivation

Inditex code of conduct

• Activities should be in ethical and responsible manner

• Every stakeholder will receive fair and honorable treatment

• Activities should be respectful to the environment

• Managers should be proactive in social issuesInditex involvement in educational and human right activities, social audits, rights to visit manufacturers and supplier factory

Challenge

To improve the efficiencies in managing the store network

Various possibilities:• Outsourcing certain store operations to third parties• Changing the way store managers are compensated• Creating formal operating procedure for store ops

Zara

• Inditex’s oldest and largest brand

• Pioneer of new fashion category called “fast fashion”

• Items manufactured quickly and sold at affordable prices

• Produced new items and delivered them to its store in less than 3 weeks rather than average 6 months

• Produced 11,000 different items as compared to 2000-4000 items by competitors

Zara

• Triangle of information: store mangers, DTs and the commercials

• Commercials received daily sales figures, communicated to store mangers and DTs to capture and interpret trends

• Store managers asked to change a model, introduce variations, design new clothes

• Design team designed new items and sent it to all stores

Zara

Autonomy– Encourage fast decision making, continuous

improvement and retaining best people– Small decisions and improvement every day– Bottom up with entrepreneurial spirit– Store managers are like store owners and this freedom

helps Zara to retain them– Zara operates in many locations with different local

needs– Generate ideas for improvement– “Japanese meeting”: 5 min. meeting before opening

time to discuss day’s objective

Zara

Corporate Control– All stores shared common culture– Brand present in similar way to customers anywhere

around the world– Regular information exchange between DTs within a

country– Brand meetings to discuss and monitor store

performance and best practices– Stores had manuals about chain information, HR policies

etc.– Common ways of doing thongs within each country– Store driven organization, thus wants its store managers

to be knowledgeable about the products

Zara’s Supply Chain

• Design teams present the designs 6 months before the selling season.

• Commit about 30% production to its suppliers• During the season, goods came from nearby

factories with shorter lead times • For basic products Zara used cheaper suppliers

with longer lead times

Inditex’s suppliers by Geographical area,2008

Areas No of suppliers

% production Lead time

Proximity(Spain,Portugal,Morocco) 516 49% 17 days on avg; min 48 hrs

Other Europe(mainly Turkey, also Bulgaria and Romania)

91 14% 5-6 weeks

Americas(Mexico,Peru) 61 2% 3-8 months

Asia(China,India,Cambodia,Bangladesh) 417 35% 3-8 months

• All products came to logistics centre in Spain before being sent to stores

• Arteixo logistics center managed 50% of the merchandise and served Spain, Portugal, the Americas and the Middle East.

• Zaragoza center served non-Iberian Europe, Russia and Asia• Most countries have small warehouses for extra or returned

merchandiseLocation 2005 2006 2007 2008

Europe N/A 761 1092 1188

Asia-Pacific N/A 50 65 96

Americas N/A 130 149 173

Middle East & Africa

N/A 49 55 63

Total 852 990 1361 1520

THE ORDERING CYCLE• Each store receives about 25k units within a 2-week

period• Upto section managers to order replenishments• Each section manager receives a morning ‘offer’ twice

a week through his PDA• Offer listed the products that logistics center had in

stock with descriptions, photos and a history of those products

• Managers used these data alongwith their own forecasts to order

• IT systems do not provide store inventory data but managers know this because of their experience

• Time of delivery– European stores-24 hours– Asian and American Stores-40 hours

• Common problem-Stores never received what they had ordered because of limited inventory at the logistics center

• Hence managers tended to over order• Ordering was challenging for new products

RECENT IMPROVEMENTS

• Isla reduced transportation costs by consolidating transportation across Zara’s different brands

• Opened 100 euro million state-of-the-art logistics center for children’s merchandise in Madrid,2007

• Shifted time consuming work away from store employees

• In 2006, introduced automatic replenishment for basic products

• Developed an algorithm for allocating inventory at logistics centers to stores

Zara Store Management

• Average 70 employees, 60% were part-time• Key positions were three section managers• Stores located in prime location• Emphasis on creating attractive interior designs

that conveyed freedom and comfort• Similar merchandise and shop windows in all

Zara stores which changes in every 3-4 weeks• Store displays were managed by section

managers

Retaining Store Staff

• Compensation:– A percent of each store’s monthly sales was divided among

the store’s employees according to the number of hours each had worked.

• Ninety percent of the store managers had been promoted from within.

• A part-time employee can become a section manager in only two years

• To reduce part-time employee turnover in France, Zara allowed part-timers to work full-time hours but in two stores.

Managing Customer Service

• Target customers: Young, fashion-conscious people interested in buying inexpensive clothes

• Good customer service at Zara mean:– Presenting the merchandise well for customer– Being available when customer need help– Making sure customers didn’t have to wait long

for a cashier

Managing In-store LogisticsConsists of:1. Processing Deliveries2. Managing Product flow between the

backroom and the selling floor3. Managing display areas and fitting rooms4. Conducting Physical audits

Managing In-store Logistics

• Twice a week, Zara stores receive early-morning deliveries from third-party logistics companies.

• Night before a delivery, headquarters sends each store a list of items it would receive.

• Section managers are responsible for checking the accuracy of the shipment.

Managing Backroom Replenishment

• On an average, 30% of the inventory was kept in the backroom.

• External backrooms are also used in countries where floor space is expensive. Eg. Japan, France.

• Zara had the policy of not keeping the product on the selling floor until all the sizes were available. They would be kept in the backroom instead.

• Zara sales associates also performed the so-called “24”.

Physical Audits

• Zara’s Store staff conducts physical audits one to three times per season.

• Aim is to monitor Shrink in inventory rather than ensure accuracy of inventory data.

• Takes around two and a half hours per audit when the whole store works on it.

• Sometimes, audit is also done by model, color and size.

Conclusion and The next step• Labor was the largest operating expense at the

stores.• Store managers were encouraged to find ways

to improve labor productivity and were given special bonuses.

• Processing of store deliveries was considered to be outsourced to third parties as it was time consuming.

Thank you