Zara"s Recipe for Success: More Data, Fewer Bosses

Zara Larsson - I Would Like (HQ Audio)

Deep inside a sprawling glass-and-cement edifice the size of an airplane hangar in the Spanish town of Arteixo, 10 designers swarm around a model dressed in cropped gray trousers and a double-breasted navy blazer. Sweaters, shirts, and suits are spread out on the white-tile floor, while seamstresses in white labcoats stitch prototypes nearby. Its classic, but its new at the same time, says a woman from China. Im not sure about the bold patterns, counters a British woman, dressed in white sneakers and a flowing skirt. Others nod their assent or express doubt.

This international tribe of thirtysomethings is a big part of the success of Zara, the brand that over the past four decades has grown from a single store in the Spanish city of La Corua into the biggest fashion retailer on earth. As the team debates whether the collection is too plain or too daring, it becomes clear no one is in charge. Juan Mendivil, a menswear buyer, fields opinions, but the decision doesnt rest with him, and everyone has a say. They finally agree on solid colors and traditional cuts for Europe and bold patterns for China, where sales data indicate such styles are popular.

Unlike rivals such as Gap, H&M, and Primark, Zara has no chief designer, and theres little discernible hierarchy. Its 350 designers are given unparalleled independence in approving products and campaigns, shipping fresh styles to stores twice a week. Guided by daily data feeds showing whats selling and whats stalling, the teams develop fashions for the coming weeks. Every morning, staff in Arteixo divine whats popular by monitoring sales figures and thousands of comments from customers, store managers, and country directors in cities as far-flung as Taipei, Moscow, and New York.

Zaras culture isnt as easily copied as the latest fashion trends, and that partly explains why Inditex, its parent company, is a breakaway success while most global clothing retailers are struggling. American Apparel filed for bankruptcy in November for a second time, sales have fallen at Gap stores, and profit is down at H&M. In contrast, Inditex powered ahead with an 11 percent rise in revenue in the first half of the year. There isnt a magic formula, says Pablo Isla, Inditexs chairman and chief executive officer. There are no stars. We are able to react to data during the season, but in the end, what we offer our customers is fashion, and theres a human element to that.

Controlled by Spanish billionaire Amancio Ortega, who this year briefly surpassed Bill Gates to become the worlds richest man before falling back to second place, Inditex posted 20.9 billion ($22.2 billion) in sales last year, from 7,100 stores in 93 countries. Other Inditex brands such as Bershka, Massimo Dutti, and Pull & Bear are growing, but Zara still accounts for two-thirds of sales. Ortega hired Isla, a bespectacled former Banco Popular Espaol executive, as CEO in 2005, but he hasnt retired. At 80, he still comes to work most days, often sitting in the Zara womens department, where his 32-year-old daughter Marta works on the commercial team after a stint at Bershka. While he can sometimes be seen walking his dog Pepe in the town square of nearby La Corua, Ortega remains one of the worlds most secretive billionaires, leaving Isla to oversee Inditex.

One concern for Zara is managing its growth, says Andy Hughes, a retail analyst at UBS. With Inditexs sales almost doubling since 2009, Isla is adding stores at a slower pace, concentrating instead on a smaller number of flagship locations and its online business. Another concern is that rivals might figure out how to match Zaras quick turnarounds. Everyone in the industry is trying to replicate its design prowess, Hughes says. No one could match Inditex, but the gap might close.

Source: Inditex

Isla rejects the fast-fashion label for Zara, saying it doesnt reflect the time and detail that goes into designing each garment. And he says analysts place too much emphasis on Inditexs much-vaunted supply chain, a network of factories in Spain, Portugal, and Morocco that produces 60 percent of its merchandise. With production nearby, Inditex can quickly switch gears if weather or fashion trends change, getting designs into stores in as little as two or three weeks, while rivals orders slowly make their way across the ocean on container ships.

Just as important is the way Inditex pulls ideas from consumers, Isla says, rather than designing collections months in advance and pushing goods on shoppers with ads. While analysts say H&M spends as much as 4 percent of sales on advertising, Inditex has virtually no ad budget apart from social media marketing. Since 2010, the data on what customers want has been augmented with information from online sales. Those are fueled by twice-weekly releases of new designs on Zaras website, highlighted with photos from rapid-fire shoots in Arteixo. On a rainy November day, buyers, analysts, and commercial managers sift through information on computers in a space the size of 22 football fields, engaging in a lively exchange of ideas with designers. Without the design, there would be nothing, Isla says, sitting at a pale-wood conference table in the companys minimalist headquarters. Its not a formula.

This means the designers are constantly tinkering. When military jackets turned out to be big sellers this autumn, the commercial team asked the designers to keep tweaking them with new fabrics and cuts. In May, a blue-and-white collarless womens coat for 69.99 (about $102 at the time) generated so much buzz that two fans created an Instagram account@thatcoatto document the craze. But instead of churning out more identical coats, design teams came up with different fabrics and prints using a similar cut, ranging in price from $69 to $189. The root of Inditexs success is its predominantly short lead time, which gives a greater level of newness to its collections, says Anne Critchlow, a retail analyst at Socit Gnrale.

About two-thirds of Inditexs products are generated under short lead times, vs. 20 percent for most retailers, she says. Small production runs mean Zara can test designs in various markets without building up unwanted stock that it might need to unload at a deep discount. That gives Inditex among the lowest yearend inventories in the industry, says Richard Hyman, an independent analyst in London. This is a business that really breaks the rules, Hyman says. They dont really have seasons in the way a normal fashion retailer would.

The bottom line: A unique management formula may be why Inditexs revenue growthup 11 percent in the first half of 2016far outpaces its rivals.

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Source: http://www.bloomberg.com/news/articles/2016-11-23/zara-s-recipe-for-success-more-data-fewer-bosses