Zara

Zara Case Study: fast fashion from Savvy Systems

After studying this case you should be able to: Understand how Zara used a technology-dominated strategy to make its parent company, Inditex, the world’s largest fashion retailer. List the factors leading to the demise of Gap. Understand how the application of technology to data collection and analysis allows Zara to spot trends and gain insight into the future preferences of customers. Identify the strategies, and the technologies used to implement them, that Zara employs to give its manufacturing and logistics operations a huge competitive edge. Appreciate the differences between Zara stores and other retail apparel stores, and how theses differences relate to Zara’s ability to make limited production runs. Identify the environmental threats to Zara’s dominant competitive advantage, and formulate strategies to counter them.

The poor, ship-building town of La Coruña in northern Spain seems an unlikely home to a tech-charged innovator in the decidedly ungeeky fashion industry, but that’s where you’ll find “The Cube”, the gleaming, futuristic central command of the Inditex Corporation (Industrias de Diseno Textil), parent of game-changing clothes giant, Zara. The blend of technology-enabled strategy that Zara has unleashed seems to break all of the rules in the fashion industry. The firm shuns advertising, rarely runs sales, and in an industry where nearly every major player outsources manufacturing to low-cost countries, Zara is highly vertically integrated, keeping huge swaths of its production process in-house. These counterintuitive moves are part of a recipe for success that’s beating the pants off the competition, and it has turned the founder of Inditex, Amancio Ortega, into Spain’s wealthiest man and the world’s richest fashion executive. Zara’s operations are concentrated in La Coruña and Zaragoza, Spain. A sampling of the firm’s designs, and “The Cube”, as shown on the firm’s websites.

The Business plan on Zara fashion swot

1. Barriers to entry: HIGH a. High fixed cost business requires economics of scale for sustained profitability b. High Selling & Administration Expenses which includes advertising, in-store promotions, etc.; up to 3.5% of its revenue, even though for Zara, the company is famous for spending minimum level of advertisements and commercials. However, recently the company announced that it ...

The firm tripled in size between 1996 and 2000, then skyrocketed from $2.43 billion in 2001 to $13.6 billion in 2007. By August 2008, sales edged ahead of Gap, making Inditex the world’s largest fashion retailer.Hall, 2008. While the firm supports eight brands, Zara is unquestionably the firm’s crown jewel and growth engine, accounting for roughly two-thirds of sales.Murphy, 2008. While competitors falter, Zara is undergoing one of the fastest global expansions the fashion world has ever seen, opening a store a day and entering new markets worldwide—68 countries so far. The chain’s profitability is among the highest in the industry.Sull and Turconi, 2008. The fashion director for luxury goods maker LVMH calls Zara ‘the most innovative and devastating retailer in the world’.Surowicki, 200. Zara’ duds look like high fashion, but are comparably inexpensive. A Goldman analyst has described the chain as “Armani at moderate prices”, while another industry observer suggests fashions are more “Banana Republic”, prices are more “Old Navy”Folpe, 2000. Offering clothing lines for women, men, and children, legions of fans eagerly await “Z-day”, each Zara location’s twice-weekly inventory delivery that brings in the latest designs. In order to understand and appreciate just how counterintuitive and successful Zara’s strategy is, and how technology makes all of this possible, it’s important to first examine the conventional wisdom in apparel retail. To do that we’ll look at former industry leader—Gap.

Most fashion retailers place orders for a seasonal collection months before these lines make an appearance in stores. While overseas contract manufacturers may require hefty lead-times, trying to guess what customers want months in advance is a tricky business. In retail in general and fashion in particular, there’s a saying: inventory = death. Have too much unwanted product on hand and you’ll be forced to mark down or write off items, killing profits. For years, Gap sold most of what it carried in stores. It was led by a man with a radar-right sense of style. Micky Drexler, the iconic CEO who helped turn Gap’s button down shirts and khakis into America’s uniform. Drexler’s team had spot-on tastes throughout the 90s, but when sales declined in the early part of this decade, Drexler was left guessing on ways to revitalize the brand and he guessed wrong—disastrously wrong. Chasing the youth market, Drexler filled Gap stores with miniskirts, low-rise jeans, and even a much-ridiculed line of purple leather pants.Boorstein, 2006. The throngs of teenagers he sought to attract never showed up, and the shift in offerings sent Gap’s mainstay customers to retailers that easily copied the styles that Gap made classic. The inventory hot potato Drexler was left with crushed the firm.

The Essay on The Gap Company Navy Stores

The Gap Inc. When I first thought bout what company I would like to research, I look down and fixed the collar on my shirt. Then it dawned on me that since I love fashion, I could do it on the gap. Who had the power (and the clothes) to make the NYSE take its first casual Friday The Gap - the ubiquitous clothing retailer that runs over 3, 300 stores, mostly in the US, but also in Canada, France, ...

Gap’s same-store sales declined for 29 months straight. Profits vanished. Gap founder and Chairman Dan Fisher lamented “It took us 30 years to get to $1 billion in profits and two years to get to nothing”Sellers, 2003. The firm’s debt was downgraded to junk status. Drexler was out and for its new head, the board chose Paul Pressler, a Disney executive who ran theme parks and helped rescue the firm’s once ailing retail effort. Pressler shut down hundreds of stores, but the hemorrhaging continued, largely due to bad bets on colors and styles.Lee, 2007. During one holiday season, Gap’s clothes were deemed so off-target that the firm scrapped its advertising campaign and wrote off much of the inventory. The firm’s model of drawing customers in via big-budget television promotion had collapsed. Pressler’s tenure saw same store sales decline in 18 of 24 months.Boorstin, 2006. A Fortune article on Pressler’s leadership was titled “Fashion Victim”, BusinessWeek described his time as CEO as a “Total System Failure,”Lee, 200. and Wall Street began referring to him as DMW for Dead Man Walking. In January 2007, Pressler resigned, with Gap hoping its third Chief Executive of the decade could right the ailing giant. Then, of course there are other problems with outsourcing production. Conventional wisdom suggests that leveraging cheap contract labor in developing countries can keep cost-of-goods low. Firms can lower prices and sell more, or maintain higher profit margins—all good for the bottom line. But there’s an ugly downside to contract manufacturingFirms that allow for the outsourcing of production. Firms that use contract manufacturers don’t own the plants or directly employ the workers who produce the requested goods. (firms that allow for the outsourcing of production) in the apparel industry, sweatshop labor. Global competition among contract firms has lead to race-to-the-bottom cost-cutting measures.

The Review on A Proposed Online Grading Website With And Customer Service System

Introduction Grading and reporting are relatively recent phenomena in education. Throughout much of the nineteenth century most schools grouped students of all ages and backgrounds together with one teacher in one-room schoolhouses, and few students went beyond college studies. The teacher reported students learning progress orally to parents, usually during visits of parents in their schools. ...

Too often, this means that in order to have the low-cost bid, contract firms skimp on safety, ignore environmental concerns, employ child labor, and engage in other ghastly practices. Despite the fact that Gap audits contract manufacturers and has a high standard for partner conduct, the firm has repeatedly been taken to task by watchdog groups, the media, and its consumers when reports exposed unacceptable work conditions that Gap failed to catch. This includes the Oct. 2007 video showing Gap clothes made by New Delhi children as young as 10 years old in what were described as ‘slave labor’ conditions.Cho, 2007. Gap isn’t alone; Nike, Wal-Mart, and many other apparel firms have been tarnished in similar incidents. Big firms are big targets and those firms that fail to adequately ensure their products are made under acceptable labor conditions risk a brand-damaging backlash that may turn off customers, repel new hires, and leave current staff feeling betrayed. Today’s manager needs to think deeply not only about their own firm’s ethical practices, but also those of all of their suppliers and partners. Having the wrong items in its stores hobbled Gap for nearly a decade, but how do you make sure stores carry the kinds of things customers want to buy? Try asking them.

Zara’s store managers lead the intelligence gathering effort that ultimately determines what ends up on each store’s racks. Armed with handheld personal digital assistants (PDAs) to gather customer input, staff regularly chat up customers to gain feedback on what they’d like to see more of. A Zara manager might casually ask: What if this skirt were in a longer length? Would you like it in a different color? What if this v-neck blouse were available in a round-neck? Another level of data gathering starts as soon as the doors close. Then the staff turns into a sort of CSI in the forensics of trend-spotting, looking for evidence in the piles of unsold items that customers tried on but didn’t buy. Do there seem to be any preferences or disappointment in cloth, color, or styles offered among the products in stock?Sull and Turconi, 200. PDAs are also linked to the store’s point-of-sale or POSPoint of sale systems—transaction processing systems that capture customer purchases. Cash registers and store checkout systems are examples of point-of-sale systems. These systems are critical for capturing sales data, and are usually linked to inventory systems to subtract out any sold items. (point of sale systems—transaction processing systems that capture customer purchases) system, showing how garments rank by sales. In less than an hour, managers can send updates that combine the hard data captured at the cash register combined with insights on what customers would like to see.

The Term Paper on Staff Member Electronic Item Customer

Major It Assignment Introduction As a part of year 12 subject Information Technology we had to create an electronic database, we were given a question sheet and we had to follow it. We were given our choice of making a database on anything we wish as long as we meet all requirements. We also had to do a write up for our database, once the database is created we will assume that it is actually ...

Rohwedder and Johnson, 2008. All of this valuable data allows the firm to plan styles and issue re-buy orders based on feedback rather than hunches and guesswork. The goal—to improve the frequency and quality of ‘sense making’ for the design & planning teams. Rather than create trends by pushing new lines via catwalk fashion shows, Zara prefers to follow with designs where there’s evidence of customer demand. Data on what sells and what customers want to see goes directly to “The Cube” in La Coruña, where teams of some 300 designers crank out an astonishing 30,000 items a year versus 2,000–4,000 items offered up at big chains like H&M (the world’s third largest fashion retailer) and Gap.Pfeifer, 2007; and Economist, 2005. While H&M has offered lines by star designers like Stella McCartney and Karl Lagerfeld, as well as celebrity collaborations with Madonna and Kylie Minogue, the Zara design staff is mostly young, hungry Project Runway types fresh from design school. There are no prima donnas in “The Cube”. Team members must be humble enough to accept feedback from colleagues, as well as share credit for winning ideas. Individual bonuses are tied to the success of the team, and teams are regularly rotated to cross-pollinate experience and encourage innovation. In the fickle world of fashion, even seemingly well-targeted designs could go out of favor in the months it takes to get plans to contract manufacturers, tool up production, then ship items to warehouses and eventually to retail locations. But getting locally targeted designs quickly onto store shelves is where Zara really excels. In one telling example, when Madonna played a set of concerts in Spain, teenage girls arrived to the final show sporting a Zara knock-off of the outfit she wore during her first performance.

The Term Paper on Zara Operational Performance

... feel cheap’. Zara stores were ‘large, swish and centrally located’, the clothes as well as customers were ... relatively low prices, in customer’s appealing designed stores in highly visible locations. This deliberate undersupply of ... high-fashion clothes are made by Zara in firm-owned factories in Spain, while low- ... introduce 2000-4000 items each year. COST Even though that Zara’s cannot be regarded ...

The Economist, 2005. The average time for a Zara concept to go from idea to appearance in store is 15 days vs. rivals who receive new styles once or twice a season. Smaller tweaks arrive even faster. If enough customers come in and ask for, say a round neck instead of a “v” neck, a new version can be in stores with in just 10 days.Tagliabue, 2003. To put that in perspective, Zara is twelve times faster than Gap, despite offering roughly ten times more unique products!Helft, 200. Contrast this with H&M, where it takes three to five months to go from creation to delivery—and they’re considered one of the best. Other retailers need an average of six months to design a new collection and then another three months to manufacture it. VF Corp (Lee, Wrangler) can take 9 months just to design a pair of jeans, while J. Jill needs a year to go from concept to shelves.Sullivan, 2005. At Zara, most of the products you see in stores didn’t exist three weeks earlier, not even as sketches.Surowiecki, 200. The firm is able to be so responsive through a competitor-crushing combination of vertical integrationWhen a single firm owns several layers in its value chain. (when a single firm owns several layers in its value chain) and technology-orchestrated coordination of suppliers, just-in-time manufacturing, and finely-tuned logistics. While H&M has 900 suppliers and no factories, nearly 60% of Zara’s merchandise is produced in-house, with an eye on leveraging technology in those areas that speed up complex tasks, lower cycle time, and reduce error.

Profits from this clothing retailer come from blending math with its data-driven fashion sense. Inventory optimization models help the firm determine how many of which items in which sizes should be delivered to stores during twice-a-week shipments, ensuring stores are stocked with just what they need.Gentry, 2007. Outside the distribution center in La Coruña, fabric is cut and dyed by robots in 23 highly automated factories. Zara is so vertically integrated, the firm makes 40 percent of its own fabric and purchases most of its dyes from its own subsidiary. Roughly half of the cloth arrives undyed so the firm can respond as any mid-season fashion shifts occur. After cutting and dying, many items are stitched together through a network of local cooperatives that have worked with Inditex so long they don’t even operate with written contracts. The firm does leverage contract manufacturers (mostly in Turkey and Asia) to produce staple items with longer shelf lives, such as t-shirts and jeans, but this volume accounts for only about 1/8th of dollar volume.Tokatli, 200. All of the items the firm sells end up in a 5 million square foot distribution center in La Coruña, or a similar facility in Zaragoza in Spain’s northeast.

The Essay on Time Out Of Joint

Time Out of Joint is probably not one of Dick's most well known books. It is, however, the book I chose this time. Why? Because "he thinks he's the centre of the universe" on the back cover sounded interesting. It felt like a very fresh idea to me, something I haven't encountered before in literature, or anywhere else for that matter. People often do think of where they live as the centre of the ...

The La Coruña facility is some nine times the size of Amazon’s warehouse in Fernley, Nevada, or about the size of 90 football fields.Helft, 2002. The facilities move about 2.5 million items a week, with no item staying in-house for more than 72 hours. Ceiling-mounted racks and customized sorting machines patterned on equipment used by overnight parcel services whisk items from factories to staging areas for each store. Clothes are ironed in advanced, packed on hangers, with security and price tags affixed. This means that instead of wrestling with inventory during busy periods, employees in Zara stores simply move items from shipping box to store racks, spending most of their time on value-added functions like helping customers find what they want. Efforts like this help store staff regain as much as three hours in prime selling time.Rohwedder and Johnson, 200. Trucks serve destinations that can be reached overnight, while chartered cargo flights serve farther destinations. The firm recently tweaked its shipping models through Air France-KLM Cargo and Emirates Air, so flights can coordinate outbound shipment of all Inditex brands with return legs loaded with raw materials and half-finished clothes items from locations outside of Spain.

Zara is also a pioneer in going green. In Fall 2007, the firm’s CEO unveiled an environmental strategy that includes the use of renewable energy systems at logisticsCoordinating and enabling the flow of goods, people, information, and other resources among locations. centers (logistics means coordinating and enabling the flow of goods, people, information, and other resources among locations) including the introduction of biodiesel for the firm’s trucking fleet. Most products are manufactured for a limited production run. While running out of bestsellers might be seen as a disaster at most retailers, at Zara the practice delivers several benefits. First, limited runs allow the firm to cultivate the exclusivity of its offerings.

While a Gap in L.A. carries nearly the same product line as one in Milwaukee, each Zara store is stocked with items tailored to the tastes of its local clientele. A Fifth Avenue shopper quips “At Gap, everything is the same”, while a Zara shopper in Madrid says “you’ll never end up looking like someone else”. Upon visiting a Zara, the CEO of the National Retail Federation marveled “It’s like you walk into a new store every two weeks”Helft, 200. Second, limited runs encourage customers to buy right away and at full price. Savvy Zara shoppers know the newest items arrive on black plastic hangers, with store staff transferring items to wooden ones later on. Don’t bother asking when something will go on sale, if you wait three weeks the item you wanted has almost certainly been sold or moved out to make room for something new. Says one 23-year old Barcelona shopper “If you see something and don’t buy it, you can forget about coming back for it because it will be gone”Capell, 2006. A study by consulting firm Bain & Co. estimated that the industry average markdown ratio is approximately 50%, while Zara books some 85% of its products at full price.Sull and Turconi, 2008; and Capell, 200. The constant parade of new, limited-run items also encourages customers to visit often.

The average Zara customer visits the store 17 times per year, compared with only three annual visits made to competitors.Kumar & Linguiri, 2006. Even more impressive—Zara puts up these numbers with almost no advertising. The firm’s founder has referred to advertising as a “pointless distraction”. The assertion carries particular weight when you consider that during Gap’s collapse, the firm increased advertising spending but sales dropped.Bhatnagar, 2004. Fashion retailers spend an average of 3.5% of revenue promoting their products, while ad spending at Inditex is just 0.3%CNN, 200. Finally, limited production runs allows the firm to, as Zara’s CEO once put it “reduce to a minimum the risk of making a mistake, and we do make mistakes with our collections”Vitzthum, 2001. Failure rates of the chain’s product line are reported to be just 1 percent, compared with the industry average of 10 percent.Kumar and Linguiri, 200. While stores provide valuable front-line data, headquarters plays a major role in directing in-store operations. Software is used to schedule staff based on each store’s forecasted sales volume, with locations staffing up, say at peak times such as lunch or early evening. The firm claims these more flexible schedules have shaved staff work hours by two percent.

This constant refinement of operationsThe organizational activities that are required to produce goods or services. Operations activities can involve the development, execution, control, maintenance, and improvement of an organization’s service and manufacturing procedures. throughout the firm’s value chainThe set of interdependent activities that bring a product or service to market. (the set of interdependent activities that bring a product or service to market.Definition from the ‘father’ of the Value Chain, Michael Porter. See Porter, M., “Strategy and the Internet”, Harvard Business Review, March 2001, among others.) has helped reverse a prior trend of costs rising faster than sales.Rohwedder and Johnson, 200. Even the store displays are directed from “The Cube”, where a basement staging area known as “Fashion Street” houses a Potemkin village of bogus storefronts meant to mimic some of the chain’s most exclusive locations throughout the world. It’s here that workers test and fine-tune the chain’s award-winning window displays, merchandise layout, even determine the in-store soundtrack. Every two weeks, new store layout marching orders are forwarded to managers at each location.Rohwedder and Johnson, 200. Here’s another interesting thing about Zara. Given the sophistication and level of technology integration into the firm’s business processes, you’d think that Inditex would far outspend rivals on tech. But as researchers Donald Sull and Sefano Turconi discovered, “Whether measured by IT workers as a percentage of total employees or total spending as a percentage of sales, Zara’s IT expenditure is less than one-fourth the fashion industry average”. Zara excels by targeting technology investment at the points in its value chain where it will have the most significant impact, making sure that every dollar spend on tech has a payoff. Contrast this with high-end fashion house Prada’s efforts at its flagship Manhattan location.

The firm hired the Pritzker Prize-winning hipster architect, Rem Koolhaas, to design a location Prada would fill with jaw-dropping technology. All items for sale in the store would sport with RFIDRadio frequency identification—small chip-based tags that wirelessly emit a unique identifying code for the item that they are attached to. Think of RFID systems as a next-generation bar code. (radio frequency identification—small chip-based tags that wirelessly emit a unique identifying code for the item that they are attached to) tags. Walk into a glass dressing room and customers could turn the walls opaque, then into a sort of combination mirror and heads-up display. By wirelessly reading the tags on each garment, dressing rooms would recognize what was brought in and make recommendations of matching accessories, as well as similar products that patrons might consider. Customers could check inventory, and staff sporting PDAPersonal Digital Assistant—handheld computing devices meant largely for mobile use outside an office setting. Examples include devices from Palm, Apple’s iPhone, and devices running the Windows Pocket PC operating system. (Personal Digital Assistant—handheld computing devices meant largely for mobile use outside an office setting) could do the same. A dressing room camera would allow clients to see the front and back view side-by-side as they tried on clothes. It all sounded slick, but execution of the vision was disastrous. Customers didn’t understand the foot pedals that controlled the dressing room doors and displays, with reports of some fashionistas disrobing in full view, thinking the walls went opaque when they didn’t. Others got stuck in dressing rooms when pedals failed to work, or doors broke, unable to withstand the demands of the high-traffic tourist location.

The inventory database was often inaccurate, regularly reporting items as out of stock even though they weren’t. As for the PDAs, staff reported that they “don’t really use them anymore” and that “we put them away so tourists don’t play with them”. The investment in Prada’s in-store technology was also simply too high, with estimates suggesting the location took in just one-third the sales needed to justify expenses.Lindsay, 200. The Prada example offers critical lessons for managers. While it’s easy to get seduced by technology, an information systemsAn integrated solution that combines five components: hardware, software, data, procedures, and the people who interact with and are impacted by the system. (an integrated solution that combines five components: hardware, software, data, procedures, and the people who interact with and are impacted by the system) is actually made up of more than hardware and software. An IS also includes data used or created by the system, as well as the procedures and the people who interact with the system.

Getting the right mix of these five components is critical to executing a flawless information system rollout. Financial considerations should forecast the return-on-investment, or ROIReturn-on-investment—the amount earned from an expenditure. (the amount earned from an expenditure) of any such effort (i.e. what will we get for our money and how long will it take to receive payback?).

And designers need to thoroughly test the system before deployment. At Prada’s Manhattan flagship store, the effort looked like tech chosen because it seemed fashionable rather than functional. The holy grail for the strategist is to craft a sustainable competitive advantage that is difficult for competitors to replicate. And for nearly two decades now, Zara has delivered the goods. But that’s not to say the firm is done facing challenges. Consider the limitations of Zara’s Spain-centric, just-in-time manufacturing model. By moving all of the firm’s deliveries through just two locations, both in Spain, the firm remains hostage to anything that could create a disruption in the region. Firms often hedge risks that could shut down operations—think weather, natural disaster, terrorism, labor strife, or political unrest—by spreading facilities throughout the globe. If problems occur in northern Spain, Zara has no such fall-back. In addition to the operationsThe organizational activities that are required to produce goods or services. Operations activities can involve the development, execution, control, maintenance, and improvement of an organization’s service and manufacturing procedures. (the organizational activities that are required to produce goods or services) vulnerabilities above, the model also leaves the firm potentially more susceptible to financial vulnerabilities as the Euro has strengthened relative to the dollar. Many low-cost manufacturing regions have currencies that are either pegged to the dollar or have otherwise fallen against the Euro. This means Zara’s Spain-centric costs rise at higher rates compared to competitors, presenting a challenge in keeping profit margins in check. Also a concern—rising transportation costs.

As fuel costs continue to rise, the model of twice-weekly deliveries that has been key to defining the Zara experience becomes more expensive to maintain. Still, Zara is able to make up for some cost rises by increasing prices overseas (in the US, Zara items can cost 40% or more than they do in Spain).

Zara reports that all North American stores are profitable, and that it can continue to grow its presence, serving 40–50 stores with just two US jet flights a week.Tagliabue, 2003. Management has considered a logistics center in Asia, but expects current capacity will suffice until 2013Rohwedder and Johnson, 2008. A center, say in the maquiladora region of northern Mexico, may also be able to serve the US markets via trucking capacity similar to the firm’s Spain-based access to Europe, while also providing a regional center to serve growth throughout Latin America, should the firm continue its Western Hemisphere expansion. Rivals have studied the firm’s secret sauce, and while none have attained the efficiency of Amancio Ortega’s firm, many are trying to learn from the master.

There is precedent for contract firms closing the cycle time gap with vertically integrated competition that own their own factories. Dell (a firm that builds its own PCs while nearly all its competitors use contract labor) has recently seen its manufacturing advantage from vertical integration fall as the partners that supply rivals have mimicked its techniques to become far more efficient. In terms of the number of new models offered, clothing is actually more complex than computing, suggesting Zara’s value chain may be more difficult to copy. Still, H&M has increased the frequency of new items in stores, Forever 21 and Uniqlo get new looks within 6 weeks, Renner, a Brazilian fast fashion rival, rolls out mini-collections every two months, and Benetton, a firm that previously closed some 90 percent of US stores, now replenishes stores as fast as once a week.Pfeifer, 2008; Rohwedder and Johnson, 200. Finally, firm financial performance can also be impacted by broader economic conditions. When the economy falters, consumers simply buy less and may move a greater share of wallet to less stylish but even lower-cost offerings from deep discounters like Wal-Mart. Zara is particularly susceptible to conditions in Spain, since the market accounts for nearly 40 percent of Inditex sales.Hall 2008. Global expansion will provide the firm with a mix of locations that may be better able to endure downturns in any single region.

Zara’s winning formula can only exist through management’s savvy understanding of how information systems can enable winning strategies. It is technology that helps Zara identify and manufacture the clothes customers want, get those products to market quickly, and eliminate costs related to advertising, inventory missteps, and markdowns. A strategist must always scan the state of the market as well as the state of the art in technology, looking for new opportunities and remaining aware of impending threats. With systems so highly tuned for success, it may be unwise to bet against “The Cube”. The problem of sweatshop labor has plagued the clothing industry for years. Managers often feel the pressure to seek ever-lower costs and all too often end up choosing suppliers with unacceptably poor practices. Even well-meaning firms can find themselves stung by corner-cutting partners that hide practices from auditors or truck products in from unmonitored off-site locations. The results can be tragic for those exploited, and can carry lasting negative effects for the firm. The sweatshop moniker continues to dog Nike years after allegations were uncovered and the firm aggressively moved to deal its problems. Nike rival Reebok (now part of Adidas) has always taken working conditions seriously. The firm even has a Vice President of Human Rights, and has made human dignity a key platform for its philanthropic efforts. Reebok invested millions in developing an in-house information system to track audits of its hundreds of suppliers along dimensions such as labor, safety, and environmental practices.

The goal in part was to identify any bad apples, so that one division, say sporting goods, wouldn’t use a contractor identified as unacceptable by a the sneaker line. The data was valuable to Reebok, particularly given that the firm has hundreds of contract suppliers. But senior management realized the system would do even more good if it the whole industry could share and contribute information. Reebok went on to donate the system and provided critical backing to help create the non-profit Fair Factories Clearinghouse. With management that includes former lawyers for Amnesty International, Fair Factories (FairFactories.org) provides systems where apparel and other industries can share audit information on contract manufacturers. Launching the effort wasn’t as easy as sharing the technology. The U.S. Justice Department needed to provide a special exemption, and had to be convinced the effort wouldn’t be used by buyers to collude and further squeeze prices from competitors (the system is free of pricing data).

Suppliers across industries now recognize that if they behave irresponsibly, the Fair Factories system will carry a record of their misdeeds, notifying all members to avoid the firm. As more firms use the system, its database becomes broader and more valuable. To their credit, both Gap and Nike have joined the Fair Factories Clearinghouse.

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. contract manufacturing can lower and increase profits. It also has a downside. The use of sweatshop labor and environmental abuse often associated with contract manufacturing can be a public relations nightmare if discovered and disclosed. Zara store management and staff use PDAs and point of sales systems to gather and analyze customer preference data to plan future designs based on feedback, rather than on hunches and guesswork. Zara’s combination of vertical integration and technology-orchestrated supplier coordination, just-in-time manufacturing, and logistics allows it to go from design to shelf in days instead of months. Zara’s IT expenditures are low by fashion industry standards. The spectacular benefits reaped by Zara from the deployment of technology have resulted from targeting technology investment at the points in the value chain where it has the greatest impact, and not from the sheer magnitude of the investment.

This is in stark contrast to Prada’s experience with in-store technology deployment. Zara’s value chain is difficult to copy; however, in order to maintain its dominance, Zara management must continually scan its environment for new threats and opportunities, and be prepared to instantly move on them with new strategies and state of the-art- technologies. Has anyone shopped at Zara? If so, be prepared to share your experiences and observations with your class. What did you like about the store? What didn’t you like? How does Zara differ from other clothing retailers in roughly the same price range? If you’ve visited Zara locations in different countries, what differences did you notice in terms of offerings, price, or other factors? What is the ‘conventional wisdom’ of the fashion industry with respect to design, manufacturing, and advertising? What do you suppose are Gap’s chief assets that have helped the firm rise to #1 in the fashion industry? Who ran Gap in the 1990s? How did the executive perform prior to leaving Gap? Describe what happened to sales. Why? Who was the Gap’s second CEO of this decade? How did sales fare under him? Why? Where do Gap clothes come from? Who makes them? Why? Are there risks in this approach? Describe the Fair Factories Clearinghouse.

Which firm thought of this effort? Why did they give the effort away? What happens as more firms join this effort and share their data? In what ways is the Zara model counter-intuitive? What ways has Zara’s model made the firm a better performer than Gap and other competitors? What factors account for a firm’s profit margin? What does Gap focus on? What factors does Zara focus on to ensure a strong profit margin? How is data captured in Zara stores? Using what types / classifications of information systems? How does the firm use this data? What role does technology play in enabling the other elements of Zara’s counter-intuitive strategy? Could the firm execute its strategy without technology? Why or why not? How does technology spending at Zara compare to that of rivals? Advertising spending? Failed product percentages? Markdowns? What risks are inherent the conventional practices in the fashion industry? Is Zara susceptible to these risks? Is Zara susceptible to different risks? If so, what are these? Consider the Prada case mentioned in the sidebar “Technology ­ Systems”. What are the five components of an information system? What did Prada fail to consider when it rolled out the technology in its flagship location? Could this effort have been improved for better results?

If you were put in charge of this kind of effort, what factors would you consider? What would determine whether you’d go forward with the effort or not? If you did go forward, what factors would you consider and how might you avoid some of the mistakes made by Prada? The Zara case shows how information systems can impact every single management discipline. Which management disciplines were mentioned in this case? How does technology impact each? Would a traditional Internet storefront work well with Zara’s business model? Why or why not? Bhatnagar, P., “How do you ad(dress) the Gap?”, Fortune, Oct. 11, 2004. Birger J., and Stires, D., “CEO on the Hot Seat: Paul Pressler, Gap”, Fortune, Feb. 6, 2006. Boorstein, J., “Fashion Victim”, Fortune, April 13, 2006. CNN, “Zara, a Spanish success story”, June 15, 2001. Capell, K., “Fashion Conquistador”, BusinessWeek, Sept. 4, 2006. Cho., E., “Gap: Report of kids’ sweatshop ‘deeply disturbing’”, CNN, Oct. 29, 2007. video at: http://www.cnn.com/2007/WORLD/asiapcf/10/29/gap.labor/index.html#cnnSTCVideo Crewswell, J., “Gap Got Junked, Now What?” Business 2.0, March 2002. The Economist, “The Future of Fast Fashion”, June 18, 2005.

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