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News - 26 June 2005

Zara shows the way in cut-throat retail world

Although it doesn't have a branch in Brighton & Hove, the fashion chain Zara could teach many retailers valuable lessons about survival and innovation.

The Spanish chain specialises in instant fashion. Instead of trying to create demand by pushing its products on catwalks it responds to the demands of customers in its stores and turns around new product lines in a matter of 5 weeks. It deliberately makes small quantities of new product to enhance its rarity value and avoid costly mistakes. It prefers to replace stock with new lines rather than replenish existing lines. Consequently regular customers know that they have to buy an item when they see it because it won’t be there at the end of the season or possibly even in two weeks time.

An army of unknown designers work at its headquarters in La Coruna, Spain and they are in daily contact with the store managers who report back on best selling items. Patterns are cut in-house and then sent out to local firms for completion before return to headquarters where they are checked for quality. Then lorries deliver the product to shops all over Europe, including Brighton & Hove, on a twice-weekly basis.

But the real trick is that all of Zara’s shops, regardless of location across Europe, use electronic point of sale (EpoS) systems to report daily sales directly to the head office in Spain but it keeps the technology simple and, as a result, spends considerably less than its rivals of the systems which deliver only vital information without frills.

Inditex, the owner of Zara, has established 2,240 outlets with a turnover of over £3.25bn and it has more than doubled its number of outlets in the last 5 years. It plans to double in size to 4,000 shops and £6.5bn over the next four years.

BUSINESS FORUM COMMENT

Zara has become a model of innovation in the fickle fashion retail sector where mistakes are met with merciless reaction from consumers. It has done so by adopting novel methods of design, production and delivery but it is the technology feeding back information to its headquarters from stores all over Europe (and increasingly America – it now has 16 stores in the USA) that is the bedrock of its success.

As consumer demand continues to decline in the UK amid dire warning that this is not a temporary situation (see earlier story in Knowledgebase – Retail woes have only just begun. 19th June) every retailer needs to reflect on the benefits of information technology. Large and medium size chains have already embraced the internet and EpoS but the independent sector is stubbornly holding on to 19th century ideas of shop-keeping. If the sector is to survive it must adopt the practices of the majors and use technology to increase profitability and decrease overheads.

The City Centre Business Forum is holding a major event for retailers in September to inform them about the opportunities for e-commerce. Watch this space for details.


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