Reference no: EM133034930

CASE STUDY - ZARA FASHION CASE STUDY QUESTIONS

In 2015, a Japanese woman visited a Zara store in Tokyo to buy a pink scarf. Unfortunately for her, the store didn't sell any. For many retailers, this would be the end of the story-but not for Zara. The company uses big data to study the behavior of its customers to achieve what they call "customer inti-macy." The woman undoubtedly told a store assistant what she was looking for. That assistant wrote down the request and fed it into the data system. Because of this system, Zara's headquarters in Spain learned that the color pink was becoming very popular. Zara reacted quickly. After about seven days, half a mil-lion pink scarves were sent to Zara stores all over the world, to be sold out within three days. This story demonstrates why Zara has been so successful since Amancio Ortega founded it in 1975 in Spain. Ortega has always had a very specific an-swer to the question of what fashion really is. A piece of clothing is, according to him, an object of love; people wear it as long as they like it and then forget about it or even throw it away. As a result, the company chose not to have one or two collections a year but about twenty. To understand how taste changes, the company needs to read the minds of its customers. Zara uses information systems to do just that and to achieve operational excellence. Experts often observe that the success of Zara is entirely dependent on Big Data and cloud com-puting. The company has created a continuous information stream of valuable information that is posted to the firm's cloud-based systems and made easily accessible to employees and managers. One example of this is the way feedback by customers is integrated into the information flow. In many "tra-ditional" stores, shop attendants either do not write down feedback or send it by email to the company headquarters. Attendants in Zara shops have per-sonal digital assistants (PDAs) that are directly linked to the cloud. Any note that is added to the system is immediately visible in the data room in Zara's head-quarters in Spain. Points of sale, like cash tills, are linked to that in-formation stream as well, and sales can be followed in real time at the headquarters in Spain. Zara is notoriously tight-lipped about the IT technologies it uses, but it is clear that every piece of clothing has a RFID chip. These chips are installed into an alarm system that is connected to every piece of clothing to prevent theft. According to RFID experts, these chips also allow Zara to follow items of clothing from the company's distribution center to the shop, until the moment they are sold. Some of these experts say that the technology even allows Zara to study how many times individual items of clothing leave the shelves to be tried on in dressing rooms! By studying all these data, Zara gets a very good idea of what customers like and why. At the data room in Spain, incoming information is continu-ously analyzed. At traditional clothing companies, the designer is the star of the company; at Zara, it is the data room. Incoming data is continuously being analyzed to find out which fabrics are popular and why, and which colors are preferred by customers. Designers have a supporting role here; they get spec-ifications from the data room and design a product accordingly. Every new product at Zara is devised by a team that consists of at least three individuals. A com-mercial manager has strong links to the data room and receives continuous updates on the tastes of the customers. A designer or design team (usually using CAD-CAM technology) rapidly incorporates the feed-back of the public into new garment designs. A sup-ply chain manager makes sure that the new designs can be sourced quickly and efficiently so that Zara stores can sell the new pieces of clothing within a short period of time. All of this has transformed the world of fashion. Traditional fashion brands use a model of "pulling" rather than "pushing"; a collection is designed first, and potential buyers are sought afterwards. Instead, Zara ships pieces of clothing in small quantities to shops; if these garments turn out to be successful, the production is increased immediately. The Zara approach has several advantages. As collections change rapidly, customers visit Zara stores again and again. The average Zara customer visits shops of the Spanish brand 17 times a year (at traditional cloth-ing companies, the average is three or four visits a year). In recent years, Zara has started experiment-ing with what it calls "location intelligence." The idea behind this is that shoppers will get personal recom-mendations once they enter a Zara shop. Because of its "pulling" process, Zara knows what customers want and sells about 80 percent of its products at full price. Zara works with a supply chain that is fast and lean. As speed is very important in fast fashion, the company sources most of its production to manufac-turers in Spain, Turkey, and other European coun-tries. Most traditional clothing companies source heavily in Asia (in countries like Bangladesh) to manufacture products as cheaply as possible. Zara prefers to work with European companies, as com-munication is faster and more effective. Production in Europe is more expensive than in Asia, but Zara saves money by spending very little on advertise-ments and publicity. The data room is very important here as well. Design teams have direct access to the information stream, so they know which designs are needed. Zara has also standardized a whole range of design features and manufacturing processes. Having such a "lexicon," so to speak, of basic elements of the design and production processes allows designers to give clear instructions to sourcing companies. Information systems that indicate the stocks of sev-eral basic materials at sourcing companies are linked to the big "cloud" at the data room-designers know directly which materials are available, where, and in what quantities. By contrast, traditional companies complete their design first and then source, and it may take them several months to find a company that can produce the designs. Additionally, thanks to RFID technology, it is pos-sible for IT staff in the data room to follow every piece of clothing from the warehouse to the shop. Zara distribution centers try to speed up delivery by relying on IT systems rather than on human labor. Thus, they use optical reading devices that are ca-pable of processing tens of thousands of pieces of clothing per hour. This again allows staff in the data room can track what is happening in the distribution centers in real time. Zara has thus transformed the fashion sector thanks to its heavy use of data analytics. The data room in Spain is the heart of the company: customer behavior is analyzed, sourcing is prepared, distribu-tion processes are monitored. It is this heavy reli-ance on information systems that has made Zara one of the most successful fashion companies on the planet. Sources: "RFID Technology in Zara," The Blog of Logistics at MGEPS at UPV, April 11, 2017, https://logisticsmgepsupv.word-press.com/2017/04/11/rfid-technology-in-zara/; "Zara Supply Chain Its Secret to Retail Success," TradeGecko, https://www. tradegecko.com/blog/zara-supply-chain-its-secret-to-retail-success; "The Secret of Zara's Success: A Culture of Customer Co-creation," Martin Roll, March 2018, https://martinroll.com/resources/ articles/strategy/the-secret-of-zaras-success-a-culture-of-customer-co-creation/; "Online Sales Boost Zara Owner Inditex," BBC News, March 14, 2018, https://www.retailsector.co.uk/39950-zara-un-veils-new-delivery-plans-to-compete-with-asos-and-boohoo/; Casey Cooper-Fiske, "Zara Unveils New Delivery Plans to Compete with Asos and Boohoo," Retail Sector, January 11, 2019, https://www.re-tailsector.co.uk/39950-zara-unveils-new-delivery-plans-to-compete-with-asos-and-boohoo/; all accessed January 2019.

1. Considering the example of the Japanese customer who wanted to buy a scarf, what methods does Zara use to analyze and predict customer behavior? Does data analytics help Zara know their customers better than they know themselves?

2. Zara sources its products mostly in Europe. Give a list of advantages and disadvantages of sourcing in countries like Spain and Portugal as opposed to sourcing in, for instance, Bangladesh.

3. At the headquarters of Zara in Spain, the staff in the data room have an overview of the stocks that sourcing companies have of the fabrics needed to produce their clothes. Explain why this overview is essential for a fast-fashion company like Zara.

4. What does Zara mean by "location intelligence"? Is this a good way to draw customers to physical shops and convince them to not do their shopping online?