Tag: Zara

OM in the News: Fast Fashion, Shein, and Inventory

Fast fashion was invented by companies such as Zara, and to a lesser extent H&M, in the late 1990s, when the companies took the latest styles seen on the catwalk and brought similar products to market. For companies such as Zara, it took 3-4 weeks to bring a simple T-shirt from design to the stores and 6-8 weeks for a jacket or a dress. But the category fell out of favor in recent years as consumers became more critical of the apparel industry’s impact on the environment.

If what Zara did in the ’90s was fast fashion, Shein’s version is “ultrafast fashion,” reports The Wall Street Journal (May 31, 2023).  Shein’s inventory on average takes around 40 days to turn over. That is about half of what it takes for Zara. The quick-turn strategy goes against industry trends. In general, apparel companies’ inventory turnover has lengthened over the past two decades. (Last year Shein accounted for 1.7% of apparel-industry sales in North America, making it the fourth-largest clothing seller behind Nike, Old Navy and Lululemon).

Shein’s pop-up store in Paris

With its supply base in China, Shein has a well-oiled test-and-scale model: It produces 100 to 200 pieces of any given product at launch and then increases production only if demand is strong. That results in little excess inventory, which in turn helps its bottom line. On the supply side, it milks efficiencies by using a digital manufacturing system. The system asks Shein’s extensive supplier base to share real-time capacity and tags each of them based on category strengths and weaknesses. To minimize costs, Shein selects master fabrics and requires designers to choose from the pool.

Shein’s meteoric rise shows that trendy and cheap have enduring appeal. While Gen Z cares about sustainability, it also values self-expression. Even though the company has said it has no suppliers in Xinjiang, China, where there are allegations of forced labor, the company is hedging its bets with plans to source more fabric from India.

Environmentally friendly resale platforms such as ThredUp and The RealReal made their debuts to great fanfare, but their appeal among shoppers has proven transitory. Allbirds, a footwear brand that boasts environmentally friendly practices, has seen its popularity fizzle, too. Shoppers like to see green credentials, but Shein’s popularity has shown that cash always looks greener.

Classroom discussion questions:

  1. What is Shein’s inventory advantage?
  2. Describe the firm’s production strategy.

OM in the News: Zara’s New Inventory and Logistics Plan

The ship-from-store operation inside a Zara store in Spain.

Fast-fashion giant Zara is equipping its stores to also ship online purchases, betting that the move will boost sales of full-priced items that can be delivered to customers more quickly than from a warehouse. The rollout encompasses around 2,000 stores in 48 countries, including the U.S., making it one of the largest-scale attempts by an apparel company to repurpose downtown shops to help fulfill online orders.

Zara’s efforts are part of a broader push among retailers to rethink how they can better use their network of brick-and-mortar stores to compete with Amazon, whose dominance in the retail industry has depressed profits and set new standards for speed of delivery. While some have considered traditional retailers’ vast store networks costly and antiquated, industry executives are increasingly equipping them to fulfill online orders to quicken delivery times, cut delivery costs and lift sales. “There has been a trend lately to think of a store as a liability,” an industry expert said. “It’s an asset—but you need to learn to use it correctly.”

Traditionally, retailers shipped items from warehouses to downtown locations, writes The Wall Street Journal (Aug. 1, 2018). (But warehouses on the outskirts of cities are not as close to consumers as stores are). As online shopping grew, many retailers created inventory lines specifically for internet orders. Retail companies including Zara have been working to merge their inventory for online and in-store purchases rather than keeping separate stocks, to minimize lost and discounted sales. Ship-from-store initiatives are one pillar of efforts by Zara and others to tackle the far bigger problem of mismanaged inventory, which, by one estimate, cost retailers nearly $1.4 trillion in lost sales in 2017. While shipping online orders from downtown stores can lower delivery costs, some retailers have struggled to make it profitable because they lack the technology to track in-store and in-warehouse inventory accurately.

Classroom discussion questions:

  1. How are brick and mortar retail stores an asset?
  2. Describe the inventory problems that firms like Zara are facing.

OM in the News: The Fashion Industry Goes Green

In a factory the size of an airport terminal, laser cutters zip across long sheets of cotton, slicing out sleeves for Zara jackets. Until last year, the scraps that spill out into wire baskets were repurposed into stuffing for furniture or hauled off to a landfill near the plant in northern Spain. Now they’re chemically reduced to cellulose, which is mixed with wood fibers and spun into a textile called Refibra that’s used in more than a dozen items such as T-shirts, trousers, and tops.

The initiative by Inditex, the company that owns Zara and 7 other brands, highlights a shift in an industry known for churning out super cheap stuff that fills closets for just a few months before being tossed into the used-clothing bin. Gap promises that by 2021 it will take cotton only from organic farms or other producers it deems sustainable. “One of the biggest challenges is how to continue to provide fashion for a growing population while improving the impact on the environment,” says H&M’s CEO.

The $3 trillion fashion industry consumes vast amounts of cotton, water, and power to make 100 billion accessories and garments annually—3/5 of which are thrown away within a year, writes Businessweek (May 7, 2018). And less than 1% of that is recycled into new clothes. “The equivalent of a dump truck filled with textiles gets landfilled or incinerated every single second,”  says one researcher. To tap into this trend, H&M is seeking to make all its products from recycled and sustainable materials by 2030, up from 35% today.

Inditex last winter started disassembling old clothing to spin into yarns for fashions it markets as “garments with a past.” “We’re trying to find a more sustainable version of all materials,” says an Index exec. Today’s recycled jeans, he says, are typically only about 15% repurposed cotton, because the fiber “gets worn down and we have to mix with new.”

Classroom discussion questions:

  1. Why does this industry consume so many resources?
  2. What are the driving forces for change?

OM in the News: Even Faster Fashion Scares Zara and H&M

Zara and H&M are the world’s two largest fashion retailers. Not by coincidence, they’re also the pioneers of fast fashion. Zara is able to take a coat from design to the sales floor in 25 days, and it can replenish items even more quickly. In the past couple of decades, the two companies have steadily trounced much of their competition, outdoing them on price and speed to claim an ever-larger share of shoppers’ spending. But both are being beat at their own game by even faster competitors.

“British fashion retailers ASOS and Boohoo are now able to conceive, design, produce, and have clothing ready for shoppers on the sales floor quicker than Zara and H&M,” reports QuartzMedia.com (April 6, 2017). ASOS expects sales to grow 30-35% this year. Boohoo predicts sales growth of around 50% for the year.

H&M is aware it’s falling behind, announcing plans recently to invest in and rethink its supply chain. Most of its manufacturing takes place in Asia in order to keep prices down, but it’s considering moving more production closer to Europe, to countries such as Turkey, which would let it get items to stores more quickly. That proximity is key to the speed of its faster rivals. Even Japanese retailer Uniqlo, which emphasizes that it isn’t driven by trends, has acknowledged that it needs to speed up.

Classroom discussion questions:

  1. How are supply chains at the heart of this issue?
  2. Why is speed of new product development so important in this industry?