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April 15, 2024
Sagar Malviya, Economic Times
Mumbai, 15 April 2024
Spanish fashion company Inditex said it will launch youth clothing brand Bershka and Zara Home in India this year.
“Bershka will open its first store in Mumbai Palladium, and Zara Home will open in Bangalore,” it said in its latest annual report.
Inditex had launched fast fashion brand Zara in 2010 and premium clothing brand Massimo Dutti eight years ago. Its new offering, Bershka, will pitch it directly against Reliance Retail’s Yousta, which too targets the younger consumer segment.
Being the world’s second most-populous country, India is an attractive market for apparel brands, especially with youngsters increasingly embracing Western-style clothing. Fast fashion brands such as Zara and H&M became runaway successes soon after they entered the country.
Experts said Bershka’s target consumer profile is mostly teens to mid-20s, slightly younger than that of Zara, which is pitched at 20-40-year-old fashion-driven customers.
“The product assortment is different, with a higher share of knits, fewer dresses and more casual overall compared to Zara, keeping in line with the lifestyles of the customer group. So in that sense it wouldn’t cannibalise Zara in any serious way, though some of the younger set among Zara buyers could migrate some of their purchases to Bershka,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “The biggest question is, can they hit the price points that young Indian fashion consumers want as with domestic brands such as Zudio, Yousta and others, or will consumers overlook higher prices for the style mix and a European brand pull in significant numbers to make the brand viable.”
According to a recent report by Motilal Oswal, the ₹2.5 lakh crore value fashion segment accounts for 57% of the total apparel market and is one of the largest and fastest-growing segments. A substantial untapped opportunity beyond the metros and tier-1 cities, driven by better demographics, higher incomes and greater customer aspiration, has compelled several big players to enter a market that was previously dominated by regional and local operators.
Since its inception in 2016-17, Zudio has seen considerable expansion and reached nearly 400 standalone stores, outpacing most apparel brands primarily due to its competitively priced products with an average selling price of ₹300. Following the success of Zudio, a unit of the Tata Group’s Trent, the segment has seen the entry of national retailers in the affordable youth clothing segment such as Yousta by Reliance Retail, Style-Up by Aditya Birla Fashion and Retail and Shoppers Stop’s InTune.
(Published in Economic Times)
Tarang Gautam Saxena
October 30, 2011
The operating environment for the fashion retailers in India is only moving towards a more challenging and competitive direction even though the market is yet to mature. The market has grown over the last two decades on account of brand proliferation and developing retail network and more recently due to new product category creations. High consumer awareness and exposure to international trends has cut the product life cycles short. Topping this up, the last 12-18 months has witnessed the growth of the online platform offering an alternate, convenient and cost effective shopping option for consumers.
It is necessary that fashion retailers manage their operations efficiently both in terms of managing a complex and responsive supply chain at the back end and delighting the customers at the store with great product offers and customer service. Adopting lean practices can help fashion retailers to achieve significant improvements in store profitability and customer satisfaction, making their retail business sustainable through a positive impact on bottom-line.
The concept of lean philosophy, pioneered by Toyota, is built on the premise that inventory hides problems. The basic tenet of this philosophy is that keeping the inventory low will highlight the problems that can be dealt with and fixed immediately instead of maintaining inventory in anticipation of any bottlenecks.
“Lean retailing” is an emerging concept and has already been adopted by retail organisations in the Western countries using technology such as barcodes, RFID (across the product value chain from raw material sourcing through production through final delivery at the retail store) and item-level inventory management and network architectures.
In an ideal scenario a retail organization would be lean at both the store and the distribution center. The organization would leverage technology such as RFID to uniquely identify the movement of its inventory accurately and use fulfillment logic as per the store’s merchandizing principle to have replenishments in tune with customer demand.
Some international retailers that have adopted lean retailing techniques include Wal-Mart, Macy’s, Bloomingdale’s, The Gap and J. C. Penny. Applying lean philosophy to fashion retail in India may sound like an avante garde concept as of now. However, there are some leading large retailers in India such as the Future Group who are early adopters and have already adopted lean practices in their retail supply chain.
An understanding of what lean retailing is and some of its principles can help in appreciating how this concept can make the apparel retail business more sustainable. Lean retailing aims to continuously eliminate “waste” from the retail value chain, waste being defined as any activity/process that is not of “value” to the customer. A fundamental principle of lean retail is to identify customers and define the “value” as those elements of products or service that the customer believes he should be paying for, not necessarily those that add value to the product. Further the value should be delivered to the customer “first-time right every time” so that waste is minimized.
Lean retailing requires simplifying the workflow design in delivering products to customer. Given that the connotation of value is customer-centric, simplifying the workflow design requires streamlining the core and associated processes so that any kind of waste is eliminated. Further pull-system drives replenishment at the stores (and the shelf) based on what customers want “just-in-time” (neither before nor after the time customer demands). This results in a value flow as pulled by the customer.
Those practising lean retail have invested in information technology that allows the stores to share sales data in real time with their suppliers. New orders for a given product maybe automatically placed with the supplier as soon as an item is scanned at the check-out counter (subject to minimum order size criteria). Smaller stores may use visual systems wherein the sales staff can gauge through the empty shelf space the products that have been sold and that need to be re-ordered.
Removing bottlenecks throughout the supply chain is another principle driving lean retail. It entails redesigning processes to eliminate activities that prevent the free flow of products to the customer. Further, lean retail requires following a culture of continuous improvement. Continuous improvement (or “Kaizen”) focuses on small improvements across the value chain that rolls up into significant improvements at an overall level. Kaizens not only can lead to elimination of wasted effort, time, materials, and motion but also focus on bringing in innovations that lead to things being done faster, better, cheaper and easier. Involvement of staff at the lowest levels is very important in Kaizen activities and that means that companies must invest in training, up-skilling their talent pool in Lean Principles.
In the context of apparel retail business, lean retail can help in improving organisational responsiveness to customer needs, the speed with which the products are delivered to them and meet their expectations as per the latest trends. Systematic application of lean principles translates in increased throughput (Sales), with lower Work in Process (Investments) and as per customer requirements of Quality, Design, Trends and Time. Improved information visibility across the chain leads to reduced instances of out of stock and excess inventory at the same time, minimising inventory control costs and reducing shrinkage. At the front-end lean retail may lead to redesigned in-store processes and systems for consistency in frontline behaviors to provide standard customer experience.
With the focus on training and involvement of the workforce, Lean principles have resulted in improving employee satisfaction without increasing labour costs that in turn positively impacts revenues and profitability. Some retailers in the West have reported reducing their store labour costs by 10-20 percent, inventory costs by 10-30 percent, and costs associated with stock outs by 20-75 percent on account of lean retail.
In addition to top-line and bottom-line impact, lean retailing by enhancing the enthusiasm and motivation of the frontline staff creates distinctive shopping experiences for customers.
Inditex, the world’s largest clothing retailer with Zara as its flagship brand, has successfully achieved supply chain excellence following lean principles. It targets fashion conscious young women and is able to spot trends as they emerge and deliver new products to stores quickly thereby establishing its position as the leading fast fashion retailer. The product development processes is based on customer pull-system. Its design team reviews the sales and inventory reports on a daily basis to identify what is selling and what is not. Additionally, regular visits to the field provide insights into the customers’ perceptions that can never be captured in the sales and inventory reports. Critical information about customer feedback is widely shared by store managers, buyers, merchandisers, designers and the production team in an open plan office at the company’s headquarters. Frequent, real time discussions and interactions within the team help them to understand the market situation and identify trends and opportunities.
Further, Zara manufactures the products in small lots and many styles are typically not repeated. Style cues for replenishments are derived from real time customer demand. At the back end, Zara holds inventory of raw materials and unfinished goods with its supply partners which may be local or offshore manufacturers. Typically, the fashion merchandise is produced at the local manufacturing base and quickly delivered while the staple low-variation range is produced offshore at cheaper costs.
Following lean retail practices implies a higher stock turn and frequent replenishments by the suppliers based on real-time sales. Building and maintaining reliable and responsive suppliers through win-win partnerships, is imperative to realize the success of lean retail implementation as high stock turns and frequent replenishments involves the commitment and involvement of the entire supplier base.
Like in any transformational effort, change management plays a critical role in reaping the benefits of lean retail. The whole philosophy requires paradigm shift in attitudes, behaviors and mind sets of those involved upstream and downstream across the value chain. Training, communicating and inspiring the front end staff is thus an important aspect in the overall success and companies need to device a compelling vision that is shared by employees across functions and hierarchy across the entire chain.
Devangshu Dutta
June 12, 2010
My first brush with Zara and Inditex (Zara’s parent company) was in the 1990s, when we were comparing product development and supply chain best practices for another European retailer.
In 2002, after writing a case study on the Zara business model, I was (and continue to be) surprised at the number of downloads from the website (referenced at the bottom of this article).
In 2004, the interest at the Images Fashion Forum was so intense that the Q&A after the presentation exceeded the allotted time, to the extent that I was almost declared persona non grata by the organising team!
I’m glad to say that we’re all still friends and, together, witness to the logical next phenomenon: the much anticipated Zara store launch in India in May 2010. And what a phenomenon! On a high-footfall day, at full price, the Delhi store looks as if the merchandise is being given away for free.
In 2006, India was the 8th highest source of traffic to the Inditex website (more than half a million, almost 2 per cent of the total); incredible, considering that the other Top-10 countries already had Inditex stores. Although Zara finally signed a joint-venture with the Tata Group, I’m pretty sure that those thousands of other rejected prospective Indian licensees and franchisees must be getting their Zara-fix now as customers.
What does the Zara launch mean for the Indian fashion and retail sector? Is this the beginning of a new era? Should we expect Zarafication of the market, where the customer is driven by fashion, and the supply chain will turn and churn products faster than ever before? Should other international brands and Indian fashion brands be worried?
A peek at history is useful here. It is said that when Spanish conquistadors landed on the shores of the Americas they managed to conquer the land and the people through a combination of guns, germs and steel. [Credits to Jared Diamond for that evocative phrase.] That is, the Spanish carried guns and fine steel swords but, most importantly, they also carried diseases that were alien to the local population. In many places, the weakened and leaderless indigenous people were simply too battered psychologically and physically by disease, to fight the colonisers.
Keeping that in mind I would say, Zara’s entry is a warning bell only if your business is suffering from recent financial and operational illnesses. It is only dangerous if your team are psychologically weak, and would be overwhelmed just by the thought of the supply chain wizardry that Zara has deployed in its business internationally. It may be fatal for sleepy marketing teams whose only strategy has been to spend lots of money on advertising in season and on mark-downs after the season.
But it’s not doom and gloom for brands and businesses that have a competitive spark of life. If you’re prepared to learn, Zara’s business can provide lessons on how to create a product mix that doesn’t stay on the shelf for months, and on how to create the buzz and excitement around the brand.
Zara’s business success in India is not a foregone conclusion. Let’s look at the facts.
Zara’s business model in its home market was built on getting up-to-date fashion into the market before anyone else, and at lower costs. Its prices encouraged fashion-conscious consumers to buy more frequently, and though its limited production quantities were a way of reducing risk, it added to the allure of the brand. In most overseas markets, however, Zara is a somewhat more premium brand. The “value-for-money” for the brand rests on fashionability rather than product quality.
The Indian consumer base, on the other hand, is less fashion-sensitive than the European consumer. This is not equivalent to being less sensitive aesthetically – Indian consumers can tell good design from bad; allowing, of course, for varying taste! However, value consciousness drives many consumers to buy during discount sales with delay of 2-3 months, rather than buying current fashions at full price. This can be a problem for a brand that thrives on change.
Zara will initially have a limited physical footprint. It is targeted at the premium to luxury end of the market, fitting a certain physical profile of customer. Its products that are imported are disadvantaged by a hefty import duty and shipping costs, as well as the shipment lead time. So, there is time available to Indian businesses that want to adapt their business model, and learn from this new competitor.
With the product development strengths and the agility that Indian apparel companies have displayed in the past, there is no reason why Indian brands cannot compete effectively with Zara on their home turf. When it comes down to it, I think Indian businesses (the small ones, with less “organisation” and “process” orientation) are fast on their feet in identifying design trends and are able to responding to the trends with products being available in the market very quickly. I would call them the Indian “baby Zaras”.
So the real question is this: can these Indian “baby Zaras” learn to be disciplined and structured, and learn to scale up their businesses?
Could we, perhaps, even see some people creating copies of Zara’s styles and bringing them to the market quickly at much lower prices (in effect doing a Zara on Zara)? Let’s not forget, what is today an 11-billion Euro business was once a contract manufacturer to other retailers, and Zara started with one shop carrying low-priced versions of products inspired by those of high-fashion designer brands.
The coming years promise to be interesting and I think we should watch out for an Indian version of an Inditex emerging in the next few years. It remains to be seen whether it will be from among the existing players in the domestic market, an exporter who is a contract manufacturer for western retailers (as Inditex once was), or someone totally new.
The people who should be really worried are those international brands whose product mix in India is weak, whose prices make you want to marry a rich banker, and whose brand ethos is totally unclear. To them I would say: Zara has you in its gun-sights.
Devangshu Dutta
April 5, 2006
Fashion is, by definition, perishable. Like, bread, eggs and milk. Or is it?
When bread turns stale, eggs turn rotten or milk turns rancid, you do have to throw it away. Fashion is different, because its perishability is artificial, driven by popular perception that something is “out-of-date” or that something else is “the look of the day”. You don’t really have to throw that blue peasant skirt out in the garbage or in the Salvation Army bin…but you do anyway, because it is so yesterday…or that’s what everyone else is saying.
Earlier, perceptions took time to spread, today they can be spread instantaneously through the web, TV and cell phones, and pretty quickly, even through slow media like print magazines.
So ‘Fast Fashion’ is really a product of fast media and communications technologies.
Having said that, it is here to stay, and regular (mainstream) slow-coaches do need to be worried about customers being seduced away by the ever-fresh look of a Chico’s or a Zara.
I can’t even begin to estimate the millions of dollars that must have been spent on “studying the Zara model”. However, while Zara’s model seems to scream “best practice” and everyone wants to emulate it – is it really for everyone?
Inditex (Zara’s parent company) has grown over 40+ years of evolution, in a specific market and business context. It may have “exploded” on the global scene when it floated its IPO in 2001, but the business model has been brewing a long time.
It has such significant investments in production that Inditex is as much a manufacturer as a retailer. Its people and process model almost diametrically opposite the command and control, “buying director – driven” model of other retailers. Its technology investments are focused better than most of its peers. (See case study and presentation)
Would your company’s DNA allow you to invest in and manage fabric and apparel manufacturing? Would it allow young people to be sent out to take bigger-ticket purchase decisions with fewer approvals than they do now? Would your design team really trust your frontline store staff with feeding them relevant trend information every day?
And yet, and yet…As labour costs rise in Europe, Zara is also being forced to rethink its model of local or regional production. As it does move more production to places like India and China, the big question is whether it can maintain the sanctity of its business model.
I won’t advise other retailers to breathe easy, but they don’t need to roll over and die just yet.
Devangshu Dutta
May 29, 2001
For many decades from the early 1900s onwards, retailers followed a ‘trader’ or ‘merchant’ model, largely buying from those suppliers who could provide the best prices. Of course other parameters were considered as well, such as desirability of the product, but price was the major driver. It was also rare for retailers to go out to look for suppliers – suppliers normally turned up at the merchant’s doors to sell their wares.
There was little, if any, strategy to selecting the ‘supply base’. Retailers were much too busy building their presence in the market, opening new stores, acquiring new markets, growing their product offer; in short, concentrating on the business of selling to consumers. International trade existed, as it has since the dawn of history, but was led by traders. Retailers, by and large, followed the domestic sourcing route.
The retailer goes abroad
The 1950s were driven by the need to rebuild war-shattered economies through trade and economic cooperation. Bi-lateral, and later multi-lateral, trade agreements were brought into force. An awareness of other countries around the world was also brought into sharp focus through two successive world wars, particularly the second. Retailers began to explore supply bases outside their home countries, and from the 1960s to the 1990s this international trade grew by leaps and bounds. Naturally, as the pioneers went overseas, so did their competitors – it is very hard to compete profitably, when your rivals are buying comparable merchandise at much cheaper prices.
As a result, by the early 90s the supply base of any large retailer in the major consuming markets would take in more than 30-35 countries from which products might be sourced. And as the number of supply countries grew, so too did the number of suppliers. It would not be unusual for 500-1000 suppliers to be dealing with a single retailer.
Consolidation, conservation and conservatism
Retailers such as Wal-Mart in the USA, M&S in the UK, Carrefour in France and many others have had preferred suppliers who grew along with them. These suppliers were typically based in the home country of the retailer, and set up production units or sourcing organisations overseas from where they could supply goods to their customer at a competitive price. In some cases, their sourcing strategies were driven by their own analyses; in others the retailer led the way (such as M&S or Wal-Mart identifying the next preferred supply country).
In the 1990s a scientific sourcing principle began to be applied. It was good to cut down supplier numbers, since this reduced the management effort on the part of the buyer to constantly look for new suppliers and maintain current relationships. Terms such as ‘key’, ‘preferred’ or ‘strategic’ supplier came into vogue.
As an example, witness the dramatic supply base reduction undertaken by most large retailers in the UK. Some organisations even looked to supermarkets to understand and apply their supply base management principles, where product categories were dominated by, or completely split up between, less than four suppliers. In a few cases, it reached such extremes that one supplier virtually controlled a retailer’s entire product lines.
Some organisations even quantified the cost of moving into new supply countries in an attempt to understand whether it was worthwhile and how best to shape their sourcing strategy.
At the end of the 90s and into 2000, however, there seem to be rumblings among retailers about the need for some more diversity in their supply bases. Statements such as “we are uncomfortable with our overexposure to country X”, or “I wish I could manage to meet some more suppliers to get a feel for what is happening out there in the marketplace – otherwise our range ends up looking like everyone else’s”, or even, “sometimes we feel we miss out on innovative factories because we are so deeply bound with our existing supply base”, reflect the general consensus.
So, the question is, has supply base consolidation been taken too far?
Time for a new deal
The first step should be to acknowledge that the business of retailing needs a healthy balance between predictability and innovation. Predictability, as much as is possible in sourcing, could be represented by relationships with known and trusted suppliers. It would take a very strong individual, and a very large safety net, to work every season with large numbers of unknown, new suppliers. It would also require a lot of management time and effort to keep educating new suppliers about the business and its needs.
However, equally, it must be acknowledged that the fashion business is not like automobile or aircraft businesses where practically the entire market and supply base is known.
Nor is it as expensive to develop new products or product components. In the automotive industry new models cost hundreds of millions of dollars to develop – and with such high stakes, buyers tend to select their suppliers carefully and, once the relationship is established, stick to the relationship for a fairly long period of time, with both parties investing resources in it for mutual long-term gain.
In the fashion industry, on the other hand, most product development investment does not exceed a few thousand dollars. This is well within the capability of not only the largest preferred suppliers of the large retailers, but most of the supply base around the world. Whether design-led or technology-led, new products and new looks are constantly being created. Similarly, innovative business practices that generate more responsive factories, improve quality or reduce costs, are not the sole domain of large, old and established companies.
The two critical areas that need to be addressed by any retailer are:
There are many answers to these questions. One of them, which provides a structure or framework in which to work, is the link between product-type and sourcing strategy.
In this, as a first step, a buyer must make a mental division between ‘largely predictable’ products and ‘fashion’ products. Largely predictable products include not only basic or staple items, such as the three-pack of underwear or a $150 suit, but also seasonal items (such as swimwear) for which sales vary dramatically from summer to winter but follow a rhythmic pattern, with some variation, over the same season from year-to-year. For one company such predictable products might be 80 per cent of the business, while for another it might be no more than 20-40 per cent of the entire range.
For such products, supply base hopping is almost certainly the wrong strategy to follow. The sensible strategy would be to concentrate energy on developing relationships with certain key supply bases and suppliers who provide a long-term sustainability or constant improvement in terms of cost, quality and other performance parameters.
On the other hand, there are other products that follow the dictates of changing fashion moods more closely. For these products, putting a long-term commitment on any significant proportion of this segment to specific suppliers can be counter-productive. It can create a sense of security in the supplier, or even the buyer, possibly reduce the drive towards product and service innovation, and maybe even make the overall sourcing-supply relationship relatively inefficient over a period of time.
There is a sense of ‘supply dependence’ associated with supply consolidation, in comparison to the sense of ‘interdependence’ that comes from a flexible (even though not fully open) network of buyer and supplier relationships. A cosy ‘strategic’ relationship that assumes a two-way exclusivity also creates a relatively narrow channel of ideas and developments, and becomes largely process-driven at the cost of creativity. This is fine if you are selling the same product year-in, year-out; but certain suicide (or slow poison, at best) if you are in any part of the fashion market.
This is not to imply that strategic relationships can’t work in the ‘fashion’ arena. But make sure that in such a relationship the suppliers who are worried, nay paranoid, about their own survival. In the best organisations, uncertainty brings about creativity – pick a strategic supplier like that, and you’ve picked a winner!
Achieving the golden mean
Of course, a perfect balance between long-term strategic suppliers and new relationships is as elusive as the perfect business strategy. If one set of rules governed sourcing in the apparel and textile industries, the sector would have been consolidated around this many decades ago.
Previous experience is certainly a worthwhile guide to selecting suppliers and supply countries. But the competitiveness of supply bases is changing all the time, and suppliers are constantly developing new capabilities around the world. As someone once said, in business relying only on past experience is like driving a rally sports car blindfolded, while the navigator guides you looking through the rear windshield!
By using the tools to discover, build and maintain new relationships efficiently, most buyers should keep their doors open for new suppliers to walk in and display their capability. Closed doors mean closing the possibly to innovative products, significant margin improvement, and even new methods of doing business that might bring about tremendous improvements in ‘sourcing profitability’.
In a different context, a presentation at the National Retail Federation (NRF) seminar in the USA in 1999 by consultant Kurt Salmon Associates mentioned the potential need to move away from the ‘super-specialised’ and ‘super-analytical’ role of today’s retail buyer to bring in shades of the ‘merchant’ of the past.
The truth is that successful retailers have never really abandoned the merchant principle. This degree of freedom is essential to maintaining the healthy influx of new ideas that keep a retailer’s brand alive with the customer and keep it moving ahead in the market. During the selection process, smart buyers even look at the customer list of their suppliers with a conscious effort to imbibe product trends, technical knowledge and best practices from other companies in their own or other markets.
Managing diversification
The key factor that needs to be managed is the effort on the buyer’s part. If a buyer could manage more relationships with the same amount of time and effort, he would probably make more effective use of his own and his supplier’s capabilities to create a more dynamic product and service offer.
Two primary tools come to mind for creating and managing a more diversified supply base: collaboration and technology.
In ‘collaborating’ with the supplier, the idea is to see both buyer and supplier as part of the same demand-supply chain. In fact, take it right back to the supplier’s supplier. Understand that the processes run across organisations, rather than residing in any one – the buyer has as much responsibility and accountability in the sourcing process as the supplier. Information must be shared more transparently, and the overall sourcing process must be managed together, beginning from the product conceptualisation to final delivery. Brainstorming helps, ‘blame-storming’ doesn’t. This approach is as equally valid with a new supplier as with an old, trusted supplier. Good buyers already follow this approach, and it shows in their company’s market performance and financial results. And it does not even add lead-time; in fact, in many cases, it cuts down time.
Secondly, make use of emerging technologies. Don’t just depend on a company’s database or EDI systems. There are a number of tools available today which are relatively inexpensive and easy to use – from the basic supplier profiles available on the numerous marketplaces and exchanges around the world, to more advanced technologies that enable collaborative management of product development and sourcing process management.
There are even well developed systems that can act like virtual assistants, helping buyers and suppliers to keep track of order-specific tasks, and updating each other automatically of the status of these tasks. If you did not have to spend effort on fighting the fire caused by the task that you forgot yesterday, would you have a little more time available to speak to that new supplier whose profile you liked but just could not make the time to meet?
There is no quick fix, and each situation will be different. But I believe that for many buyers, the choices are becoming rather stark. Innovative or staid product? Market leadership, or complete loss of the pole position? Survival or decline? The choices that you make today have a habit of showing up in the profit and loss statements of tomorrow.
