Spanish Fashion in Lockdown
ZARA watches its step on the shifts to online sales
Atlanta-based consultancy, Kurt Salmon Associates, expanded its business in Tokyo a long time ago. The firm attracted talented individuals in the industry spanned from retail, consumer packaged goods, and fashion. Fast fashion caught attention from Tokyoites in Ginza, a fashion district similar to the Champs-Elysees in Paris. The garment leaders gathered in the district to advertise the brand in their physical retail outlets. The Spanish brand, Zara, came to Tokyo early to impress Asian factionists.
During my consulting work two decades ago, Zara was not so popular. E-commerce project was non-existent. But during the lockdown when remote work confines young professionals to home until late night, Tokyoites look for cyber-party. The signal is apparent to reduce the store numbers and both logistics consultants and the Spanish retailer heard a wake-up call.
The call has been neatly described in The Economist magazine which published a story, “Refashion Model” on January 16th. For nearly two decades, the Spanish purveyor grew its stores by ten times from 750 to 7,500 worldwide, standing robust in Europe ever since. In 2020, for the first time in its history, Inditex, Zara’s owner ended the fiscal year with fewer outlets from the previous year and recorded its first quarterly loss. Zara will suffer a loss of 1,200 fashion shops with a gain of mere 300, losing a total of 900, 12% down from the existing counters. It is not welcomed.
Inditex is set to convert its sales force to online. The sales target from websites is expected to rise from 14% of the total in 2019 to 25% by the end of next year. The gain in online will offset the loss in legacy bricks and mortars. The cyber operation assumes four factors of marketing mix unchanged except place. Three ingredients stay the same. The dress (product) is fit for one-night party for youngsters. The average tag of garments stands at $27 per visit with a card payment. Zara spends nothing on wasteful advertising (promotion) on physical and cyber outlets. What is the implication for marketing manager? In a new sales proportion, managers account three legs in consideration; operational costs, order fulfillment, and competition. Profits from the digital operation have to be sustained.
For a start, operational costs have two dimensions, fixed and variable. Fixed costs encompass rent, staff, and utility. In legacy stores, rental payment, wages, utility costs incur to stay flat as long as physical outlets are open for hours of operations. The online scheme is operable in cloud computing, a network of database and application. Variable costs rise when dress is ordered. In bricks and mortars, the variable costs are mostly absorbed in wages when in-store shoppers bring the target dress to the counters at a time of purchase. No huge warehousing and long trucking get involved in operations. At cyber purchase from online shoppers, however, the digital stores fulfill the order and deliver the merchandise to the mailing addresses. The variable costs go up. Inditex needs to manage centralized warehousing and distributed transportation network to optimize the variable costs in balance.
Order fulfillment meets new challenges in website sales. Digital stores are open 24 hours a day 7 days a week. An order comes from anytime, anywhere, and anyone. Nobody knows the peak level and therefore sales forecast is far from being accurate. Is it possible to manage the new phase? How do managers cling to websites without losing the adequate service level? At the same time Zara managers contain the variable costs at minimum for unscheduled purchase and achieve the proportional target of 25%.
Thirdly, it is a headache to consider competition. Would you sell through cyber-party dresses independently on its digital city mall or alternate Amazon? Which fits better for a sales strategy and target with profits? With legacy stores, young clienteles compare prices and designs with those of Sweden’s H&M and America’s Gap a few blocks away. Do they switch around independent websites or go to Amazon for comparison on computer?
The store operation and order fulfillment in 24/7 scheme is not easy. Challenging work is at the hand of management consultants, especially for those with experience in focused consultancy like Kurt Salmon Associates, an retail arm of tech-driven Accenture at present. With new technology coming to play with RFID chips, it is time to work on e-commerce project. If your writer offers a tip of the day 1 for the long digitization project, that is nice to know. Young Accenture consultants will be busy building seamless operation behind the party. They can join the event one day for tasty paella.