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More Brands Embrace Fast Fashion Model, Emulate Zara

Fast fashion is fast becoming the way of the retail world as more and more brands move to the model and work on ways to improve operational strategies.

Inditex-owned Zara has been king of the quick turn practice, nearly perfecting its runway to rack manufacturing and responding to new trends in as little as two weeks, but brands are quick on the retail giant’s heels to create a manufacturing model that works as well.

Esprit executive director and group CEO Jose Manuel Martinez Gutierrez, once the director of distribution and operations for Inditex, has taken a cue from Zara’s superior supply chain model to help revamp the Esprit brand. Since joining Esprit just over one year ago, Martinez has also brought in a handful of his former Inditex cohorts to aid in the effort, most recently hiring Rafael Pastor Espuch as the new chief product and design officer.

Martinez has a complete overhaul planned for Esprit over the next eighteen months–he spent the past year cutting 10 percent of Esprit staff and the next steps in the new strategy are to focus on perfecting the product and getting that product to market as quickly as possible. With planned upgrades to technology and distribution processes, Martinez wants clothing designed, made and on the racks in two to three months instead of the typical seven to eight.

In an Esprit Holdings annual report for 2012-2013 released in October, the company outlined its top priorities for refashioning the brand, which boil down to radically reducing costs, installing a high performance product to reignite sales growth and investing in measures to normalize inventory.

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But even with improved product at the forefront of the overhaul, Martinez–who in his nine years at Inditex helped transform and improve the company’s supply chain management–said he knows that surviving in the retail market means continuously, and quickly, adapting to changes in consumer demand and providing good value for money. Rapidly reacting to the market will require high speed and efficiency across Esprit’s product development and supply chain processes, Martinez said.

“With speed, we will be able to more quickly adapt our designs to consumer preferences, while efficiency will enable us to produce high quality products at ever competitive prices. In other words, this “high performance product engine” shall facilitate Esprit’s ability to more systematically produce successful collections while maintaining profitability,” he said in the company’s annual report.

To get there, Esprit will have to operate a truly “fast-to-market” model with a higher degree of vertical integration, something Zara has done, and done well.

Part of the reason for Inditex’s fast fashion success is its highly centralized design, manufacturing and distribution system. They’re great at getting garments to stores quickly and frequently and they are set up to make coordinated decisions across production and distribution teams.

Zara’s main distribution center in Arteixo, better known as “The Cube,” is a 5 million square foot space from which 450 million items are produced per year for 1,770 stores in 86 countries. According to a Bloomberg Businessweek report on the retailer, whether a garment is made in Portugal or Bangladesh it still stops in Spain before being shipped to stores. Garments made in Zara’s eleven factories around Spain go straight to The Cube via an automated underground monorail. Zara designers, buyers, planners and marketers work closely and when information comes in from stores about what’s selling and what isn’t, all parties can make quick changes and keep operations flowing smoothly and logically.

Retailers know the classic inventory management model is slow, and with brands like Zara capitalizing on efficient fast fashion processes, it becomes difficult to compete and keep consumers happy and trend-right when rival retailers are getting new product to stores in considerably less time.

Fashion company Fifth & Pacific announced a deal last month to outsource fulfillment of its Kate Spade New York, Kate Spade Saturday and Jack Spade to eBay Enterprise, which operates 3 million square feet of fulfillment space and fills 20 million packages every year. Relinquishing control of operations to a company that specializes in operations means better speed-to-market and that Fifth & Pacific can focus on developing its brands.

Gap has also taken a page from Zara’s book, making moves toward a more seamless inventory model by bypassing typical distribution centers and shipping directly to stores that may need a specific product.

Martinez said Esprit has already made progress in strengthening its management team by building a squad of experts with first-hand experience in operating a fast-to-market vertical model. They’ve integrated product teams so that all functions of the product and supply chain are part of new category management teams so that decisions can be made quickly and comprehensively with all parties privy. They’ve decentralized market structure so that country managers are responsible for accommodating local needs as opposed to going through a centralized channel.

To achieve the necessary speed to market, Esprit is continuing efforts to simplify the supply chain by reducing SKUs, consolidating the number of suppliers used and shortening internal processes and improving IT capabilities to increase efficiency.

Only when the company sees sound improvement in brand performance as a result of these changes will it shift efforts to a focus on growth and expansion.

Esprit struggled a bit in the twelve months ended June 2013, reporting a 21.2% year-on-year increase in operating expenses and earnings before interest and tax (EBIT) loss of HK $4,170 million, a disappointing performance Martinez attributes to adverse macroeconomic conditions, increasing price competition from vertically integrated players in the apparel market and internal organization changes.

Success in the revamp venture could get Esprit back in a position to compete with the likes of Zara and others catching on to the streamlined model. “These initiatives aim to establish the fundamentals for a different way of managing our business. They are not short term tactical actions but a very ambitious strategic challenge for the whole organization; one that is vital to recover our competitiveness in the market,” Martinez said.