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The Zara Gap: Speed to Market Requires Organizational Transformation

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If you think improving speed to market is the responsibility of the chief supply chain officer, you just don’t get it.

That was  message delivered by John Thorbeck, chairman of speed-to-market consultancy Chainge Capital, LLC, and frequent speaker on the “The Zara Gap,” to a packed crowd last week at Sourcing Journal’s “2016: A Year of Uncertainty” summit.

To pursue style with speed, what’s required is not an operational fix but a willingness of companies to take on their own culture and to approach the reduction of uncertainty and lead times as a merchandising, marketing and consumer issue.

Which goes a long way toward explaining why talk about speed to market has been abundant but the actual performance has been virtually non-existent.

In the long-awaited sequel to his 2015 Summit talk, “The Zara Gap,” Thorbeck began with some clarification: “This is not a presentation about Zara. We’re not saying ‘be like Zara’ or ‘follow Zara.’ This presentation is as much for Zara as anyone else.”

The only difference between Zara and the rest of the industry, according to Thorbeck, is that they’re the best student in the sector. For everyone else, it’s a lesson in the tremendous opportunity the market holds.

“Disruptive innovation,” a familiar phrase these days, was first defined by Harvard Business School professor and innovation guru Clayton Christiansen as a situation in which new technologies cause great firms to fail. Its relevance to the retail apparel sector is now legendary.

But just how did fast fashion, in the form of H&M, Forever 21 and others known for less expensive, accessible fashion topple the giants that had dominated the industry for so many decades? And how can traditional players fight back?

Zara’s well-documented business model, in which most of its product is manufactured in close proximity to its retail markets and reaches its more than 2,100 stores within three weeks of being designed, is made possible by a process that involves fabric platforming, project staging and delaying of final transformation of a product until just before delivery. The financial benefits are huge, with profitability that is many multiples higher than that of any competitor.

“M&S knew that Zara was coming into their market 10-15 years ago, and they prepared for it mightily,” said Thorbeck. “Gap knew fast fashion was coming. They might not have been thinking about Cotton On, or Primark, but they knew they had to prepare and compete with a faster product line cycle. And so did a dozen others.”

However, most of the traditional players have struggled so far in trying to compete with fast fashion. To Thorbeck, there are two key reasons.

First, this industry is terrible at learning from the outside, always citing a million reasons why retail is different. But innovation usually comes from somewhere else. In fact, Zara’s practice of postponement, or delaying production until the very last moment, began in consumer electronics.

The second major reason for the lack of speed to market success is that transformation is hard. Change is successful only 30 percent of the time. So in an era in which transformation is critical, what is really is the key to that future?

Companies must overcome the challenging situation in which, to quote management expert Peter Drucker, “culture eats strategy for breakfast.”

Speed and style are increasingly intertwined in today’s marketplace, characterized by an increasingly powerful and demanding consumer who wants what she wants when she wants it. The amount of discounting that goes on is testimony to the fact that apparel brands guess wrong too often on what will sell. “Margins start out at 75 percent, and then end up near zero,” Thorbeck observed.

By focusing on product speed and supply flexibility rather than on just margin and turn, fashion companies can tap into a huge opportunity to significantly improve profitability and increase market capitalization.

“We’re in fact talking about process innovation analytics that lead to 30 to 40 percent increase in market capitalization. There’s usually a lot of push-back when I first introduce that concept to a CEO. But this is the Zara Gap, or the way we like to put it, the opportunity gap, that is available to companies.”

And the competition is intensifying.

“Now Amazon, Flextronics, Intel, and others, with a lot of engineering, are coming into this business. And they’re drooling over the inefficiencies,” Thorbeck said.

When asked how small- to medium-sized companies without access to capital to invest in engineering and sophisticated processes like automation could compete, Thorbeck responded with optimism:

“This is a wildly exciting time in this industry. How can one company be four times more profitable and six times more valuable than the rest of the industry? They didn’t get there by robots or automation. This company got there by a different process. Every one of you, this is the best five years ahead of you, and it’s very, very meaningful. This is the most globalized industry and the most inefficient industry, and it has an impact on every industry that will globalize right behind it. Buckle up.”

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