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Zara Gap: Stop Fighting for Nickels, Start Collaborating for Dollars

Zara Gap and Disruptive Innovation John Thorbeck slide

Earlier this year, while no one was looking, Amazon launched seven private labels without pomp or circumstance and panic quickly spread throughout the retail industry.

Four of the brands—Lark & Ro, North Eleven, James & Erin, Society New York—are women’s; Franklin & Freeman and Franklin Tailored are geared toward men; and Scout + Ro is childrenswear. The clothing is generic, similar to what’s available at any mass-market chain store, and most items are priced under $100.

Indeed, the online retailer now sells more clothing than electronics, and suddenly last summer’s prediction by Cowen and Company that it would be the number one apparel retailer in the U.S. by 2017 doesn’t seem so farfetched.

“I don’t think Amazon, if they’re setting up a fast-fashion division, is going to spend a whole lot of time beating up suppliers,” said John Thorbeck, chairman of supply chain analytics firm Chainge Capital, speaking last week at Sourcing Journal’s sold-out presentation, “The Zara Gap and Disruptive Innovation.”

Why? Because Amazon already knows what not to do. The e-tailer has been selling other brands’ apparel since 2002. It’s seen not only what resonated with shoppers, but also what fell flat, as well as what was browsed and not bought. The best part: the company watched it all go down while only owning a fifth of its inventory.

But instead of throwing in the towel (or, worse, doing business as usual), there’s a lot that retailers can learn from Amazon’s negative working capital business model. After spending the first half of the briefing explaining why a top-down change in company culture is necessary for survival, Thorbeck continued by explaining how to deliver a product range with speed and flexibility.

“We want storytelling inspired by trend, lifestyle and real-time social media and sales data,” he said. But a year ago when he took Google’s first-ever trend fashion report to some of his best customers, they told him they couldn’t react to it. “The mismatch here is enormous.”

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The search-engine giant had compiled more than six billion apparel-related queries from January 2012 through February 2015 to find out what would be in—and out—for Spring ’15. The report was split into categories of “sustained growth” (trends that had been growing steadily), “seasonal growth” (styles expected to come back even stronger that season) and “rising stars” (fleeting trends that had seen sudden growth in recent months), as well as their declining counterparts.

“All of the information on trends and forecasting and what’s selling, literally by neighborhood, is very available. As soon as that gets turned into intelligence it becomes, ‘I know what they want; I just can’t get it to them,’” Thorbeck said. “So, how do we build a range that can work in that environment?”

Simple: by splitting it in three. Basics—both core and styling updates—should comprise 60 percent of the line; 30 percent should be seasonal fashion; and the remainder should consist of trend stories. To take this structure into the merchandise plan, identify the look and pinpoint the colors, prints and patterns in each category. Then break those down by fabrics and by common materials, and turn it all over to the front of process to design and development, to fabric and to the factories.Zara Gap and Disruptive Innovation John Thorbeck slide

“I know everybody will do it differently, but I want to give you an example of how you take this into the merchandise plan,” he said. “Common materials are actually a big play on advantage here, and design and development have got to be in on the front end for this whole thing. Then you pick out the key seasonal items for that story that’s going to be on the floor, and then you go back and still pay attention to what’s going on on the runway and with major designers that you look for.”

He was quick to note, “It isn’t all from the beginning. There’s a sort of flow to the whole thing but the point is [in this example, they’re] merchandising into speed and flexibility.”

And, of course, it must relate to the brand story and what it stands for.

“You have to communicate style and speed: that you’ve got style, that you have a point of view, that you have the speed and flexibility to deliver it, and you’re not just going to test out a few items and then switch everybody elsewhere,” he added.

It’s not about fear and following; it’s about a brand reinterpreting its position in an effort to make it a lot more profitable, by leveraging raw materials, common materials, planning, forecasting, exchange and collaboration and staging production.

To anyone who might have been questioning whether or not their vendors would be capable of this, Thorbeck said, “You can do this on the phone and some of your vendors will say, ‘What took you so long? We’ve been waiting to do this.’ This is not difficult from a vendor standpoint and it is good news for fabric and fiber.”

And while he admitted that it’s become a little harder to play one factory off another, negotiations aren’t out of the question.

“Every factory would love to hear a story that says, ‘Yes I want to talk to you about price, but I also want to talk to you about speed and flexibility and let’s see how that works for both sides.’ You will just see them relax,” Thorbeck continued. “I’m not just asking you to do your own calculation of how this is good for you; you’re actually changing the whole network. That gives you a very strong collaborative position here.”

The strategy likely seemed a lot sweeter to any cynics in the room when Thorbeck threw out an eye-opening statistic. Using the example of a client that chose to conservatively project a third of their own estimate as part of their internal business review, he said, “They discounted, discounted, discounted, and this number was still huge. It was still an 88 percent increase in operating profit.”

That’s why instead of flying halfway around the world to fight to save 30 cents on each pair of jeans in an order for 30,000, companies should collaborate with their supply chain for dollars.

“Low cost is tough. It’s not going to change overnight, and that’s a lot of the reality that we live, but I think speed and flexibility is the new way,” Thorbeck said. “The inbound supply chain, which is where speed and flexibility resides, is the new territory.”

Missed Part I of the coverage? Read it here.