The mantra of the old school merchants has always been “… at the end of the day, success is all about product, product, product.”
Well, several years ago that myth was shattered and the ante was raised in the apparel game by the likes of Zara, H&M, Mango, and Forever 21. And, at the time, most of the industry didn’t really understand that these four brands were redefining innovation and consumer connectivity through the redefinition of the value chain process. In fact, at the time, it’s quite possible the brands themselves did not understand the full force of their “game-changing” process. One thing they did understand, however, is that you can’t win in the apparel game solely by creating unique new styles every season (which today is just the price of entry) or launching another celebrity brand just to achieve competitive parity.
They learned very early on how to process the ubiquity and speed of communications combined with high tech- driven, transparent, seamlessly integrated, rapid-response and totally controlled value chains directly connected and instantaneously responsive to consumers (in fact driven by consumers). They learned how to design or knock off, and deliver the hottest new looks overnight. And, not just overnight on a seasonal basis, but on a weekly basis.
Process Innovation = Superior Product Innovation
Call it “fast fashion,” “disposable fashion” or whatever you want. But what’s happening in this not-so-new-anymore business model is that it matches twenty-first century technology with what obsessively consumptive twenty-first century consumers really want. And that’s more, more, and more, faster, faster, and faster. Hey, it’s the McDonald’s thing! They want quantity over quality! Right?
Wrong. That’s an old baby boomer notion. Today’s consumer wants it all: quantity AND quality, including great new looks, faster and more often, for the lowest possible price, where and when they want it, and, served up with an experience to boot. And that’s what these four brands, as well as Uniqlo and others, are delivering.
So, the great innovation by these “fast fashion” brands was in their value chain process, not just the creation of the “hottest” new looks. While they do have their own innovative design staffs, and not all of their new styles are knock-offs, the innovative way they approach the process of making and delivering apparel, also provides superior product innovation.
It’s Not Just Fast Fashion, It’s a Virtuous Loop Value Chain
Turning out more new lines faster may be one of the great benefits for young consumers of such a value chain process that provides Zara-like brands a tremendous competitive advantage. However, the principal elements of the same process can and must work for all retail and wholesale brands going forward. Indeed, many have emulated, and continue to emulate, the model in different ways.
However it’s emulated, the process is a never-ending value chain that is fully integrated, operating as a virtuous cycle, starting with the consumer, pausing at point of consumption and then starting all over again. And, there are three continuous and simultaneous steps in the process:
Define: Identifying and defining what consumers expect from, or even desire beyond expectations of, the brand. This is ongoing, using all research methodologies, including sales tracking, in-store interaction, and testing. In essence, the real winners virtually live with their consumers, 24/7. This process continually affirms the brand’s core value, suggests improvements, and guides new value creation and innovation. A clear point of competitive differentiation for the brand is articulated. If well-executed, this process will yield a deep metaphor for what the true essence of the brand stands for and what the consumer is seeking.
Develop: Developing the value starts with using knowledge gained from research to conceptually plan for new and/or improved value (brands/styles), then on to actual development, including the experience at point-of-sale. Also, in this cycle, the highly integrated, seamless and demand-driven “back end” segment of the chain will provide continually innovative productivity strategies, while the integrated marketing or “front end” of the chain will continually innovate or strengthen the marketing strategies.
Deliver: The final cycle in the virtuous loop is the preemptive, precise and perpetual distribution of the value, along with its experience. It’s also critical that the value (brand) creator has dominant control of this final cycle in the loop. The brand creator must have control of line size, mix, frequency, flow of goods and as much of the operations as possible (sales and service), as well as its presentation and, most importantly, the experience at the point of sale.
Control: The other principle element, without which this process could not be implemented, is control. The value creator and ultimate provider must have dominant control over the entire value chain from creation to consumption, (ie. Starbuck’s, Ralph Lauren, Apple, Zara). Without such control, the three-step process is not achievable. And, the process will fail to be seamless, simultaneous, fast, flexible, transparent, collaborative, efficient and effective, all necessary qualities for success.
Essentially, without control, one cannot have a modern-day value chain, and such a value chain is not achievable without control. The consumer will then lose. And, when the consumer loses, the provider dies.
Ralph Lauren’s declarations of “controlling his destiny,” have been, and still are, manifested by his “buying back” their many licensees (for control), continually increasing their retail business (now accounting for about 50 percent of total revenues) and insisting that his retail customers like Bloomingdale’s cede control of the presentation and operations in their designated store space.
Eric Wiseman, CEO of VF Corporation, has said of his company’s brands, (which include The North Face, Vans, Nautica, 7 For All Mankind and others), “We want to continue to present the brand in ways we can control.” VF Corporation also continues to increase its retail business.
HSN CEO Mindy Grossman sprinkles the word “control” throughout her numerous public presentations as in “knowing what our consumers want, where, when and how they want it, so we’ve got to create and control the distribution and experience for her.”
Brian Dunn, CEO of Best Buy says of controlling the experience: “We believe that when an experience touches a customer, you must own it.”
Part of the transformation of the department store business model is the continuing increase in the percentage of private and/or exclusive brands to their total business, (in our book, we estimate the percentage will reach north of 70%). Macy’s, JCPenney, Kohl’s, Target and even grocery retailer Trader Joe’s, as well as many others across all retail sectors, are pursuing this strategy, which requires optimum control over the value chain process.
And, perhaps the final word on control comes from none other than Mickey Drexler, CEO of J. Crew: “I don’t ever want to be in a business where I don’t control my distribution, period, end of sentence.”
When retailers and wholesalers control their value chains to implement the winning process, they reap many benefits. They eliminate costs associated with “middlemen” vendors and/or retail customers. They gain vendors’ or retailers’ profit margins, and they can better control costs in other parts of the chain. Furthermore, they can turn out more new lines faster, providing the consumer constant “newness,” which in turn gives them greater pricing power. And, of course, proprietary brand differentiation is a major advantage in this hypercompetitive market.
Finally, they control the most important part of the chain that connects with the consumer, the presentation and the total experience: the packaging it’s wrapped in, the space and theatre it’s presented in, the audio-visual extravaganza that surrounds it. In short, everything that touches and compels its consumers to buy, and then gets them to come back again.
The Zara Lesson For All
When a customer can visit any one of Zara’s 1,600 plus stores, in 82 countries around the world, and on almost a weekly basis find completely new lines to select from, this is nirvana for millennials. Furthermore, because they know new styles are coming in next week, they are compelled to buy something they like every time they shop, at the risk of not finding it if they come back another day. And, of course, this climate of scarcity also provides Zara with pricing power, and since the flow of goods is continuous and in small batches, inventory (and, therefore its cost), is practically non-existent.
In a “share wars” environment, in which one must steal a customer away from a competitor or get existing customers to buy more and/or more often, the Zara model works on steroids. The brand’s customers shop in their stores an average of 17 times a year, versus 4 for traditional retailers.
In short, using Zara as an example, “control” is the operative word in describing how they are able to implement the “fast fashion” model. They are 80-90% vertically integrated, owning and/or controlling the entire value chain from creation to consumption. Their staff of about 1000 designers and product developers is constantly checking the world for new and/or knock-off styles, and hearing back every single day from every single store manager about what sold and what didn’t.
They create about 11,000 plus styles a year, roughly five times as many as traditional retailers. From start to finish they are able to develop very small lots within as little as ten days, committing only 50%-60% of production in advance of the season, with the remainder manufactured on a rolling basis during season.
The small lines go out every two weeks. What doesn’t sell quickly is reallocated to other stores or marked down immediately. Only 15%-20% of seasonal volume is sold at markdown prices, versus 30%-40% for much of the industry. And, of course, because of their vertically controlled value chain, they can quickly ramp up production to replace winning styles or fill in with “like-styles.”
It Is About Process, Process, Process
A better-managed, high-tech-driven, transparent, seamlessly integrated, rapid response and totally controlled value chain, directly connected and instantaneously responsive to consumers, (in fact driven by consumers), is a win-win twenty-first century process.
And, it’s a process which can actually improve upon the old school mantra of “product, product, product,” by providing more of it, newer, faster, better, cheaper, where, when, how and how often the consumer desires it – and presented in way that creates a great and indelible consumer experience.