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Ideas for Leaders #198
Fast Fashion Retailing – Transforming
Operations Management
Key Concept
Since the early 2000s, Spanish retailer Zara (founded 1975) has taken the
fashion industry by storm, with its ability to react to rapid changes in market
conditions and keep its stock fresh and up-to-date, once claiming it needs
only two weeks (as compared to up to six months traditionally needed by
rivals) to produce and distribute new stock. According to this Idea, other
retailers can achieve similar success by optimizing three key operation
management decisions: design, sourcing and distribution.
Idea Summary
The apparel industry (which includes clothing, footwear, accessories, etc.) is
one of the world’s largest, due partly to the relatively low barriers to entry.
According to Euromonitor International, there were more than 1,400 retail
brands at the start of 2013. All of these brands are concerned about meeting
growing demands and getting their collections out to stores quickly. According
to Professors Felipe Caro and Victor Martínez-de-Albéniz (from UCLA
Anderson School of Management and IESE Business School, respectively),
the way forward is to adopt the new operations management frameworks
pioneered by Zara and others.
Successful players in the clothing retail industry have learned to optimize
three key operations decisions: design, sourcing and distribution. Such
successful players include Zara, H&M and Topshop who have all become
known as ‘fast fashion’ retailers, due to their approach of providing fashion
almost on demand. Zara in particular (the flagship brand of the Spanish retail
conglomerate Inditex) has received a lot of attention in recent years for its
centralized distribution model.
In their paper, Caro and Martínez-de-Albéniz delve further into these three
decisions, offering insight and advice such as:
1. Design decisions: This requires a good understanding of how consumers choose among
products within a collection. Retailers like Zara harness this opportunity by researching what
sells, rather than sticking solely to ‘safe’ bets. Being aware of trends set when they happen
rather than being tied to traditional seasonal spring and autumn collections.
2. Purchasing/sourcing decisions: This requires managing the risks of over-ordering and
under-ordering compared to demand. Caro and Martínez-de-Albéniz suggest that a multi-
purchase model is apt for companies where lead times are shorter, and it is possible to use
early demand information to produce more when demand becomes high.
3. Distribution decisions: Once designs and their quantities have been decided, distribution
decisions need to be made in order to properly distribute inventory across a network of stores.
Here, again, the example of Zara is relevant; Zara’s distribution model is at the level of store
display. If a product is unavailable in major sizes, it removes the product from the shop floor.
Authors
Caro, Felipe
Martínez-de-Albéniz, Victor
Institutions
IESE Business School
UCLA Anderson School of Management
Source
Bulletin of Statistics and Operations
Research
Idea conceived
June 2013
Idea posted
August 2013
DOI number
Subject
Pricing
Operations Management
Productivity
Retail
Supply Chain Management
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This requires that distribution decisions take into account the shipping scarce stock to other
stores in the network, so that the right combination of sizes is always on display. According to
Caro and Martínez-de-Albéniz, doing this can boost sales by as much as 4 per cent.
Business Application
For retailers to meet demand and stay ahead of their competitors, making
sure that design, sourcing and distribution decisions are taken properly and
quickly is crucial. New challenges include the management of dynamic
collections and product introductions, managing store space, etc. Changing
traditional practices to resolve these issues will require integrating new
approaches to existing models and, according to Caro and Martínez-de-
Albéniz, more complex dynamic optimization techniques.
Game theory models could also be used to understand strategic interactions
between retailers. For example, while constantly changing collections may be
beneficial to a retailer such as Zara if taken in isolation, this may trigger
competition bringing with it the risk of product wars, in which all retailers
launch many new products. This increases everyone's costs, but not
necessarily their market share.
Further Reading
Operations Management in Apparel Retailing: Processes, Frameworks
and Optimization, “Caro, Felipe” and “Martínez-de-Albéniz, Victor”,
Bulletin of Statistics and Operations Research, Vol. 29, No. 2, June
(2013), p. 103–116.
Further Relevant Resources
Felipe Caro’s profile at UCLA Anderson School of Management
Felipe Caro’s personal website
Victor Martínez-de-Albéniz’s profile at IESE Business School
Victor Martínez-de-Albéniz’s personal website
UCLA Anderson School of Management’s profile at IEDP
IESE Business School’s profile at IEDP
© Copyright IEDP Ideas for Leaders 2013
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