Page 204 - DMGT550_RETAIL_MANAGEMENT

Unit 11: Retail Pricing and Communication Mix

With new styles being developed and introduced frequently, each style would provide Notes
only around 200,000-300,000 of retail sales, a far lower figure than other retailers or brands,
and certainly not “cost-efficient” in terms of design and product development costs. But
obviously, this higher cost of product development is more than adequately compensated
by higher realised margins. In addition, the entire product development cycle begins
from the market research. This combines information from visiting university campuses,
discos and other venues to observe what young fashion leaders are wearing, from daily
feedback from the stores, and from the sales reports. This has meant a significant investment
in information technology and communications infrastructure to keep streaming up-to-
date trend information to the people making the product and business decisions.
At the leading edge of research are the sales associates and store managers in Zara stores,
who zap orders on customised handheld computers over the Internet to Zara headquarters
based on what they see selling. And not just orders, but ideas for cuts, fabrics or even a
whole new line. They draw upon customer comments, or even a new style that a customer
might be wearing that could be copied for Zara’s stores. Traditional daily sales reports can
hardly provide such a dynamically updated picture of the market.
React Rather Than Predict
What sets Zara apart from many of its competitors is what it has done to its business
information and business process. Rather than concentrating on forecasting accurately, it
has developed its business around reacting swiftly.

Here’s a flavour of what a typical retailer or brand might do.
Say, around a certain time, designers may start looking at fashion trends, and start designing
a look for Winter 2004. Information and inspiration comes from forecasting agencies,
trade shows, and various other places. Over a period of 3-5 months they develop the ideas
into physical samples. These are also simultaneously costed. Sales budgets and stock plans
are developed based on what is going on in the business right then (roughly one-year
ahead of the targeted style). At various times during this “seasonal” process, there are
decision-making meetings, where styles are accepted, rejected or changed, pricing and
margin decisions taken and orders finalised.

Since multiple decisions factors are involved there are several meetings where a buyer /
merchandiser, a designer, a technologist, a sourcing specialist and others may get involved
together. No doubt, many calendars and travel schedules have to be synchronised for this
to happen smoothly.
Based on a host of factors, the orders might then be placed with vendors in one or more
countries around the world. Typically vendors may take a few weeks to two months to
procure fabrics, have them approved by the retailer, and then produce a number of samples,
and only once all approvals are finished, put the style into production.
From beginning to end, the process of defining a concept to receiving goods in the retail
store might take anywhere from 9 to 12 months for a typical retailer. This one-year
advance decision-making on what merchandise and how much to stock, is a bit like
driving a car at speed by just looking in the rear view mirror! Amazingly, it seems to work
60-65 per cent of the time.
Zara, on the other hand, largely concentrates its forecasting effort on the kind and amount
of fabric it will buy. It is a smart hedge for one, fabric (raw material) mistakes are cheaper
than finished goods errors, and secondly, the same fabric could be turned into many
different garments. In fact, for an extra degree of flexibility Zara buys semi-processed or
un-coloured fabric that it colours up close to the selling season based on the immediate
Contd....

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