You think your industry is tough? Imagine customer preferences that can shift literally

overnight, product lifecycles measured in weeks, and the value of your product

plummeting if you miss the latest trend. Welcome to the world of fast fashion.

Donald Sull and Stefano Turconi examine how Zara, a leader in the industry,

has pioneered an approach to navigate the volatility of fast fashion, offering lessons for

any company facing rapidly changing markets.

Fastfashionlessons

Haute couture has always been a fairly staidaffair. Big-name designers crafted clothingthat sold for tens of thousands of euros.

Astronomical prices served as the doormen to keepthe masses out of the exclusive club of highfashion. Fashion houses introduced their collectionstwice a year, and a designer’s choices on the heightof a hemline or colour of a skirt largely dictatedwhat was “in” and what was “out” for the followingsix months.

How things have changed. In recent decades,retailers including Benetton, H&M, Topshop and Zarahave revolutionized the fashion industry by followinga strategy known as fast fashion, democratizingcouture and bringing trendy, affordable items to themasses. Fast fashion describes the retail strategy ofadapting merchandise assortments to current andemerging trends as quickly and effectively aspossible. Fast fashion retailers have replaced thetraditional designer-push model – in which adesigner dictates what is “in” – with an opportunity-pull approach, in which retailers respond to shifts inthe market within just a few weeks, versus anindustry average of six months.

While fast fashion is heaven for its targetconsumers, it can be hell for traditional retailers.Quickly shifting trends have slashed the shelf life ofmany garments from months to weeks, or even days.In the autumn of 2006, demand for a one-shouldered

cocktail dress exploded, and retailers rushed to stockup on the hot item. A few weeks later, the same dresswas passé and unsold stock filled the remaindersracks. The message for traditional mass merchandisersand specialty clothing retailers is clear: they mustrefresh their inventory more frequently if they hopeto capture the fast fashion crowd. A study by Bain &Co. estimated the industry average markdown ratioat approximately 50 per cent, and also found thatfast fashion retailers sold only 15 per cent on sale.

For retailers that get fast fashion right, however,the benefits can be enormous. Fast fashion chainshave grown faster than the industry as a whole andseized market share from traditional rivals. In achallenging European retail climate, these companiesare expanding their sales and profits over 20 percent per year. Their share of the domestic apparelmarket (measured by sales value at retail) has grownfrom virtually nothing in the 1980s to over 20 percent in Spain and 5–10 per cent in the UnitedKingdom, Germany and France. Fast fashion leaderstypically earn higher profit margins than their old-guard competitors, averaging 16 per cent, versus 7 per cent for the typical specialty-apparel retailer.

Growth of an ideaIn 1965, Giuliana Benetton, who designed andproduced woollen sweaters, partnered with herbrother, Luciano, a textile wholesaler, to sell the

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colourful sweaters she designed. The Benettonsinitially sold their products through Italian departmentstores, but in 1968 opened their first store. Over thenext decade, Benetton opened or franchised dozensmore stores throughout Italy each year and expandedits product offering to include a wide range of fashionitems and fabrics besides wool. To succeed on theinternational market, they learned to adapt thecolours of their collections to local tastes. Benettonalso priced its products below competitors of similarquality in order to target the mass market.

Like Benetton, Zara grew out of clothingproduction. The company, founded in 1963,featured low-priced look-alike products of popular,

higher-end clothing fashions in addition toproducing its own unique designs. In 1975, Zara’sfounder, Amancio Ortega, opened the first Zararetail outlet to sell clothing stock in the short termand to more closely integrate production anddistribution in the long term.

Benetton and Zara both integrated clothingproduction with retailing in order to respond morequickly to shifting consumer preferences. Benettoncombined its own production facilities with acomplex network of contractors and subcontractors,many of which were owned by former Benettonemployees. Managers could switch parts of thenetwork on or off to respond nimbly to shiftingdemand for different garment styles. Benetton alsomoved the dyeing process to a much later stage inthe operation so that clothing could be dyed inresponse to consumer demand for particularcolours, and was therefore the first fashion apparelmanufacturer of any scale that was able to changeits product range during the fashion season tosatisfy consumer trends.

Zara built a supply chain and production networkthat resembled Benetton’s, while adding some freshenhancements of its own. Zara maintained in-houseonly the capital-intensive, yet complicated,operations (like computer-guided fabric cutting);meanwhile, it outsourced the labour-intensiveoperations (such as garment sewing) to a network oflocal subcontractors, many of which were organisedas seamstress cooperatives in Galicia. By shiftingmore production to subcontractors, the companywas able to respond quickly when items sold betterthan expected and also to cut off production whendemand for particular items fell.

Despite their similar origins, Benetton pulled wellahead of Zara in their first few decades. By the endof 1995, Benetton owned or franchised about8,000 stores in 110 countries, with only one-quarter located in Italy. Zara, in contrast, had onlyabout 500 stores, and more than three-quarters ofthem were located in Spain. Benetton appeared tohave all the pieces in place for sustained growth,while Zara looked like a solid, but regional, player.

Over the following decade, however, the situationreversed. By the end of 2006, Zara was present in64 countries, while parent group Inditex saw totalstores grow six-fold to 3,000; sales grew sevenfoldand profitability was among the highest in the

industry. Benetton, in contrast, saw its salesstagnate and profitability plummet, forcingmanagement to retrench, significantly reduce thenumber of stores and re-engineer its supply chain.

What accounts for this dramatic rise in fortune?Not, it turns out, the usual suspects. Takeoutsourcing. Clothing production is a quintessentialexample of an industry that should benefit fromcheap, low-skilled labour in emerging markets; and,indeed, many retailers have lowered costs byoutsourcing virtually all their production to Asia orSouth America. But Zara produces more than half ofits merchandise in proximity to its core market,especially fashion items, in order to shorten leadtimes and maintain flexibility.

It’s not flashy advertising either. Zara does notinvest in major television or press promotionalcampaigns, but instead focuses on less glamorousin-store and point-of-sale promotions. Zara relies onshop windows to convey its brand image, dependsupon word-of-mouth to broaden its base of customers,and locates stores on some of the most up-marketand high-traffic avenues of each city it enters.

Many fashion houses sign high-profile deals withcelebrities and big-name designers to generatesales. Topshop, for example, tapped Kate Moss in2006, while H&M brought out the big guns in 2007by recruiting Madonna, Kylie Minogue and RobertoCavalli. But Zara has never appointed famousdesigners or celebrities to design its collections.

Software vendors would have you believe thatsuccess in fast-changing markets requires enormousinvestments in sophisticated IT systems, including abaffling array of acronyms such as CRM, EPR, BI orSCM. Managing information is, of course, critical to

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Fast fashion describes the retail strategy of adaptingmerchandise assortments to current and emerging trendsas quickly and effectively as possible.

Zara’s success, but whether measured by IT workersas a percentage of total employees, or total spendingas a percentage of sales, Zara’s IT expenditure is lessthan one-fourth the fashion industry average. Until

2004 the company collected sales data from cashregisters using floppy disks and sent the consolidateddata to headquarters using a dial-up connection.

The case of the puffy ball gowns In October 2006, the film “Marie Antoinette” hittheatres across Europe and the US. It showed theFrench queen obsessed with pretty dresses andshoes and instantly caught the attention of thepublic. While rococo creations were still oncouturiers’ desks – and the movie still on thousandsof screens – a collection of puffy ball gowns andvelvet jackets with cropped collars and gold buttonswas already available at Zara stores.

Ball gowns inspired by a French queendemonstrate an often-overlooked but important trait– Zara’s ability to spot opportunities in the churningkaleidoscope of variables that affect fashion trends.

Design teams must gather information from a widerange of sources, identify patterns in fluidsituations, and anticipate which products mightsell. They must also notice fresh connections amongapparently unconnected events and sift the few keyvariables from the deluge of trivial ones. They mustanticipate likely trends based on information that isoften incomplete, ambiguous or conflicting. And allof this must be done in real time often undercompetitive pressure.

So how does Zara do it? Most analyses of Zara’ssuccess have focused on the ability of its supplychain to quickly produce new products in responseto shifting trends. A nimble supply chain matters

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The element that has proven most critical to Zara’s success is its ability to create and maintain shared situation awareness in the rapidly changing fashion industry.

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in fast fashion, but it does not necessarilydifferentiate Zara from competitors like Benetton.The element that has proven most critical to Zara’s success is its ability to create and maintainshared situation awareness in the rapidly changingfashion industry.

Shared situation awarenessAt first glance, making sense of a rapidly changingenvironment under pressure seems impossiblycomplex. And yet people do it every day. They do soby developing and maintaining shared situationawareness, a team’s ability to recognize a pattern ina fluid situation and use it to anticipate what mighthappen next.

How do people develop situation awareness?Studies by experts across multiple domains showteams follow the same three steps in anticipatinghow a situation might unfold: observe the raw data,spot patterns to form hypotheses about how thesituation might unfold, and test these hypotheses.

In fast fashion, situation awareness is particularlycritical in the design function, which mustanticipate fashion trends and changing consumerpreferences to avoid lost sales, overstocks andmarkdowns of undesired items. In traditionalfashion companies, a handful of prima donnas workin isolation to design new lines. By contrast, atZara’s headquarters, 300 designers, marketspecialists and buyers work in tightly synchronizedteams. To constantly refresh the collection, these

teams of in-house designers use a combination ofcustomer data and fashion discernment; they spotemerging trends everywhere, from the streets tomovies to couture fashion shows. How they do it isthe secret to their success.

#1 Observing the raw dataThe first step in building situation awarenessconsists of absorbing real-time data from multiplesources. Picture an air traffic controller studying anoverwhelming dashboard of dials and readouts,observing external conditions, and receivinginformation from several pilots on the ground and inthe air. You might think that this first step –observing the relevant data – is the easy one.However, studies of air traffic controllers have foundthat up to 70 per cent of mistakes result from afailure to observe key variables that signalled achange in the situation, even though thisinformation was available.

The quality of observation improves to the extentto which it is granular and real-time. Zara’sdesigners gather data on sales and inventory fromeach of its stores on a daily basis and use this toinform their view of the situation. In addition tohard data, more qualitative information may providethe critical piece of the puzzle required to spot anopportunity or threat. Zara management has taken aseries of conscious steps, many counter to industrynorms, to ensure that design teams can observe the raw data with minimal distortion, includingremoving layers of bureaucracy that might alter thepassing of data along the chain from customer todesign team.

Store managers are the first link in the chain. ButZara deliberately leaves them without computerizeddata on in-store stock. Rather, store managersreceive on a hand-held device a detailed sales andreplenishment report every hour. As a result, theycannot sit in an office and read spreadsheets but mustspeak with sales clerks and check the racks and thestockroom frequently to keep abreast of the currentsituation. Store managers also have higher incentivesto collect the right data; they are responsible fordeciding what to offer in their store, rather thansimply hanging up the items sent from headquarters,and their compensation is based in part on theaccuracy of their sales forecasts and sales growth.

Country managers located at company headquarterswork in teams organized by region and focus on one ofZara’s five broad categories – women, women basic,

TRF (a trendy product line geared toward youngerwomen), men and children. A country manager gathersinformation at multiple levels of aggregation, startingwith the regional manager responsible for a productline. Regional managers oversee several stores andlive locally, providing an aggregated view of regionaltrends. But country managers also speak with eachstore manager, typically a few times a week, oftenafter the biweekly store deliveries. Also, they visit eachlocation in their domain at least twice per year. Thisprovides indispensable and granular information onwhat their customers like, dislike, and request, aswell as feedback on how new items are selling.

Most country managers have worked in stores,often as a manager, so they know the right questionsand understand the answers when speaking tocurrent store and regional managers. Zara has alsodeliberately retained ownership of 90 per cent itsstores, which helps avoid many of the tensionsbetween corporate management and franchisees.

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The first step in building situation awareness consists ofabsorbing real-time data from multiple sources.

To ensure that information is collected in acapillary yet systematic way, store managers andshop assistants turn into a recovery team each night when the store closes its doors. They scanthrough and collect the mountains of unsold itemscustomers tried on without buying. Is any item,colour or style prevalent? How can this beexplained? Is there any pattern to be shared withthe designers?

Other rituals contribute to an atmosphere ofcamaraderie essential for frank disclosure. Duringthe first day of a discount sale, one of the most

hectic days of the year, all members of thecommercial organization – from the regionalmanagers down to the office assistants – join andhelp the sales staff in the stores. Not only are they actively supporting their colleagues in amoment of need, but they also receive valuableexposure to customers and get a true sense of whathappens on the shop floor.

#2 Making sense of the raw dataThe second step in situation awareness consists ofmaking sense of the collected information to discoverpotential opportunities or threats in the welter ofraw data. Discussions to make sense are not aimedat accurate long-term predictions but rather to spotpatterns in the data that point to possibleopportunities or threats emerging in the present.

Again, Zara has made a variety of decisions toimprove the frequency and quality of sense-makingdiscussions among the design teams. First, it hasphysically co-located the people involved in newproduct design in its headquarters, unlike manyfashion retailers that spread these functions aroundthe world. Employees involved in the design processsit in one of three large halls, one each for women’s,men’s and children’s clothing. Each hall has anaisle of desks down the centre, where the countrymanagers sit, with desks interspersed at regularintervals with large meeting tables. On either side,there are areas with worktables surrounded by racksand shelves packed with sample products; this iswhere designers spend most of their time.

Zara’s open layout facilitates frequent face-to-facediscussions rather than communication throughemail or spreadsheet. Designers and commercialsrefer to it as a culture of immediacy: when theyhave a question, they find someone who can help

them and initiate the discussion right then andthere. They can play with alternative explanations,bounce ideas off one another, and tackle issuesfrom different angles simultaneously.

Because hierarchy can stifle open discussion,Zara takes active steps to ensure that everyone feelsfree to speak frankly. No one has an enclosed officeand everyone has the same size desk. Although rolesand responsibilities are clear, the company does not use formal titles, thereby avoiding the usualcorporate aristocracy of Vice Presidents, Senior VicePresidents and Executive Vice Presidents. Everyone

within the company flies coach on local flights.Commercials routinely weigh in on design decisions,based on their understanding of the market andcustomers, while designers draw on their deepexpertise of fashion to make their viewpoint heardon commercial decisions.

When considering a potential new product,designers knock up a paper blueprint and hand itover to the pattern department, which sews aprototype. The team then asks a colleague to modelthe product and discusses how it looks and whetherthe customer will likely buy it. Skilled workerslocated on-site complete these prototypes manuallyin just a few hours versus the week or two requiredby most fashion companies that outsource prototypeproduction. In-house prototyping is expensive, butZara managers consider it critical to maintaining thequick tempo of design decisions. It further allowsZara to introduce approximately 50 per cent of itsnew products on an ongoing basis rather than at thebeginning of a season.

In an industry rife with egotistical executives andprima donna designers, Zara consciously hirescandidates who can work in a team and links anindividual’s bonus to the success of that team. Itrequires employees who are humble enough toaccept feedback from colleagues, share credit withtheir team for winning ideas, and, of course, flycoach and forego other trappings of status commonin many companies.

Team-based systems have their own dysfunctions.They can sometimes devolve into talk shops, inwhich everything is discussed but no decisions aretaken. Zara avoids this pitfall by ensuring that teamleaders have a clear responsibility for decisions andmake them after discussion. To avoid groupthink,team leaders seek out dissenting opinions when

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Companies in rapidly changing industries must be able toseize opportunities, of course; but they must be able to seethem in the first place.

none emerge naturally, and team members areswitched regularly to bring in new voices. Healthycompetition across teams keeps people on theirtoes. Daily feedback makes it very clear how eachproduct and team is doing in the stores. Peersgenuinely praise each other for a job well done –and remain conspicuously silent for anything less –providing the recognition that creative and ambitiousemployees crave.

#3 Testing hypotheses The final step in maintaining situation awarenessconsists of testing hypotheses about potentialopportunities to verify that an apparent opportunityis real. Zara’s process allows designers the chanceto fail quickly and relatively cheaply. As newdesigns are created, they are discussed among thedesign team and either discarded, amended orcarried forward. Items that receive the support offellow designers – not necessarily full consensus –will be prototyped. The speed of prototypingdescribed above permits designers to experimentmore freely with possible items. The companycreates mock-ups of approximately 25,000 itemsper year but culls about 60 per cent of them beforecommitting to production.

Prototypes of garments-to-be are placed on thefloor along with the rest of the collection. This way,designers and commercials judge whether a design

fits with the rest of the collection in terms of colour,fabric and so on, and whether it contributes to thebalance between basic and trendy items. Outliersare eliminated while surviving items are sourced in a limited quantity and sent to stores for testing.The responsible design team prepares a number ofvariations (typically three or four) to be kept asbackups. Should the item sell quickly, proof ofcustomer appreciation, they are ready to producemore while maintaining an aura of exclusivity.

One level down, beneath the 24,000 m2 designhall, is yet another hypothesis-testing innovation.They call it Fashion Street – a long parade of storesresembling the high streets of Milan or London.Lined up on either side are Inditex’s existing andforthcoming shop formats. Here not only can youglimpse next season’s store windows in advance,but you can enter the store and peruse thecollection in its entirety. The shop windows, thelayout of the store, the merchandise displayed andthe soundtrack playing in the air – everything iscarefully tested, tuned and photographed by a teamof architects, designers and visual merchandisers.

Fashion Street helps design teams maintain ashared situation awareness and envision how newproducts will fit into the overall picture of thecompany’s current product offerings. And while theproduct line will differ across outlets, the layout foreach shop window is exactly the same, ensuring a

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consistent look and feel. Store managers around theworld will receive photographs to aid them alongwith their next orders.

Zara’s weekly rhythm also cuts the cost of gettingit wrong. If an item sells better than expected, the company can stock up the next week; and whenit does not, the limited initial inventory minimizesthe resulting markdowns. Bad decisions are notseverely punished; after all, everything couldchange by next week anyway. This evolutionaryapproach to style makes it easier to incorporatefresh information that might influence fashion,including everything from regional weather forecastsand international events, to the vagaries and whimsof admired social figures.

Zara – a fashion model?Ultimately, Zara illustrates that a flexible supply chainis a necessary, but insufficient, condition for strategicagility. Companies in rapidly changing industriesmust be able to seize opportunities, of course; butthey must be able to see them in the first place.Shared situation awareness is therefore of paramountimportance, and making sense from ambiguous andconflicting data requires teams to have frequent andopen discussions, as well as the ability to test theirhypotheses about what will sell and what will not.Attempts by older mainstream companies simply torethink their supply chains, or to borrow elementsfrom fast fashion retailers without building situationawareness, have yielded only limited results.

Of course, the trouble with predicting the futureof fashion is that it remains the industry mostsusceptible to trends. A backlash against fastfashion may be brewing as the generation thatgrows up with it becomes older and richer. What if consumers increasingly favour quality and buysuperior goods? What if they become concernedabout the environmental impact of disposableclothing? Might they turn against fast fashion as quickly as they tossed out those puffy gownsfrom 2006?

Good taste and good judgement, it is said, nevergo out of fashion. You can bet that companies thatdevelop shared situation awareness will be bestsuited to adapt to an ever-changing future. Fast. ■

ResourcesPeter Doeringer and Sarah Crean, “Can fast fashionsave the US apparel industry?” Socio-EconomicReview 4, no. 3, 2006.

Mica R. Endsley, “Situation awareness and humanerror: Designing to support human performance”,Proceedings of the High Consequences SystemsSurety Conference, 1999.

Arnaldo Camuffo, Pietro Romano and AndreaVinelli, “Back to the future: Benetton transforms its global network”, Sloan Management Review 43,no. 1, 2001.

Andrew McAfee, “Do you have too much IT?” SloanManagement Review 45, no. 3, 2004.

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Donald Sull (dsull@london.edu) is Professor of Management Practice in Strategic and InternationalManagement at London Business School, and Stefano Turconi (sturconi.sln2007@london.edu) is aSloan Fellow and Strategy Research Associate at London Business School.

London Business School Regent’s ParkLondon NW1 4SAUnited KingdomTel +44 (0)20 7000 7000Fax +44 (0)20 7000 7001www.london.eduA Graduate School of the University of London