Last month I had the opportunity to visit Zara headquarters in La Coruna, Spain for a second time. A decade since my last visit, this company has continued to blaze a trail in the apparel industry, inventing what is now dubbed as “fast fashion.” Sales in 2017 for Inditex, the holding company (Zara accounts for more than 70% of revenues), exceeded 25 billion Euros. On one particular day of 2017, Forbes dubbed the owner, Amancio Ortega, as the richest man in the world!
The supply chain and operations of Zara are world class and innovative, which is why it has been a staple in my teaching repertoire for many years. On this trip, keen to learn what is new at Zara, I encountered their efforts with RFID.
For those who are unaware, RFID (Radio-Frequency Identification) uses electromagnetic fields to automatically identify and track tags attached to objects. These are now frequently used to track packages and products. Given the challenge of managing inventories, logistics, and shrinkage (employees and customers stealing merchandise) in the retail industry, retailers have been seeking to tag their merchandise with RFID. Unfortunately, the cost of an RFID tag alone has been in excess of 10 cents, making it economically unviable for the cheap and low margin merchandise that is ubiquitous at retailers.
Zara made a big push for RFID starting in 2009, when the CEO gave a mandate that the Zara RFID model must be reusable and recyclable. It took five years of research, working with Tyco, before realizing that the RFID tag could be embedded within the security device that is on each product. This allows the RFID to be recycled along with the security device when the latter is removed at the checkout counter on purchase of an item by the customer. In early 2018, the RFID costs less than 8 cents. With each RFID being recycled at least 10 times, Zara has found a cost-effective solution.
As an item is sold, the store management immediately knows it via the RFID, and as a result, someone is immediately despatched to the store stockroom to replace it. Zara’s display strategy is for each item to have four sizes on display – small, medium, large, and extra-large. RFID also helps know the rate of sales of different items at the store level and with online sales fulfilment.
A pistol-like gadget running across the display can tell how much inventory there is, and how that portion of store is selling compared to other areas as well as to the previous years. RFID has also enabled taking month end inventory to become a small two-person job, instead of having all the staff working intensively on this task.
Today, each and every item at Zara is tagged with RFID and this will be rolled out to the other Inditex brands (e.g., Bershka, Massimo Dutti, Pull&Bear) in the coming years.
Previously, people had to choose between the expensive fashion house merchandise and the mass market garments available in cheaper outlets. Zara essentially democratized fashion for the world by offering fashion similar to the brand name designers at reasonable prices. Their RFID strategy fits consistently with this vision and business model.