Why The Retail Industry Can’t Keep Up With Zara

November 20, 2013 Leave a comment

Why The Retail Industry Can’t Keep Up With Zara

ASHLEY LUTZ NOV. 19, 2013, 4:57 PM 3,392 1

Brands like Zara are rapidly expanding, while other specialty retailers struggle to get customers in stores. A recent report by Goldman Sachs perfectly sums up why fast fashion retailers are challenging traditional ones. “Unlike fast fashion retailers which have buying teams sourcing current trending fashion from third-party vendors, traditional specialty retailers have design teams creating product they believe is going to be trending 12-months out,” the researchers write. 

The risk of trying to predict fashion trends a year in advance is weighing on the success of retailers like Gap, Abercrombie & Fitch, Ann Taylor, American Eagle, and others, according to Goldman Sachs.

If these retailers have a “fashion miss,” it means markdowns, which hurts profits.

Zara’s unconventional business model eliminates this risk.

The company’s strategy involves stocking very little and updating collections often. Instead of other brands that only update once a season, Zara restocks with new designs twice a week, reports Suzy Hansen at The New York Times.

That strategy works two ways, according to Hansen. First, it encourages customers to come back to the store often. It also means that if the shopper wants to buy something, he or she feels that they have to buy it in order to guarantee it won’t sell out.

Zara has already changed the fashion industry.

“They broke up a century-old biannual cycle of fashion,” an analyst told Hansen. “Now, pretty much half of the high-end fashion companies” — Prada and Louis Vuitton, for example — “make four to six collections instead of two each year. That’s absolutely because of Zara.”

Specialty retailers will need to follow suit in order to succeed, according to Goldman.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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