Question

1. Why has Zara’s RFID rollout been less problematic than those at Walmart and JCPenney?
2. How does Zara’s use of RFID reduce concerns that customer products will be tracked post purchase?
3. How does Zara reduce the expense associated with tagging each item?

(Please be sure to write in as much detail as is needed to respond in a way that clearly responds to the question at hand, while clarifying and elaborating with examples and details, where possible)

Key Takeaways

- Zara has used technology to dominate the retail fashion industry as measured by sales, profitability, and growth.

- Excess inventory in the retail apparel industry is the kiss of death. Long manufacturing lead times require executives to guess far in advance what customers will want. Guessing wrong can be disastrous, lowering margins through markdowns and write-offs.

- Contract manufacturing can offer firms several advantages, including lower costs and increased profits. But firms have also struggled with the downside of cost-centric contract manufacturing when partners have engaged in sweatshop labor, poor working conditions, and environmental abuse.

- Firms with products manufactured under unacceptable labor conditions face multiple risks, including legal action, brand damage, reduced sales, lower employee morale, and decreased appeal among prospective employees.

- Zara store management and staff use mobile devices and POS systems to gather and analyze customer preference data, and to plan future designs based on feedback, rather than on hunches and guesswork.

- Zara’s combination of vertical integration and technology-orchestrated supplier coordination, just-in-time manufacturing, and logistics allows it to go from design to shelf in days instead of months.

- RFID tags help Zara keep better track of inventory–improving warehouse-to-store distribution, and makes it easier to locate items that customers want to purchase.

- Advantages accruing to Inditex include fashion exclusivity, fewer markdowns and sales, lower marketing expenses, and more frequent customer visits.

- Zara’s IT expenditures are low by fashion industry standards. The spectacular benefits reaped by Zara from the deployment of technology have resulted from targeting technology investment at the points in the value chain where it has the greatest impact, and not from the sheer magnitude of the investment. This is in stark contrast to Prada’s experience with in-store technology deployment.

- While information technology is just hardware and software, information systems also include data, people, and procedures. It’s critical for managers to think about systems, rather than just technologies, when planning for and deploying technology-enabled solutions.

- Zara’s value chain is difficult to copy; but it is not invulnerable, nor is future dominance guaranteed. Zara management must be aware of the limitations in its business model, and must continually scan its environment and be prepared to react to new threats and opportunities.

Answer 1

Why has Zara’s RFID rollout been less problematic than those at Walmart and JCPenney?

If the IT expenditure by IT staff is less than one-quarter of the average in the apparel industry, as a percentage of the total workers or as a percentages of revenue. Mode retailers invest on average 3.5% of their sales revenue, while Inditex ad spending is just 0.3%. Failure to launch Zara goods is estimated to only be 1%, as compared with an average industry of 10%. The average industry markdown ratio stands at about 50%, while Zara books around 85% of its goods at full cost.

How does Zara’s use of RFID reduce concerns that customer products will be tracked post purchase?How does Zara reduce the expense associated with tagging each item?

Unwanted unreported inventory leading to losses and write-offs are the greatest challenge to the fashion industry. This risk is exacerbated by the long production process, including the processing of contracts, inherent in typical design practices. By a combination of vertically integrated development and application of technology, Zara mitigates these risks by shortening the design to delivery process in the chain (plan, production and distribution)..

Zara also analyzes data collected directly from consumers to obtain information on the trend and desires of consumers. As any company, Zara is subject to risk. This technology eliminates a lot of guesswork from preparing collections. Such threats include environment, natural disasters, terror, labor disputes, political revolts and so on in manufacturing and distribution disruptions.Moreover, the activities of Zara are economically linked to the euro. Despite the Euro rising relative to the dollar, its prices increase at higher levels compared to dollar-denominated rivals. The Zara model is finally studied and finally copied due to its popularity.