What with this magazine's update to the rich list there's a flurry of articles about
Here is that little snippet:
Zara stores change their stock twice a week and orders arrive within 48 hours. What goes in and what gets binned is down to the store managers, who are trained to monitor carefully what’s selling, but also what customers are looking for or even wearing.
Thanks to a super-slick logistics operation, more than half its clothes being made in Europe, new ideas can go from design to shopfloor in just three weeks, less than half the average time it takes most big retail chains.
My point here isn't so much about how Zara works, or what it is that gives Zara its competitive advantage. Rather, it's about what gives European textiles producers a comparative advantage despite the fact that they seem not to have much of a competitive one.
Just to confuse matters within economics we normally talk of absolute advantage and comparative advantage. An absolute advantage is when I can do something better than you can. Say, I'm a textiles factory in China and I can produce clothes more cheaply than can any factory in Europe. After all, we're all largely using the same technology, so we get about the same labour productivity, and yet wages differ. So, on a purely price basis China's always going to win all the contracts. Comparative advantage is, in the economic sense, a much more subtle idea. Which is that we should be looking to our own available options to see what we should be doing. Ignore, for a moment, what the Chinese can do. If among the different things that the Spanish or Portuguese can do the thing that they are least bad at is textile factories then that is what they should be doing. Our comparator is not what the competition can do, it is what we can do. So, even if China is always better than Spain at producing textiles, if the best thing that Spain could be doing is textiles then that's what Spain should be doing.
While that's good economics the difficulty then is translating it into the real world. Or, as we might put it (in a manner that will make some economists wince), how can we turn our comparative advantage into an absolute advantage? As it happens I have a couple of friends who work in this field: advising fashion companies how to best take advantage of what Spain and Portugal have to offer. And the real heart of it is that time to market that Zara exploits.
If you manufacture in China you tend to have 3 month lead times. They can stretch out to 6 months in fact: you've got to tell them what you want made 6 months before they'll deliver it. This is OK for certain fashion items (one of the little secrets of the trade is that when they say "green and gold are this fall's colours" they don't mean, wow, that's what everyone is buying, how interesting. What they mean is that the industry decided that those were going to be the colours for this fall two years ago and the spinners and dyers got to work). But it's also not OK for others. Every season brings its surprise hits for example. So, many fashion houses will go to China for their basic stock. And then for whichever pieces are hits, they'll top up their supply from the much faster to supply Iberian factories. After all, it only takes two days to get a truck from Galicia to Germany, while a container on a ship from China will take 30 days to arrive.
What Zara is doing is using this advantage on steroids. They get much more of their stock in this manner than other houses, change their stock much more often as a result and can also be much faster at responding to either changes in style as a season progresses or to changes in demand.
The larger economic point here being that just because someone else out there is cheaper (something that's pretty much a foregone conclusion in this globalised world of cheap labour) that doesn't mean the devastation of an industry. It just means that industry has to change a bit in order to be able to exploite whatever advantages it does have. Proximity, speed of delivery, these are as useful as price.
