This was meant to be a quick post about Ted Baker but quickly grew into a -fuelled piece about a recurring pattern that is fashion/retail companies being kinda of while pointing at external factors.
So, there’s some newsworthy data that the markets on the other side of the pond pay attention to monthly—it’s the jobs data.
September 2019 one-month change showed that retail is the only one in the red by a margin:
Source - https://www.cnbc.com/2019/10/04/heres-where-the-jobs-are-for-september-2019-in-one-chart.html
…Successful people take responsibility for own actions. So do successful companies run by competent people. Unless you’re Ted Baker, John Lewis, etc.
Here’s UK-listed Ted Baker:
The firm, which issued a profits alert in June and whose founder Ray Kelvin resigned in March, blamed fierce competition and unseasonable weather.
Competition and weather? That’s an old trick, dear management. Welcome to the Internet age.
In good times you clap yourselves on the back, in bad times—it’s always the eruptions landings.
The World Wide Web has been around since the early 1990s and Amazon was set up in mid-90s.
Or their management could’ve just walked into M&S to see how bad things can get.
Then there’s the alfamous Inditex (the owner of Zara) model—would it make sense to study why Inditex has been consistently doing so well?
If you’re a shareholder of traditional retail, you should care
How to run a fashion brand like Inditex
A newspaper did a case study on Inditex. And all it took was 1 minute of googling and copy-pasting:
This flexibility and efficiency has remained at the heart of Inditex, the company built from Zara that now runs 6,500 shops in 88 different countries and includes seven other brands, including Bershka, Pull & Bear, and Massimo Dutti.
The business model built by Ortega is unique. Zara stores around the world receive deliveries twice a week and products designed at the headquarters in Arteixo reach stores three weeks later. This is a staggering pace, helped by the fact that between 51pc and 55pc of clothing is manufactured in what the company describes as “proximity” markets, Spain, Portugal, Turkey and Morocco, instead of Asia.
If there is a secret to Inditex’s success it is the connection between stores, the in-house designers, and its factories.
Twice a week, a store manager will send an order to HQ. This is based on the sales data for the store but also anecdotal evidence from shoppers about what they like and don’t like. The commercial team will then compile the order, adding in new products and balancing out demand with other stores, before sending it to Inditex’s manufacturing hub. Within two days, the order has reached the store.
At the same time, the commercial team is a liaising with the in-house designers, who they sit next to in the offices at Inditex HQ. When sales trends are identified – either from evidence in stores or the catwalk – the commercial team will work with the designers to develop new products to meet the trends. New fashions are then produced in relatively small batches, so flops can be disregarded after their first appearance and hits can be followed quickly by similar incarnations.
The commercial and design teams are vast – covering a large proportion of the 1.7m sq ft of offices at Inditex HQ. The result of this structure is that the product range in Zara stores evolves rapidly. Rather than relying on one product range per season – like Marks & Spencer will for autumn and winter – the retailer will enjoy four or five waves of new products after the initial seasonal launch. A mock high street of Zara stores, built within the headquarters, allows store managers and the commercial team to examine the new ranges.
The influence of the store managers means they are paid more than the average in the industry and can earn 100pc of their salary in bonuses for hitting sales targets. “We are never losing the human touch,” Isla says of their power. “They feel like the owner of the store.”
Every single item of clothing that Zara sells comes through Spain, even if it has been made in China and will ultimately be delivered to a Chinese store. At the vast Arteixo base, home to 6,000 staff from 30 countries, a tunnel network carries a carousel that moves clothing from the on-site factories – which themselves account for 5pc of Zara’s products – to the vast distribution centre. Inside the distribution centre, clothes move along the carousel until they reach their allocated box. This box, earmarked for an individual store, will be packed with different products and reach its destination within 36 to 48 hours.
The flexibility and speed of Inditex has helped the fashion retailer to expand overseas. If clothing is not selling in a particular store, it can quickly adapt. However, Isla says that fashion trends are becoming “more and more global”.
This is not to say that Inditex (Zara) are immune to the modern world’s fast changing habits.
But at least they are agile.
And I don’t expect anyone at Inditex mention the weather as the cause for poor performance.
John Lewis, meanwhile, has become so bad (after doing some outsourcing) that people invest their time to post a lengthy complain on an almost hourly basis:
As Professor Galloway said, once some retailers began with improving margins in “the age of the Internet”, that hit customer experience both in stores and online.
[John Lewis Partnership chairman] told the BBC’s Today programme: “The biggest single reason for the decline in profits is all about margin”.
Here’s a happy Inditex chart:
Here’s another one of the owner of TKMaxx: