Amancio Ortega is one of the richest men in the world with a networth of over 66 billion USD. His fortune comes from his flagship retail clothing store Zara, which delivers luxury fashion at low budget prices.
Ortega opened his first store in 1975 and today has grown it into 2,500 stores across the globe with annual revenues that reached $14 billion in 2014. Zara's business model relies in part on producing cutting edge fashion and designs, and in a much larger part on their manufacturing and distribution.
Unlike other retailers, Zara controls all the steps of its supply chain, design, manufacturing, and distribution. It has been said that Zara can go from design concept to store in just four to six weeks, an incredible turnaround time. This speed allows them to release over 12,000 new products each year, compared to their competitors' 2,000 - 4,000.
But there's one trend Zara has been resistant to, and that is producing fast fashion products in low-budget countries. In 2014, 50% of their products were manufactured in Spain, 26% in other European countries, and 24% in Asian and African countries. While much of this could be aimed at protecting the image of their brand, it is leaving doors open to their competitors to beat them with manufacturing advantages.
And companies are starting to do just that. Asia is no longer just a destination for low end clothing retailers like Wal Mart and Target. Fast fashion companies are increasingly setting up operations there as well.
One company that is utilizing Asia's manufacturing abilities and is chasing Zara's market share is Berlin-based fashion startup Lesara. Lesara, which has raised nearly $25,000,000 in funding, has set up a remarkably efficient operation that produces fast fashion in Asia.
Why does producing in Asia give them such an edge? The numbers tell the story. Lesara can identify a style they want to create and have it for sale on their website in just 10 days, beating their closest competitors to market by nearly a month. They are also able to produce more than 50,000 unique items in a year by leveraging smart data.
Lesara is lead by Roman Kirsch, a 27-year old from Berlin who has been disrupting the retail industry for nearly a decade. His first company, Casacanda, was acquired by Fab.com in 2012 and at age 23, he was named the Chief European Officer, overseeing its European operations. In its prime, Fab.com was valued at over a billion dollars.
Kirsch left Fab and founded Lesara. I spoke with Kirsch about the future of retail and what he thinks it will look like.
What do new fashion companies do better than their large corporate rivals? Kirsch would tell you it is three things: speed, price, and quality.
"We can identify a style at New York fashion week, have our designers create it, have it produced in high quality in a factory in China, and have it available for sale on our website within 10 days," said Kirsch. "It's faster, it's the same quality, and it's cheaper. This is what fashion retail will look like in the future."
That is a sentiment that is widely shared. Macy's posted disappointing earnings from the holiday season, a result that has been attributed to its slow response rate to fast moving trends.
Smart Data for Merchandise Selection
Because of the rapid turnaround time that Lesara can achieve, they rely heavily on smart data to drive their production schedules. In many ways, guessing what next season's styles will be based on what designers unveil at various fashion weeks is passe. Lesara aggregates data from online retailers, social networks, and search engines to identify consumer trends.
"This analysis removes the guesswork about what will sell and which styles will flop on the shelves," says Kirsch. "We don't just know which new styles are popular, we can also identify retro trends that are making comebacks, which styles are on the way out, and that helps us to precisely manage our production."
Cross-Border Commerce & Direct Sourcing
Kirsch is also convinced that in order to offer the best product at the lowest price faster than anyone else, operations have to be completely in-house.
"Middlemen are a crutch that other companies use, but it drives up the cost and ultimately is not necessary. We manage the whole process from start to finish and have proved that it can be done with incredible efficiency."
Large retail companies like Macy's were the first to open numerous locations that were easily accessible for consumers everywhere. Then fast fashion companies like Zara and H&M cornered the boutique fashion side of retail. Now Lesara is blazing a trail befitting the era of technology we live in and the direction that consumer trends are going: higher quality, faster, and cheaper.