Retail Asia 2018 RA September.October 2018 (Online) | Page 40

RETAIL SPACE
Fast fashion made possible
with RFID
In the past, consumers had to choose between expensive
fashion house merchandise and mass market garments
available in cheaper outlets. Spanish fast fashion retailer Zara
essentially democratised fashion for the world by offering
fashion similar to the brand name designers at reasonable
prices, according to Nirmalya Kumar, Professor of
Marketing at Singapore Management University’s (SMU) Lee
Kong Chian School of Business. He shares his observations on
how Zara’s radio-frequency identification (RFID) strategy fits
consistently with this vision and business model.
I
n May this year, I had the
opportunity to visit Zara
headquarters in La Coruna,
Spain for a second time. A decade
since my last visit, this company has
continued to blaze a trail in the apparel
industry, inventing what is now dubbed
as “fast fashion”. The 2017 sales for
Inditex Group, the holding company
(Zara accounts for more than 70%
of revenues), exceeded by €25 billion
(US$29 billion). On one particular day
of that year, business magazine Forbes
dubbed the owner, Amancio Ortega, as
the richest man in the world!
The supply chain and operations
of Zara are world class and innovative,
which is why it has been a staple in my
teaching repertoire for many years. On
this trip, keen to learn what is new at
Zara, I encountered their efforts with
RFID.
For those who are unaware,
RFID uses electromagnetic fields to
automatically identify and track tags
attached to objects. These are now
frequently used to track packages
and products. Given the challenge of
managing inventories, logistics and
shrinkage (employees and customers
stealing merchandise) in the retail
industry, retailers have been seeking
to tag their merchandise with RFID.
Unfortunately, the cost of an RFID tag
alone has been in excess of 10 cents,
making it economically unviable for the
cheap and low margin merchandise that
is ubiquitous at retailers.
Zara made a big push for RFID
starting in 2009, when the CEO gave
a mandate that the Zara RFID model
must be reusable and recyclable. It took
five years of research, working with
security systems company Tyco, before
realising that the RFID tag could be
embedded within the security device that
is on each product. This allows the RFID
to be recycled along with the security
device when the latter is removed at
the checkout counter when a customer
purchases the item(s). As at early this
year, the RFID cost less than 8 cents.
With each RFID being recycled at least
10 times, Zara has found a cost-effective
solution.
As an item is sold, the store
management immediately knows it via
the RFID, and as a result, someone is
immediately despatched to the store
stockroom to replace it. Zara’s display
strategy is for each item to have four sizes
on display — small, medium, large and
extra-large. RFID also helps to know the
rate of sales of different items at the store
level and with online sales fulfilment.
A pistol-like gadget running across the
display can tell how much inventory there
is, and how that portion of store is selling
compared to other areas as well as to the
previous years. RFID has also transformed
taking month-end inventory to a small
two-person job, instead of having all the
staff working intensively on this task.
Today, each and every item at Zara is
tagged with RFID and this will be rolled
out to the other Inditex brands (such as
Bershka, Massimo Dutti and Pull&Bear)
in the coming years. ra
Zara made a big push for RFID starting in 2009, when the CEO gave a mandate that the Zara RFID model must be reusable and recyclable.
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Retail Asia September/October 2018