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Continuous Improvement
and Industry Change
Associate Professor Jonathan ElmsThe Sir Stephen Tindall Chair in Retail Management
Director, Centre for Advanced Retail Studies (CARS)
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• Big Issues in Retailing
• Continuous Improvement in Retail
• Case studies – Zara (Inditex)
– Marks & Spencer
• Discussion
• Q&A
Agenda
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• Challenging economic and operating
environment
• Increasing consumer demands
• ‘Big Data’
• Multi/Omni-channel operations and shopping
experience
• Brand management
• War for talent
• Growth, expansion and diversification
• Glocalisation
• Agile and effective supply chains
Big Issues in Retail
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• Retail is a key driving force for many developed
and developing economies
– Multiple stakeholders
– A very dynamic and fast-paced industry
• Retailing involves a wide and varied set of tasks,
activities, processes, and practices
– More complex than merely a ‘distribution system’
• Retailers are boundary spanners; bridges the
worlds between business and commerce – and
the consumer and consumer culture
Continuous Improvement in Retail
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• What can be continuously improved?
– Internal: systems, procedures, and processes
– External: ability to understand, create, communicate,
and deliver value to the end consumer
• Retailers face multiple internal and external
tensions
– Continually balance business improvements and the
ever changing marketplace
• Strategic decisions and initiatives have long-term
consequences
– Lock-in, lock-out, time-lags
– Finite resources and opportunity costs
Continued…
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• Founded in 1975, by Amancio Ortega Gaona
• Spanish clothing and accessories retailer,
owned by Inditex
• 2100 stores, 88 countries
• Provider of fast and affordable
fashionable items
• Design is closely linked to its customers
– Launches around 10,000 new designs each year
• Described as ‘possibly the innovative and
devastating retailer in the world’ (Daniel
Piette, Louis Vuitton)
Case Study: Zara
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“We are far from perfect.
Whatever we analyse, we
see lots of room for
improvement. Continuous
improvement is at the
heart of the company”
Pablo Isla, CEO of Inditex
Inditex
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• Developed a highly responsive
supply chain
– Enables the delivery of new
fashions as soon as a trend
emerges
– Delivers new products twice
each week to its stores
• Automated factories in Spain
where robots work 24/7 cutting
and dyeing fabrics
• Products finished off by local
seamstresses
Zara
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• Launches
approximately 12,000
new items per year
– Compared to 2,000 –
4,000 for H&M and the
Gap
• Focus on reducing time
– Holds 6 days worth of
inventory, while H&M
holds 52 days, and
traditional Spanish
retailers hold 94 days of
stock
Inventory
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• Extensive market
research
• In-store technologies,
and links to country
HQs
• Quick input and output
response
• Frequent new styles
• Near – term forecasting
• Customer (and staff)
feedback
Fast Fashion: Forecasting
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• Short-lead times = more ‘on trend’ clothes
• Lower quantities = scarce supply (1 shot shopping)
• More styles = more choice and variety
Consumer driven; production enabled
• Complemented – and enforced – by:
– Aggressive international strategy – refining business
model through gaining exposure and experience
– Portfolio of brands – targeting specific segments
Successes
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• Founded in 1884
• 1928, St. Michael brand
established (ultimately
replaced by the label Marks
and Spencer) • Representing the company’s
focus on quality and value
• 1931, M&S had established
food departments in all of
its stores
Case Study: M&S
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• 1970s, M&S established itself as an British
institution
• Early 1990s, the company had over 700 stores in
the UK, and 300 additional stores worldwide
• Prided itself on offering high-quality, clothing,
home products, and groceries at premium prices• Over 21 million individuals visited M&S each week
• M&S was the leading provider of women’s clothing
and lingerie in the UK
• In 2011, clothing and housewares accounted for 49%
of its sales, with the remaining 51% in food
M&S
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• M&S’ successes began to fledge - struggled to
compete with suppliers sourcing low-cost goods
off-shore
• Recovery by 1994, result of drastic cost
reductions, improving operating efficiency,
geographical expansion, and the establishment of
an international franchise program
• Profits peaked in 1998 - revenues of £8.2 billion,
and an operating profit of £1.1 billion, but profits
soon declined• The company’s financial downfall was severe; its
share price fell by more than 2/3rds, and its
operating profit plummeted to £145 million
1990s
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• Boardroom ‘scraps’ and blocked takeovers• Significant management changes
• External hires
• Chair, Rose renewed the historical emphasis on
value for money products, exceptional customer
service, and a friendly store environment• Marketing campaigns emphasised the companies
high ethical and environmental stands
• Sales and profit remained flat and consumer
loyalty fractured
• Late 2000s, corporate restructuring
2000s
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Plan A
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2010 - present
• Plan A – very well communicated to employees
• BUT no so well to consumers
• Company perceived to be very inward focused• M&S continues to push forward with product
innovations
• Increasingly out of touch with consumers • Negative perceptions towards design, affordability,
and quality
• Clothing continues to suffer, food not as much
• New (new) management
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• Big Issues in Retailing
• Multiple areas of continuous improvement in
retail
• From ‘source to shelf’
• Internal and external tensions
• Role of founders and leaders
• Managerial support – and organisational buy-in
• Consumer values NOT product driven
Discussion
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Q&A?
Associate Professor Jonathan ElmsThe Sir Stephen Tindall Chair in Retail Management
Director, Centre for Advanced Retail Studies (CARS)