33 fashion retailers spend an average of 35 percent

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[33]Fashion retailers spend an average of 3.5 percent of revenue promotingtheir products, while ad spending at Inditex is just 0.3 percent.[34]Finally, limited production runs allows the firm to, as Zara’s CEO once put it “reduce to a minimumthe risk of making a mistake, and we do make mistakes with our collections.”[35]Failed product in-troductions are reported to be just 1 percent, compared with the industry average of 10 percent.[36]Soeven though Zara has higher manufacturing costs than rivals, Inditex gross margins are 56.8 percentcompared to 37.5 percent at Gap.[37]While stores provide valuable front-line data, headquarters plays a major role in directing in-storeoperations. Software is used to schedule staff based on each store’s forecasted sales volume, with locationsstaffing up at peak times such as lunch or early evening. The firm claims these more flexible scheduleshave shaved staff work hours by 2 percent. This constant refinement of operations throughout thefirm’s value chain has helped reverse a prior trend of costs rising faster than sales.[38]Even the store displays are directed from “The Cube,” where a basement staging area known as“Fashion Street” houses a Potemkin village of bogus storefronts meant to mimic some of the chain’smost exclusive locations throughout the world. It’s here that workers test and fine-tune the chain’saward-winning window displays, merchandise layout, even determine the in-store soundtrack. Everytwo weeks, new store layout marching orders are forwarded to managers at each location.[39]Technology ≠ Systems. Just Ask PradaHere’s another interesting thing about Zara. Given the sophistication and level of technology integration intothe firm’s business processes, you’d think that Inditex would far outspend rivals on tech. But as researchersDonald Sull and Sefano Turconi discovered, “Whether measured by IT workers as a percentage of total em-ployees or total spending as a percentage of sales, Zara’sIT expenditure is less than one-fourth the fashion in-dustry average.”[40]Zara excels by targeting technology investment at the points in its value chain where it willhave the most significant impact, making sure that every dollar spent on tech has a payoff.Contrast this with high-end fashion house Prada’s efforts at its flagship Manhattan location.The firm hired thePritzker Prize–winning hipster architect Rem Koolhaas to design a location Prada would fill with jaw-droppingtechnology. All items for sale in the store would sport withradio frequency identification (RFID) tags(small chip-based tags that wirelessly emit a unique identifying code for the item that they are attached to).Walk into a glass dressing room and customers could turn the walls opaque, then into a kind of combinationmirror and heads-up display. By wirelessly reading the tags on each garment, dressing rooms would recognizewhat was brought in and make recommendations of matching accessories as well as similar products that pat-

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