The use of mathematical modeling and sophisticated optimization techniques is reaping financial gains for companies and a better shopping experience for customers in the once-staid fashion retail industry, according to MIT Sloan School of Management Professor Jérémie Gallien. Zara, a leading Spanish clothing chain, recently adopted the analytic approach to inventory distribution developed by Gallien and his collaborators.

Zara, which is owned by Inditex, has long relied on the proven ability of its founder and top designers to sense and anticipate market trends, creating an overall decision-making culture that even more driven by intuition than in other companies, making its implementation of mathematical models especially significant. The company is able to get clothing from concept through production and into its stores in as little as six weeks, compared to the six months or even longer it takes traditional retailers.

Under the "fast fashion" model, product life cycles are much shorter, meaning that customers see a constant turnover of a store's clothing assortment. "If you go to a store such as the Gap, you're likely to see the same items on display two weeks later, if not for the entire season," says Gallien. "But at Zara, if you go two weeks apart, you'll have a much more interesting inventory selection. On the other hand, if you don't buy something right away, you may not see it in two weeks, because the stores don't stock too much of any item."

For this retail strategy to be successful, a retailer must align its total operation, including design, production, customer feedback, and distribution, which could be a challenge for U.S. retailers. Because European retailers such as Zara and H&M are closer to their production sources, they can achieve such alignment more easily. Nonetheless, he says U.S. retailers could create their own fast-fashion brands, possibly turning to Mexico for production rather than places like China or Bangladesh in order to speed up their design-to-shelf leadtime. Provided U.S. consumers would be ready to pay for the fresher product assortments that fast-fashion offers, which remains to be seen, the higher costs of labor could be offset by greater sales due to more frequent store visits by customers and reduced markdowns.
http://web.mit.edu