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OM in the News: Zara’s New Inventory and Logistics Plan

August 8, 2018

The ship-from-store operation inside a Zara store in Spain.

Fast-fashion giant Zara is equipping its stores to also ship online purchases, betting that the move will boost sales of full-priced items that can be delivered to customers more quickly than from a warehouse. The rollout encompasses around 2,000 stores in 48 countries, including the U.S., making it one of the largest-scale attempts by an apparel company to repurpose downtown shops to help fulfill online orders.

Zara’s efforts are part of a broader push among retailers to rethink how they can better use their network of brick-and-mortar stores to compete with Amazon, whose dominance in the retail industry has depressed profits and set new standards for speed of delivery. While some have considered traditional retailers’ vast store networks costly and antiquated, industry executives are increasingly equipping them to fulfill online orders to quicken delivery times, cut delivery costs and lift sales. “There has been a trend lately to think of a store as a liability,” an industry expert said. “It’s an asset—but you need to learn to use it correctly.”

Traditionally, retailers shipped items from warehouses to downtown locations, writes The Wall Street Journal (Aug. 1, 2018). (But warehouses on the outskirts of cities are not as close to consumers as stores are). As online shopping grew, many retailers created inventory lines specifically for internet orders. Retail companies including Zara have been working to merge their inventory for online and in-store purchases rather than keeping separate stocks, to minimize lost and discounted sales. Ship-from-store initiatives are one pillar of efforts by Zara and others to tackle the far bigger problem of mismanaged inventory, which, by one estimate, cost retailers nearly $1.4 trillion in lost sales in 2017. While shipping online orders from downtown stores can lower delivery costs, some retailers have struggled to make it profitable because they lack the technology to track in-store and in-warehouse inventory accurately.

Classroom discussion questions:

  1. How are brick and mortar retail stores an asset?
  2. Describe the inventory problems that firms like Zara are facing.
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