Friday, August 30, 2019

Forever 21's Possible Bankruptcy: Why Copying Zara is Difficult

Source: USA Today
CNBC reported yesterday that apparel retailer Forever 21 is preparing for a bankruptcy filing.  News reports emphasize the challenges that brick and mortar retailers are facing these days.  Moreover, they note that Forever 21 made a huge bet on building very large stores in recent years.  Both arguments are valid.  Others note that perhaps "fast fashion" is going out of style.   On that last point, I beg to differ.  I don't think the problem is the concept of fast fashion.  I do think that emulating the Zara business model is far more difficult than many competitors recognized.

Zara pioneered the fast fashion strategy many years ago, and it has excelled for many years. Zara has a unique strategy and business model though. For starters, they are vertically integrated, unlike almost any other apparel retailer with whom they compete.  Their unique supply chain strategy is key to their fast fashion positioning, and instrumental to their ability to avoid the deep discounting that has harmed so many apparel retailers. 

Years ago, James Surowiecki wrote a terrific column for The New Yorker about Zara.  He titled the article, "The Most Devastating Retailer in the World."  Toward the end of the article, he explains why it's so difficult to imitate Zara's strategy.  His argument echoes the familiar strategy lessons offered by Michael Porter and Jan Rivkin of Harvard Business School, who have argued for years that imitating a complex, integrated and self-reinforcing system of activities is often very difficult.  Often, competitors don't recognize the need to copy the whole; instead, they identify parts of the model that they try to imitate.  Moreover, rivals often do not understand the "secret sauce" by observing from afar... they only see the observable elements of the model, and they don't see how it all fits together, as well as how the organizational culture and values support the model.   Copying the intangibles often proves incredibly challenging.  How do you even understand the intangible elements of a successful business model?

Here's Surowiecki on the challenge of trying to copy Zara:

"So why doesn't everyone just copy Zara?  They would if they could... Zara is an integrated system, not just a collection of parts.  You can't simply copy elements of the system and expect the same results... After all, it's a lot harder to knock off a two-billion-dollar business model than to knock off two-hundred -dollar pair of pants."  

Of course, Zara too has had to adapt to a changing world that makes life difficult on retailers heavily reliant on brick-and-mortar stores.  Sometimes, modifying or adapting a highly successful, integrated system of activities to a changing environment can be just as difficult as emulating a top competitor.  We shall see how Zara fares moving forward as e-commerce becomes a much more important part of their business.  

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