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Digital transformation of
retail industries: Case in
clothing industries
Berlin School of Economics and Law
Masters of International Marketing Management WS 2015
Supervisors: Prof. Dr. Andrea Plinke
Diplom-Kaufmann Martin Dastig (MBA)
Submission: 25th January 2016
Author: Rashedul Islam
(Student Id: 454070)
i
Table of contents
List of abbreviations ............................................................................................. iii
List of figures......................................................................................................... iv
List of images......................................................................................................... iv
Table ...................................................................................................................... iv
1. Introduction .................................................................................................... 1
1.1 Problem statement ..................................................................................... 2
1.2 Goal ........................................................................................................... 3
1.3 Methodology ............................................................................................. 4
2. Literature review ............................................................................................ 4
2.1 Introduction to digital transformation ....................................................... 4
2.2 Definition of digital transformation .......................................................... 5
2.3 Analysis of clothing retail industries ........................................................ 6
2.4 Analysis of the digital transformation of clothing retail industries .......... 9
2.4.1 Internal digital transformation concerning company’s supply chain .. 10
2.4.1.1 Porter’s value chain ...................................................................... 11
2.4.1.2 The agile supply chain ................................................................. 14
2.4.2 External digital transformation concerning consumer ........................ 16
2.4.2.1 Place ............................................................................................. 17
2.4.2.1.1 Buying process ......................................................................... 17
2.4.2.1.2 Transforming in-store experience ............................................ 17
2.4.2.1.3 Customer service ...................................................................... 18
2.4.2.1.3.1 E-commerce and omni-channel customer interactions ............ 19
2.4.2.1.3.2 Servicing connected devices .................................................... 20
2.4.2.1.3.3 Nurturing customer relationship ............................................... 20
2.4.2.2 Promotion ..................................................................................... 20
2.4.2.2.1 Advertising ............................................................................... 21
2.4.2.2.2 Publicity/ public relation .......................................................... 21
ii
2.4.2.2.3 Visual merchandising and special events ................................. 21
2.4.2.2.4 Video and electronic merchandising ........................................ 22
2.4.2.2.4.1 Social media ............................................................................. 22
2.4.2.2.4.2 Word of mouth (WOM) ........................................................... 23
2.4.2.2.4.3 Mobile and computer technologies .......................................... 24
3. The case study of Zara: Facts and findings ............................................... 24
4. Discussions and conclusions ........................................................................ 29
4.1 Discussions ............................................................................................. 30
4.2 Conclusions and recommendations ......................................................... 37
4.3 Limitations and further research ............................................................. 39
Bibliography ......................................................................................................... 41
Appendix ............................................................................................................... 51
iii
List of abbreviations
ERP Enterprise Resource Planning
CEO Chief Executive Officer
US United State
RFID Radio Frequency Identification
TV Television
QR
CODES
Quick Response Codes
CRM Customer Relationship Management
IOT Internet of Things
WOM Word of Mouth
USP Unique Selling Proposition
POS Point of Sale
DSN Digital Supply Network
R&D Research and Development
iv
List of figures
Figure: 1 Digital readiness among enterprise organizations.................................... 5
Figure: 2 Clothing market demand in worldwide .................................................... 7
Figure: 3 Fashion retail in 2014 ............................................................................... 8
Figure: 4 Demand pyramid ...................................................................................... 8
Figure: 5 Household consumption on clothing in the European Union in 2013 ..... 9
Figure: 6 Digital transformation .............................................................................. 9
Figure: 7 Porter’s value chain ................................................................................ 12
Figure: 8 Lean or agile approach ........................................................................... 15
Figure: 9 Agile supply chain.................................................................................. 15
Figure: 10 Transforming customer service: Omni-channel retail.......................... 20
Figure: 11 Social media users in Worldwide ......................................................... 23
Figure: 12 Zara’s global distribution ..................................................................... 27
Figure: 13 Zara products manufactured in Worldwide .......................................... 27
Figure: 14 Consumers’ buying preferences ........................................................... 33
List of images
Image: 1 iBeacon…………………………………………………….…………..18
Image: 2 Primark digital store………………………………………..……….…18
Table
Table: 1 Overview of the US apparel market in 2015…………………………….6
1
1. Introduction
Digital transformation is a key element of any kind of business in this digital age
where the buying behavior of customers is changing dramatically. Clothing indus-
try is one of the biggest players in the global economy and has a huge impact on
the world economy (Singer, 2015). Therefore, digital transformation is more im-
portant in clothing retail business than in other retail industries in order to boost
customer engagement where customers are more involved. Apparel and textile are
among the world’s largest industries: the total global apparel exports were worth
approximately US$412 billion and global textile exports were worth US$294 bil-
lion in 2011 (Fashionunited, 2015). Clothing industry has been changing faster
than any other industry in the digital era (Spears, 2014). Today’s customers are
more conscious about fashion and trend than a few years ago. Customers are will-
ing to pay more money for quality products and services whether they find it
online or in brick and mortar stores. Therefore, clothing retailers have to be con-
cerned about customer demands and be up to date with the new technologies.
According to Terrar (2015), “Digital transformation is the process of shifting your
organization from a legacy approach to new ways of working and thinking using
digital, social, mobile and emerging technologies. It involves a change in leader-
ship, different thinking, the encouragement of innovation and new business mod-
els, incorporating digitization of assets and an increased use of technology to im-
prove the experience of your organization’s employees, customers, suppliers,
partners and stakeholders” .
Countries like Germany, America, United Kingdom, and China; it is very signifi-
cant for retailers to pursuit with digital transformation. In these countries retailers,
face fierce competition from competitors not only from their home country but
also from all over the world. Germany is the leading strongest European economy
and has a huge impact on European economy (Fox, 2014). Therefore, clothing re-
tailers all over the world have to be conscious about new trends and innovations in
these countries. Digital race has already started and it is at the starting point of
digitalization (Kreutzer and Land, 2014a, p. 38). Retailers have to be careful
which trends and innovations customers give more feedback about digitalization.
2
Without adapting suitable innovations or trends retailers would not be able to
achieve customers’ engagement or customer retention.
Nevertheless, executives from all retail industries are trying to optimize digital
opportunities in their business such as analytics, mobility, social media and smart
embedded devices. These are also remodeling their use of technologies such as
enterprise resource planning (ERP) to change value propositions, customers rela-
tionships and internal processes (Westerman et al., 2011). Furthermore, customers
are always looking for new technologies, innovations, and new offers, where they
can purchase on their selected products without any difficulties and time con-
sumption. However, digital transformation can create new opportunities for busi-
ness models (Berman, 2012, p.16-24). Therefore, companies should be careful
about disrupting technologies and current trends. The world foremost clothing
companies are trying to manipulate digitalization on their business model. For ex-
ample- Zara, H&M, Burberry, Primark, Wal-Mart, Tommy Hilfiger, Debenhams
etc. are using ongoing trends and technologies for their business models.
1.1 Problem statement
In this digital era, many new trends and technologies are adapted by the clothing
industries which have an impact on the turnover of companies. Therefore, it is still
unclear for companies which trends and innovations are suitable for clothing re-
tailers. It is really difficult to predict which trend is perfect for companies and
which can provide higher customer engagement and profit for the company. In
apparel industry, supply chain is very crucial to create competitive advantages for
company. Marketers have to identify which supply chain can create more value
for company centralized or decentralized? In clothing industries, marketers are
adapting new trends and technologies in their existing business model to get more
customers loyalty and retention towards make company lucrative. Especially in
clothing industries it is not easy to adapt new trends and innovations because eve-
ry year new technologies are implemented in clothing industry. Clothing industry
is a competitive market where marketers face huge competition from other com-
petitors globally. The clothing companies also face huge challenges to be digital-
ize and do not know which initiative they should take. Therefore, clothing retail-
ers have to identify the trends and technologies which can boost their profit and
3
customer relationships. In the clothing industry, supply chain has a huge impact
on the company’s turn over. The company has to identify how the supply chain
can be more effectively manipulated in terms of new technology.
1.2 Goal
The goal of this thesis is to show how clothing retailers could manipulate disrupt-
ing technology in their business models. Why clothing retailers are more affected
rather than other retail industries? How could clothing retailers manage digital
transformation and achieve more customer engagement? How are clothing retail-
ers manipulated by their supply chain in terms of digitalization? This thesis will
analyze the ongoing trends of clothing retail business all over the world. This the-
sis will clarify how the leading clothing retailers are operating digital transfor-
mation in their business models. Therefore, a case study is presented after the lit-
erature review. Furthermore, in the analysis part clarifies the current market situa-
tion, how big the market is, the leading retailers and the impact of social media,
online marketing, and omni-channels in retail business. It is also describes how
retailers, customers, and stakeholders would benefit from using these channels
and new technologies.
Indeed, retailers face many challenges to adapt new technology particularly small
sized retailers. In discussion part it will be identified what challenges company
face to be digitalized and what initiatives should take to manage it. The last sec-
tion of this thesis outlines the problems faced by clothing retailers and how cloth-
ing retailers could solve them and improve customer relationships. Therefore, rec-
ommendations provided for the clothing retailers which would be adaptable in
business models.
Research Question
How are clothing retail businesses affected by digital transformation and how it is
significant to companies?
Sub-questions
o How can a supply chain create a competitive advantage?
o Why do retailers face challenges to the implementation of digital
transformation?
4
o What initiatives should a company implement to manage digital
transformations?
1.3 Methodology
This thesis is formulated on the theoretical basis of the digital transformation of
retail business by Rajagopalan who specially defined digital transformation in re-
tail business (Rajagopalan, 2015). Secondary research was conducted to screen
the current situation of digital transformation in retail business. In terms of digital
transformation, the case study of Zara, which is one of the leading clothing com-
panies in the world, is discussed in this thesis. Meta-analysis was conducted to
expose ongoing trends on digital transformation, relevant academic journals, arti-
cles and web sources were used to create a scenario of digital transformation in a
business model. In addition, ongoing trends like social media, omni-channels,
online marketing, mobile marketing, analytics and supply chains are discussed
later in this thesis. This thesis discusses how ongoing trends can impact a retail
business model and the importance of digital innovation.
2. Literature review
2.1 Introduction to digital transformation
Digital transformation is nowadays a very hot topic in the clothing industries.
Since the second industrial revolution it has been implemented into every retail
business sectors. We are now facing the so called “third industrial revolution”,
where digitalization is the key to business success (Berman, 2012, p.16-24). The
implementation of digital transformation sometimes affects large parts of organi-
zations and even go beyond their borders, by affecting products, supply chains,
sales channels and business processes (Matt et al., 2015, p.339-343). As a result,
retail business models can be reshaped or replaced in terms of digitalization
(Downes and Nunes, 2013, p.44-56). The key to digital transformation in retail
business is optimizing and changing how the company operates new technologies
and trends (Westerman et al., 2011). It means not only implementation of new
technology but also the advantages technology provides and how retailers recipro-
cate with customer (Bloomberg, 2014). Social media, internet, and mobile devices
have revolutionized the retail customer experience where customers can do re-
5
search and buy anytime and anywhere (Hansen and Sia, 2015, p.51-66). In retail
industry, the latest appearances of digital transformation are mCommerce (mo-
bile) and sCommerce (social) which has already adapted (Bonnet and Ferraris,
2012). E-commerce is the dominant players in retail industry (Guppta, 2015).
Digital transformation is changing the habits of how people exchange and utilize
content with new technologies (Lanzolla and Anderson, 2008, p.72-76). Digital
transformation involves redesigning of the business model to take the advantage
of digital transformation rather than adapting new technology (Trends Magazine,
2015, p.1-6). Research showed 14% of organizations are digital transformers and
only 21.5% of enterprises are considered innovators in the digital space and 46%
are considered to be weak and inconsistent in their digital implementation which
is shown in Figure 1. Many companies are using digital channels in an opportunis-
tic and shortsighted way. They are inconsistent in the adaptation of digital trans-
formation in their business.
(Source: Claxton, 2015)
Figure: 1 Digital readiness among enterprise organizations
2.2 Definition of digital transformation
According to Dorner and Edelman (2015), digital transformation is “Creating
value at the new frontiers of the business world, create value in the processes that
execute a vision of customer experiences and building foundational capabilities
that support the entire structure”.
6
“The re-alignment of, or new investment in, technology and business models to
more effectively engage digital consumers at every touch point in the customer
experience lifecycle” (Solis et al., 2014).
From those definitions it is clear that the digital transformation is how executives
can execute their business model for get more customers’ engagement and rela-
tionship with existing technology and upcoming trends. Digital transformation is
not only the implementation of new technologies and innovation but also the
proper use of technologies and trends.
2.3 Analysis of clothing retail industries
Clothing retailers from all over the world are facing a huge challenge of digital
transformation. Clothing retailers are not only dependent on store retail but also
on online retail. Nowadays, ecommerce is a very crucial part of clothing business.
A few years ago they just try to implement multi-channel customer segmentation
but nowadays they are doing omni-channel retailing to achieve higher customer
engagement. Nevertheless, currently retailers are trying to manipulate their market
segmentation using omni-channel. The value of global apparel market was
US$1.7 trillion in 2012 and it employed approximately 75 million people (Fash-
ionunited, 2015). Many people are employed by the clothing industry and it is the
main source of income for many families. Therefore, clothing retailers have to be
more conscious about digital innovations and trends which can contribute to the
optimization of technology. Clothing market demand globally estimated from
2011 to 2018 shows in Figure 2. The estimated clothing demand in Asia and Aus-
tralia between 2011 and 2018 is almost nominal US$350 million. In North Ameri-
ca and Western Europe, the clothing demand has been predicted to be stable be-
tween 2015 and 2017. Figure 2.0 shows that the globally clothing industry experi-
ences a huge demand.
7
(Source: Cheng, 2015 adapted)
Figure: 2 Clothing market demand in worldwide
An overview of the US apparel market in 2015 is shown in table 1. The value of
the apparel market in the US was US$225 billion and half of it from women’s ap-
parel.
(Source: Statista, 2015a)
Table 1 Overview of the US apparel market
Women are the most significant customer segment in apparel industry not only in
the US but also all over the world. Figure 3 shows fashion retail in 2014, where
40% of consumers say they love to buy clothes and 22.7% consumers have
primarily used online channels to buy clothes.
0
50
100
150
200
250
300
350
400
2011 2015 2018
Clothing: Market demand in worldwide
(nominal US$ million)
Asia and
Australia
Western Europe
North America
Latin America
Economies in
transition
Overview of US apparel market value
Size of US apparel market $225b
Sales of women apparels in US $110,826m
Price per apparel article in US $19
Clothing store sales in US $178.52
8
(Source: Carter and Parsons, 2014a, p.5 adapted)
Figure: 3 Fashion retail in 2014
The clothing and accessories market has been predected to grow by 19 percent
between 2012 and 2017 (Carter and Parsons, 2014b, p.7). Customers’ demand for
fashion industries’ which is called demand pyramid is shown in Figure 4. The
demand pyramid shows different types of demand for fashion products, fashion
basic products and basic products.
(Source: Daspal, 2015)
Customers show a very high demand for fashion products, high demand for
fashion basic products and moderate demand for basic products. Figure 5 shows
the household consumption of clothing in European Union in 2013, which varied
40% love shopping
for clothes
22.7 % used
online channels to buy clothes
30% shoppers willing to spend on clothing
£75bn online fashion sales by
2017
£46bn clothing market
value by 2017
71% shoppers decisions are driven by price
Fashion Retail 2014
Figure: 4 Demand pyramid
High
Very High
Moderate
fashion
product
fashion basic product
basic product
9
in different countries. Germany has the highest household expenditure in
European Union (about 62.8 billion euros in 2013). It showed the demand in all
countries has dramatically increased.
(Source: Statista , 2015b adapted)
Figure: 5 Household consumption on clothing in the European Union in 2013
2.4 Analysis of the digital transformation of clothing retail industries
From the all what was discussed previously it is clear that clothing retailers have a
tremendous global importance. Therefore, digital transformation has had a huge
impact on clothing retail business. Clothing industries are affected by many ongo-
ing trends which are clarified in this chapter. In clothing industries, digital trans-
formation is affected by internal and external digital transformation which is
shown in Figure 6 below.
Figure: 6 Digital transformation
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000
Germany
France
Austria
Denmark
Romania
Slovakia
luxemburg
Cyprus
Household consumption on clothing in the
European Union in 2013 - in million euros
10
2.4.1 Internal digital transformation concerning company’s supply chain
Internal digital transformation is a type of transformation that has a direct impact
on the company. The company’s supply chain is the heart of its portfolio, which
directly affected by the internal digital transformation. Supply chain is basically
impacted with internal digital transformation where production, distribution, pur-
chase and sales are connected with each other. All the processes are directly link
with internally in company. Every company should have a flexible and managea-
ble supply chain, which lies at the heart of the company. Without a transparent
supply chain the company cannot run its business in comfortable way which pro-
vides company turnover and customer awareness. An efficient supply chain can
reduce costs and increase profit. In the digital era, the supply chain is also affected
by the digital transformation where marketers want to integrate new technology in
supply chain to be more efficient in production. Clothing retailers want to adapt
new technology in their existing supply chain to be more effective production and
distribution process.
Clothing retailers have to reinvent their supply chain and reimaging supply chain
as a digital supply network (DSN) (Accenture Strategy, 2016). Digital supply
chain is more involved, intelligent, flexible and agile in productivity. Digital sup-
ply chains can ensure superior collaboration and extensive accesses to infor-
mation, as well as agility, effectiveness, and reliability in the running of the com-
pany process (Rajagopalan, 2015). Better understanding of supply chain manage-
ment is the key to achieve and maintain competitive advantage for the company
(Lyons and Ma’aram, 2014, p.1911-1925). Supply is not only a source of inputs
or services but also an integral source of added value (Massow and Canbolat,
2014, p.1940-1955). To increase the company’s competitiveness, is not only nec-
essary to improve company’s efficiency with enterprise, but also to improve the
entire supply chain management (Kuo et al., 2014, p.266-280). To obtain com-
petitive advantage, the supply chain has to be optimized in accordance with new
technologies and customer experiences (Chopra and Meindl, 2016, p.18).
In clothing industries, supply chain could be centralized and decentralized. In cen-
tralized supply chain, all the decisions makes by purchasing department and exer-
cise control over purchasing throughout the company (Enporion, 2009). It means
that all decisions are taken by company. Centralized supply chain can save mon-
11
ey, time and easier to manage logistic demand concerning suppliers and manufac-
turer (Procurement Bulletin, 2012). On the other hand, a decentralized supply
chain, all decisions and activities are executed by the local business unit (Enpori-
on, 2009). In decentralized supply chain, retailers are distinct from the manufac-
turer and emulate with each other (Shao et al., 2013, p.151-163). Decentralized
decision-making can raise the execution of a supply chain (Belavina and Girotra,
2012, p.1-33). Decentralized supply chain not only yields suppliers and retailers
decisions under stability with resembling profits but also manage the economics
that ascertain company’s provoking and interactions in terms of supply risk (Qin
et al., 2014, p.255-279). Decentralized setting is the success of supply chain part-
ners which depends on their capability to coordinate production and purchasing
decisions to fit supply with demand (Tang et al., 2014, p.1198-1211).
The output of supply chain is a combination of a physical product, time, place,
form, and function of a product or service proposition (Zhelyazkov, 2011). There-
fore, to have a real impact on supply chain in a clothing company, it is important
for the company to think of the value chain process. This thesis is discussed Por-
ter’s value chain and Agile supply chain because it is very significant for clothing
industries. Porter’s value is much related with this thesis. By using value chain,
companies are able to measure their entire business model. Therefore, it has been
discussed below:
2.4.1.1 Porter’s value chain
Value chain was developed by Michael Porter (1985) as a company tool for as-
serting ways to create more customer value and competitive advantage (Gustafson
et al., 2004, p.19). Value chain can reduce costs and create competitive advantage.
Using value chain clothing retailers are capable to produce products with less cost
than the market price.
12
(Source: Gustafson et al., 2004, p. 19)
Porter’s value chain consists of five primary activities and four supporting activi-
ties which discussed below.
Primary activities
Primary activities operate directly to create value for customers. The primary ac-
tivities are as follows:
Inbound logistics
Collections of the supply of raw materials or goods by the firms have direct im-
pacts on business. Clothing retailers have to collect raw materials from different
sources to create new products.
Operations
After managing raw materials it need to be different inputs into finish goods or
products. In this process, all products or raw materials used by the company are
verified. In clothing industries, it has to be clarified all materials before used.
Outbound logistics
All products are verified for shipping out such via order fulfillment and warehous-
ing. After that products are ready to be sent to different destinations.
Figure: 7 Porter’s value chain
13
Marketing and sales
In this process, the firm is able to provide goods or services that customers are
willing to buy. Companies provide information about their products and services.
Marketing is a crucial part to sale company products. Potential customers are able
to know to about product via different marketing activities. Companies should use
different digital platforms to sale their products and services they provides. In this
digital age, online marketing, mobile marketing, and social media are very essen-
tial marketing tools for companies.
Service
Service that allows the companies to maintain and enhance the value for products
in order to customer support, repair services, etc. It has huge impact in business.
Without providing good service company are not able to make profit maximize. In
this digital age, customers are looking for faster and flexible service from the
marketers.
Supporting activities
Supporting activities are indirectly related to firm which is also called secondary
activities. Primary activities are facilitated by supporting activities.
Procurement
Procurement is the combination of inputs, resources or raw materials, spare parts,
buildings etc. belonging to firms. It involves all kinds of acquisitions by the com-
pany. In clothing company have to be combine all resources from different desti-
nation.
Technology development
It involves technology to support the value chain activities such as R&D, new
hardware, and software in the firms’ transformation of inputs into outputs. In
clothing industry, companies have to be developed digital technologies on their
business model which can create brand awareness.
Human resource management
Human resource management consists of recruiting, hiring, training, developing,
retention of employees and managers as their compensations. Empowering is one
14
of the key element of today’s’ business success. Therefore, human resource man-
agement department have to recruit efficient and innovative employees and some-
times they have to change management in order to company demand. Human re-
source management department are responsible for changes concerning employ-
ees from higher level to lower level in terms of increase company productivity.
Firm infrastructure
It ties all parts together to serve the companies’ need. It involves the functions or
departments such as general management, planning, finance, legal, public relation,
government relations, accounting, and quality assurance. All the departments have
to work together like a team.
2.4.1.2 The agile supply chain
Different types of supply chain model are available but this thesis found more
convenient with agile supply chain which is much related with clothing industry.
Agile supply chain can makes agile in clothing supply chain. According to My-
erson (2014), “An agile supply chain must be to actual demand, and capable of
using information as a substitute (to some degree) for inventory through collabo-
ration and integration with key customers and suppliers”. Companies with agile
supply chain practice have more service levels than their competitors which are
not using agile supply chains (Dubeauclard et al., 2015). Figure 8 below shows
whether a company needs lean or agile supply chain. The figure suggests that
three proportions of variety, variability (or predictability), and volume are critical
for the perception of the type of approach (Christopher, 2000, cited in Gustafson et
al., 2004, p.27).
15
(Source: Christopher, 2000, cited in Gustafson et al., 2004, p.28).
Figure: 8 Lean or agile approach
“Agility” is required in less predictable environments where demand is volatile
and the requirement for variety is high (Christopher, 2000, cited in Gustafson et al.,
2004, p.28). “Lean” works best in high volume, low variety, and predictable envi-
ronments (Christopher, 2000, cited in Gustafson et al., 2004, p.28).
Agile supply chain can be characterized by four distinguishing marks presented in
Figure 9 below. The agile supply chain is a process where a company can operate
its supply chain in very fast and efficient way as shown in Figure 9.
(Source: Christopher, 2000, cited in Gustafson et al., 2004, p.28).
Figure: 9 Agile supply chain
Agile
Lean
Agile supply chain
Virtual
Prrocess integratio
n
Network based
Market sensitive
High
Varie-
ty/variabili
ty
Low
Low
Volume
High
16
Agile supply chains help companies to operate in an increasingly volatile global
economic climate. Four essential marks which make it agile as followed:
Market sensitive
Being market sensitive means that the supply chain can respond to a real demand
of inventory, raw materials from previous sales or shipment. Companies are able
to obtain data on demand directly from the point-of-sale (POS).
Virtual
By using information technology to exchange data between buyers and suppliers,
a virtual supply chain is created. Partners can act upon the same data by using in-
ternet and electronic data interchange. Supply chain collaborates with buyers and
suppliers, joint product development, common systems and shared information to
collaborative work. Virtual supply chains are information based rather than inven-
tory based.
Process integration
Process integration has become essential because companies focus on core com-
petencies and outsource their other activities. The dependency of process integra-
tion on suppliers or partners becomes unavoidable.
Network based
This concept of the supply chain as a confederation of buyers and suppliers linked
together as network provides the fourth ingredient of agility. In this digital era,
prizes will go to those firms who can better structure, co-ordinate and manage the
relationship with their partners in a network committed to better, closer and agile
relationship with customers.
2.4.2 External digital transformation concerning consumer
External digital transformation has a direct impact on consumers. Consumers are
deeply involved in the internal digital transformation of clothing companies. This
thesis not discussed all 4 P’s of marketing mix concerning distribution channels.
This thesis discussed only place and promotion as a distribution channel which
has more impact on digitalization in clothing industries concerning consumers.
Place and promotion are more digitalized than product and price. Product and
price are less related with digital transformation in terms of digitalization in cloth-
ing industry. However, product and price are also distribution channels like place
and promotion but this thesis is not focused on textile digitalize product. Though,
17
textile is a part of clothing industries. How consumers are affected by external
digital transformation is discussed below.
2.4.2.1 Place
Place is very significant in this digital era where consumer buying behavior is in-
terconnected with companies. Therefore, place plays an important role in clothing
industries. The following consumers behaviors are affecting by digital transfor-
mation which in linked with place discussed below:
2.4.2.1.1 Buying process
Buying process is related with externally and internally with companies and con-
sumers. Here it discuss concerning external relationship concerning consumers.
Marketers want to involve customers in the buying process in order to find out
their demands and personalized assortments. By using digital technology like
RFID, IoT, social media and so on, clothing retailers can receive real time updates
about customer satisfaction (Rajagopalan, 2015). In this digital era, marketers
have to find ways to make the buying process easier for potential customers
(Barnes, 2015). To obtain a better understanding of the customer, marketers have
to understand customers’ online habits and purchasing habits. It is quite difficult
to predict which new platforms and technologies become mainstream from the
customer perspective (Abidi, 2012). For instance, social media and online plat-
forms are nowadays very popular as buying platforms.
2.4.2.1.2 Transforming in-store experience
Stores today are more than sales channels. Therefore, marketers should have more
concern about their store. To achieve customer engagement, marketers should
provide different kinds of service which has more customer preferences. In this
digital era, marketers provide different touch points to offer information about
products and services in terms of create brand awareness and customer retention.
Companies, thus provide to creative digital experiences to ensure a connected and
involving in-store experience. Digital transformation in-store occurs when mar-
keters offers custom-made experiences to customers through a convergence of
abundant innovations – for instance, analyzing customer preferences in terms of
behavioral analytics, or detecting customer location in store and delivering con-
text-aware, personalized promotions on mobile devices (Rajagopalan, 2015). By
using interactive digital displays, digital touch points, mobile applications, digital
18
catalogues, iBeacon, RFID, QR Codes, or virtual in mirrors-fitting rooms,
customers can easily find what they need and want (Piotrowicz and Cluthbertson,
2014, p.5-16). Marketers try to be more felxible inorder to provide a comfortable
show-rooming experience or to achieve customer retention and loyalty.
Image: 1 iBeacon (see Appendix) Source: Author’s illustration
Primark is one of the leading clothing companies and it uses digital displays and
digital design in their new flagship store in Madrid along with sophisticated store
decorations to achive a higher customer engagement (Digital Sinagetoday, 2015).
(Source: Retail Design Blog, 2015)
Image: 2 Primark flagship store with digital design
2.4.2.1.3 Customer service
The most obvious aspect of the digital age is not only a shift caused by the new
technology but also a shift in the customer behavior (Rajagopalan, 2015). Cus-
tomers are different from each other. Therefore, they have different demands in
different situations. Marketers have to be provided seamless experience to in-
crease customer satisfaction about their products and provided services. In the
19
clothing industries, customers are more involved than in other industries. Custom-
er service has a huge impact on the clothing companies. Consumers are willing to
pay more money for affordable customer service (Shpanya, 2014). In this digital
era, where technology, society, and business models evolve, the customer is the
king (Solis et al., 2014). According to Hoong (2019, modified), customer services
are as outlined below:
2.4.2.1.3.1 E-commerce and omni-channel customer interactions
E-commerce is growing day by day and connecting more consumers confined to
online shopping (Ternstrand, 2015). E-commerce has created the opportunity for
the clothing industries to increase sales and create more facilities for traders and
marketers to enter the markets around the world (UKEssays, 2015a). Online shop-
ping is increasing day by day due to the available convenience and range. Online
shopping changes consumers’ perception and shopping behavior, which has influ-
enced companies (B2B Source, 2014). Online shopping has a profound effect on
the clothing supply chain (Parthsarthi, 2011). Customers prefer to have a complete
availability of products and as fast home delivery as possible at a tiny cost or
without cost (B2B Source, 2014). In 2014, online sales reached £5.6bn globally
and grew by 185% between 2007 and 2012 (Carter and Parsons, 2014c, p.12).
Omni-channel retailing is the future of e-commerce (Ternstrand, 2015). Therefore,
using single channel approach is not enough to achieve customer loyalty.
Customers are always looking for seamless shopping experience via online and
offline channels, which is very challenging (Hansen and Sia, 2015, p.51-66). Om-
ni-channel retail is vital for integrated retail experience because customers use
three or more channels for their daily shopping (Carter and Parsons, 2014c, p.12).
Because of this, marketers have to be careful to not use only one channel to sell
their products. How customer service are transforming from single channel to
omni-channel shows in Figure 10. Omni-channel approach in customer service
provides convenient and seamless experience, where customers can interact with
different channels to mak further decisions concerning products or services they
want.
20
(Source: Hoong, 2019, modified)
Figure: 10 Transforming customer service: Omni-channel retail
2.4.2.1.3.2 Servicing connected devices
Companies are trying to connect with different dives to increase customer service
towards services revenues. For instance, Canon and British Gas offer their
customers higher value add services shifting further away from simple product
(Hoong, 2019).
2.4.2.1.3.3 Nurturing customer relationship
Customer relationships involves not only millennials engaging on social media
but also the creation of relationship between the company and the customer who
buys its products. Therefore, customer relationship management (CRM) plays an
important role in the organization. The traditional notion of customer relationship
management is challenged by the rise of social media (Malthouse et al., 2013,
p.270-280). It involves the development of relationship between individuals, a
group of individuals, or company (Kreutzer and Land, 2014b, p.163). CRM is a
strategic approach which marketers use to establish how to optimize customer be-
havior (Greenberg, 2009). To gain customers, market insight and profits compa-
nies use CRM to maximize customer relationships via social media platforms
(Goldenberg, 2015).
2.4.2.2 Promotion
The aim of apparel promotion is to make potential customer interested in particu-
lar products or designs which they want to buy. Marketers want customers to feel
as if they can provide the latest products and services. Clothing industries are try-
ing to take an advantage of investments they have made previously to understand
niche market segments and improve their business portfolios. Companies like Za-
ra and H&M work with designers and celebrities to increase the emotional content
of their offer. They try to participate in different market segments. Leading cloth-
ing companies also try to hire celebrities as brand ambassador to retain customers
Single- Channel
Face-to-face
Multi Channel
Web and email
Omni-channel
combination of different channel
21
and increase brand awareness, which is crucial for business portfolio. Clothing
companies use catalogues and newsletters, which customers can receive by email
at certain times to get the information about the latest products and services.
Clothing companies use advertising, publicity/public relation, visual merchandis-
ing, special events, video and electronic merchandising to promote their products
(Goodheart-Willcox, 2015). Clothing retailers are not using only one channel to
promote their products; they are using different promotional channels which dis-
cussed below:
2.4.2.2.1 Advertising
In apparel industries, advertising is a crucial part of promotion. Therefore, digital
advertising is a vital part of apparel industries. Advertising is a paid promotional
function by a specific sponsor. Advertising can be used via different platforms
such as TV, radio, newspapers, and magazines. Clothing companies have also
adopted innovative approaches to claim their place and enhance customer rela-
tionships. Indeed, In this digital era, clothing industries are using not only chan-
nels which discussed but also using digital platforms to advertise their products,
such as mobile, responsive web design, social media and video, online ads and
blogs (Ozbay, 2013).
2.4.2.2.2 Publicity/ public relation
Public relations play a vital role in clothing industries. Publicity is a non-paid
promotion, which can inform about the product and services of the company via
different platforms, for instance, a layout of photographs in a fashion magazine
which shows the manufacturer’s collection. It is the task of the public relation de-
partment to achieve more publicity. Indeed, all activities regarding name, brand,
press, blog, social media, image, and magazine credits belongs to public relations.
Public relations have huge impact on the clothing industries regarding customers’
retention in terms of using social media platforms. Public relations in clothing
sector have been digitalized dramatically by using social media platforms.
2.4.2.2.3 Visual merchandising and special events
Visual merchandising and special events are attractive and presentable products in
an attractive and understandable manner. Visual merchandising shows how prod-
ucts are displayed in a store and how they look like. It is a key to get the custom-
22
ers awareness of certain products and it can increase sales. Visual merchandising
has special effects such as moving parts, lights, and color. For example, luxury
brand Burberry uses “magic mirrors” that transforms into a screen and show a
film of how the garment was made and what it looked like on the catwalk (Dacre
and Urwin, 2012).
2.4.2.2.4 Video and electronic merchandising
Video and electronic merchandising uses videos and electronic platforms in retail
stores to display new apparel trends and innovations to promote merchandise and
increase customer traffic and engagement. Marketers try to set videos on their
store about their new products and sometimes they put music as well to boost cus-
tomer awareness. Indeed, in this digital era electronic merchandising is more sig-
nificant rather than video merchandising. Clothing retailers are using different
electronic merchandising for instance social media, mobile and computers tech-
nology and e-mail. Those are the very vital way to get more customers traffic. The
most useful electronic merchandising is discussed below:
2.4.2.2.4.1 Social media
Clothing industry is perfectly suited and naturally fitted for social media (Ahmad
et al., 2015, p.1-7). Social media is a one of the most powerful platforms that can
be used to increase customer engagement (O’Brien, 2014, p.31-32). The im-
portance of social media has been growing day by day. Over the last decade, so-
cial media have not only been used in marketing but have also provided vast op-
portunities for the marketers to create brand awareness to their potential custom-
ers. Social media can help to create good relationships between customers and
marketers. The significance of social media has changed the world, and their way
of functioning has brought people closer to the marketers (Ahmad et al., 2015 p.1-
7). Social media are more significant platforms for clothing retailers and by using
social media customers can obtain lots of information about the marketer’s activi-
ties.
Therefore, marketers are using different social media like Facebook, Twitter, In-
stagram, Skype, Pinterest, Baidu, blogs, articles and so on to get customer en-
gagement. The number of social media users in 2015 which shown in Figure 11. It
can be seen from the graph that a huge number of consumers are using different
23
social media platforms in their daily life. Facebook is the most popular social me-
dia platform and had more than 1,500 million users in 2015; 1.5 million business-
es have set up their own Facebook fan page for brand communication purposes
(Xie and Lee, 2015).
In terms of social media users marketers might be able to know their status on the
basis of customer satisfaction. They might have negative comments or positive
feedback from customers about their products or services they provide. Therefore,
marketers are able to improve their product or services if customers have com-
plained.
(Source: Statista, 2015c)
Figure: 11 Social media users in Worldwide
2.4.2.2.4.2 Word of mouth (WOM)
Word of mouth (WOM) is a very powerful driver of consumer behavior by con-
sumers obtain information about products and services through using different
social media platforms (Fulgoni and Lipsman, 2015, p.18-21). Marketers have
used word of mouth (WOM) publicly and anonymously in different interactive
media platforms such as social media, e-mails, web forums, YouTube, and blogs
(Levy and Gvili, 2015, p.95-109). Consumers are always influenced by opinion
leaders, friends, and family, who communicate via WOM. WOM drives 13% of
consumer sales, 2/3 of which arises from offline activity and 1/3 online activity
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Face
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Wh
atsA
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Facebook…
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Ch
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Inst
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Twit
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Social Media users WorldWide (in millions)
Socila media usersworld wide
24
(Levy and Gvili, 2015, p.95-109). Nearly 70% of all buying decisions were influ-
enced by WOM ( Thorbjornsen et al., 2015, p.73-80).
2.4.2.2.4.3 Mobile and computer technologies
Mobile technologies and computers are nowadays crucial part of clothing indus-
tries. Smartphone users are predicted to increase from 1.6 billion in 2013 to 5.6
billion in 2019 and 90% of people in the world’s will have access to use fast mo-
bile internet connections (Yee and Heutger, 2015, p.5). Without mobile and com-
puter technologies it is impossible to imagine any organization. Technologies play
a major role in the clothing industries. Apparel retail industry has been changed
by mobile apps (Camilleri, 2012). Mobile apps have a huge impact on clothing
industries. Mobile technologies have become the key factor to differentiate com-
pany products from their competitors (Weng and Lin, 2015, p.223-232). Mobile
technology delivers marketers to prolong the reach of companies existing services
for instance- delivering coupons to mobile devices (Karaatli et al., 2010, p.75-86).
Mobile marketing has created new opportunities for companies to improve rela-
tionships with their target group in an efficient way (Smutkupt et al., 2010, p.126-
139). Clothing retailers are seeking to formulate a mobile experience that satisfies
the demands of potential shoppers (Spears, 2014). By optimizing mobile technol-
ogies, marketers can achieve higher customer engagement. By using a
smartphone, consumers can search and explore new products, take pictures of
specific products they like, scan bar codes, upload digital coupons and make a fi-
nal decision about those specific products. Smartphone’s are turning into smart
terminals or holistic control and navigation instruments for online and offline
world (Kreutzer and Land, 2014c, p.15). It has dramatically changed the purchas-
ing behavior of customers. Customers can do shopping and able mobile banking
via mobile apps.
3. The case study of Zara: Facts and findings
The case study of Zara describes how it has become one of the leading clothing
companies in the world. This case shows how a clothing company can optimize
digital transformation in their business model. This case introduces a fast-
response global supply chain, and production and retail network.
25
Background
Zara was founded by Amancio Ortega in Spain in 1975 (SCM Globe, 2015). The
company started retail operation in all the major cities of Spain during 1980s and
in 1985s, the retailer was recognized as part of a group called Industria de Diseno
Textil (Inditex) (Ferdows et al., 2003, p.62-66). Zara opened its first overseas
store in 1988 in Porto, Portugal. Afterwards, Zara opened another two store in
New York in 1989 and in Paris 1990 (Ferdows et al., 2003, p.62-66). The actual
foreign expansion took place 1990s when Inditex entered 29 countries in Europe.
Inditex does not only operate Zara and has diversified its retail by create new
brands, for instance, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, in order
to increase customer engagement. More than 140,000 critical-thinking profession-
als are currently working for Inditex (Inditex, 2015b).
Zara is the biggest Inditex division and accounts for more than 75% of the total
Inditex sales (Ferdows et al., 2003, p.62-66). Zara has become one of the most
recognized apparel brands worldwide and one of the leading fashion retailers
(Helm, 2008; Caro et al., 2010). Inditex is one of the largest fashion retail groups
in the world with several brands and over 6,700 stores in 88 markets; and it made
€18.12 billion euro revenue in 2014 (Inditex, 2015a). Zara has over 2,000 stores
strategically located in leading cities across 88 countries (Zara, 2015). Zara made
$14.8 billion in revenue in 2015 (Forbes, 2015). Zara’s designers are directly
linked with their customers. It has a specialist team for receiving constant feed-
back from customers. Zara is always addressing the needs of its customers and
uses their feedback to build its ideas and trends.
Supply chain
Zara’s competitive advantage is its supply chain (Clara, 2014). The secret of Za-
ra’s success is its approach to the supply chain (Kumar and Linguri 2006, p.80-
84). Supply chain has had a huge impact on Zara’s success. Zara has two primary
warehouses in Spain, which periodically collect shipments of finished clothes
from suppliers and merchandise it directly to stores worldwide (Caro et al., 2010).
Zara changes its clothing design on average every two weeks (SCM Globe, 2015;
Berfield and Baigori, 2013; Caro et al., 2010). The secret of Zara’s success has
been centralization supply chain (Berfield and Baigori, 2013). Zara manufactures
26
almost half of its garments in Asia with low cost (Kumar and Linguri 2006, p. 80-
84). Zara operates it supply chains very fast and cooperates with manufactures and
customers. Zara takes customer choices into account and brings to “The Cube”,
where they manufacture products. Zara’s supply chain can be divided into the four
following parts: product organization and design, purchase and production, prod-
uct distribution, sales and feedback (Zhelyazkov, 2011).
Product organization and design
Zara has more than 200 young talented designers, who create designs based on the
latest fashion from the catwalk and fashion hotspots and adapt them for the mass
market (Kumar and Linguri 2006, p.80-84). Zara offers simple style in three col-
ors and three sizes. Zara uses laser barcode scanners to deliver its products punc-
tually to different destinations; these scanners operate with less than 0.5% error
(Zhelyazkov, 2011). Zara needs 14 days to develop a new product and deliver it to
stores and launches around 10,000- 12,000 new designs each year (Keller, 2012;
UKEssays, 2015b). It produces precise quantities for a certain item and design.
Purchase and production
Zara buys raw fabric from suppliers in Italy, Spain, and Greece and suppliers de-
liver to Zara within 5 days (SCM Globe, 2015). It has short production runs which
creates scarcity of a particular design and creates a sense of agility to purchase
while supplies last. Supply chain operations operate with three main objectives:
maximize the resource used, minimize the inventory and lead times. Those main
aspects have a direct impact on pricing, customer satisfaction and overall business
values (Zhelyazkov, 2011). It produces 450 million items a year for it stores in
worldwide (Berfield and Baigori, 2013). Zara’s basic products like t-shirts and
sweaters are ordered on a traditional schedule, such as, 6 months in advance from
factories in Asia.
Product distribution
Products are distributed from Zara distribution centre and transported to various
stores across Europe by trucks (Kumar and Linguri 2006, p.80-84). Its supply
chain consists of four warehouses located in Spain, Brazil, Mexico and Argentina.
Managers place orders twice a week at certain times, and new products arrive also
twice a week ( Berfield and Baigori, 2013).
27
(Source: SCM Globe, 2015, modified).
Zara has a highly centralized distribution center, which is called “The Cube”.
“The Cube” is the heart of Zara’s global distribution shown in Figure12. “The
Cube” is 5 million square feet big, highly automated, and with underground mon-
orail links to 11 factories within a 10 mile radius of “The Cube” (SCM Globe,
2015).
(Source: SCM, 2015. Graph: Author’s illustration).
Figure: 13 Zara products manufactured in Worldwide
The percentage of Zara products manufactured in different parts of the world is
shown in Figure 13. Half of the products of Zara are being produced in Spain
whereas rest of the products are manufacturing from Europe and Asia.
50%
26%
24%
Manufactured in percentage
Spain Rest of Europe Asia and Africa
Zara Global Distribution
center
"The Cube"
fashion designers
clothing factories
store managers
raw material suppliers
Figure: 12 Zara’s global distribution
28
Sales and feedback
Zara uses CRM software to help managers to understand the needs of their cus-
tomers, i.e., which products they like or dislike (Expertmarket, 2015). By using
CRM, Zara knows the need of their customers’ needs and collects data about them
which helps to improve Zara’s products and services. Zara’s designers collect in-
formation on sales and inventory from each of its stores on a daily basis and try to
optimize it on their production. All the collected data is analyzed in Zara’s head-
quarters in Spain, where the design team, the fast prototyping team, market spe-
cialists and buyers sit together to discuss the situation. After testing an ordered
sample item got mimicked in terms of colors, fabric structure and so on. In com-
parison with its competitors, Zara’s customers visit its store 17 times per year,
whereas its competitors’ stores -three times per year (SCM Globe, 2015).
Business strategy
Business strategy is essential for any business and especially in the clothing busi-
ness. Zara has a unique selling proposition (USP) business strategy, which has a
huge impact on its business model. It has 15-20 per cent markdowns sales consist-
ing in percentage (Kumar and Linguri 2006, p.80-84). It has a different pricing
strategy in terms of different market conditions, rather than using cost plus margin
as its basis, which is the formula used by most of its competitors (Kumar and Lin-
guri 2006, p.80-84). In Spain, Zara products are low cost, while in the US, Japan
and Mexico they are priced as a luxury product. Compared with its competitors,
Zara generally prices it products somewhat higher than C&A, and H&M below
Gap, Next (Kumar and Linguri 2006, p.80-84).
Target groups
Zara sales apparel, footwear, and accessories for women, men and children. Zara’s
target audiences are women and men aged 15-45 and children (SCM Globe, 2015
and College Stuff, 2007). The biggest target group is women (Harbott, 2011).
Promotion
Zara spends only 0.3% of sales on advertising, in comparison to other apparel re-
tailers who spend 3-4% (Pearson, 2007). Zara spends almost nothing on advertis-
ing (Loeb, 2013). Zara’s digital promotional activities including internet online
29
marketing, attending different social media platforms like Facebook, Twitter, In-
stragram, Pinterest, Youtube, smartphone apps and a newsletter. It has 23,538,220
likes on Facebook, 8.5 million followers on Instagram, 1.07 million followers on
Twitter and 174.4k followers on Pinterest. In 2013, Zara’s online sales jumped by
42% to €553 million (Burgen, 2014).
Zara’s ongoing digital transformation
Towards digitalize its promotion; Zara advertises its products on the listed social
media platforms. Zara uses digital transformation to find out customer prefer-
ences, and it has become the leader of using the “customer experience” at their
stores to respond on customers’ feedback more quickly than its competitors. At
every Zara store, the sales staff has the responsibility to collect information about
the customers’ likes and dislikes on products and to use cloud-based apps to send
updated information to the designers and manufacturers. In terms of digitalization,
Zara offers online shopping and mobile application for its customers. Customers
can buy products at anytime from anywhere via a mobile application. It is very
easy for a customer to buy products, and in case of any problems they change it in
a physical store. Zara uses environmental video displays in its stores, which ties in
nicely with the omni-channel experience (Haines, 2013). Customers can scan any
barcode in the store and view product details via the mobile application. It is real-
ly convenient for a customer who is in a hurry.
Zara is one of the leading clothing industries in the world. Zara make up a huge
turn over in global economy. The competitive advantage of Zara’s success is sup-
ply chain. Its supply chain is completely centralized in Spain; 50% of all items are
manufactured in Spain, 26% in the rest of Europe, and 24% in Asia and Africa
(SCM Globe, 2015). Zara is not paying attention on advertising. It uses different
social media platform in order to achieve customer engagement. Zara’s applied
vertical integration in its supply chain.
4. Discussions and conclusions
This chapter discusses main findings of this thesis, in particular those of the case
study and literature review. The aim of this chapter is to clarify the main findings.
30
4.1 Discussions
Zara’s digital transformation has been revolutionized in every sector in its busi-
ness model. Zara’s business has been reshaped by digital transformation. It was
shown in the literature review that only 14% of organizations are digital trans-
formers and only 21.5% of companies are considered as innovators in the digital
space (Claxton, 2015). The case study showed that digital transformation has cre-
ated huge opportunities for Zara. In 2015, the company made $14.8 billion in rev-
enue (Forbes, 2015). More than 140,000 professionals are working for Zara. The
global clothing industry was worth US$1.7 trillion in 2012 and almost 75 million
people were working in this industry (Fashionunited, 2015). Zara’s target groups
are women; research shows that the majority of clothing consumers globally are
women.
Therefore, women are a very important target group for clothing retailers. There is
a huge demand for Zara’s fashion products. Figure 4 shows that there is a higher
demand for fashion products than for basic fashion products or basic products. It
was shown in Figure 3 that in 2017 clothing and accessories market’s growth will
be by 19%. Clothing industries has huge demand in Europe. Figure 5 shows that,
Germany is the leader of household expenditure, which reached 62.8 billion Euros
in 2013. Every sector of Zara has adapted digital transformation its business mod-
el. In this digital age, clothing retailers are affected by many digital trends and
technologies which have a huge impact on clothing industries. Clothing industries
are digitalized internally and externally concerning consumer and company which
showed in figure 6. In internal digital transformation, companies are affected di-
rectly like supply chain.
Supply chain is the most important part of a company’s success. Without a well-
organized supply chain, company cannot operate its business. Only an effective
supply chain can reduce costs and increase the company’s profit. Digital supply
chain can makes company process agile, effective, and superior collaboration. The
supply chain is the key to obtaining competitive advantage. To have a competitive
advantage company has to digitalize entire supply chain management. When one
sector is digitalized and the others are not, they cannot be integrated within each
other. It has been seen in literature review supply chain might be a combination of
technology, product, time, place, function of a service proposition and customer
31
experience. It has been showed that supply chain can be centralized and decentral-
ized in clothing industry.
Decentralized supply is more connected with local suppliers and manufactures
which can provide products to the store with in very short time. They don’t need
to wait for headquarters command for decisions. Therefore, they can makes prod-
uct with very agility in different store. On the other hand, centralized supply chain
is located in specific distribution centre like Zara did. All the distributions are
made from Spain. All managers have to provide information to headquarter then
headquarter takes final decisions which would be matter of time. As discussed in
case study, Zara takes 14 days to deliver a new product to store in worldwide
(Keller, 2012; UKEssays, 2015b).
Porter’s value chain and agile supply chain were already discussed earlier. Por-
ter’s value chain was developed as an important tool for companies to create value
for customers and achieve competitive advantage. Porter’s value chain consists of
primary and secondary activities. Primary activities are creating value for custom-
ers, which include inbound logistics, operations, outbound logistics, marketing,
and service. The case study shows that the key factor for Zara’s success is its sup-
ply chain (Kumar and Lingury, 2006, p.80-88). This is supported by the literature
review, where it was state that a better understanding of the supply chain is the
key to achieve and maintain competitive advantage for a clothing company (Ly-
ons and Ma’aram, 2014, p.1911-1925). Michael Porter’s value chain discussed
supply chain can create more value for customers and competitive advantage
(Gustafson et al., 2004, p.19).
According to the case study and the literature review, the supply chain can boost
awareness to get more customer relationships and competitive advantage. The
case study shows that Zara’s vertical integration of supply is completely central-
ized in Spain (Berfield and Baigori, 2013). It has four warehouses which located
in Spain, Brazil, Mexico, and Argentina and half of its products are manufactured
in Spain. Figure 2 Shows that the demand for clothing in Asia and Australia has
increased dramatically. It has been estimated that between 2011 and 2018 in Asia
and Australia nominal clothing value approximately $350,000 million. In the US
the profit of the clothing industry was $225billion (Cheng, 2015).
32
Zara’s supply chain is divided into four main parts: product organization and de-
sign, purchase and production, product distribution, and sales and feedback. As
discussed in the literature review, the supply chain is a combination of a physical
product, time, place and the function of proposition product or service (Zhel-
yazkov, 2011). Zara has implemented every element in it’s his supply chain. Zara
needs 14 days to launch a new product and deliver it to stores. Every year it pro-
duces 10,000-12,000 new products (Keller, 2012; UKEssays, 2015b). It produces
specific quantities and designs which have only three sizes: large, medium and
small. Zara is capable of such production because of its agile supply chain. Agile
supply chain works on actual demand, inventory, and integration with customers
and suppliers (Myerson, 2014). Zara has more service levels than its competitors
that use agile supply chain (Dubeauclard et al., 2015). Agile supply chain operates
an increasing volatile and unforgiving economic growth for Zara.
External digital transformation is when consumers are affected by the digital
transformation. Therefore, external transformation is tightly linked to the compa-
ny’ turnover and customer engagement. How do companies provide services to
their potential consumers? It can be seen in the Zara case study that all their stores
are well-designed and centrally located in the city where consumers can get easily.
All employees working at the store collect information from customers about their
likes and dislikes. Afterwards, they send it to the headquarters in Spain on a daily
basis. Managers and designers decide which products they like to launch on the
basis of customer feedback. Retailers analyze customers’ preference according to
their location. It was shown that Zara is not using digital touch points, digital
signage, iBeacon, or magic mirrors in their stores. It was shown in literature re-
view that in terms of digital transformation of in store experience companies are
using those technologies to achieve higher customer involvement with the compa-
ny. It has been shown that customer service is one of the key aspects of digital
transformation. Customers are like to receive easy service to buy products either
online or offline.
Therefore, ecommerce is becoming a major platform of companies’ sales. Zara
online sales have jumped by 42% to €553 million in 2013 (Burgen, 2015). Zara
made a huge turnover from the online sales in 2013. It has been seen in last few
years online shopping is increasing day by day and research shows that consumers
33
like to buy apparel products online and in brick and mortar stores. In 2014, the
online sales made £5.6 billion profit worldwide and it grew by 185% between
2007 and 2012 (Carter and parsons, 2014c, p.12). E-commerce has a profound
effect on company’s supply chains (Parthsarthi, 2011). Companies have to be ac-
tive on online platforms. It has been shown customers are not same: they have dif-
ferent choices, different ideas and level of economic efficiency. Some of them like
to buy online and some of them like to buy offline, and it has been seen that there
are also consumers who like to visit a company’s website, see the product, and
order it online but like to receive it offline. Consumer buying preferences in the
digital age are shown in Figure 14.
(Source: Author’s illustration).
Figure: 14 Consumers’ buying preferences
Zara is not using just one channel to sell its products but also many channels such
as omni-channel approach. There are different environmental video displays in
Zara stores where customers can easily buy products using application. It has been
discussed in literature review that customers like to buy products in places or ser-
vice in places where they receive seamless experiences without any difficulties
online or offline (Hansen and Sia, 2015, p.51-66). Therefore, clothing retailers
should use more than one channel in order to achieve customer involvement with
the company. Customer relationships are very important to clothing companies.
The case study shows that Zara uses CRM software to obtain more information
from customers to understand their needs and wants which products and services
they like or dislike (Expertmarket, 2015). As discussed in the literature review,
CRM is a strategic approach by which marketers want to observe customer behav-
ior (Greenberg, 2009). CRM is an essential element to build a customer relation-
ship. Promotion via different platforms can boost companies profit and brand
awareness. By using different promotional activities, the company can increase
customer awareness and loyalty towards company profit. Zara does not care about
Online Offline Online+Offline
34
advertisement. It spends only 0.3% of sales on advertising (Pearson, 2007). In lit-
erature review it was shown that other retailers are spent more money on advertis-
ing than Zara did.
Nevertheless, social media are becoming the most important platforms to promote
company products or services. They are particularly well suited for the clothing
industry, and companies can achieve more customer awareness via social media
(Ahmad et al., 2015 p.1-7). Social media are the most powerful platforms to
achieve more customers engagement (O’Brien, 2014, p.31-32). The case study
showed that Zara is involved with different social media platforms like Facebook,
Twitter, Instagram, Pinterest, Youtube, smartphone apps, etc. It has more than
23,538,220 like on Facebook. It has been seen in literature review social media
users are using day by day in worldwide. Figure 11 showed that Facebook has
more than 1,500 million users worldwide (Statista, 2015c). Clothing retailers post
new products or services on their social media pages. It was shown in the case
study Zara posts its new arrivals at their stores on its Facebook page. This way
post marketers can see which product potential customers like or dislike. Potential
customers can comment and leave likes or dislikes on the Facebook page. By us-
ing this information, marketers can improve their service or product.
The case study showed that Zara uses WOM via social media, Youtube, and mo-
bile apps. This supported in literature review, which discussed marketers that use
WOM in different interactive social media platforms (Levy and Gvili, 2015, p.95-
109). Consumers are influenced by WOM to make decision before purchasing
products or services. Approximately 70% of all purchase decisions are influenced
by the WOM (Thorbjornsen, et al., 2015, p.73-80), which was discussed in the
literature review. Zara uses cloud-base apps to send updated information to its de-
signers and manufacturers. Zara adapts mobile application for customers to allow
them to buy products from anywhere at any time. Mobile technology has played
significant role in the clothing retail because most customers use a smartphone.
Mobile is very easy to access anywhere and they can search company website. It
should be well-designed webpage which smart phone users can access easily and
read all information. It has been estimated that in 2019, 90% of people in world-
wide will have access to fast mobile internet connections (Yee and Heutger, 2015,
p.5).
35
To make a better relationship with customers, the most efficient way is mobile
marketing (Smutkupt et al., 2010, p.126-139), which was discussed in the litera-
ture review. Mobile applications have a huge impact on clothing retailers. As
shown in the case study, Zara has unique selling proportion business strategy
which has huge impact in its business. Zara has different pricing strategy in terms
of different market segments which gives it a competitive advantage. Therefore,
business strategy is really important for clothing industries and helps to gain cus-
tomers loyalty towards company a product or service.
From the discussion it has found that to optimize digital transformation is not easy
for clothing retailers. They face many challenges to adapt digital transformation in
their business model. The challenges faced by clothing companies that want to
digitalize are discussed below.
o Lack of investment
Zara is a big company which belongs to well-established Inditex group. But for a
small company which does not have enough investment it might be difficult to
digitalize. In order to digitalize a company needs huge investment. Companies
have to change their old technology which requires a huge amount of capital.
o Lack of technology
Digital technology means not only new technology but also optimization technol-
ogy for the company. Zara’s case study shows that it has lack of technology in
terms of digitalize its supply chain. Not only Zara but also many other clothing
companies are not able to digitalize in terms of lack of technology. It is not easy to
adapt new technology in clothing industries.
o Coordination issues
In clothing industries, many companies fail to integrate because of coordination
difficulties between their business units or sectors like IT sector and marketing
sector. Zara case study shows that there are connections between every depart-
ment. Information can be shared by every store to every sector via a sales person.
But many companies do not collaborate with different departments. In clothing
industries, having different initiatives in design, product, and marketing require
investment in coordination.
36
o Complexity
Digital transformation is not a easy to adapt in a business model. It is too complex
for clothing retailers to optimize. Retailers have to be careful to have partnership
with different parties. Even Zara which is one of the leading clothing companies
has not digitalized yet because of complexity.
o Training
To digitalize clothing industries, companies have to arrange training programs for
employee and try to educate them about specific technologies which they like to
use in their company. More than 140,000 employees are working therefore for
Zara it is difficult to train them and it could also cost a lot of money.
o Change management
Change management is very essential for clothing companies. When company
wants to adapt new trends and innovations, then they have to change not only
technology but also its employee as well. It is not easy to change technology or
employees because customers are used to their connections with employees and
trends. It is a big decision, which can bring company either success or failure.
The discussion shows that clothing retailers should use a couple of initiatives to
manage digital transformation in their business model. This thesis has found the
below initiatives which might be helpful for clothing retailers to manage disrupt-
ing technology in their business model.
o Market research or segmentation
Clothing retailers should do market research to adapt new technologies in their
company. Otherwise companies are not able to find out customers’ demands.
Without market research it would cost a lot of money and time. Only with opti-
mized market segmentation marketers are able to find out which trends customer
like the most. For instance, it has been shown that social media are the most im-
portant platforms for clothing retailers to establish customer relationships and in-
crease their awareness.
37
o Investment
Companies need a huge amount of money to adapt new technologies. Therefore,
clothing retailers should have a precise budget for their IT sector in every year and
should also update their budget every year.
o New technology
Marketers should be aware of new trends and technologies that customers like
most and have to adapt those technologies in their business model. Customers are
always like to have updated products and services. Without implementing new
technologies it would not be possible to retain customers.
o Collaboration with different departments
It is really important for company that all the departments are working as a team.
It has been seen in companies that the entire department are not working together.
The marketing department with the IT department have to work together to adapt
new trends and technologies. The marketing department can give new ideas and
the IT department has to implement technologies in the company.
o Omni channel approach
Customers now like to buy products not only via one channel but also many chan-
nels like online or offline. Consumers are always looking for flexibility in their
shopping provided by online shopping, online payments, mobile application to
buy product.
4.2 Conclusions and recommendations
Digital transformation has had an impact on clothing industries as seen from this
thesis. It creates many opportunities for marketers to increase their customers’ en-
gagement and loyalty. A company like Zara takes a huge advantage of use digital
transformation. Zara is leading the fast fashion company for their vertical integra-
tion of the supply chain, which is able to produce a new product in 14 days and
deliver it from manufacture to the store. Therefore, clothing industries might have
to rethink their supply chain in terms of digitalization. In this digital era, it is im-
possible to imagine a company which does not use social media platforms. There-
fore, all clothing companies should try to use these platforms. Sometimes it is not
easy to for a small sized company which has lack of investment. It involved is not
38
only adapting new technology but also optimizing it to boost the company’s prof-
its and the number of customers.
Clothing industry is a huge industry, which has an important role in the global
economy. Therefore, companies have to think about digitalizing. It’s not only par-
ticipated in different social media platforms and developed new technology in
company but also optimize it. It is a part of proper usage of technologies where
company is able to get more customers engagement and maximizing profit. Nev-
ertheless, clothing industries have to use digital technology to change value prop-
ositions, customer relationships and their internal process. This thesis found an-
swers for those questions which arisen in 1.2. The answer for the first question is,
clothing companies are affected by digital transformation in every sector on it for
instance- supply chain, customer relationship, and company turnover as well. An-
swers for the sub-questions are supply chain create competitive advantage with in
short time production in terms of decentralized, to adapt digital transformation
retailers faces challenges for lack of investment, technology, coordination issues,
complexity, training and change management. To face those challenges, compa-
nies should take initiatives such as market research, investment, new technology,
omni-channel approach.
Zara is a leading clothing company with an efficient supply chain but it supply
chain is totally centralized in Spain. Zara need 14 days to develop a product and
deliver to store in deferent destination. This thesis found that it might be more
productive if they could decentralize in different countries like Germany, China,
and Brazil. In order to decentralize it could consume time less than 14 days dura-
tion. While they decentralized their supply chain they do not need to depend on
headquarter to develop new products. It would be save money because they do not
transport from far way. As the thesis showed Germany has huge demand on cloth-
ing product. So, it would be great opportunities for Zara to transfer their distribu-
tion center in Germany.
Furthermore, Zara is not paying attention on advertising as discussed before in the
case study. In today’s digital world advertising is a heart of business success in
terms of customer relationship. Zara should be more concentrate on advertising.
They have to use different digital advertising platforms which discussed in this
39
thesis like digital touch point in heart of the city like main train station. Have to
take initiatives to be more digitalized company. It supply chain should be integrat-
ed with computerized supply chain where they makes faster their supply from
suppliers, merchandiser and need less workforce. Zara might have to use new
technologies on their store (like Burberry did with magic mirror) and implement
new digital store design (as Primark did in Madrid). It has to be combined with
different channel to get customer retention like Omni channels to retain custom-
ers, such as omni-channel approach. Zara should use more social media and apps
in their business strategy (Facebook is forbidden in China). As discussed, social
media and mobile commerce are very crucial now days for customer engagement
and retention.
4.3 Limitations and further research
Digital transformation is an ongoing topic, which has not enough academic books
to research. There are a few books on this topic, but due to the download rules and
regulations in Germany they were very difficult to access. Therefore, this paper
was based on secondary research. All secondary research is based on academic
journals, academic articles, website, blogs, newspapers, company websites etc.
Due to the time management, it was quite hard to discuss such a huge topic with-
out primary research. Primary research requires more time, and companies do not
want to share their internal information.
Digital transformation has a huge impact on clothing industries. Therefore, there
should be more research on digital transformation. As a marketing student it is not
easy to clarify which supply chain is suitable for clothing industry. To have actual
clarification on supply chain which is perfect for company have to use mathemati-
cal terms but as a marketing student and for time perspectives it would not be pos-
sible on this thesis. Therefore, it makes more sense to have mathematical terms to
clarify it which supply chain is perfect for clothing company decentralized or cen-
tralized. This thesis was discusses only the Zara case study, but it might be more
interesting to do more research on a similar clothing company like H&M, Primark
etc. It was hard to collect primary data from the company. It makes more sense to
do primary research where more information could be obtained. It would be
40
worthwhile might be online survey to know potential customer behavior in terms
of digitalization and also hypothesis for expert form clothing industries.
41
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51
Appendix
iBeacon
“iBeacon is a apple’s version of the Bluetooth-based beacon concept, which al-
lows Bluetooth devices to broadcast or receive tiny and static pieces of data within
short distances. In simplistic words, it consists of two parts: a broadcaster (beacon
device) and a receiver (Smartphone + app). Two broadcaster is always advertising
“I am here and my ID is..” while the receiver detects these signal and does what-
ever it needs to do based on how close or far it is from them”. (Beacon Sandwich,
2016).
Source: Beacon Sandwich. (2016). What is iBeacon? Beacon Sandwich.
[Online]. Available: http://www.beaconsandwich.com/what-is-ibeacon.html [Ac-
cessed 11 January 2016].