What you can learn about benchmarking from Zara

Benchmarking may be seen to be good management, but it often functions as limiting belief. The world record for the mile stood for almost a decade above 4 minutes. Just 46 days later Bannister's record was broken by his rival Landy and than two years later, another 36 runners did it. This is an example of how ‘limiting beliefs’ function.

Managers love benchmarking. Except what they often refer to when they mention benchmarking is some metric of performance which indicates where the market is at. Roughly, they are concerned with what the average is of all competitors are.

  • Retailer may look at Gross Margins.
  • eTailers pay look at click-thru rates
  • Marketers may look at conversion rates
  • But when they do, they interested in the average.
  • Shopping Centre Managers look at occupancy cost.
  • Benchmarks are meant to be benchmarks; that is the mark to which we must aspire. A benchmarks is meant to be about best-practice. Instead we have made it about mediocrity.

    Take stock turn for example, and let’s use Zara as a case in point.

    The average stock turn in a fashion store has traditionally been 4x per annum. (Four seasons, so it makes sense.) Usually Department stores will turn over their stock a bit slower. (Bigger bureaucracies, makes sense.)  The really good, national specialty chains my achieve 1.5 turns per season and get to 6 turns per annum. (Better systems, specialisation and tight management, makes sense.)

    The Zara came along.

    Some pundits argue they are not even in the (fast) fashion business but in the distribution business.

    • When Madonna played a set of concerts in Spain, teenage girls arrived to the final show sporting a Zara knock-off of the outfit she wore during her first performance (from The Economist, “The Future of Fast Fashion”, June 18, 2005).
    • The average time for a Zara concept to go from idea to store is 15 days vs. rivals who receive seasonally. Zara is twelve times faster than Gap, despite offering roughly ten times more unique products!(Helft, M., "Fashion Fast Forward," Business 2.0, May 2002.) T
    • The Zara customer shops 17 x per year.
    • Ghemawat and Nueno (2003) report that only 15%–20% of Zara’s sales are typically generated at marked-down prices compared with 30%–40% for most of its European peers.

    You will note from these references that the data is quite old. The scary thought is that they will have become even better.

    I don’t have access to actual, current performance data, but joining the dots above, one can safely assume that Zara’s stockturns are in the range of +20 times per year.

    They would turn over their stock every fortnight instead of every season.

    To paraphrase Crocodile Dundee: “Now that is what you call a benchmark.”

    Application:

    1.      No matter what your industry, there are benchmarks available. If you can’t get if from your industry association or a consultant, get it from a sales representative for key categories.

    2.      Remember that these ‘benchmarks’ are usually just average and therefore beacons of mediocrity. They should be seen as a minimum acceptable standard.

    3.      If you really want to have an excellent business, you should strive for more – find the real benchmark.

    4.      Challenge yourself to venture outside your comfort zone and beyond the norm set by the mediocre. You will be surprised with what you can achieve when you let go of what you think is possible.

    Have Fun

    Dennis

    GANADOR: BUILDING HIGH-PERFORMANCE NETWORK FOR BRANDS AND RETAILERS

    (Website refreshed – come have a look.)