Zara, owned by Intex, is a name that hardly needs an introduction. It is an international fashion company focused on design, production, distribution, and sales through its extensive retail network. Intex, founded in 1975 by Amancio Gaona, also owns brands such as Massimo Dutti, Pull and Bear, Uterqüe, Stradivarius, Oysho, and Bershka.
With thousands of stores around the world, you would think that Zara’s team would be all-knowing, expert planners. But that’s not the case. The company is the leader of the “fast fashion” concept: Zara doesn’t only sell clothes, it also designs and manufactures them. Zara produces small quantities and ships frequently (7 to 21 days). This means a lower risk of unsold stock on the one hand, and it also increases the likelihood of undecided customers buying (if they come back next week, the item might no longer be in stock) and reduces the risk of the customer buying the same item as one of their close friends.
Instead of using some fancy forecasting algorithms, Zara uses speed and humility: why bet on the future when you can track what’s working in real time and produce it quickly?
They follow the industry via multiple sources, including store feedback, and understand what their customers will buy.
Understandably, if you apply it to technology innovation, one company probably wouldn’t be able to “copy-cat” all other innovations and produce them in-house.
But that’s not what we’re saying.
The point is simple: in a complex environment, it’s hard to impossible to predict the future. While some are ambitious enough to believe they can do it, we believe that Zara would have done it in a different, more humble way.
Zara would invite consumer startups (and not only fashion- or retail-related) to share their “blind data”: once it sees that a specific company has momentum in creating intense, emotional connection with some of its customers, it can take a closer look. If the team is solid, the legal issues are in order, and there are no surprises, they can move forward to discussing terms.
Zara, as the world leader in fashion, knows that producing the best products is not key to success. Most world-leading companies don’t make the best or cheapest products and services. And while “how does one succeed” is too general and too ambitious a question, identifying successful ventures early on makes sense. It fits the Zara view of the world.
See them early, invest, and (maybe) help them grow.
What does momentum mean? What do we mean by intense, emotional connection?
If you look at most major brands, they enjoy “brand preference”. Their customers trust them and prefer them over better or cheaper alternatives, mostly for emotional and identity reasons. That is very evident in the case of fans of musicians and various professional sport clubs, in cases of leading companies such as Facebook and Apple, and also in general – why branding is so valuable.
But how can you measure emerging brands, even before they know they are such?
We would argue that Zara understands that most customers are motivated by emotions more than anything else, and therefore would try to detect patterns of “irrational” behavior: obsessive, compulsive, and addictive types of behaviors. This data would be reinforced with organic growth of this particular group of “Raving Fans” and high retention rates.
This would be indicative of something other than the frontal cortex running the show when these customers are buying a given product – and that means an emotional connection.
We feel that Zara “Venture Capital”, if there were such an entity, would be on a quest to find companies with Raving Fan customers.
Do you feel the same?
RavingFans® is an analytical platform, powered by a proprietary algorithm, that helps detect emotional connections between products and services to (some of) their customers. This can be used to help entrepreneurs build better products and services, and to help investors increase the likelihood that they select great companies or to ensure that their existing companies are “on track”. Follow[the]Seed is an international venture capital fund that is using the RavingFans® platform to invest, but also welcomes cooperation and co-investments with other professional investors for both early and later stages.