ZARA Fashion
1) With which of the international competitors listed in the case is it most interesting to compare Inditex’s financial results? Why? What do comparisons indicate about Inditex’s relative operating economics? Its relative capital efficiency? Note that while the electronic version of Exhibit 6 automates some of the comparisons, you will probably want to dig further into them?
The four companies shown above have very different business models. Inditex owned much of the production and most of its stores. Inditex is thus a vertically integrated company. This made Inditex gain a competitive advantage, which is quick response to the market requirements. On the other hand, The Gap and H&M have a different business model. They owned most of the stores, but outsourced all the production. Benetton had a third business model. It invested heavily in the production, but licensees ran its stores.
The most interesting company to compare Inditex is The Gap. Although The Gap has much higher revenues than Inditex (almost five times Inditex), it incurred a net loss, as opposed to Inditex, which achieved a 23%, return in investment. This is due to the extremely high costs of good sold for The Gap. This could be caused -at least partially- by the complete outsourcing of the production. They do not have enough control over the production costs. Although The Gap has larger market share than Inditex and has equity almost double that of Inditex, Inditex is much more profitable.
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2) How specifically do the distinctive features of Zara’s business model affect its operating economics? Specifically, compare Zara with an average retailer with similar posted prices. In convenient to assume that on average, retail selling prices are about twice as high as manufacturers’ selling prices.
Zara sources fabric, other inputs, and finished products from external suppliers. It has purchasing offices in Barcelona and Hong Kong. This gives Zara a competitive advantage towards the costs of goods sold, as it can purchase from both Europe and Asia according to prices. Buying more from China in the future might reduce even more the costs of goods sold.
Inditex fully owns Comditel that managed dyeing, patterning and finishing of grey fabric of Inditex’s chains, and supplied finished fabric to external as well as in-house manufacturers. This gave Zara further competitive advantage, in terms of both cost and control.
Inditex also fully owned 20 factories for internal manufacture. These factories apply just-in-time production (JIT). Again, this gave Zara further competitive advantage, in terms of both cost and control.
The apparel industry is among the most volatile sectors in the market today. Subject to overnight changes in trends and fashion, the industry leaders must be accurate with their predictions and quick to accommodate changes. Because of these fluctuations, it is very hard to assign a competitive advantage to one company over another. While Jones Apparel Group seems to have a comparative advantage in profitability and leverage, Liz Claiborne has been historically more effective at generating revenue from its assets. While Liz is surging to eclipse Jones’ ROE numbers as of late, Jones Apparel Group holds a historical comparative advantage in return on equity and overall financial health.
(Table I). H&M and Forever 21 have certainly nailed the price with either the quality or image but never all three. Zara has done this with ease. Each piece of merchandise is priced at a comfortable price, if not a little higher than what other industry competitors may offer. Economics of Scarcity heighten the sense of now-or-never, supplying only handfuls of dresses at a time. Zara uses a method call; ‘rapid design change’, they move around most of the garments in the store, so that the floor looks new, also the floor is never flooded with garments. Thus, Zara is self-considered a Designer boutique, but it contrasts with the prices they practice. So it can be a good point saying that Zara has the best of both, the fashion design from boutiques like Louis Vuitton and Armani with the prices of dedicated ranges like H&M. It leads to the thought of a comparative advantage. Scarcity in fashion increases desirability, which means shoppers need to buy quickly as the item may not be available next week. Lower quantities also mean there are not much to
Decision making at Zara is very much disintegrated. Operations like ordering, fulfillment and design and manufacturing at Zara are based on important decisions made at a lower level by customer facing employees. These decisions sometimes do not even need the reviews of the higher management. A group of commercials decided what existing and new garments to place an order for depending on the sales of a particular store. Another group of commercials determined future production for a SKU (stock-keeping-unit) depending on the balance of the demand of garments in the stores and supply of finished clothes coming from factories into the DC. Prediction of the changing tastes of the young, fashion conscious city dwellers was done by a group of commercials. These decisions helped in creating variety in the designs of new stock. These decisions also helped Zara introduce new design collections all throughout the year depending on the current customer demand.
For manufacturing purposes but also distribution. Titan has built one of the largest watch factories in India and is looking for a partner to add value to their products for export to America. A joint venture with Titian allows Swatch to use their existing production facilities, methods and knowledge of working in India to learn how to further keep our costs down. Not having to construct our own plant from the ground up allows us to benefit from greater global sourcing activities. A successful production line that already produces watches is a priceless asset that also promotes higher quality because the line workers are familiar with the product. An immediate sourcing strategy would incorporate the already existing manufacturing facilities of Titian for the purpose of Swatch’s production. Second, we can use Titians infrastructure to advance our sales in India by opening more channels of distribution. Titian acts as an import trader for swatch, as they have market connections and a knowledge of their domestic market. Following in the footsteps of other industry powerhouses that have entered the market in India. It is essential for Swatch to have cooperation with key local partners in India for their high-quality product to make it into the hands of Indians easier and faster than our
The first ZARA store opened in Spain in 1975 and it is now the highest profile chain store of its parent group Inditex with over 1000 stored worldwide. Zara unlike H&M have adopted a more vertically integrated business model. 60% of their goods are manufactured in spain whilst only 24% are manufactured in low cost regions like africa and
themselves from the commoners, and show their creative uniqueness. For example, Zara value not only the Millennials but generation X as well - the opinions and motives that these consumers carry is to not only to be fashionable, but to be eco-friendly. The sustainable development of Inditex’s business model is based on two principles: fashion design and manufacture in a socially and environmentally responsible context and that the store and its entire value chain must be eco-efficient and environmentally friendly (Inditex employee handbook, pg. 14). Millennials have also mastered the use of technology, utilizing it to do their heavy research before shopping and using it in their advantage to become intelligent shoppers. Many retail companies are learning first-hand, which this new customer isn’t the typical customer they’ve dealt with for the past hundred years who does the usual window shopping and fills their needs as soon as possible. Zara has been locked in with their efficient business model that targets directly at Millennials.
Zara is a profitable company run by Inditex, which is the one of the largest fashion groups in the world. Inditex was founded by Amancio Ortego Gaona in the early 1970’s. Inditex operates eight different chains which include: Zara, Massimo Dutti, Pull&Bear, Bershka, Stradivarius, Oysho, Uterque and Zara Home. Each chain addresses a different part of the market which allows Inditex to dominate a complete market, while not competing against each other and cutting out profits. The goal of Zara and Inditex is to dominate each segment of the market using a flexible business but also being able to expand that model onto an international scale. Zara began on a small street in Spain and has experienced a tremendous amount of growth over the years. Today Zara is available all over the world in countries such as Poland, Germany, and the United States.
Zara is the run by Inditex, which is the largest Spanish corporation and the world’s largest fashion group. Zara was first opened by Amancio Ortego Gaona in 1975 on an upmarket shopping street in La Coruna, and has continued to expand at a very positive growth rate. By the 1970’s, there were half a dozen Zara stores in Galician cities, and by the year of 1990, Zara had opened in various countries internationally such as USA, Paris, and Portugal.
The company that I chose to do my case analysis on is Dell computers. Many companies start out as very aggressive but get crashed either by its competitor or by poor strategic management. Dell Computer's entered the market with strong strategic vision and stronger strategic management. One of the biggest strengths that Dell has is its simple business concept which is building personal computers built to order and selling it directly to its customers. This simple notion gives Dell several competitive advantages over its competitor. One it is bypassing distributors and retail dealers which eliminated the markups of resellers, and two building or order greatly reduced the costs and risks associated with carry large stocks of unneeded inventory. As a major competitor in the personal computer market, Dell's focus on efficiency of manufacturing, and a direct marketing approach, that allows the company to continue gaining ground on the competition.
Zara uses a unique supply-chain strategy in order to maintain its promise of distributing new merchandises to each store every two weeks. Zara uses a vertical integration, where the company control and owns its supply chain. Zara buys all of the raw materials from the parent company and then deliver those raw materials to factories located in nearby third world countries where they can find cheaper labors and the transportation time is less. Before the finish products are send to the logistic centers, factory workers also pre-ironed the clothes, hang them in hangers, have tags affixed to the products, and put them into individual plastic bag. This can make the job of store employees a lot easier and save more time because once they
Between 1990 and 1997, they tripled the number of their operations, increasing their total assets to just under US$ 1 billion, excluding the assets of five of their six subsidiaries incorporated abroad. They invested in state-of the-art spinning, weaving and textile technology that has made them the world’s largest; vertically-integrated polyester curtain producer and will propel them to the forefront of the international home textile industry in the years to come. They acquired the Vestel Group of consumer electronics companies, pushed its balance sheet from an undeserved red into the black, and set it on course to become a leading contender in the international consumer electronics markets. They established a bank, a leasing company and o factoring firm and they penetrated the power generation and electricity distribution sectors with the construction of two plants and a; competitive bid for o state- owned, plant slated for privatization.
Comparing with other competitors such as H&M which only updates new designs once a season, Zara restocks twice a week to pursue latest fashion. Instead of spending average 3.5% of revenue on advertisement, Zara spends only about 0.3%. Zara spends more in technology operation, store decoration, innovation and keep products cheaper. Zara relies on its stores to build its image and has specialists whose main work is to keep changing the layout of the store every week. As a result, fashionable and changeable stores of Zare encourage shoppers to come back again and also mean that customers need buy their preferable products fast before sold out because of low
An early and constant communication between customer and supplier can ensure a better management of the supply chain, and a more agile supply chain. Another rule is if a customer treats his suppliers well, inform them, being involved with their process is likely that less issues raise and usually is a guarantee for a longtime partnership. These facts are well known by Zara and used in its daily operations. Zara’s designers gather data on sales and inventory from each of its stores on a daily basis and use this to inform their view of the situation.
As we can see, Zara possessed many of these factors that enables the company to succeed in fashion industry. Many other successful company has one or many of these factors as well, it just depends on how much efforts are given in these factors by each company.
Zara is one of the world’s largest fashion retailers; it’s a Spanish clothing and accessories retailer. It is the flagship company of Inditex, a holding company which includes seven other brands, and was founded in Artexio, Spain in 1975 by Amanico Ortega and Rosalia Mera. Just this year Forbes named Ortega the 3rd richest man in the world. “Zara contributes about 80% of Inditex's revenues, which have grown by 27% per year on average since 1998,” (Zara’s). As of 2012, the retailer boosts a whopping 1,925 stores and just 120 were opened in 2012. These stores are also in 86 markets, and entered 5 new markets in 2012. They employ 120,314 people. Annual revenues equal €10,541,000 as of 2012. Zara has been around since 1975 but has shown no signs of slowing down. They are globally expanding into new markets yearly and have found success in adapting their business to these new markets. Zara does extensive research before entering a new market and decides on a method best suited to each region.