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. Background: Inditex is an international fashion retailer that designed, manufactured and sold apparel, footwear, and accessories for women, men, and children through Zara and other five chains around the world. The six retailing chains were organized as separate business units within an overall structure that also included six business support areas and nine corporate departments or areas of responsibility. They are separate in the sense that each chain is responsible for its own strategy, product design, sourcing, and manufacturing, distribution, and image, personal and financial results. Inditex was based in the northwest of Spain; it also operated about 20 manufacturing and distribution facilities in the region It is most interesting to compare Inditex with its largest competitor-Gap- as Gap have the highest market capitalization of all Inditex competitors, the highest operating revenues and largest no. of store locations worldwide. So when comparing the financial results of Inditex with Gap we find out that: Gap Vs Zara: Gap had achieved stellar growth and profitability in the last ten years; it was one of the largest specialist apparel retailers in the world ahead of Inditex. It owned most of their stores but outsourced all production in contrast wit Inditex. Nevertheless it ends with a massive a decline in its stock prices and the departure of Its CEO in 2002. Although Gap and Zara follow the same business model, Zara's business model improved over time, through the incorporation of technology as they have developed about 95% of the software it uses, Zara fast response to market changes gave them a competitive advantage in creating fashion and satisfying customers plus the fact that the company is getting larger and more global than it has been. For instance, Zara did not face the two basic barriers for going globally which are: oCosts: that Zara did not incur when entering a new market, as the company does not have extraordinary advertising expenses to create brand recognition. oLogistics: which involve being ahead of the curve, volume, SKUs, and delivery points; all are the same in every store which allows the company to take better advantage of real estate opportunities regardless of the market the company is in. That is why gap's operating expenses far exceed that of Zara in year 2001. GAP MILLIONS OF EUROS NET OPERATING REVENUES15559 COST OF GOODS SOLD10904 GROSS PROFIT4656 OPERATING EXPENSES4276 (NET INTEREST EXPENSE)108 OPERATING PROFITS272 INCOME TAX280 NET INCOME-9 INDITEX MILLIONS OF EUROS NETOPERATING REVENUES3250 COST OF GOODS SOLD1563 GROSS MARGIN1687 OPERATING EXPENSES OPERATING PROFITS704 INCOME TAX150 NET INCOME340 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 gets a competitive advantage by offering the customer fashionable clothes to affordable prices. This is not a pure differentiation since zara does not charge a premium price for the product. Nor either is it a pure cost leadership since the objective is not to become the lowest-cost producer in the industry. Zara has rather developed a combination of differentiation and cost leadership, and ended up with a successful formula. A short lead-time is important for Zara to be able to offer the latest fashion in store at all time. The reduction in transportation time by having the whole production close to the market give Zara a big

Below is a graph of how Zara choices created a number of competitive advantages for the company: The above model clarifies the huge advantages gained by Zara as a result of their reduced business cycle. they have carefully integrated a good IT. Zara's short lead-time gives a higher chance for a more accurate predicting the next fashion. which simplifies things a lot. to base the future revenue on always offering fashionable clothes depends on good predictions of customers future preferences. Not only does Zara attain higher customer satisfaction as they are quickly able to respond to their feedback and needs. Therefore. Making collaborating and meeting less time taking. people who understood this type of work from the outset. Knowing that there will always be new designs in a Zara store. or not be able to sell it at all. oSelection of personnel: having motivated and dedicated personnel.lead-time advantage compared to its competitors. Their ability to quickly respond to market needs with very short business cycles have given the company a distinctive competitive advantage over the competition. particularly ones connected to its quick -response capability and the ways in which they create competitive advantage? What does the exercise suggest about such capabilities as bases for competitive advantage? Zara choices to compete have mainly been concentrated on their quick response capability. customer will visit the store more frequently leading to more sales. It also makes it possible for Zara to have a higher turnover and continuously refresh its stores with new fashion twice a week. this comparing to many of the competitors that refresh their store once a session.Can you graph the linkages among Zara's choices about how to compete. people who think about the company 24 hours a day. Further. The reduction in lead-time does more than improving the forecasting. The geographical close network by keeping the production close to the headquarters in Europe and keeping the whole team working in the same building might also lead to reduction of the lead-time.structure. oQuick response time that led to significant compression of cycle times enabled by improvements in information technology and encouraged by shorter fashion cycles and deeper markdowns. personnel costs. by owning a big part of the facilities they are able to have better control of the production and are always able to reschedule each factories production plan to concentrate on that part of the collection that is most important at that moment. In the fashion industry the customer's demand changes rapidly. It also decreases the level of inventory. This makes them able to meet the customers demand and offer a higher level of fashionable clothes in their stores.Why might Zara fail? How would you calibrate its competitive advantage as being relative to the kinds of advantages typically pursued by other apparel retailers? Zara's competitiveness comes from: oInnovation: not to stop but always producing new things based on customer desires and changes in market. 3. which more commonly keep their production in the Far East. and what the customers finds fashionable today might be impossible to sell tomorrow. reduce the cost of holding it and the risk of stock going out of date. hiring and other . a segment where some one might offer good quality fashion at a reasonable price and managed to insert themselves in. oSegmentation: the company took advantage of unserved segment. In addition. but also Zara manages to highly decrease its operating costs as a result of decreased inventory held and thus lower level of risk when new models are introduced. the prediction of the next fashion has to be prepared carefully. It targets buyers who like fashion and that is not limited by international borders. The chance for a miss prediction is quite big and knowing that there is a chance of ending up selling the whole collection on discount. oExperience regarding real estate. 4. oSimple strategy: the company is looking for a target without analyzing ages or lifestyles. which conduct to release of capital locked up in stock.

Italians spent the highest per capita on apparel.moreover. As an example. Accordingly. and has been the home to thousands of small apparel workshops. 7.What do you think of Zara's past international strategy? Evaluate. Historically. what worked with 1000 stores will not work with 2000 stores and the centralized supply chain might collapse or become a real problem . Galicia region has also a very important advantage of being in the corner of Europe from the perspective of transportation costs. yes it is successful in Europe and the middle east. 8. This strategy helped the fast growth of the company as well as eliminating the risk factors. specifically. The other factor is the uniformly fashion adopted by ZARA in all stores . one can see that Zara was successful in migrating its competitiveness globally. and its standardization of its marketing approach Internationally. Zara can focus its growth to countries like Italy. based on a prototype.contract negotiating. yet that might not be the case in Asia and the company will need to adopt more local customization when entering new international markets.What is the best way to grow the Zara chain? How. By starting with such "information gathering" store. However it is difficult to decide that Zara will not step down because there is always uncertainty in the market and the degree of certainty in planning decreases over time but as long as the company continues to maintain the philosophy of adapting to the market and operates from the bottom up. its past strategy for (product) market selection.How well does Zara's advantage travel globally? Zara competitiveness as highlighted in number 4 managed to travel globally successfully. its mode of entry . Zara manages to obtain insight of the local market and how best to adapt to it. Italy is the largest single apparel market in Europe. do you see prospects in the Italian market? And more broadly. it will not be dropped out. It had a large unemployment rate which meant that the company would not find any trouble attracting employees to join. . As 55% of Zara revenues coming from abroad. 6. the strategy ZARA adopted was to test the market by flagging one store then expanding according to market needs. as the case stated. Galicia is the third poorest of Spain's regions. Italian consumers visit apparel stores relatively frequently which is good for Zara's business model that relies on changing the contents of the stores very frequently. a competition might find a window of opportunity in that sense. Galicia had always been famous for its apparel quality. would develop the company brand awareness in the new country. Zara strategy of opening one store for information gathering in the initial phase of entering a new market is one of its key strength points. By adapting to each culture. 5. In contrast to the advantages of their international expansion policy. Zara has managed to position itself differently in different market. the image ZARA created over the years minimized the need for any marketing activity and the flagged pilot store. what do you think about the strategy of focusing on Europe versus making a major commitment to a second region? The best way Zara chain to grow is to focus on the rest of Europe. the price of ZARA products in USA is more than double same products in Spain . which meant that labor cost is lower than the rest of Spain. in particular.Was Galicia/ Spain fertile ground for the emergence of an apparel retailing powerhouse? It is fair to say that Galicia was a fertile ground for the emergence of an apparel retailing powerhouse. Moreover.

or at least creating a common party to handle all supporting function for the different chains. purchasing. By centralizing. The strategy of focusing on Europe is generally the recommended strategy for Zara at this point in its development. 9. Indirex can make huge savings.. By combining distribution. etc of the different chains. warehousing. Zara understands the dynamics of the European market and is the fashion oriented of all markets. . .What other strategic recommendations would you make to Indirex CEO Jose Maria Castellano? Other strategic recommendation would be to make better use of economies of scale. IT. and other supporting functions.Italians are also considered very fashion-forward which fits well with Zara's fashionable designs. like financing. Indirex would highly benefit of the savings resulting from the economies of scale that would be achieved as well as reducing the amount of redundant work being done by the different chains independently.

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