RETAIL MANAGEMENT SECTION A GROUP 6

CASE OBJECTIVE Analyse Inditex and Zara’s International Expansion and provide recommendations for sustainable growth and Future Geographic Focus GLOBAL APPAREL INDUSTRY INDITEX. ZARA and ITS BUSINESS SYSTEM UNDERSTAND THE VALUE CHAIN – PORTER’S MODEL ZARA’s INTERNATIONAL EXPANSION RECOMMENDATIONS ( MCKINSEY FRAMEWORK) .

major suppliers for US CROSS BORDER INTERMEDIATION • Trading companies play vital role for smooth flow of apparels from factories to retailers E.g. North Africa .PRODUCTION • 30% of world production is exported – half from developing countries – reflect cheap labour and inputs • China became export powerhouse and major supplier for Japan • Turkey. US based VF Corporation GLOBAL APPAREL INDUSTRY VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION INDITEX and ZARA CHALLENGES CONCLUSION .g. Li & Fung in Hong Kong • Branded marketers – outsourced production E.g. Liz Claiborne • Branded Manufacturers – sold products under their own brand name E.major suppliers for EU • Mexico and Caribbean basin .

MARKETS and CONSUMERS • • • • 2000: Retail spending on apparels was 900 bn euros Europe 34%.social affinity. British. French.variety/quality • 5 ways of retailer Expansion • Choose a “sliver” of value instead of competing across entire value chain • Emphasize partnering • Investing in brand • Minimize tangible investment • Arbitrage international factor price difference GLOBAL APPAREL INDUSTRY INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION CHALLENGES CONCLUSION . Asia 23% of market Expenditure on apparel was decreasing as income increased Local variation in customer attributes and preferences • Germans.Price sensitive. US 29%.

RETAILING • Major role shaping imports into developed countries • Large Apparels Retailers promote Quick Response reducing Forecast Errors and inventory risks. cycle times • Retailing activity remained local but fashion retail was globalised COMPETITOR POSITIONING BENETTON PRICE+ GAP FASHION H&M ZARA FASHION + PRICEGLOBAL APPAREL INDUSTRY INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION CHALLENGES CONCLUSION .

Jose Maria Castellano Rios joined – Importance to computers to enable business 1985 Inditex – holding company atop Zara Operation • Manufacturing base in Galicia which was strategically important in terms of transport cost • Manufactured and sold apparel. 8. men and children through 6 retail chains • 2001: Operated 1284 stores outside Spain.5% manufacturing.25% mark .1963 Amancio Ortega started clothing factories Integrate forward to improve manufacturing/ retailing interface 1975 Zara first opened in La Coruna In 1985. employed 26724 people(80% retail sales. reminder for logistics activities) and selling area was 659400 sq meters Financials • Return on Equity was stable and oscillated around 22% . footwear and accessories for women. Net margin was stable and was in the 9-11% range • The asset turnover ratio was also consistently > 1 with stable Return on Assets around 11-13 % GLOBAL APPAREL INDUSTRY INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION CHALLENGES CONCLUSION .

3 months for manufac) GLOBAL APPAREL INDUSTRY INDITEX and ZARA Distribution Retailing VALUE CHAIN ANALYSIS CHALLENGES CONCLUSION .Design Design Retailing Sourcing & Manufacturing Manufacture & Sourcing • Flat organization • Design team : design.03% on advertising INTERNATIONAL EXPANSION Distribution • Fashion sensitive products manufactured internally •Vertically integrated – bull whip effect reduced •Cycle : 4-5 weeks for design and have finished goods in stores ( Industry : 6 months for design. tracking consumer preferences – bridge merchandising & production back end • Sourced ‘gray’ fabric – max flexibility – from Comditel (100% subsidiary) • IN-HOUSE (40%) • Cutting done by Inditex owned workshops • Sewing outsourced • Own centralized Distribution System at Arteixo • Speculations about being subject to diseconomies of scale – 2nd centre at Zaragoza • Decentralized store management • Managers determine products to sell and return • .

better control.DESIGN     Store Mngrs gather info at POS Flat Structure Continuous tracking of Customer Preferences Presentation of items in key stores  Higher Staff – Higher labour costs SOURCING and MANUFACTURING   In –house 40% . short lead time Dyeing and Cutting – Core Activity done in-house  Low advertising – no communication to customers DISTRIBUTION  Cost savings by centralized DC   Capacity problems with only one DC Lack of decentralization – farther from each market . requires more scheduling and control RETAILING   Flexibility using JVs Store Standardisation consistent image & low cost  Low advertising – no communication to customers GLOBAL APPAREL INDUSTRY INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION CHALLENGES CONCLUSION .

Cutting – ZARA owned factories •Sewing – small workshops in Galicia & North Portugal •No forecasting.ORDERING •Store places order twice a week to headquarter – hard deadline – •No inventory check on store comp •Handheld for newly available – linked to IS GLOBAL APPAREL INDUSTRY FULFILMENT •Shipping clothes involves Commercials at La Coruna • Determine store to be supplied – future SKU production with product manager DESIGN & MANUFAC •11000 new items/year •Dyeing.rely on commercials INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION CHALLENGES CONCLUSION .

Buy now. not later • Fast Fashion : Up-to-date designs Quick Response to Demand (Pull System) • Purpose: to provide information to designers quickly Small Batch Production High Product Turnover Central Distribution Center / Strong IT System • Place to move merchandise • Minimizes lead time • Shipped by time zones VALUE CHAIN ANALYSIS Efficient supply chain (primary activities) and fast response to the changing market GLOBAL APPAREL INDUSTRY INDITEX and ZARA INTERNATIONAL EXPANSION CHALLENGES CONCLUSION .Vertical Integration • Merchandising strategy: Scarcity and Opportunity.

Market Selection • Oil Stain Technique : Opened operations in countries resembling Spain in terms of economic development • Macro Analysis: Macro variables tariffs. store locations • It used Market price to forecast future prices of apparels rather then cost based approach Market Entry • Company Owned Mode: High Growth and low business risk markets with high resource availability • Franchise Mode: Small. tax. real estate • Micro Analysis: Sector specific – local demand. channels. Japan (Bigi) and Germany(Otto Versand) Market • No acquiring foreign chains – overlapping networks.g. competitors. Risky and culturally differentiated market and administrative barriers • Joint Venture Mode: Market where it was difficult to obtain retail space E.legal costs. salaries. physical and cultural impediments GLOBAL APPAREL INDUSTRY INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION CHALLENGES CONCLUSION .

Marketing • Flagship Store opened on a pilot basis .Marketing mix refined on this basis .replicated throughout country • Pricing: Market Price + Difference in supply chain cost from Spain • Position • Positioned differently in emerging and developed countries based on income difference • Store format in different countries were also different due to position difference • Promotion: No major investment in advertising and promotional activities • Product: Difference in product features based on cultural and climate Growth Options • Limited in Spain • Italy market presented the maximum growth potential as the customers spent maximum euros on apparels (1000 Euros viz-a-viz 600 Euros in Spain) • Other growth opportunity present in North America and Asia GLOBAL APPAREL INDUSTRY INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION CHALLENGES CONCLUSION .

GET COMFORTABLE PARTNERING Long term relations with Suppliers . JIT with Toyota PEOPLE: Low heirarchiy. CHOOSE YOUR SLIVER DESIGN SOURCING MANUFACTURING LOGISTICS SALES DISTRIBUTION : In house : Fully outsourced : Partly outsourced :Partly Outsourced : Fully Outsourced : In house 2.ZARA Control Franchise systems and JV – Controlled Partnerships 3. INVEST IN INTANGIBLE ASSETS BRAND : Low advertising especially in foreign markets TECHNOLOGY : Strong Investments.1. people given opportunities GLOBAL APPAREL INDUSTRY INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION MCKINSEY FRAMEWORK RECOMMENDATIONS .

4. KEEP CAPITAL REQUIREMENTS LOW OPERATION Central DC – direct shipping to stores Intense market research – store manager involved in product development Long term leases. Low storage costs Low failure rates Low financial strain Flexibility and quicker communication Low production and selling prices INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION MCKINSEY FRAMEWORK RECOMMENDATIONS . Different business modes for Expansion Flat heirarchy Production of price sensitive items outsourced GLOBAL APPAREL INDUSTRY IMPACT Short lead times.

5. EXPLOIT OPPORTUNITIES TO ARBITRAGE GLOBAL APPAREL INDUSTRY INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION MCKINSEY FRAMEWORK RECOMMENDATIONS .

Short-Term Solution: Expand in Europe • Focus on Italy (63 Billion Euro Market) • Implement “Oil Stain” expansion method Long-Term Solution: Expand Outside of Europe • Establish operations in North America . North American Distribution Center (Mexico) • Asian Expansion • Increase stores drastically to enhance presence in people’s mind Focus on Marketing • Marketing through Internet • Combined with E-commerce for US market GLOBAL APPAREL INDUSTRY INDITEX and ZARA VALUE CHAIN ANALYSIS INTERNATIONAL EXPANSION MCKINSEY FRAMEWORK RECOMMENDATIONS .