1.

Compare Inditex's financial results with the other retailers referred to in the
case. What do the comparisons indicate about Inditex's relative operating
economies and its relative capital efficiency?
Gap
ROE
Profitability
Efficiency
Leverage
Fixed Asset
Turnover
Ratio

0.0026
5
0.0005
8
1.8163
67
2.5223
79

H&M

Beneto
n
Inditex

0.2484 0.0568 0.2288

85
14
02
0.0960 0.0705 0.1046
41
43
15
1.9555 0.7437 1.2476
66
08
01
1.3230 1.0829 1.7530
3
17
28

3.0329 5.9706 1.6611 1.8560

43
29
24
82

A du pont analysis indicates that among the Zaras Profitability is the highest
among the entire brand due to the fact of brand mystification because of the
promise of fast fashion.
Though H&M depicts superior operational efficiency than Zara it is pummelled
by the fact that outsourced production increased its lead time and the time for
its product to market. Owning 40% of the manufacturing in house Inditex
deploys higher fixed asset thus its ROE is driven by the low inventory holding
business model which cuts the current assets and improves the efficiency of
the firm
2. How specifically do the distinctive features of Zara's business model affect its
operating economies? How would you compare Zara (in terms of
advantages/disadvantages) with an average retailer with similar pricing?
Comparing Zara to various different competitors in market
Inditex
H&M
Vertical Integration causing short lead
Outsourced Production causing longer
times
lead times
Huge number of designers making new
Significantly less number of designers
products increasing speed to market
employed
Only one distribution Centre resulting in
Multiple distribution centre increasing the
better inventory management and lower
cost
cost
Very fast expansion strategy
Very slow expansion strategy
Thus Zara gains competitive advantage over H&M by developing new designs
faster and making them reach to the market faster. A lower cost of inventory
management also is a huge advantage.

Inditex

Benetton

Very fast expansion strategy through

franchisee system, company owned
stores and joint venture

slow expansion strategy through

licenses

Zara competitive edge over Benetton was the reach to the consumer market
Inditex

Gap

Very fast expansion strategy

slow expansion strategy only 5

countries
Outsourcing caused long lead times

Vertical integration resulting in short

lead times

Inditexs competitive advantage lied in the freshness of design of the apparel due to
fast design production and distribution system. It is because of the in-house design
and production facility it was able to offer the latest fashion at its store.
A change in the design, assortment and the very display of merchandise in a less
than 4 weeks increased footfall in its stores and compelled consumers to buy the
product as it made them scarce by changing them. Hence the consumer had to buy
and close the sale if she liked something.
Because fashion was positioned as fast and dynamic , it made people to walk into
ZARA store to check out merchandise and significantly bring down the cost of
advertising its merchandise.
3. How does Zara's choices about how-to-compete, particularly the ones related
to its quick-response capability, affect its operating economies? How do these
choices create competitive advantage?
Zaras choice to reach market at pace has a lot of emphasis of better inventory
management. Its whole idea is to market its inventories before it needs to be sold , ie
rather than incurring inventory holding cost and locking up precious space in retail, it
is able to sell all its inventory and get critical feedback of peoples taste to emulate in
its next design.
This forges a strong brand recall for the people and increases foot fall in store which
is critical for any brick mortar store. The scarcity causes brand mystification and
compels consumer to shell better price for its product fearing a loss of opportunity to
buy if purchase decision is postponed. It reflects in superior profitability of the store.
4. How sustainable do you think Zara's competitive advantage is?
Zara over a period of time has developed a strong brand name as the apparel brand
in fashion. Its ability lies in the small inventory that it holds for each stock which
makes the brand very desirable and adding imagery value to the product itself. The

supply chain is very robust and has a far reach in many markets than its competitors.
Thus innovation in design and being first to market has been its principle strength
helping it go gain this position.
Under the current circumstance Zaras competitive advantage is very sustainable as
to replicate it either the competitors have to go for a capacity expansion both in
design and production or have a great collaboration and trust with manufacturer
which is a very farfetched goal.