Group 1

Venu Parakala
Mahesh Telangi
Bhupendra Saikia
Satish Chandra Pradhan

169278046
169278081
169278060
169278094

Founded in 1975 by Armancio Ortega, Zara is a very successful Spanish clothing and accessory realtor and the first
business to start the Inditex Group empire. Starting in a small Galician city known as La Coruna in Spain, Zara has
grown to be a retailer powerhouse with over 7,000 stores across 91 countries. Today, Inditex is considered to be the
greatest fashion retail group, and its founder Amancio Ortega, the richest person in Spain. Zara is the flagship chain
of the Inditex Group which generates nearly 65% of the net sales of the group. Zara needs just two weeks to
develop a new product and get it to stores, compared to the six-month industry average, and launches around
10,000 new designs each year.
Inditex has seven chains:
1.
2.
3.
4.
5.
6.
7.

Zara (including Zara Kids and Zara Home), Fast fashion clothing Ages between 0-45
Pull and Bear, Casual clothes Ages between 13-23
Massimo Dutti, Quality Fashions Ages between 25-45
Stradivarius, Trendy clothes Ages between 15-25
Bershka, Avant-grade clothing Ages between 13-23
Oysho, Lingerie Youths(Women), and
Uterque sophisticated fashion accessories

1.

Compare Inditex's financial results with its international competitors. What does that reveal about
Inditex's relative operating economics? Use Du Pont analysis

Inditex's three closest competitors are Gap, H&M and Benetton, Zara is relatively perceived as more
fashionable than all the other three and prices less than Benetton and Gap but higher than H&M.
The Dupont analysis is a financial ratio based on the return on equity ratio that is used to analyse a company's
ability to increase its return on equity, increase their return for investors. The Dupont analysis looks at three
main components of the ROE ratio which are:
1.

2.

3.

Profit Margin It is calculated as gross profit / sales

Zara= 1687/3250= 0.52
Gap = 4656/15559= 0.30
H&M= 2204/4269= 0.51
Benetton= 909/ 2098= 0.43
Zara earns the maximum return per buck invested and sold. While this is te least in case of Gap.
Total Asset Turnover It is given by sales/total assets
Zara =3250/2605=1.247
Gap = 15559/ 8566= 1.81
H&M=4269/2183=1.95
Benetton= 2098/ 2821 = 0.74
This indicates that H&M is efficient than Zara but that may be return to Zara's strategy of owning the
stores and plants rather than H&Ms strategy of whose depending on outsourcing.
Financial Leverage The fixed assets of each of the companies are as follows:
Zara = 1228 million
Gap = 4695 million
H&M= 661 million
Benetton= 720 million
Gap has the highest amount in fixed assets as seen from above figures.

2. How do the distinctive features of Zara's business model affect its operating economics?
Zaras strength lies in economic savings throughout their value chain. Starting with raw materials, Zara acquires only
un-dyed fabric initially, allowing the flexibility to change colors and designs resulting in substantial material savings. In
terms of manufacturing and production, Zara relies heavily on their central location in Spain to reduce shipping and
distribution costs, use skilled labor in a high wage economy and keep the flow of items moving from production to
distribution with minimal storage times. The warehouse Zara is more of distribution medium rather than storing
medium as it keeps the inventory only for shorter period as compared to its competitors. Zara works simultaneously
on multiple lines and process phases. Zara started with six season sale rather than four. As one item is being finished,
another may be in early or mid-production phases. Critical, high-risk lines are created and controlled internally. Asia
provides labour and production savings. They also observe market failures to make rapid adjustments to avoid similar
mistakes.
Further, Zara produces distinct items in small batches for faster turnaround and placement. With all of this rapid flow
of product to market, their speed to market is reduced to just five weeks. Competitor time to market averages six
months! Rapid flows of small batches create a sense of urgency and demand for Zara clothing lines, with the consumer
feeling the push to buy a limited offering during a limited availability.
Finally, Zara does very little marketing. They rely heavily on high-traffic and beautiful, high-visibility stores to attract
customers. Promotional offers are also offered biannually. They also use customer preference tracking to stay on top
of changing consumer demand.
3. Explain the linkages among Zara's choices about how to compete, particularly ones connected to quickresponse capability?
Zara competes in the garment retail industry as a quick-response, small production run chain that targets fashionconscious middle- to high-income sectors of society. Zara has also built an image that fosters an atmosphere in which
it is the buyer more than the seller who is under pressure. Zara buys and leases prime locations for stores in central
shopping centres, adding to their fashionable image; at the same time, their small production runs and ever-changing
inventory communicates and environment of scarcity, pressuring the buyer. They know that if they do not buy what
they see now, it will not be there the next time they visit the store.The linkage of the previously mentioned elements
is what has been truly crucial to Zaras successthe big picture, rather than any one item, has led to their competitive
advantage. As a prime example of this point, the case discusses how World Co. of Japan achieved a comparable
response time in production along with similar gross margins, but failed to reach such a favourable bottom line.
4. What other strategic recommendations would you make to Castellano?
CEO and Deputy Chairman of Inditex Group, Jose Maria Castellano should focus the energy on the current chains,
specifically Zara since this chain in particular is responsible for much of Inditexs success. Because of Asias low wages
and already efficient production, more focus should be done to expand more low expense production centres around
the globe. A little focus on shopping via the Zara website would be best for Zara to sample the markets tastes and
trends by bringing focus of people towards its website. As Zara expands, more distribution centres near a promising
new market is recommended to complement its existing distribution centre and to alleviate the high transportation
costs. If Zara has plans to expand in North American markets, a new distribution centre in Mexico would be most
beneficial. As expenses on advertisements is very less in comparison to other players, the success of individual Zara
store is largely attributed to each stores manager. To find prime candidates for these managerial positions, Zara may
be interested in creating and investing in an internship/co-op educational program to train potential candidates.