Zara Case Study
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Zara is the flagship brand of the Spanish retail group, Inditex SA, one of the super-heated performers in a soft retail market in recent years. When Indtiex offered a 23 percent stake to the public in 2001, the issue was over-subscribed 26 times raising Euro2.1 billion for the company.
Zara is unique model in business world today it has its own principles which may varies from its competitors in the same industry starting from production strategy ending with supply chain management strategy, these strategies has to be examined carefully to analyze the this leading example.
At the end of 2001, Zara operated 507 stores around the world, including Spain (40% of the total number of Inditex), with 488.400 square meters of selling area (74% of the total) and employing 1050 million euro of the companys capital (72% of total), of which the store network accounted for about 80%.
Zara, which contributes around 80% of group sales, concentrates on three winning formulae to bake its fresh fashion that are short lead time makes more fashionable clothes, lower quantities makes scarce supply and more styles that equals more choices and more chances of hitting it right.
Zara main competitors are three according to the near analysis of the market that are Gap, H&M and Benetton. They are having their own characteristics for example they completely outsource their production to factories around the world ,many of them in low cost Asian countries which is not in considerations of Zara who produce in Europe although the high labor cost but its the business game and each one has his roles.
Case analysis:
To dig deep down in Zara case we have to answer many questions each one will lead us to know how is this unique model act and success in leading the fashion industry.
Question 1:
With which of the international competitors listed in the case is it most interesting to compare Inditexs financial results? Why? What do comparisons indicate about Inditex relative operating economics? Its relative capital efficiency?
H&m is the closest competitors from financial point of view. According to the operating results and financial position, it is close to Zara but there are many key different in strategies in production, distribution, marketing and management as well. In addition to the number of employees, stores in country and outside country.
Let us make some key analysis to discover some facts about them:
1- Total assets turnover=sales/total assets
Zara =3250/2605=1.247
H&M=4269/2183=1.95
That gives us the indication that H&M is efficient than Zara but that may be return to Zaras strategy of owning the stores and plants which is not the strategy of H&M whose depend on out sourcing as shown in the next item.
2- Property, plant and equipment=
Zara is about doubled H&M (1228:661) million. The ratio here is 2:1
In my point of view Zara is more efficient here, because it invest more in owning its store which getting the value of discount its depreciation of these fixed assets from tax. Also the expenses of these stores and plant of their net income and tax. In the same time these assets value increased every day because they buy in competitive areas so also I think Zara is more competitive in using its capital.
3- Gross profit margin= gross profit / sales
Zara=1687/3250=.52
H&M=2204/4269=.51
Zara has higher and this ratio express how much remaining from each sales dollar after firm has paid for its good.