Essay About Question Of Viability Of Their Supply Chain And Low Penetration

Hennes & Mauritz, 2012; Inditex: 2012; Gap, Inc., 2012
Hennes & Mauritz, 2012; Inditex: 2012; Gap, Inc., 201230 May 2018InditexH&MGap, Inc.Expansion policyExtremely rapid and aggressive worldwide expansion (748 stores in 1998 vs. 6,009 stores in 2012). Made a strategic decision to expand outside Spain, however, they have low penetration in most of its markets. Went in the Internet, which gave them a chance to increase its market share in some regions. There is a question of viability of their supply chain, as the company expands in many regions instead of reaching higher market share.Aggressive international expansion at first, however, in 2005 the growth was slower than for Inditex. The company paced down. Expanded through acquisition in 2008. Remained strong growth for the time of recession. Entered Chinese market when it was already fragmented, which resulted in high required commitment to succeed (questionable investment as sales per store 5.1 are quite low comparing with other regions). More focused on market share than on number of regions. Expected to continue expanding in Europe.Aggressive expansion from the very beginning till 2000, when the sales growth slowed. Expansion strategy was slowed down for a few years until 2002 when it turned negative. The CEO began to close its stores to rescue the company from drowning. Some of the acquisitions had to be divested. The company continued to revise its presence worldwide to assess whether the stores are successful. Went online as their competitors. Costs policyExtended the division of value by introducing substantial cost savings (mostly outsourced production, exc. Zara, almost no advertising costs). Approximately two times smaller discounts to the customers comparing to apparel industry average. Well-designed supply chain.Very harsh low-cost strategy within H&M, but more modest within other brands. Still managed low-cost operations by fully-outsourced production, no air transportation (only via ocean, rail and road), using rented spaces for stores, carrying low marketing expenses.In 2007 the company took tighter inventory control, better partnership with suppliers, and less discounting which allowed to decrease costs. Stuff cuts were used as well. Operating went up. Differentiation strategyProvided the market with “high fashion apparel at an affordable price” differentiate them from competitors (vertical). I.e. Zara Home. Created a horizontal differentiation inside the company with 4 its brands (excl. Massimo Dutti – vertical), which helped to increase customers incentive to pay. Around 200 designers comparing to competitors who have around 20 designers, which allows to faster replicate the trend. It increases customer’s willingness to pay as well.Started as “women fashion clothes at a very low price”. Afterwards decided to implement a horizontal and vertical differentiation strategies (7 different brands developed for different customer segments) in order to raise willingness to pay by offering more exclusive products and brands (COS, & Other Stories) rather than the basic ones (H&M).Used mostly vertical diversification while segmenting the customers. Better materials were used increase customers willingness to pay. However, due to the research the customers saw the product of the company more like commodity with different pricing. The company worked harder to ensure that the customers are incentivized to pay more for the products of Old Navy. Involved even more in the advertising and design of the stores, in order to show through it the message that the products are of different level. Thus, the customers are willing to pay different price.Currently, Inditex shows the best performance due to the right strategic choices made by the CEOs. However, it expands extremely fast, which can result in the situation which was faced by Gap in 2000. All of the companies worked hard to decrease costs in the way that it doesn’t hurt customers’ willingness to pay. Inditex and H&M were more successful in incentivizing customers to pay more for their products. Thus, we can conclude that H&M and Inditex were more successful in creating competitive advantage.