1- With which of the international competitors listed in the case is it most interesting to compare Inditex's financial results? Why? What do comparisons indicate about Inditex's relative operating economics? Its relative capital efficiency? Note that while the electronic version of Exhibit 6 automates some of the comparisons, you will probably want to dig further into them.
Background: Inditex is an international fashion retailer that designed, manufactured and sold apparel, footwear, and accessories for women, men, and children through Zara and other five chains around the world. The six retailing chains were organized as separate business units within an overall structure that also ...view middle of the document...
For instance, Zara did not face the two basic barriers for going globally which are:
o ________Costs: that Zara did not incur when entering a new market, as the company does not have extraordinary advertising expenses to create brand recognition.
o ________Logistics: which involve being ahead of the curve, volume, SKUs, and delivery points; all are the same in every store which allows the company to take better advantage of real estate opportunities regardless of the market the company is in.
That is why gap's operating expenses far exceed that of Zara in year 2001.
MILLIONS OF EUROS
NET OPERATING REVENUES ________15559
COST OF GOODS SOLD ________10904
GROSS PROFIT ________4656
OPERATING EXPENSES ________4276
(NET INTEREST EXPENSE) ________108
OPERATING PROFITS ________272
INCOME TAX ________280
NET INCOME ________-9
MILLIONS OF EUROS
NETOPERATING REVENUES ________3250
COST OF GOODS SOLD ________1563
GROSS MARGIN ________1687
OPERATING PROFITS ________704
INCOME TAX ________150
NET INCOME ________340
2- How specifically do the distinctive features of Zara's business model affect its operating economics? Specifically, compare Zara with an average retailer with similar posted prices. In convenient to assume that on average, retail selling prices are about twice as high as manufacturers' selling prices.
Zara gets a competitive advantage by offering the customer fashionable clothes to affordable prices. This is not a pure differentiation since zara does not charge a premium price for the product. Nor either is it a pure cost leadership since the objective is not to become the lowest-cost producer in the industry. Zara has rather developed a combination of differentiation and cost leadership, and ended up with a successful formula.
A short lead-time is important for Zara to be able to offer the latest fashion in store at all time. The reduction in transportation time by having the whole production close to the market give Zara a big lead-time advantage compared to its competitors, which more commonly keep their production in the Far East. The geographical close network by keeping the production close to the headquarters in Europe and keeping the whole team working in the same building might also lead to reduction of the lead-time. Making collaborating and meeting less time taking. In addition, they have carefully integrated a good IT- structure. Further, by owning a big part of the facilities they are able to have better control of the production and are always able to reschedule each factories production plan to concentrate on that part of the collection that is most important at that moment.
In the fashion industry the customer's demand changes rapidly, and what the customers finds fashionable today might be impossible to sell tomorrow. Therefore, to base the future revenue on always offering fashionable clothes depends on good predictions of customers future preferences. The...