Thursday, April 9, 2020
ZARA Fast Fashion
Table of Contents Inditex (Industria de DiseÃ ±o Textil) Strength of Inditex Weaknesses and challenges Coping with managing multi-chain stores Should it start up or add more chains Conclusion Reference Inditex (Industria de DiseÃ ±o Textil) Inditex, a global retail specialty, manufactured and sold accessories, footwear and apparel for men, women and children. These products were distributed and sold through Zara and other five chains linked to it in other parts of the world. Inditex was located in Spain and was the owner of Zara and other five apparel retailing chains and was founded by Amancio Ortega Gaona.Advertising We will write a custom report sample on ZARA: Fast Fashion specifically for you for only $16.05 $11/page Learn More In 2001, as it was coming to the end of its fiscal year, it had accomplished much. For instance, it had acquired a selling space around the world including Spain, an area of about 659,400 square meters and on it operate d 1284 stores. In addition, it generated 54% of total revenue of Ã¢â ¬ 3,250 million in the 515 stores it had outside Spain and showed a continued trajectory of rapid and profitable growth from Zara and its other chains with a net income amounting to Ã¢â ¬340 million (Ghemawat Nueno, 2003). Inditex had many employers who worked both in Spain and in other retailing chains outside Spain. Its total number of employees was 26,784 and out this number, 10,919 employees worked in the retail chains located outside Spain. Over 76% of Inditex employees were women and put together with men, they had an average year of 26. Additionally, the company had split its employees to work in different departments and sections. For instance, 8.5% of the employees worked in the distribution, logistics, design and manufacturing departments while over 80% were doing retail sales in the stores. The remaining activities were carried out by the small group that worked in the headquarters. To maintain its operations, Inditex split its capital expenditure giving 80% to new store openings, 10% on maintenance or logistics and another 10% on refurbishing (Ghemawat Nueno, 2003). Its working capital was higher in some season in the year and lower in others. Therefore, to deal with these issues, it had to come up with plans to tightly manage its working capital and its capital expenditure which was Ã¢â ¬50-510 million.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Also, it ensured that it had opened 230-275 new stores with the capital across all chains. It is important to note that in 2001, Inditex operating economics had involved operating margins of 22%, operating expenses with a revenue equivalence of 30%, of which one half of the 30% were related to personnel, and a gross margin of 52% (Ghemawat Nueno, 2003). Moreover, Inditex operated six retailing chains at the beginning of 2002. The r etail chains were Zara, Oysho, Stradivarius, Bershka, Pull Bear and Massimo Dutti. These retailing chains formed 60 companies consolidated into Inditex at the group level. The remaining chains were involved in finance, real estates, logistics, manufacturing, and textile purchasing. The net income of Inditex generated 82% from internal transfer pricing and other policies. The six retailing chains were organized as separate business units together with six support areas dealing with raw materials, logistics, manufacturing plant, real estate and so on. In addition to the separate business units, Inditex had nine corporate departments each operating independently with its own strategy personnel, financial results, image, distribution, and manufacturing system. The group management was to set strategic vision of the group, provide them with administrative services and coordinate the activities of the concept. Inditex ensured that coordination had been increased particularly in the areas of expansion and real estate. Also, it formulated plans to open up other chain stores in other locations with Zara helping to accelerate the process of expansion of new chain stores in other areas. Oysho, one of InditexÃ¢â¬â¢s chain stores drew 75% of its resources from other chains and within 6 months it had come to operate stores in seven markets in different parts of Europe (Ghemawat Nueno, 2003). Also, top corporate managers of Inditex came up with strategic plan to control their performances, run the chains, approve business strategic of the individual chain and control the business. Inditex had a major scope in production than the three retailers. However, the competitors of Inditex outsourced all their production. It is important to know the strength and the weaknesses of the three strong competitors of Inditex.Advertising We will write a custom report sample on ZARA: Fast Fashion specifically for you for only $16.05 $11/page Learn More To be gin with, The GapÃ¢â¬â¢s level of apparel production was internationalized as it outsourced 90% of its production from outside the US. It was founded in 1969 and between 1980 and 1990 it had achieved great profitability from selling smart casual work clothes and collections of jeans and T-shirts. Its major operations were based in the United States. Secondly, Inditex faced stiff competition from Hennes and Mauritz (HM). This was a high performing retailer in apparel founded in Sweden. It performed better than Zara in terms of industry standards. By 1990, it had generated more than a half its sale outside Sweden through internationalizing its operations. In addition, HM outsourced to the suppliers in Europe half the sale of all its production. It was strategic in its approach to business getting into one country at a time and starting a center that dealt with distribution focusing on the northern part of Europe. Another competitor of Inditex was Benetton. Its outsourced activities to subcontractors were labour-intensive and these earned it prominence in the 1980Ã¢â¬â¢s. In addition, it used its investment to control many production activities. Strength of Inditex In its operations, Inditex set up strategies to assist it in increasing its production and gain market for its products. Being a global specialty retailer, it widened its market scope by opening Zara and five other chains that sold accessories for men, women and children around the world. Basically, its ability to achieve this lied in the number of stores, the selling area, its employers and the division of labor among its workers. For instance, Inditex had 659,400 square meters of selling area around the world occupied by its 1,284 stores. In addition, these stores earned Inditex a huge amount of revenue of about Ã¢â ¬3,250 million (Ghemawat Nueno, 2003). A greater percentage of that revenue came from its 515 stores located in Spain. Moreover, it employed people to work in Spain as well as in t he chain stores outside Spain. Its total number of works was 26,724 with about 78% being women. Among the total population of workers, Inditex used 8.5% of them to work in distribution, design, logistics and manufacturing while over 80% were to do sales in the retail stores (Ghemawat Nueno, 2003).Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More In addition, it organized its expenditure and operating working capital to cover the plans of opening new stores across all chains and for refurbishing and maintenance. Also, Inditex derived its strength from its structure. Its top corporate managers set out corporate and business strategies, and controlled the operations and performance of all the chain stores down to the local store level. This was to ensure that they have maintained a high standard in returns on capital employed, earnings before interest and taxes (EBIT) margin and on sales growth. Additionally, performance metrics reports were monitored daily as well as being monitored personally by the CEO Castellano once a week. Moreover, Inditex had one of its six chains that was large, most internationalized and a source of most of its capital. This chain store was referred to as Zara. Zara operated 507 stores in Spain and in other countries around the world. Out of the total 659,400 square meters of working area, it occupie d 74% and earned Inditex Ã¢â ¬2,477 million which was about 76% of the total earnings (Ghemawat Nueno, 2003). Basically, Zara was the driver of the growth of Inditex through its international operations. In its operations, it had made quite tremendous achievements in terms of investments in manufacturing logistics and IT, constructing a warehouse of 130.000 square meters in Artexio close to the corporate headquarters and an advanced telecommunication system to connect production, supply and sales locations with the headquarters. Additionally, In the 1990Ã¢â¬â¢s Zara mandated internal development of information, merchandizing, financial, retail and logistical systems. Through Zara, Inditex was able to attract more customersÃ¢â¬â¢ preferences and placed with both internal and external suppliers. Compared to the 2000-4000 items produced by its key competitors like The Gap and the HM, production in Zara increased to 11,000 to several hundred thousand with variation in sizes, colo r and fabric putting consideration in time-sensitive items. Additionally, it was able to stock goods in stores within a very short time. This facilitated continuous manufacturing of new merchandise and reduced the intensity of working capital. This gave Zara and the whole of Inditex an advantage over its competitors as it could much later than its competitors commit to the bulk of its product line. This was in sharp contrast to the traditional industries that took up to three months for manufacturing and six months for cycling of new designs. Therefore, Inditex through Zara alone was able to overcome traditional retailers who restocked and designed only 0%-20% compared to ZaraÃ¢â¬â¢s 40%-50% of the purchases of finished products from suppliers, 35% of purchase of raw material and product design and during the period when seasons started, it undertook 85% of the in-house production (Ghemawat Nueno, 2003). Also, Zara offered its customers garments and accessories like bags, jewelry , scarves, shoes and even cosmetics and toiletries that were fresh. The garments were of designer style and were being sold at relatively low prices. This was a strategy that drew fashion conscious customers and devout shoppers visited the chain 17 times a year compared to their competitors who only received such visitations three to four times a year. Weaknesses and challenges In its course of business, Inditex has faced a number of challenges and setbacks in Spain and in its other chains all over the world. The positioning of the companyÃ¢â¬â¢s headquarters in Galacia posed a major problem to it in terms of communication links with the rest of the country. Even though Spain had a strong history of Galacians being tailors to aristocracy, their apparel workshops lacked a strong foundation upstream in textiles, demand, universities and technical institutes to facilitate training and specialized initiatives. Furthermore, they lacked association in the industries to underpin other ac tivities that were potentially cooperative. Also, most of the citizens of Spain depended on fishing and agriculture. As consumers they demanded low prices on goods. Inditex faced a challenge of stiff competition from its competitors like The Gap, HM and Benetton. For instance, The Gap had its production internationalized and so was competing with Inditex for international markets. It outsourced 90% of its production from the United States (Ghemawat Nueno, 2003). Its products like InditexÃ¢â¬â¢s fresh and designer wear garments were considered to be unpretentious and fashionable in the 1980Ã¢â¬â¢s and 1990Ã¢â¬â¢s. it also had high stellar profits. These pose a great challenge to the business of Inditex as at such a time the attention of most of its customers were The Gaps products that had dominated most of the markets in and outside Spain. In addition, Hennes and Mauritz (HM) dominated most parts of the market outsourcing all of its production. Half of all its outsourced prod uction was taken to European suppliers. Due to this, HM significantly led in the market ahead of Zara for a long time. While Indited maintained its many chains style of operation, HM adopted a more focused single format approach and entering one country at a time. It had become internationalized faster than Zara by a decade and by 19190, had generated most of its sales outside Sweden, used several label in marketing its clothes and built distribution centers in each nothern Europe country it entered. Its decade of business ahead of Inditex gave it a solid foundation, popularity and dominance in some markets that would have otherwise been dominated by Inditex. Moreover, Inditex faced another competition from Benetton. It had become prominent in the 1980Ã¢â¬â¢s and the 1990Ã¢â¬â¢s. The news about its outsourced activities that were scale insensitive and labour-intensive to sub contractors that made it popular was due to its controversial advertising as a networked organization. In addition, it made heavy investments on production. Coping with managing multi-chain stores Inditex could have managed to cope with the complexity of managing multiple chain stores because it had a well established market all over the world. Its growth in terms of profit had reached Ã¢â ¬340. In addition, in the year 2001, it had an oversubscribed Initial Public Offering and a 50% increase in stock price (Ghemawat Nueno, 2003). Also its market valuation had rose to Ã¢â ¬13.4 billion. Its market projections were higher in terms of expectation and growth. Additionally, Inditex was a Global apparel retailing business system with chain stores spread all over major markets in the world. Global apparel chains are normally characterized by a unique combination of high value research, marketing, sales and financial services that allow retailers, branded manufacturers, branded marketers to act as strategic brokers. These strategic brokers link market with the overseas factories. Therefo re global apparel chain becomes a prototypical example of a buyer driven global chain. The attribute displayed by the strategic brokers distinguish other labor intensive industries from the vertical structure of the commodity chain in apparel stores. Labor intensive industries such as Toys and Footwear Chain stores, are dominated by upstream manufacturers rather than down stream intermediaries. Through the brokers, Inditex could manage to link its other chain stores with the market and even the overseas factories. Besides, Inditex was able to manage other retail chain stores because of its increased concentration of apparel retailing throughout the major markets. Having multiple chain stores would increase its dominance in shaping imports in the countries that have developed. In the 1990Ã¢â¬â¢s half of the apparel sales in the USA were done by the top chain stores. Therefore operating multi chain stores gives Inditex the opportunity to increase its concentration everywhere and to dominate the markets by displacing other independent stores. This does not compromise the excellence of individual stores because it had been the trend in the 1990Ã¢â¬â¢s. This trend had helped many chain stores to increase their sales and store sizes over time. Additionally, Inditex could have managed to control multi chain stores because of the set of policies and practices promoted by quick response (QR). These sets of policies and practices coordinated the roles of the manufacturers and the retailers for the purpose of increasing flexibility and speed of responses to a shift in market trends. Through QR, Inditex was likely to be able to control all the functions of its existing chain stores or others regardless of the geographic or organizational boundaries. In addition, QR would help retailers reduce inventory risks and forecast errors by planning, placing smaller initial orders and reordering more frequently, probing the market and planning assortments closer to the selling season. It is important to note that QR offered the global apparel chain stores many advantages. For instance, it led to improvement of information technology and significant compression of cycle times. It also changed the style of women dressing. This type of business strategy would have placed Inditex in a better competitive position as a way of coping with its larger number of chain stores. Managing multi chain stores would have been easy and like the individual chain, Inditex would have maintained excellence because of the availability of market and customers. In 2000, worldwide spending on apparel or clothing reached approximately Ã¢â ¬900 billion. According to the estimates, Asia accounted for 23%, United States for 29% and Europe for 34% (Ghemawat Nueno, 2003). The difference in per capita spending on the population level and on clothing was reflected by the differences in market size. However, an increase in per capita income tended to lower per capita spending which was also affected by price level. Another coping strategy was that Inditex had a variety of customers who had different tastes and preferences. Therefore it was important to have more chain stores in other countries to meet the demands of their customers. For instance, more shops in Britain would ensure that the needs of people in Britain were met. These individuals sought went to stores based on social affinity. Other chains would serve the needs of those in France and Italy who were fashion forward focused on quality and variety of the apparels. Additional multi chain stores would have catered for the ever growing needs of many nations to buy apparels. The British, other than seeking stores out of social affinity, bought apparels nine times a year. The French and the Spaniards also brought clothing at different times of the year. These time differences in places and by different nations reflected the great need for additional multi chain stores. In addition, both within the regions an d between regions demands for apparel increased. In japan, teenage market segment was making most demand for apparel. Therefore, managing the operations of multi chain stores would have required Inditex to arbitrage international factor price difference, minimize tangible investments, and invest in brands. Also, there was the need to emphasize partnering. Should it start up or add more chains From the perspective of meeting the growing market demands and its ability to make more products, Inditex should add more chains. The sourcing and manufacturing levels of Inditex had over the years expanded substantially. Through the help of its headquarter personnel and its purchasing office in Hong Kong and Barcelona, Inditex through Zara outsourced finished products, fabric and other inputs from the external suppliers, manufactured 40% of the finished products internally and sourced from Europe and North Africa approximately two-thirds of the items while one-third came from Asia. Zara, by it self, had enough factories to carry out this process and it also had its own centralized distribution system. More chains are needed to cater for the growing market needs. The plans that Inditex had for the year 2002 were to increase stores for Zara with 55 to 66 new stores. These stores were to be in Spain and outside Spain. Those outside Spain were to be 80% of the total added stores. These decisions to add more stores across the world would ensure more consumers are reached since Zara had accounted for a greater selling area due to such expansions. There was a need to do more significant investments in other areas North America, South America and Asia. In addition, other areas like the Middle East were profitable and worth having stores and products for consumers. In this region, expansion efforts could be made because of the higher than expected demand that would be able to cater for operating costs and it would offer the brightest prospects for a significant and sustained growt h. Also, Inditex could have added more chains through joint ventures in areas where it was difficult to obtain licenses to open a new store. Some of the difficulties in opening more stores that Inditex competitors face were solved through joint ventures. For instance, 1998 Benetton formed a joint venture to help it secure a location and obtain multiple licenses required to open a new store. Also, inditex had formed a joint venture with Percassi, an italan group specializing infashion retail and property in the year 2001 to enable it expand its stores in Italy. Conclusion To sum up, the growth and performance of Inditex was attributed to its good management team, strategies, policies and other chain stores that were performing well in Spain and in other countries around the world. Additionally, Inditex had well established international expansion strategies, a committed workforce, a good market for its products and a well established distribution system. Also, Inditex ensured that it made progress towards implementing a social strategy that involved a dialogue with local communities, non-governmental organizations, subcontractors, suppliers and employees. Reference Ghemawat, P. Nueno, L.J. (2003). Zara: Fast fashion, Harvard Business School, pp.1-35. This report on ZARA: Fast Fashion was written and submitted by user Blaze Banks to help you with your own studies. 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