Zara Fast Fashion Case Analysis 4b2u6v

1. Compare Inditex's financial results with the other retailers referred to in the case. What do the comparisons indicate about Inditex's relative operating economies and its relative capital efficiency? Gap ROE Profitability Efficiency Leverage Fixed Asset Turnover Ratio

0.0026 5 0.0005 8 1.8163 67 2.5223 79

H&M

Beneto n Inditex

0.2484 0.0568 0.2288 85 14 02 0.0960 0.0705 0.1046 41 43 15 1.9555 0.7437 1.2476 66 08 01 1.3230 1.0829 1.7530 3 17 28

3.0329 5.9706 1.6611 1.8560 43 29 24 82

A du pont analysis indicates that among the Zara’s Profitability is the highest among the entire brand due to the fact of brand mystification because of the promise of fast fashion. Though H&M depicts superior operational efficiency than Zara it is pummelled by the fact that outsourced production increased its lead time and the time for its product to market. Owning 40% of the manufacturing in house Inditex deploys higher fixed asset thus its ROE is driven by the low inventory holding business model which cuts the current assets and improves the efficiency of the firm 2. How specifically do the distinctive features of Zara's business model affect its operating economies? How would you compare Zara (in of advantages/disadvantages) with an average retailer with similar pricing? Comparing Zara to various different competitors in market Inditex H&M Vertical Integration causing short lead Outsourced Production causing longer times lead times Huge number of designers making new Significantly less number of designers products increasing speed to market employed Only one distribution Centre resulting in Multiple distribution centre increasing the better inventory management and lower cost cost Very fast expansion strategy Very slow expansion strategy Thus Zara gains competitive advantage over H&M by developing new designs faster and making them reach to the market faster. A lower cost of inventory management also is a huge advantage.

Inditex

Benetton

Very fast expansion strategy through franchisee system, company owned stores and t venture

slow expansion strategy through licenses

Zara competitive edge over Benetton was the reach to the consumer market Inditex

Gap

Very fast expansion strategy

slow expansion strategy only 5 countries Outsourcing caused long lead times

Vertical integration resulting in short lead times

Inditex’s competitive advantage lied in the freshness of design of the apparel due to fast design production and distribution system. It is because of the in-house design and production facility it was able to offer the latest fashion at its store. A change in the design, assortment and the very display of merchandise in a less than 4 weeks increased footfall in its stores and compelled consumers to buy the product as it made them scarce by changing them. Hence the consumer had to buy and close the sale if she liked something. Because fashion was positioned as fast and dynamic , it made people to walk into ZARA store to check out merchandise and significantly bring down the cost of advertising its merchandise. 3. How does Zara's choices about how-to-compete, particularly the ones related to its quick-response capability, affect its operating economies? How do these choices create competitive advantage? Zara’s choice to reach market at pace has a lot of emphasis of better inventory management. Its whole idea is to market its inventories before it needs to be sold , ie rather than incurring inventory holding cost and locking up precious space in retail, it is able to sell all its inventory and get critical of people’s taste to emulate in its next design. This forges a strong brand recall for the people and increases foot fall in store which is critical for any brick mortar store. The scarcity causes brand mystification and compels consumer to shell better price for its product fearing a loss of opportunity to buy if purchase decision is postponed. It reflects in superior profitability of the store. 4. How sustainable do you think Zara's competitive advantage is? Zara over a period of time has developed a strong brand name as the apparel brand in fashion. Its ability lies in the small inventory that it holds for each stock which makes the brand very desirable and adding imagery value to the product itself. The

supply chain is very robust and has a far reach in many markets than its competitors. Thus innovation in design and being first to market has been its principle strength helping it go gain this position. Under the current circumstance Zara’s competitive advantage is very sustainable as to replicate it either the competitor’s have to go for a capacity expansion both in design and production or have a great collaboration and trust with manufacturer which is a very farfetched goal.