Zara: Fast Fashion Essay

2018 words - 8 pages

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 included six business support areas and nine corporate departments or areas of responsibility. They are separate in the sense that each chain is responsible for its own strategy, product design, sourcing, and manufacturing, distribution, and image, personal and financial results.Inditex was based in the northwest of Spain; it also operated about 20 manufacturing and distribution facilities in the regionIt is most interesting to compare Inditex with its largest competitor-Gap- as Gap have the highest market capitalization of all Inditex competitors, the highest operating revenues and largest no. of store locations worldwide. So when comparing the financial results of Inditex with Gap we find out that:Gap Vs Zara: Gap had achieved stellar growth and profitability in the last ten years; it was one of the largest specialist apparel retailers in the world ahead of Inditex. It owned most of their stores but outsourced all production in contrast wit Inditex. Nevertheless it ends with a massive a decline in its stock prices and the departure of Its CEO in 2002.Although Gap and Zara follow the same business model, Zara's business model improved over time, through the incorporation of technology as they have developed about 95% of the software it uses, Zara fast response to market changes gave them a competitive advantage in creating fashion and satisfying customers plus the fact that the company is getting larger and more global than it has been.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.GAPMILLIONS OF EUROSNET OPERATING REVENUES 15559COST OF GOODS SOLD 10904GROSS PROFIT 4656OPERATING EXPENSES 4276(NET INTEREST EXPENSE) 108OPERATING PROFITS 272INCOME TAX 280NET INCOME -9INDITEXMILLIONS OF EUROSNETOPERATING REVENUES 3250COST OF GOODS SOLD 1563GROSS MARGIN 1687OPERATING...

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