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Inditex Financial & Competitive Analysis 2001-2002

In-depth financial and market analysis of Inditex, Zara's IPO, global fashion industry overview, and key insights into international competitors and internal strategies. Learn about the industry trends that shaped the landscape at the turn of the century.

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Inditex Financial & Competitive Analysis 2001-2002

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  1. Financial Analysis: Inditez • End of 2001 • €340 million net income on revenues of €3,250 million • 1,284 stores • 515 outside of Spain generated 54% of revenue • Capital Expenditure split 80% on new stores, 10% on logistics/maintenance • 2002 • €510-560 million of Capex, of which 230-275 was spent on new stores (across all chains)

  2. Financial Analysis: Inditex • May 2001 • Launch of IPO (26% of shares sold to public) • Stock price increased 50% by 2002 • Market valuation of €13.4 billion

  3. Financial Analysis: Zara • 2001 • Largest and most internationalized of all 6 chains • 507 stores, 282 of which were in 32 countries outside of Spain • €1,050 million of company’s capital (72% of the total) • EBIT at €441 million (85% of total) on sales of €2,477 million (76% of total)

  4. External Analysis: Fashion Industry • Apparel trade 1990s • China – export powerhouse, Japan • European Union: Turkey, North Africa, sundry Eastern Europe • United States: Mexico, Caribbean Basin • Multi-Fiber Arrangement (MFA), since 1974 • 2002, post-MFA world • 2005, reduced tariffs (7-9%)

  5. External Analysis: Fashion Industry • Li & Fung, Hong Kong’s largest trading company • Multinational supply chain: • Jacket: Filling- China, outer fabric-Korea, zipper-Japan, inner lining- Taiwan, elastics and label–Hong Kong – shipped to US. • Liz Claiborne, 1976 • Outsourced production • 1990s, restructure of suppliers • Backwards Integration vs. pure middleman

  6. External Analysis: Fashion Industry • 1990s, the increasing concentration of apparel retiling • Retail chain’s sales: 85% U.S., 70% Europe, 40% Latin America and East Asia, 10% China and India • Promotion of Quick Response (QR) • Reduced forecast errors and inventory risks • Probing the market • Compression of cycle times • Improved information technology • Globalized apparel retailing • 2000, spending on apparel 900 billion euro • Per capita spending • Local variation in customers • “get big fast”

  7. External Analysis: International Competitors • The Gap • 1969, San Francisco • 90% international production • 1987, international expansion: UK, Germany, Japan • 1990s, Banana Republic, The Gap, and Old Navy • Frailer to repositioning • Hennes and Mauritz (H&M) • 1947, Sweden • All production outsourced • Quick to internalize • Lower price than Zara • Expensive advertising • Fewer designers

  8. External Analysis: International Competitors • Benetton • 1965, Italy • Investment in controlling subcontractors’ production activities • Little downstream investment • Narrowing product lines • 1990, hit saturation • World Co. of Japan • Comparable cycle times • Integrated backward into manufacturing • Depressed Japanese market • Comparable cycle times

  9. External Analysis: Inditex/Zara • Retailers to aristocracy • Home to thousands of small apparel workshops • Sophisticated local demand • Spanish consumer vs. Italian buyer • Quality fabric from local suppliers • 1980 Vertical integration • Sourcing from Far East • 200 external suppliers

  10. External Analysis: Inditex/Zara • Third party delivery services • KLM & DHL • Customers now when is the delivery day • “buy now because you will not see this item later” • Market entry via franchising and joint ventures • Cyprus, 1996 • Turkey, 1998 • 49:50 split

  11. Internal Analysis: Technology • Just in Time Manufacturing • Enabled a Quick Response • Improved Coordination • Faster market shifts with increased flexibility • Reduced forecast errors and inventory risks • Compressed cycle time • Telecommunications • Supply, production, sales locations • Tracking system • Preferences • Repeat orders

  12. Internal Analysis: Vertical Integration • Backwards Integration • Manufacturing of most time-sensitive items • Ship directly from the central distribution center to stores • Fast cycle times • New design to finished good in 4-5 weeks • Modifications in 2 weeks • Industry had 3-6 month cycle times • Reduced working capital and enabled continuous manufacturing • Bulk of products out much later than competitors with more time to prepare

  13. Internal Analysis: Separate Business Units • Each brand was its own separate entity • Different Strategies, Product Designs, Manufacturing, Distribution, Image, Personnel, etc. • Group management • Strategic Vision, coordinated concepts, administrative services • Learning by doing • Created item daily, only about 1/3 was produced • Failure rate was 1%, industry was 10%

  14. Internal Analysis: Employee Training • Store Manager • Responsibilities • Hiring and Training • Small business feel • Salary • Incentive to earn up to half with performance • Training • 15 day training • Corporate for managers and overseas management

  15. Internal Analysis: Competitive Advantage • Value • Zara Name • Well known, scarcity, attractive ambience, fresh • Vertical Integrated • Control the supply • Quick turnover (no more than 3 days in warehouse) • Short supply chain and lead times • Organization • Organized to exploit their resources • Similar products in all stores

  16. Recommendations Stay consistent Hold on with European expansion: Greece Keep investing in technology Advertise to get the name out there internationally

  17. Questions

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