Company Analysis Research Paper

Inditex-Zara
Syeda Noor Ul Ain

Executive Summary
Industria de Diseno Textil (Inditex) is one of the largest fashion retail companies in the world
with eight unique concept brands. Inditex began its successful journey in the textiles industry in
1963 and went into business as a dressmaker. Now it has a presence in 88 markets in all 5
continents with over 6,683 stores and 137,054 employees. In 1975, Inditexs founder Armancio
Ortgea opened its first Zara store in the centre of La Coruna, Spain after striving in the textiles
industry. Zara offers high quality, trendy fashion clothing and accessories which meet the
customers demands. Over 200 professionals are dedicated in designing creative products
which are desired by consumers based on their feedback. Inditex was quickly on its way to
expansion by opening Zara stores in different geographical areas which was followed by the
launch of its retail brands: Massiomo Dutti, Pull & Bear, Bershka, Oysho, Stradivarius, Zara
Home, and Uterque. Currently, Pablo Isla is the Chairman and CEO of the company and he
believes that Inditex has an enormous potential for the future, based on its competitive
dynamism and extreme commitment of all the people who are part of the company.
Inditex is headquartered in the Spanish coastal town of La Coruna. Zara and Zara Home have
corporate headquarters in Atrexio which is very close to La Coruna. Each head office has its
own its own design facilities and logistics centres from which products are shipped to the Inditex
Group's stores worldwide twice weekly. In addition, Inditex has two large-scale logistics
platforms in Zaragoza and Madrid which distributes merchandise for the Zara brand.
Inditex has a competitive advantage in the fast fashion, retail industry against its competitors:
Hennes & Mauritz (H&M), GAP, UNIQLO due to its exceptional business model. Inditexs
business model provides it with an unprecedented ability to respond to customers demands by
offering high quality fashion products from its logistics systems centered in Spain which deliver
merchandise to all of the firms stores twice weekly. The responsive and unique supply chain is

due to the vertical integration strategy which implements a centralized distribution system.
Inditex relies on in-house production from Spain, Portugal and Morocco rather than outsourcing
to China, unlike most of its competitors. This successful fast fashion business model is
dependent upon a constant exchange of information throughout the supply chain: information
flows from customers to store managers, from store managers to designers, from designers to
production staff, and so on. Zara-Inditex has a strong operational performance and it is indeed
costly to run production but that gives the firm a fast, direct, responsive supply chain. Zaras
cost leadership and differentiation strategy allows it to compete on a global level as it uses its
business model to respond to customers demands by relying on the data collected by each
store manager rather than keeping up with the trends. It produces limited stock dependent upon
what is selling at each store worldwide which reduces waste of inventory.
Inditex is in a good financial position and its healthy economic performance is dependent upon
immense international expansion and an increase in return to their shareholders. According to
Inditex report in 2014, the net sales in fiscal year 2014 reached a total of 18.1 billion which is
an 8% increase from last year. Also the firms gross profit increased 10.6 billion euro which is
7% higher than fiscal year 2013 leading to a 58.3% gross margin. Inditex is continuing its strong
global expansion both online and in stores. Zara plans to launch online sales in Taiwan, Hong
Kong, and Macau in 2015 and Zara made net sales of 11, 594 (in million euros) in the fiscal
year 2014 which is the majority of Inditex revenue. Inditex does have room for improvement and
potential to compete more aggressively with its competitors. After a thorough analysis of ZaraInditex, the following recommendations (explained in detail in the Recommendations Section)
were made:
1. Continue Strengthening Zaras and Zara Homes Expansion in the United States
2. Adapt the business model to emerging Asian markets
3. Establish marketing and advertising strategies for subsidiaries other than Zar

Financial Analysis
Inditex is in a strong financial and economic position. It continues to grow and expand globally
with fully integrated stores and online sales platform. According to Inditex report on FY2014, net
sales reached 18.1 billion, 8% higher and it showed a strong operating performance: net sales
in local currencies increased 11%. Moreover looking at the financial statements, gross profit
reached 10.6 billion, 7% higher than in FY2013, resulting in a gross margin of
58.3%. Income before taxes was 3.2 billion which is 6% higher than FY 2013 and Net Income
was 2.5 billion which is 5% higher. Zara saw more growth in 2014 as it launched its online
sales in Mexico and South Korea. Zara plans to launch online sales in Taiwan, Hong Kong and
Macau in FY2015. Fig 1.1 and Fig 1.2 highlight the firms consolidated financial statements.
Inditex and H&M both are worlds largest and leading retailers. They are in direct competition
with each other but Inditex has the lead due to its impeccable and extremely efficient supply
chain. Inditex has a higher inventory turnover ratio of 4.18 compared to H&Ms 3.46 which is an
indicator of strong sales. Inditex- Zaras expansion strategy has been top notch as it opens 80

to 100 stores in Asia per year and H&M is frantically trying to catch up by building a
daunting 350 stores on the continent, according to Kyle Stock at Businessweek.
Additionally Inditexs sales have been strong as mentioned in an article from Business
Insider, its gross margin slipped to 58.9 percent in the first quarter from 59.6 percent a year
ago, but still beat forecasts due to cost control and stayed well ahead of the 54.9 percent
H&M reported for the three months ended Feb. 28 in the FY2014. In comparison to H&M,
Inditexs share price is quite high, so Amancio Ortega who is the founder of Zara proposed a
5-for-1 share split at its annual meeting. Shareholders will receive five shares for every share
they own at the close of business on 25 July. The new shares began trading on 28 July 2014.

Fig 1.1 Income Statement (Source: Inditex full year report 2014)

Fig 1.2 Balance Sheet (Source: Inditex full year report 2014)

Compan
y Name

Revenues

Gross
Margi
n

Net
Income

EBITDA

Total
Assets

Total
Liabilities

Market
Cap

Shar
e
Price

Inditex

2265753759
4

59.33

322036660
1

413566157
3

1863638001
6

610997353
8

1061500000
0

17.03

H&M

2041938211
7

58.81

269383351
6

349418903
9

1019452004
0

324201299
4

1187500000
0

8.13

Table 1.1: Inditex v. H&M (Source: Mergent Online Database)

Ratio

Inditex

H&M

Current Ratio
Quick Ratio
Debt-to-Equity Ratio
Inventory Turnover
Total asset turnover
EBITDA Margin %
Return on Assets % (Net)
Return on Equity % (Net)

1.95
1.41
0>
4.18
1.26
18.25
17.84
26.87

2.11
1.15
3.46
2.14
17.11
28.28
41.27

Table 1.2: Ratios for Inditex and H&M (Source: Mergent Online database)

Fig 1.3: Inditex continues to show strong financial position in FY 2014. (Source: Inditex full year report 2014)

Fig 1.4: Net store openings of Inditexs eight brands (Source: Inditex full year report 2014)

Source: Inditex annual report 2013

External Analysis
The General Environment consists of six segments listed below:
The Demographic Segment:
Zara is a global brand with geographically diverse customers and stores which are located in
Spain, Europe, America, Asia, and Africa. The main target population is women in the age range
of 20-40 and it also has clothing lines for men and children. Zara has continued its global
expansion which has resulted in sustainable growth and profitability. It has become a leading
player in the international/ emerging markets by expanding into Asia-Pacific region and other
countries such as: Algeria, Venezuela, Dominican Republic, Azerbaijan etc. The rising levels of
affluence in the developing countries are an important factor to consider because the fashion
conscious consumers especially todays younger generation is likely to spend money on clothes
and accessories to make a statement.
The Sociocultural Segment
In the retail and fashion industry the sociocultural forces are one of the most important factors to
consider based on the region the brand is opening its doors in. The lifestyle and beliefs of a
society plays an important role in determining the designing of clothing. In the western culture,
the number of women in workforce has highly increased which in turn increases the demand for
clothing merchandise for business purposes. The younger generation desires a fashion forward
lifestyle with clothing that is similar to high-fashion couture style but simultaneously affordable.
When expanding worldwide in the fashion, retail industry, it is highly recommended to do heavy
research on the customs and culture of each region to determine the demands of consumers.
The Political/Legal Segment
Inditex ensures that it complies with political regulatory and trade conditions and good legal
practices:

Equal pay between men and women

Assessment of supplier working practices
Diversity and Equal opportunities for employees
Human rights and child labor
Participation of stakeholders is heavily analyzed
Responsible use of water: the water consumed by Inditex is discharged by means of

sanitation networks, in all cases with the appropriate administrative authorization.

Inditex Group reports the number of suppliers and the number of audits performed in a
year.

As Inditex expands into global markets it needs to be aware of the political issues and legal
regulations unique to each region. Inditex has a set of Global Compact Principles and here are
first three from its website:
1. Businesses should support and respect the protection of internationally proclaimed human
rights.
2. Businesses should make sure that they are not complicit in human rights abuses.
3. Businesses should uphold the freedom of association and the effective recognition of the right
to collective bargaining.
Porters Five Forces Model of Industry Competition
Michael E. Porters model highlights the forces that affect a firms ability to compete in a
particular market and helps assess the firms competitive position. Zara can use this analytical
tool to examine its environment and determine its strategy accordingly.
The threat of new entrants: Low to Moderate

The switching costs are high because buyers based on economic conditions and financial status

will switch from one competitors products to another.

To counteract barriers to entry, Zara has developed strong brand identification and customer
loyalty worldwide. By focusing on product differentiation, the stores offer a unique, fresh look
that customers identify with and visit to pick out exclusive items. Zara designers create 40,000
new designs annually. Differentiation creates barriers to entry as the competitors are forced to

compete by overcoming customer loyalty.

Zaras distribution system is the key to its success. As the firm carries out all of its design,
warehousing, distribution and logistics functions internally rather than relying on third party

partners. Since the value chain activities are in complete control, it takes the firm only two

weeks to design, produce, and deliver a new product/garment, and have it on display in stores.
The e-commerce platform has allowed many retail clothing businesses to establish an online

presence hence encouraging competitors to enter and grow using this avenue.
Initially there is a low capital requirement to establish in the retail industry with low risky or
unrecoverable up-front costs such as research and development. Additionally, the form and the
industry make use of unskilled workers in production and stores.
Bargaining Power of Buyers: Low

The buyers are less price sensitive and are willing to spend the money for the good quality and

trendiness factor of the clothing.

In foreign emerging markets such as India, China and Indonesia the Zara brand clothing is
placed on a higher end compared to the developed regions like Europe and America where it is
placed as a low end product. Therefore, products are competitively priced to ensure that there is
balance between the vast variety of choices of clothing/accessories and price.
Bargaining Power of Suppliers: Low

Zara has a concentrated group of suppliers which are located near to Spain and is the most
important component of a supplier base that numbers over 1,500. The remaining suppliers are
based in various global markets and this diversity provides the firm with a variety of textile

manufacturing specialties. This strengthens the firms bargaining power.

If the suppliers do not oblige with the Code of Conduct and the Compliance Programme, then
Zara can end working with unethical suppliers. The manufacturers of products and suppliers go
through a system of regular audits which are carried out by Inditex and in turn strengthen the

supply chain.
The price of raw materials such as fabric is low
Zara uses a vertically integrated business model which provides it more flexibility. Instead of
relying on disparate suppliers, Zara makes more than half of its clothes in house.
Rivalry among firms: High

In the fashion retail industry there are numerous equally balanced competitors which makes it
highly competitive for sustained growth potential

There is a lack of differentiation and switching costs because clothing faces pressure for intense

price competition and customers decision is based on price typically.

High exit barriers are the result of high fixed costs and inventory costs
Substitutes/ Products: High

Buyers are highly likely to find or purchase substitute products from Zaras competitors such as

H&M, Mango, Uniqlo, Gap, and etc.

Low buyer switching costs and high substitution because consumer can purchase the clothing

from any apparel/accessories retail store

Inditex has many different brands that cater to different demographics based on age, culture,
region and gender. Some of the brands other than Zara such as Pull&Bear, Massimo Dutti,

Bershka, Stradivarius and ZARA Home. This allows Inditex to minimize the threat of substitution
Since Zara products are high-end and expensive in the developing countries the threat of fake
or counterfeit products of lower quality is possible which consumers are willing to purchase
based on their financial conditions
Threats for Zara-Inditex:
First looking at Zaras main competitors, Hennes & Maurtiz (H&M) is the Swedish retailer and it
is the second largest apparel retailer with over 2600 stores in 43 countries. This fast fashion
retailer has continued its online growth strategy and plans to launch transactional websites in
four new territories in 2014. H&M is one of the worlds most visited fashion websites and this
allows it to reach a higher number of customers easily. Additionally, to gain more success in the
United States H&M uses advertising heavily and to its advantage by employing strategies like
broadcasting a TV ad commercial during super bowl. This is the most lucrative opportunity to
gain high profile status in the worlds most leading consumer nation. It shows that H&Ms
marketing strategy will gain the competitive advantage among its competitors. H&M is applying
innovation through T-commerce which allows viewers who own Samsung smart TVs to shop or
purchase products with their TV remote controls. According to H&M website, its expansion
target is to increase the number of stores by 10-15 percent per year. H&M enjoys a strong

financial position with immense potential for expansion and its shop online is available in 21
markets including the US.
In addition to competition, Zara needs to be aware of, promote and protect the human, civil,
political, social and cultural rights. It should develop policies to defend the human rights in its
operations and in those policies developed by the stakeholders. Zara has created several
instruments like an Ethics Committee which allows any personal of the company or an
organization related to the company to record any breach of the principles and Code of
Conduct. Suppliers have a Compliance Program to ensure that all suppliers and manufacturers
respect human rights in their operations.
Zara needs to ensure that its products and clothing offer good quality comparable to the
price it charges. In order to sustain its growth, Zara should not only rely heavily on Spanish and
European markets but also pay closer attention to the global markets. Fashion is not constant
and continuously changing so it is crucial to keep up with trends and especially the needs of
customers both in Europe and emerging markets. It should work on enhancing the product
diversity in potential global markets to sustain its competitive advantage. Additionally, Zaras
expansion into China is beneficial but it needs to take heed of counterfeiting which is a welldocumented problem in China.
Opportunities for Zara-Inditex:
The company Inditex is one of the biggest fashion distributors in the world. It has several other
brands in addition to Zara like Pull & Bear, Massimo Dutti, Bershka, Oysho and Stradivarius and
it has over 6000 stores in 86 countries. Internationalization has been part of their commitment
for a long time and expansion outside of Spain began in Portugal in 1988 and expansion has
not stop since then. Zara has established a global presence due to their current strategy to gain
utmost advantages in the European, Americas and Asian markets. Moreover, Zara has
expanded and extended their e-business to the markets where they actually have stores. This
allows them to target more customers who can enjoy the same service quality in the online

environment as they do in physical stores. After the launch of Zara.com in South Korea and
Mexico in the year 2013, the Group reached 27 online markets in 2014.

Fig 1.5 Online sales for Zara and concepts from 2007-2015 (Source: Inditex full year report 2014)

Sustainability is an important basis that Zara practices in all the processes of decisions. Todays
generation is environmentally aware and caring. So in order to make customers happy and stay
true to their business principles, the company uses a sustainability strategy which ensures the
firms growth and competitive level in the industry. The Right to Wear strategy highlights and
ensures the quality and sustainability of all the products and activities developed by the Group.
There are three parts to it;
-

Clear& Safe to Wear: All products sold by the company follow a stringent health and

safety standards
Teams to Wear: Honesty in everything they do, transparency and professionalism.
Tested to Wear: Auditing and monitoring to ensure that all the products are made
upholding the ethical human, labor, and environmental rights.

Stakeholder Engagement
Inditex strives to stay transparent and believes that Transparency is the fundamental principle
that inspires Inditex in its relations with its stakeholders. It is an important part of its business

principles to provide access to clear and comprehensive information to help the stakeholders
gain an understanding and evaluate the companys business activities. It releases annual report
as a platform to show the entire social, economic, environmental developments of the year. It
has a thorough outline of its values and principles in The Code of Conduct and Responsible
Practices. This strengthens the relationship between the stakeholders and Inditex by ensuring
that the company and its entire workforce follow and uphold ethical and professional conduct in
business dealings around the world.

Internal Analysis

Value Chain Analysis

Value Chain Analysis will allow us to gain an understanding of how Zara uses the building
blocks to obtain competitive advantage. The primary activities at Zara consist of ordering,
fulfillment, design and manufacturing, logistics. Inditex has a number of textile design,
manufacturing, and distribution facilities which are all located in Spain. Each head office is
equipped with its own unique design facilities and logistics centres from which merchandise is
shipped to the Group's stores worldwide twice weekly. Zara differentiates itself from its
competitors by adding value in the every step right from manufacturing to distribution to sales.
The headquarters of Zara located in La Coruna, Spain and which is known as The Cube is the
central command for the fashion empire and is based upon speed and responsiveness. Zara
has developed a highly centralized but rarely duplicated design and manufacturing system.
Inditex owns more than one million square meters of logistics facilities and there are eight

logistic centers in Spain that provide two deliveries per week in the maximum of 48 hours.
Inditex has over 1592 suppliers worldwide and the production process happens in small
batches, mainly in proximity areas. There are three main suppliers: 1) Suppliers of intermediate
products which supply the materials and where production of accessories, weaving, threading,
cultivation and processing of raw materials takes place, 2) Suppliers of services provide
services in the production lines (factories and workshops) where dyeing, printing, laundries, and
other wet processes occurs, 3) Suppliers of finished garments supply the manufactured
products. Then Inditexs 948 million garments are on the market and distributed to stores. Each
store is placed in strategic location and goes through daily sales analysis, and works on
customer feedback. Stores are known to be eco-efficient with LEED gold certification and have
a human team of over 120,000 professionals. In order to achieve competitive edge, Zara
ensures that the designing team is encouraged and its cadre of 200 designers sits right in the
midst of the production process. According to a Bloomberg article, whether a shirt is made in
Portugal or Morocco, in China or Bangladesh, it still goes to Spain before being shipped to a
store. Beyond the distribution center are the 11 Zara-owned factories. Every shirt, sweater, and
dress made in them is sent directly to the distribution center via an automated underground
monorail. There are 124 miles of track. Across the surrounding Galicia region are
subcontractors, some of which have worked for the company since Amancio Ortega founded it
in 1975. This shows that the highly centralized distribution is crucial to their success because
the information that flows in from different store managers goes directly to The Cube. This
allows designers to make the necessary changes to the garments fast, buyers to order a certain
product more exclusively, and planners to decide what items to select from a store. The vertical
integration strategy in its supply chain gives the company efficiency and responsiveness to
customers demands. This strategy is extremely useful for Zara to compete in this industry
because the firm produces a large volume of its products in its own factories. Inditex controls
each phase of the fashion process: design, manufacturing, logistics and sales in its own stores.

The business model aims for flexibility and agility: the capacity to adapt the fashion on offer to
clients wishes in the shortest possible time. Vertical integration makes for shortening of
deadlines and provides the flexibility needed to respond more precisely to demand.
Zara has a strong human resource management and technology development activities
that make it stand apart. The importance of Information Technology is highlighted clearly in the
clothing giants business strategy because each store manager is in possession of a Personal
Digital Assistant. This allows the managers to gain intelligence and feedback on the products
directly from the customers by asking them a series of questions such as: Would you prefer the
skirt in a different color? Different length? Would you like the top in crew neck better than Vneck? This determines what ends up on the shelves of each store. Then at the end of the day,
stores managers discuss the data collected from the customers and the cash registers to figure
out what item or type of clothing sold the most. The point-of-sale (POS) systems are connected
to the PDAs which help to capture the customer purchase information. The collected information
by the managers is relayed straight to The Cube where almost three hundred designers
design the clothing according to the data provided and produce thirty thousand items compared
to four thousand items by its competitors like H&M and GAP. Each team is innovative and
motivated which is a result of the bonuses provided to them based on their success. This use of
technology has provided Zara immense success because it helps in the identification and
manufacturing of the products that the customers actually want.

Fig 1.6: Flexible and integrated business model (Source: Inditexs 2012 presentation)

VRIN Framework
Core
Competencies
Responsive
Supply Chain
Zara Brand
Image
Global growth
and E-commerce
Fast Production
Process

Value

Rare

Inimitable

Yes

Yes

No

NonSubstitutable
Yes

Yes

No

Yes

Yes

Yes

No

No

Yes

Yes

Yes

No

Yes

Zaras supply chain is the major component to its success which is valuable, unique, rare. This
provides Inditex with the competitive edge because it does not rely on fickle trends but is highly
customer driven and focuses on customers demands. To meet the customers demands, Inditex
relies on its sustainable business model which is highly centralized in its distribution and
production of products. Zaras retail concept revolves around the idea of limited production and
rapid replenishment of merchandise which ensures the customers of the exclusivity and
differentiation of each product that they purchase. Each store receives delivery twice per week
and the introduction of new products in small quantities is a rare and valuable strategy that is
not followed by any of its competitors. This reduces the cost of running out of a particular item
as customers are always looking for something new and this way it avoids costly
overproduction. Zaras creations are competitive compared to the high-fashion houses like
Prada with extremely affordable prices. This is plausible due to the fast, clear exchange of
information from each and every part of the supply chain. Store managers relay the insights that
they gain from the customers and forward it to the army of over 200 designers who create the
products that will sell in the stores, unlike its competitors. Zaras human resource, designers and
staff is a major core competence and new entrants will have high competition due to the high
amount of capital required. Isla recognizes their importance as he said that Inditex has an
enormous potential for the future based on the commitment of all the people who are part of the
company. In addition, physical proximity of logistics and production facilities makes the process
faster and Inditex has a better control on the quality of production. Zaras international
expansion has been successful because of its strong brand following and business model that
allow for its sustainable growth. Zaras brand image is rare, valuable and non-substitutable
because unlike its competitors there is no advertising costs or strategies.

Fig 1.7: Central distribution from Spain, orders to stores in 24-48 hours (Source: Inditexs 2012
presentation)

Strengths of Zara-Inditex
Brand Image
The image of the brand is one of the most important assets that Zara possesses. Customers
identify with the Zara brand name internationally for the high-end fashion clothing but at a low
cost. Zara compared to its competitors such as H&M, Uniqlo, and GAP only spends 0.3 percent

on advertising because the main focus is on creating the unique brand name that consumers
correlate with the quality of the products. Zaras innovative strategy enables it to compete at a
global standard. As mentioned in an article by The Atlantic: Zara didn't have to invent a brand
new product to become the world's biggest fashion retailer. It just had to invent a new process.
And process innovation is dominating the global economy. Zaras strategy is not to attract
customers with a brand new product but through their fast fashion business model which is
directed by the customers. Fashion and trends are fickle and constantly changing so instead of
spending a fortune on advertising and marketing, Zara spends ungodly amounts of money
buying storefronts next to luxury brands to own the label of affordable luxury. The retail strategy
for luxury brands is to try to keep as far away from the likes of Zara. Zara's strategy is to get as
close to them as possible. The cash-strapped customers recognize the brand and welcome
its success in Spain and other countries. Due to its fast fashion model, Zara beats the highfashion houses like Prada and Gucci to the market and offers the same products, made with
less expensive fabric, and at considerably lower prices. Harvard Business Review case on Zara
notes that Zara's customers visit its shops an average of 17 times a year. The high traffic in the
stores circumvents the need for advertising: Zara devotes just 0.3 percent of its sales on ads,
far less than the 3 percent to 4 percent its rivals spend. Inditex uses social media to strengthen
customer relations and satisfaction. Social media is a great avenue to market the new products
through lookbooks and Zaras facebook and Twiteer pages use hashtags which apply to a
certain item based on a day of the week for each line: Men, Women, TRF, Kids, and
Accessories. Fig 1.4 shows that Zara uses social media and has a larger following and
presence than any other Inditex brands. According to Inditexs report in 2013, Zara did not have
an Instagram but now it has 4.3 million followers and is known as Zara_Worldwide.

Fig 1.8 Social Media Presence of each Brand (Source: Inditexs Annual Report 2013)

Sustainable Supply Chain

Zaras supply chain is the secret to its success which allows it to gain a high level of uniqueness
and differentiate itself from the competitors. Zara decided against outsourcing their
manufacturing to the developing countries so that they have the ability to respond quickly and
efficiently to customers tastes. Former CEO of Inditex, Castellano says that The fashion world
is in constant flux and is driven not by supply but by customer demand. We need to give
customers what they want and if I go to South America or Asia to make clothes, I simply cant
move fast enough. Zara manufactures majority of the items that are sold rather than having
contract manufacturers who make other retailers apparel. According to a case study by Harvard
Business Review, Zara can design and distribute a garment to market in just fifteen days. In
Zara stores, customers can always find new productsbut they're in limited supply. Such a
retail concept depends on the regular creation and rapid replenishment of small batches of new
goods. This limited supply of items keeps the customer hooked due to the exclusivity of the
items offered at the stores and keeps the attraction high as they know that there will be new,
trendy clothing present, not seasonally but weekly. Designers, market specialists, procurement,
and production planners all work next to each other which increases the speed and quality of
the design process. Another strong asset is centralized distribution: Over 50% of Inditexs
production is manufactured locally, basically in Spain and Portugal, and both this production and
the rest, regardless of its origin, goes to the logistics centers of each chain in Spain, from which
it is distributed to all the stores. Zara is highly dependent upon its supply chain and it is crucial
that steps are taken to sustain and maintain the integrity of its supply chain. This gives it an
advantage because for a global company to grow and conquer successfully, it is essential that
each aspect of the supply chain process is dealt with scrutiny. Inditexs Annual Report in 2013
highlights the steps taken below to make that possible:
Identification of the Supply Chain

Traceability: Incorporated the traceability of its supply chain into the Code of Conduct for
Manufacturers and Suppliers.

Systems Update: A new online system was established to cover the companys traceability
needs. This allows Inditexs purchasing and Corporate Social Responsibility (CSR) teams and

the companys suppliers to share reliable and updated information.

Pre-assessment: The preliminary assessment is conducted for potential suppliers by internal
and external auditors to determine if the suppliers meet the requirements established in the
Code of Conduct.
Assessment of the Supply Chain:

Social Audits: Every supplier in the Inditex supply chain is subject to periodic social audits. The

audits are performed on all levels of production.

Supplier Classification: After the social audits are performed, each supplier is assessed by every
section of the Code of Conduct. This ensures and identifies that the suppliers are meeting
fundamental labor rights of workers and complying with environmental and health and safety

standards.
Corrective Action Plans (CAP): Inditex establishes CAP and advises each factory on their
application. It records each factories that initiated the improvement process, and factories that
improved their compliance and factories that are in the process of improvement.
Optimization of the Supply Chain

Improvement of Auditing: It is important that the quality of each audit is managed. 23 visits are

made to the factories to compare the quality of audits

Training and Awareness: In addition to training sessions, awareness raising meetings are held

on fundamental labor rights and good practices.

Worker health and safety: It is the companys priority to guarantee that all workers in its supply
chain perform their work safely. It has taken special initiatives in developing countries like
Bangladesh to ensure that all manufacturers producing for Inditex are providing a safe working
environment to their workers. Additionally in Morocco, a health and safety project was handled
where 53 visits were made to manufacturers and suppliers to assess their health and safety
compliance.
Sustainability of the Supply Chain

Inditex groups its suppliers into clusters to aid in dialogue and multilateral cooperation. The ten
clusters are divided into geographic areas with significant presence. These include: Spain
Portugal, Morocco, Turkey, India, Bangladesh, China, South East Asia, Brazil, and Argentina.
Clusters are supposed to follow the objectives for a sustainable supply chain so that they
contribute and create value in the company and make progress.
Eco-efficient use of resources
Inditex works toward its commitment to regulate all the processes, and installations involved in
production. To ensure that all the products meet the Clear To Wear and Safe To Wear
standards, the company collaborates with 28 benchmarked laboratories in 7 countries that
perform necessary tests. Inditex developed a pioneering programme in the fashion industry
entitled The List. This came into being due to Inditexs participation in the joint research
program with the University of Santiago de Compostela. Due to the establishment of this
programme, Inditex created first world classification of thousands of dyes, pigments and
auxiliary chemical products used in manufacturing textiles, footwear, and accessories according
to their compliance with CTW. Another project that was undertaken in 2013 was to strengthen
the commitment towards animal welfare. The company signed up to the Fur Free Retailer
Program promoted by the Fur Free Alliance. The eco-efficient and environmental friendly
strategy employed by Inditex makes Zara even more attractive to shoppers. As consumers we
know that the garments meet the demanding health and safety standards and that Zara is a
responsible manufacturer and producer.
Eco- efficient store is another key piece in the Inditex business model. The eco- efficient store
shows the companys commitment to sustainability and Inditex has built more than 1300 ecoefficient stores around the world since 2007 and all Inditex stores will be eco-efficient by 2020.
The stores save 30% in electricity usage and 50% in water consumption compared to
conventional stores. To stay on track with the eco-efficient store concept, Inditex follows the
guidelines of the benchmark green buildings standards which include: the US LEED and the

European BREAM. Additionally, Zara shops are always placed at strategic and unique locations
worldwide that guarantee visibility and accessibility. The Zara store in Korai, Athens was
located in an historical building which has been a premium location for commercial activity. The
building underwent restoration and renovation and now is the perfect nexus between the townplanning tradition of Athens and the first prototype of an eco-efficient store.
International Expansion
At the end of fiscal year 2014, Inditex had 6,683 stores in 88 markets and openings have taken
place in 54 markets. It will continue to grow and sales will continue to increase by 13% in local
currencies between February and March as predicted by the annual report by Inditex in 2014. In
fiscal year 2015, Inditex expects to open 420-480 stores and 70% of new contracts have been
signed. In 2015 Zara will launch online sales in Taiwan, Hong Kong, and Macau. Zara is a global
brand which gives it a competitive edge as it uses aggressive expansion strategy to reach all its
customers through generating online platforms to reach customers and their demands. Zara
strategically opens its stores in new markets to attract customers by placing them in high
commercial areas. Recent prominent Zara openings are stores in Fifth Avenue in New York and
Oxford Street in London. Europe is still the main region for expansion but Inditex will continue to
dive into Americas and Asian markets.

Fig 1.9: Stores presence worldwide (Source: Inditex Annual Report 2013)

Fig 1.10: Zaras expansion highlights (Source: Inditex Annual Report 2013)

Multi-Concept Strategy
Inditex uses related diversification and market segmentation to target its wide range of
customers. Inditex has eight distinctive concepts that cater to different age demographics, which
offer different style and quality of clothing and accessories for men, women and children. The
styles range from casual and sporty to elegant and high-end which are offered at different price
range depending on the brand. Inditex has eight different brands: Zara, Massimo Dutti, Pull &
Bear, Bershka, Stradivarius, Oysho, Zara Home, Uterque. All the brands share the same
business model and have a global presence. This multi concept strategy allows Inditex to gain
an upper hand with its competitors as it provides the firm the ability to generate larger revenues
and a wider reach to target its customers. Zara is a well-diversified brand as it not only offers
clothing but also accessories and it has expanded into a whole different brand: Zara Home
which offers textiles for bed, bath and table complemented by decorative items.

Fig 1.11: Brands and their year of origin (Source: Inditex presentation 2012)

Weaknesses of Zara-Inditex

Zara is heavily dependent upon European and domestic markets with 1,307 stores and 43
markets in comparison to Asia and the rest of the world with 450 stores and 26 markets. Europe
(excluding Spain) constitutes 46% of sales and 20% of sales come from Spain. The other 34%
of sales are from America and Asia and the rest of the world. This could leave the company
vulnerable to economic downturn or fluctuations in European currency. Inditex is still deeply
committed to investing in infrastructures in Spain from where it sustains the global projection of
the eight chains. Spanish coastal town of La Coruna is the headquarters for Inditex and the

town Artexio (close to La Coruna) is home to Zara and Zara Home headquarters. As mentioned
in the Harvard Case Review, Zaras single, centralized design and production center is attached
to Inditex and consists of three halls: one for womens clothing, one for mens, and one for
childrens.
Although Zara is in the process of experiencing immense global expansion, it still relies on the
domestic business model because the companys logistics facilities and manufacturing centers
are all located in close proximity to each other. Unlike its competitors, who focus on reducing
labor costs, Zara makes a point of running three parallel, but operationally distinct product
families. It is expensive to run and operate three channels and Zara should take note of that for
the future as it continues to spread its horizons internationally which will impact shipping,
distribution costs and lead to high labor costs. Inditex should eventually expand its production
and manufacturing sites to countries like China as it is Zaras next big market after Europe and
Spain.
The Inditex Groups star brand is Zara and it is the only well-known brand compared to the
other seven brands. Zara makes up the majority of the revenue with net sales of 10, 804 (in
millions of euros) and has 1,991 stores in the year 2013. Zara has twice as many stores and a
larger commercial presence than Pull&Bear with 853 stores, Massimo Dutti with 665 stores,
Bershka with 954 stores, and Zara Home with 394 stores. The seven brands are focused mainly
in the European countries and also in some Asian and Latin American countries. Inditex should
consider incorporating advertising into their business strategy to gain a higher awareness of
these brands. This will be beneficial to Inditex because even though Zara has garnered
immense success globally without advertising, the other brands can use this strategy to its
advantage. Currently, Inditex is doing very well, but in the long run it should consider trying
something new as the fashion and retail industry is highly competitive and constantly changing.

Firms Strategy and its Competitors Strategies

Firm Name

Inditex-Zara

Strategy Highlights
-

Small
Production
Batches
Cost
Leadership/
Differentiation
Strategy
Sustainable and
Responsive
Supply Chain

Rationale for
Strategy

Pros and Cons

Constant changes to the

initial collection based
on customer demands
Delivery twice per week
to make up for the
limited inventory.
Production in small
quantities, reduces the
costs related with
running out of particular

Pros: Stable and

sustainable, efficient
supply chain, Strong
global growth despite
lack of advertising both
online and stores,
Exclusivity and
differentiation of
merchandise as
demands are met

H&M

Eco-Efficient
use of
resources/
Responsible
practices/
Biodiversity
Global growth
and ecommerce
Limited
advertising
Customer
Driven

Expansion
Strategy
Sustainable
Growth
H&M
Conscious:
sustainable
fashion future
Quality/Low
price
Collaborates
with
International
Designers, Style
Icons from Karl
Lagerfield to

items
Design and production
center all located in La
Coruna which increases
the speed of the
information flow and is
direct making the supply
chain responsive.
Promotion and
protection of human,
social rights
Stakeholder
engagement through
sharing good practices
and clear dialogue

Growth target is to
increase the number of
stores by 10-15 percent
per year, Aim to always
exceed customers
expectations on quality
to gain competitive
advantage, Best price:
in-house design, large
purchasing volumes.
Climate smart and
strengthen communities
by improving workers
rights and lives of
thousands of cotton
farmers, using

quickly which increases

store visits, low price for
high-end fashion
clothing, eco-efficient
use of resources such
as Water (Global Water
Management Strategy)
in their supply chain
makes them competitive
because of the ethical
use and reducing waste
of water, energy and
raw materials, LEED
and BREAM Certified
stores and
headquarters, Better
Cotton Initiative (BCI)
Cons: Expensive
practice of in-house
production, and limited
stock can prove risky in
the long run, advertising
is extremely minimal for
Zara and other
subsidiary brands which
works for Zara but for
future will prove
beneficial to increase
marketing strategy,
Brands besides Zara
are only well known in
Europe
Pros: Usage of
conscious raw
materials to make
garments from recycled
wool, polyester and
polyamide and organic
leather, silk, linen and
hemp. The conscious
garments have a green
hang tag. Global
expansion of stores in
2015 with planned 400
new stores net. Solid
growth results in a
strong financial position.
Stores premises are

Beyonce.

Fast Retailing CoUniqlo (Japan)

Specialty
Retailer of
Private Label
Apparel- Low
cost and High
quality
Global
Research &
Development
Distribution
Management

sustainable materials:
our aim is for all cotton
in our range to come
from more sustainable
sources by 2020

Research &
Development offices are
located in Japan & New
York and it is a main
focus in their business
model to gain insight on
latest trends directly
from the city streets to
design their
merchandise. This is a
good competitive

leased instead of
owning them to stay
flexible in changing
retail industry, Unlike
Zara, H&M collaborates
with fashion icons and
designers gives it a
competitive edge as
they attract a wider
range of customers
through advertising
campaigns and they
use this strategy to
show that they offer
quality merchandise at
a low price so that
young fashionistas do
not have to break their
wallet.
Cons: Compared to
Zara, H&M does not
own any factories and
sources their products
from outside suppliers
mainly in Europe and
Asia. This could prove
risky because the firm
has limited control over
the factories. This also
causes low quality of
products as H&M
cannot first hand control
the quality of production
but relies on the
production offices
located in the sourcing
markets.
Pros: Asias leading and
biggest clothing retailer
and 4th largest retailer,
Mass production of
affordable basics in
dozens of colors, Uniqlo
attracts customers with
its innovative ideas like
its HEATECH products,
Stores in prime
locations like major

GAP

and Inventory
Control
Marketing

Global growth
strategy for
American style
clothing
Online and
technology
advances
Responsible
sourcing/
Human rights
Advancing

strategy which creates

new and exciting
value.
Uniqlo uses high quality
materials and has a
partnership with Kaihara
Denim Corporation
which is known in the
denim industry as the
worlds best.
Uniqlo also has a
business partnership
with TORAY Industries
that provides them with
the HEATECH products
(heat generating
garments)
Uses expertise from
Japanese experts
known as the Takumi
Team who are a group
of engineers
Like H&M, Uniqlo also
does not manufacture
its products at home.
Ninety percent of
UNIQLO products are
manufactured in China.
760 stores across
Japan, and
international network
across six countries;
UK, China & Hong
Kong, USA, South
Korea, France and
Japan

shopping streets: New

York, London, Paris.
Clothes are cheap and
their main aim is
affordability, Introduced
a global pay system in
which managers.
Research &
Development centers
are located in New York
and Tokyo which gives
them an advantage to
capture latest trends.

GAP aspire to be the

worlds favorite for
American style.
Introduced a global
brand structure in 2012
by opening 45 stores in
China and 300
franchises globally.
Improving worker
conditions worldwide by
collaborating with Better
Work to monitor

Pros: Improving
financially, Brand name
is recognized globally
and increased
commercial presence
and growth, In 2014 the
companys revenue
increased 3.2% to
$16,148 million,
compared to $15,651
million in 2013. Strong
online presence and

Cons: Presence is
limited outside of Asia,
Only 17 stores in the
US. Online presence is
still behind other
competitors, Relies on
China heavily for
manufacturing and
production which means
limited control and less
diversification of
manufacturing base

women

factories in seven
countries- Cambodia,
Haiti, Indonesia
Focuses highly on
customer rights and is
against profiling.
According to Customer
Bill of Rights Profiling is
an unacceptable
practice and will not be
tolerated
Revamping their look
and presence by
appearing more hip, so
they opened a 19,000square-foot Gap store at
one of the top retail
meccas in the country:
Miamis Lincoln Road.
In 2014, GAP
introduced a Order in
Store Service to
improve customers
shopping experience by
making shopping quick
and easy.

other brands like:

Banana Republic, Old
Navy, Piperlime are well
established and well
known.
Cons: Highly dependent
on outside
manufacturers as
majority of the
merchandise is
produced outside of US
who limits the control
and makes it harder to
monitor. Buyer power is
high as fashion world is
fickle and changing
constantly GAP needs
to keep up with the
trends and price
pressure is also high.

Recommendations
Continue Strengthening Zaras and Zara Homes Expansion in United States
Based on the analysis of the firm, it has become clear that Inditex- Zara is the leader in the fast
fashion industry. Zara has established strong operational performance, customer loyalty and
commercial presence worldwide and in turn beating its competitors: H&M, Uniqlo, and GAP.
Inditex operated 6,683 stores in 88 markets and more store openings have taken place in 54
markets in the fiscal year 2014. Zaras biggest markets are Spain, European countries, and
Asia. The sales experienced an increase in the local currencies by a total of 11% in 2014 and in
store and online sales in local currencies also have increased by 13% from 1 February to 14
March 2015. Zaras presence in Asia has been booming and contributes to 21% of sales right
after Europe (excluding Spain) as it represents 46% of sales. Meanwhile, Americas represents
13.9%. This is a small percentage because the consumers are more financially stable and have
the means to purchase the clothing of Zara at the offered prices. But one big major issue that
Inditex should consider while expanding the Zara brand in the United States is: Zara does not
offer sizes for plus size women. Inditex should work on enlightening the designers and
production teams to take this important aspect under consideration when designing
merchandise for the American market. Zara is known for its trendy cuts and slim fits because
that is the part of the brand image, but to succeed more in the United States Inditex should
invest in incorporating a variety of sizes. Unlike its well-known competitors in the US, Zaras
sizing chart range from XXS-XL. Meanwhile, GAP sizing chart ranges from XS-XXXL and H&M
ranges from XS-3XL. This would be a challenging task since Inditex would have to alter the

production and design strategies but it has a great potential to provide better sales in the
market.

Market
Zara
Zara Home
United States
53
0
China
165
23
Spain
323
142
France
127
19
South Korea
43
1
Japan
95
8
Table 1.3: Stores by market as of January 2015 (Data gathered from full year report 2014)
Looking at the table above, Zara and Zara Homes presence in the United States is limited in
comparison to other markets. Inditex should focus on expanding more in the US as the
consumer market is huge and it would be beneficial to enhance store presence in a developed
country due to political, economic and social stability. Inditex is well diversified and it was a
smart move to expand the star brand Zara into Zara Home but it is not as strongly established
worldwide in terms of stores as Zara. Inditex should consider enhancing the marketing of Zara
Home to consumers by increasing the online platform and store presence outside of Europe. It
has a high potential to succeed as Zara has a substantial brand and customer loyalty. Inorder to
ensure long term success, Inditex should work on improving the Zara Home brand. Firstly
Inditex should introduce Zara Home in the United States and then gradually dive into opening
stores at strategic locations with a strong commercial environment like New York, Manhattan,
Dallas, etc.
Adapt the Business Model
Inditexs impeccable business model and responsive supply chain is the key to its sustainable
growth. After the European countries and Spain, Asia is the major revenue generator for the firm
so in order to sustain the growth; Inditex should consider adapting the business model to Asian
markets. Currently to enhance its growth in China, Inditex has given partial control to Tmall

website which is owned by the Alibaba Group to monitor Zaras online sales. Inditex was
attracted to establish an online sales platform through Tmall because though Alibaba takes a
share of profits on Tmall, it lets retailers maintain control of their interaction with clients. Pablo
Isla said that Its no different from online sales through our own Web page, so its like opening a
store in a shopping mall, and his strategy realizes the importance of how relevant China is for
us and how relevant Tmall is in China. This is a smart move because it will grant Inditex a
strong foothold. It will also help Inditex from the counterfeiting problem which is prevalent in
China as Tmall will help counteract this issue. But to further grow in the Chinese retail industry, it
will be beneficial to adapt and expand the business model in the emerging market of China.
Even though Inditex, is a leader in fast fashion as it takes only forty-eight hours to pack a store
in Hong Kong with new merchandise from the headquarters in Spain. This is extremely
impressive and another important factor besides speed is accuracy so Inditex ensures that
customers demands are met. Inditexs competition in Asia is Japans top retailer Fast Retailing
Co whose brand Uniqlo is growing fast and aims to be the worlds largest retailer by 2020.
According to UNIQLOs website, it relies heavily on China as ninety percent of UNIQLO
products are manufactured in China and they have business dealings with approximately 70
companies, most of which are located in China. In order to overcome this competition, Inditex
should plan on expanding the business model to their advantage by opening production and
manufacturing centers in China or sourcing their production primarily for the Asian market in
China. Inditex, should pay close attention in the future regarding its expansion strategy because
it should focus on managing the expansion of Zara and enhancing the sustainability of supply
chain. Both are highly expensive due to centralized distribution and vertical integration
employed by Inditex. Adapting the business model in emerging markets can be problematic and
high level of constraints are plausible because Inditex uses vertical integration which provides it
with high level of control in the production and it has seen global success due to its efficient

business model. This adaption strategy will require time and Inditex should keep this in mind as
it further expands in Asia.
Establish marketing and advertising strategies for other brands
Inditex multi-concept strategy is very valuable and it provides the opportunity of continuous
growth. The seven brands are: Massimo Dutti, Pull & Bear, Bershka, Stradivarius, Oysho, Zara
Home, and Uterque. One important factor that Inditex should consider is advertising and
marketing strategies for brands other than Zara. The subsidiaries are not well-known compared
to its major revenue generator and they have a huge potential to grow outside of Spain and
Europe. Inditex has avoided spending money on advertising, but in this competitive industry
each and every competitor relies on advertising. It will be quite beneficial for Inditex to try
something new to enhance the net sales and revenues from its subsidiaries. Each subsidiary
has been expanding and the presence in the Asian market is a smart move. The rising, affluent
middle class in the emerging markets is extremely open to European and Western brands
because they associate them with high fashion. Zara is already well established in Asia, and
Massimo Dutti and Pull & Bear have 65 and 61 stores, respectively. Inditex, can establish an ad
campaign exclusively for each subsidiary to garner more net sales. It can initiate the process by
assigning research and development teams unique to each brand and follow the strategy of its
business model into advertising. The advertising teams can gather data from customers in
stores and from the streets of high-fashion cities like New York, London, Paris, and Tokyo to
enhance the brand image of the seven concepts. This will complement their strategy of opening
stores in premium locations because consumers will be more likely to anticipate the arrival of
the new store and its new merchandise if they know more about the brand through ads,
lookbooks of seasonal collections, and through social media. H&M which is Inditexs top
competitor collaborates with international designers and style icons from Karl Lagerfield to
Beyonce to advertise their merchandise to fashionistas. This advertising strategy allows it to
gain a wide range of customers who are inspired by these fashion icons and they associate the

products with high quality but low prices. If Inditex were to apply a marketing strategy, it will
allow them a chance to enhance their differentiation strategy. Since each concept focuses on a
different age demographic, different styles of clothing from casual to elegant, they can use a
focus marketing strategy to target each type of consumers related to the different concepts.
Advertising and marketing strategies can be crucial to the firms further success as they will lead
Inditex to rise to a whole different level since these are the only two factors which are almost
nonexistent in its business strategy. Currently, Inditex is in a good economic position, but 10
years from now the circumstances will not be the same. So it should consider opening the doors
to the world of marketing as the retail industry is highly competitive and constantly changing.

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