Continued Growth for Zara and Inditex

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  • Topic: Inditex, A Coruña, Zara
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CASE 3.4 Continued Growth for Zara and Inditex

CIRCA 2008

ARTEIXO, Spain¡ªZara stores have set the pace for retailers around the world in making and shipping trendy clothing. Now Pablo Isla, chief executive of parent company Inditex SA, says Zara needs to speed up. As rivals catch up, Mr. Isla is attempting one of the fastest global expansions the fashion world has ever seen, opening hundreds of new stores and entering new markets. To do that, as an economic downturn threatens sales, Inditex is changing the systems that have driven its success at Zara and its other store brands, to save time and money. Among the innovations, it is introducing new methods to enable store managers to

order and display merchandise faster and adding cargo routes for shipping goods. ¡°There has been a clear change of mentality in the company,¡± Mr. Isla, a former tobacco executive who arrived at Inditex in 2005, said in an interview at the company¡¯s headquarters here.

The world¡¯s second largest clothing retailer by sales after Gap Inc., Inditex is responding to a predicament shared by other companies that come up with game-changing formulas: Eventually
competitors catch up, forcing the pioneers to do even better to keep their edge. Low-cost carrier Southwest Airlines Co. is making big changes to fend off rivals that have copied its effi cient operating model. Inventory-control methods at Walmart Stores Inc.

are being mimicked around the world, and Google Inc. is updating its search engine to keep users loyal.

The consumer slowdown is adding pressure. Inditex shares
have fallen nearly 24 percent in the last 12 months, in large part because investors are worried about an economic downturn in Spain, where Inditex generates over a third of its $12 billion in annual sales. The company is pressing ahead with its expansion plans even as consumers are slowing down. In the U.S., retailers had their worst monthly sales results in nearly five years in January, and some chains are planning to close stores and cut jobs. U.K. retailer Marks & Spencer PLC recently reported its worst quarterly sales performance in two years, and warned the pain could extend into 2009.

The industry is watching the company¡¯s logistical makeover. Though it sells inexpensive trendy clothing¡ª¡°fast fashion¡± in industry parlance¡ªZara has been so successful in luring high- paying customers that luxury fashion brands such as Gucci,

Burberry and Louis Vuitton have overhauled their own practices to send new fashions to stores more frequently. ¡°They¡¯re a fantastic case study in terms of how they manage to get product to
their stores so fast,¡± Stacey Cartwright, chief fi nancial offi cer of Burberry Group PLC, says of Zara. ¡°We are mindful of their techniques.¡±

In recent years, competitors across the globe have adopted
Zara¡¯s methods. Italy¡¯s Benetton Group SpA now replenishes stores up to once a week. Los Angeles-based Forever 21 Inc. and Japanese apparel giant Fast Retailing Co., owner of the Uniqlo chain, can get new looks to their stores within six weeks. Even outdoor clothing maker Patagonia Inc. has doubled the number of new styles it offers every year. As the popularity of cheap-and-chic

chains has zoomed, Zara¡¯s rivals Hennes & Mauritz AB of Sweden and Mango of Spain have also become fixtures on U.S. shopping streets.

In addition to Zara, which makes up 60 percent of its business, Inditex owns seven smaller store brands, including the more upscale Massimo Dutti and the youth-oriented Bershka. In the last 12 months Inditex added 560 stores, including entering new markets in Croatia, Colombia, Guatemala, and Oman, to reach 3,691 stores in 68 countries. It plans expansion of a similar scope over the next year.

The fi rst Zara store opened in 1975 in La Coru.a, a port town near Arteixo in a remote corner of northern Spain. Its two key traits were an eye for customer tastes...
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