Case Memo: Zara Fast Fashion
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? Indeed comparing the financial performance of Inditex with the key competitors, Inditex was the most profitable company in terms of ROIC. In terms of revenues, income and size, H&M shows that it is the most interesting to compare. Inditex has a store number of 1284 that is almost twice the number H&M operates on at 771. However, it seems the strategy of Inditex is to operate a higher number of stores with a lower gross retail size while H&M operates fewer stores with bigger gross retail size. This is clearly seen in most countries where H&M stores operate with 2 or 3 floors of retail space. The other indication is that Inditex position itself to use it store fronts as advertising rather than investing in commercial. As a result of this strategy, it is reasonable to believe that the rental cost of Inditex is higher thus operates at a smaller gross retail size. Financially, both companies are profitable and both have around 10% of profit margin. However, looking at the structure of the companies, Clearly Inditex out performs H&M due to it also operates manufacturing, R&D and value added facilities. This indicates that besides the retail front, the company is also doing well in its overall portfolio. 2.
How specifically do the distinctive features of Zara’s business model affect its operating economics? Specifically, compare Zara with an average retailer with similar posted prices. In order to express all advantages/disadvantages on a common basis, you may find it convenient to assume that on average, retail selling prices are about twice as high as manufacturers’ selling prices. In terms of Zara’s business model, it focuses on the fast moving cycle of its product rather than creating a line of product that is modified...
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