Zara Case

Topics: Production line, Revenue, Earnings before interest and taxes, Supply chain management, Retailing, Assembly line / Pages: 16 (3833 words) / Published: Nov 13th, 2011
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?

We think H&M’s financial results are the most interesting one to compare with Inditex’s. H&M is the most important and largest competitor of Inditex and due to their similar background, both being large international European apparel brands and offers fashionable clothing with in season style.

We have notice and quoted from Exhibit 6, their net operating revenues, aka their sales, are more alike when compared to Gap and Benetton; and their net incomes are also similar. The negative ROE in Gap, caused by the failed attempt of repositioning and the massive decline in stock price during 2001, affects the total financial figure of Gap too much that we think it not suitable to be used to directly compare with Inditex’s results. As for Benetton, we find its sales, net income and operating profit per store especially low to be compared with the other 3 firms.

Inditex has an operating margin of 21.7% while H&M has a 13.1%. The operating margin can be used as a measure of each firm’s capital efficiency. It shows that Inditex has a greater power to earn a profit per each Euro of sales than H&M. Inditex, though has lower net operating revenues, but has resulted in keeping their operating income higher than H&M. This may be done by lowering cost of goods sold and having a smaller proportion of staff employed. Inditex owned 1,284 stores, hiring 26,724 people while H&M owned 771 stores, hiring 22,944 people. Inditex has a lower staff to store ratio than H&M. This keeps the amount of money needed to be paid as wages low. Inditex also spends lower advertising expense than H&M, only 0.3% of its revenue and by using vertical integration, i.e. production by own self, lower the total costs.

There is a huge difference between the

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