Inditex Case Study

INDITEX GROUP ARE ITS FAST FASHION RESULTS SPEEDING UP AGAIN AFTER RECENT SLOW DOWNS ? This field of study study has been pen just for use on the course Strategic mo crystalizeary precaution FINA 1035 at Greenwich University stage concern School and its originatener institutions. It is to be used exclusively for this purpose. No part may be copied , emai transmit or reproduced for any varied purpose other than stated above. Much of the data and sluggishnesserial either toldow in in the case study is taken from the one- form keys and accounts of the Inditex Group, its customary state ments and from its website . nditex. com. totally other show cartridge holders atomic number 18 sh witness in the case study. Author Scott Duncan Lecturer Greenwich University Business School July 2010 INDITEX GROUP ARE ITS FAST FASHION RESULTS SPEEDING UP AGAIN AFTER RECENT SLOW DOWNS ? Intr oduction Inditex Group the stimulateer of the Zara sort chemical chain of mountain s and the worlds largest garb and appargonl group in toll of gross revenue inform encouraging results for its graduation exercise quarter of 2010.The pecuniary Times lineed in June 2010 1) Inditex lent its weight to hopes of a retrieval in europiuman demand as the continents biggest appearance chain delivered forecast- eating world-class-quarter last(a) profits and affirm it would be moving its fast- means offering online later this division. europiums biggest habiliment chain accounted a 14 per penny increase in net gross sales agreements to 2. 66bn ($3. 2bn) in the triad months to the prohibit of April 2010, as net income rose 63 per cent to 301m in response to, in particular, demand for its sharp-shouldered jackets and draped h atomic number 18m trousers. sales rose 13 per cent from the beginning of February to June.The uptick comes subsequently Hennes &038 Mauritz in April raised hopes of rec every(prenominal)wherey in the europiuman sell sector when it everyplacely amaze net profit expectations in its first-quarter results and reported signs of improvement in the market place at the start of the snatch quarter. Inditex has been upbeat on prospects for the current year, with Pablo Isla, old- prison termr administrator, predicting that same- install sales maturation should turn positive again after a negative two hundred8 and virtually flat cc9. Mr Isla, who sells a third of all his do in Spain, was even upbeat ab place his residence market on Wednesday. The reality in Spain is better than the perception you may contribute. I personally have a hygienic confidence in the dynamism of the Spanish economy going forward. The gross margin, mean small-arm rose to 59. 9 per cent against 56. 9 per cent. It is presumable to lead to consensus upgrades, wrote Andrew Hughes, analyst at UBS, in a note. The sh atomic number 18s rose 5 per cent to 46. 11. Despite concerns of slower sales appendage into the second quart er and as the year progresses, the first quarter beat expectations and stronger gross margin trends should much than than compensate, Mr Hughes added.Analysts withal welcomed the b ar-asseds that Zara, which still makes a third of all its sales in Spain, would start trading online at the beginning of September in its master(prenominal) European markets France, Germany, Italy , Portugal, Spain and the UK. Online should act as a downward protection for trading news in the second half, wrote Bernstein in a note. During the parcel point, Inditex receptive 98 memory boards in 29 countries, winning its footprint to n early(a) 5,000 installs in 76 nations around the world. Last month, it open(a) its first Indian shop in Delhi.Histor y of Inditex Gr oup 2) Industria de Diseno Textil (Inditex) makes disposable chichi fashions that atomic number 18 here today and gone tomorrow. The Spanish designer-cum- seller uses technology and an armada of designers to disclosedo cheap c hic. Inditex sells on a global scale, with everyplace 4700 shops in 76 countries to a lower place eight incompatible retail brands each offering different node propositions Stor e Br and Zara Zara Kids cast and Bear Massimo Dutti Pr imar y Offer ing indulge ket 3) and Tar engender Womens and mens dress.Childrens clothes Young women and mens casual and laid plainlyt clothes and accessories Mens and womens clothes for the much educate shopper. Also sells roughly childrens clothes Young womens and mens clothes . Stores have cutting edge look and are meeting points for fashion, medicinal drug and street art Latest trends in schoolgirlish womens clothes and accessories Womens under split up, lingerie and nightwear Items for home eg home textiles, bedclothes, bathroom and table linen, glassware, cutlery and childrens bedding Fashion accessories eg handbags , footgear, trounce goods and costume jewelleryBershka Stradivarius Oysho Zara Home Uterque The firms stores answer to popular trends by telling designers in Spain what customers are asking for locally. Inditex acts in about two weeks with new designs. Amancio Ortega Gaona, Spains wealthiest dutyman, founded Zara in 1975 and later created Inditex as a holding association. He got his start in the array crease at the age of 13, when he went to attain for a local shirtmaker in A Coruna , Spain, delivering the shops goods, which included lingerie and dressing gowns.Ortega worked his fashion up to travel an assistant manager, then shop manager, by the early 1960s. These positions gave Ortega experience not only in dealing directly with customers but also in purchasing fabrics and other materials for the shops line of get dressed. Working out of his sisters home, Ortega began developing his own designs. One day in the early 1960s, he despatch upon the formula that was to become central to the operations of Inditex that of reproducing popular fashions use less expensive materials in order to sell elevateddemand vesture tosss at lower tolls.Ortega left his job and set up in business with fair(a) 5,000 pesetas (the ilk of $25). Legend has it that Ortegas first project was to remake a popular but expensive dressing gown. Ortega cut the pattern himself, then, with the benefactor of his brother and sister, began producing the dressing gown at his sisters kitchen table. Ortegas first customer was his motive employer at the shirtmakers shop. Before long, Ortega began supplying the dressing gown, as well as a ontogeny range of housecoats and lingerie, to other change state shops in A Coruna.By 1963, Ortega had saved up enough to open his first factory. From manufacturing, Ortega soon off- underlying to retail, launching an initial format for his housecoats and lingerie in the early 1970s. In 1975, however, Ortega, then 39 long time old, hit upon the formula that was to bring him his biggest success. In that year, Ortega opened a new retail store called Zara, which featured low-pr spyglassd lookalike products of popular, higher-end fit out fashions. The store proved a success, and the following year Ortega merged his business under the name Goasam and began opening more Zara stores in Spain.Despite the stores growing popularity, Ortega himself rebrinyed decidedly behind the scenes, avoiding the spotlight and developing a reputation for himself as a recluseno photographs of Ortega were do publicly available until 2001. By the early 1980s, Ortega had begun formulating a new type of design and statistical distribution mannequin. The clothing attention followed design and payoff processes that required long lead times, much up to six months, betwixt the initial design of a adorn and its livery to retailers. This model effectively limited manufacturers and distributors to just two or trey collections per year.Predicting consumer tastes ahead of time presented inherent difficulties, and producers and distributors lay outd the constant guess of becoming saddled with unsold entry. Ortega sought a means of gaolbreak the model by creating what he called instant or fast fashions that allowed him to speedily suffice to shifts in consumer tastes and to newly emerging trends. Ortegas dream remained unfulfilled, however, until he met up with Jose itchia Castellano. A computer expert, Castellano had worked in Aegon Espanas information technology surgical incision before becoming honcho financial officer for a Spanish subsidiary of ConAgra.Castellano coupled Ortega in 1984 and set to work developing a distribution model that revolutionized the global clothing industry. Under Castellanos computerized system, the caller bring down its design to distribution process to just 10 to 15 geezerhood. quite than placing the design burden on a single designer, the company develop its own in-house team of designersmore than 200 by the turn of the twenty-first century who began developing clothes based on popular fashions , man at the same time producing the companys own designs.In this way, the team was able to respond nigh straightawayly to emerging consumer trends as well as to the demands of the companys own customers for instance by adding new colors or patterns to existing designs. progressive production and warehousing procedures, as well as the installation of computerized inventory systems linking stores to the companys growing number of factories, enabled the company to avoid taking on the attempt and capital outlay of developing and maintaining a large back inventory. The numberer, more responsive company which adopted the name of Industria de Diseno Textil S.A. , or Inditex, in 1985 captured the wariness of Spanish shoppers. By the end of the decade, the company had opened more than 80 Zara stores in Spain. The companys fast fashion model, which completely rotated its retail banal every two weeks, also encouraged customers to return often to its stores, with economy day becomin g k straightwayn as Z-day in about markets. The familiarity that clothing items would not be available for very long also encouraged shoppers to make their buys more quick. The success of the Zara model in Spain led Inditex to the international market at the end of the 1980s.In 1988, the company opened its first foreign store in Oporto, Portugal. The following year, Inditex moved into the United States. winner in that market remained elusive, however, and at the beginning of the 2000s, the company had opened just six U. S. stores. A more receptive market for the Zara format existed in France, which Inditex entered in 1990. The company quickly began adding new stores in major city centers through and throughout the country. Through the 1990s, Inditex added a steady stream of new markets. The company entered Mexico in 1992, Greece in 1993, Belgium and Sweden in 1994, Malta in 1995, and Cyprus in 1996.In the late 1990s, Inditex stepped up the thousand of its international expansi on, adding Israel, Norway, Tur pick up, and lacquer (the latter in a joint-venture with a local partner) in 1997, then, in 1998, moved into Argentina, the United Kingdom, and Venezuela. While the mickle of the groups stores remained company owned, in certain markets, such as the Middle East, starting line in 1998, Inditexs expansion took place through franchise agreements with local distributors. By 2000, Inditex had added another dozen or so countries to its range of operations, including Germany, the passherlands, and easterly European markets including Poland.At the same time as Inditex pursued its geographic expansion, it also began dissipateing beyond its flagship Zara retail format. The company launched the Kiddys Class childrens wear format as a subgroup of the main Zara concept in the early 1990s. In 1991, the company added an entirely new retail format, spin &038 Bear, which began providing urban fashions. By the beginning of the 2000s, the Pull &038 Bear chain had adult to 300 stores in nearly 20 countries it also produced its own offshoot format, Often, targeting the 20- to 45-year-old mens segment, in 2003.Inditex went upmarket in 1991 when it bought 65 part of the Massimo Dutti group. Inditex took full control of Massimo Dutti in 1995 and began construction it into a chain of nearly 300 stores in 23 countries. While Massimo Dutti appealed to a more sophisticated mens and womens fashions market, the company targeted the young female market in 1998 with the creation of a new format, Bershka. That retail chain quickly evolved into a profit of more than 200 stores operating in 11 countries. Inditex move adding new formats at the turn of the 2 foremost century.In 1999, the company acquired Stradivarius, a youth fashion chain present in nine countries. In 2001, Inditex added its lingerie format, Oysho. In 2003, Inditex moved beyond the garment trade for the first time, launching its own home furnishings concept, Zaras Home and in 2008, launch ed its fashion accessories chain Uterque. Meanwhile, Inditex had begun a corporate evolution as well. As Ortega approached retirement, and no members of his immediate family appeared likely to succeed him in the business, the company looked to the public market to envision its future.In 2001, Inditex listed its profligate on the Bolsa de Madrid, one of the most successful initial public offerings of the year. Ortegas sale of more than 20 percent of his holding in Inditex make him Spains wealthiest man. In 2010, he still controls 59% of Inditexs divides ( chance upon flank 1) and was bedded by Forbes Magazine as the 9th richest man in the world in their yearly list of jillionaires up 1 place from his ranking in 2009 with a net worth estimated at $25 billion. He is now 74 old age old. Inditex moved to a new corporate military headquarters in Arteixo, outside of A Coruna in 2000.In 2002, the company began construction on a state-of-the-art logistics center in Zar agoza. At the same time, Inditex continued adding to its array of international markets, opening stores in Luxembourg, Iceland, Ireland, Jordan, and Puerto Rico in 2001 Switzerland, Finland, El Salvador, and Singapore in 2002 and Hong Kong in 2003. In the 6 years from 2004, Inditex has more than doubled its number of stores from just over 2000 in mid 2004 to over 4600 by 31 January 2010. Inditexs financial year end is 31 January.In line with Inditexs annual reports, this case study refers to its year shutting 31 January 2010 as Financial year 2009 or 2009. Similar abbreviations are made for earlier years . Inditex Gr oup Stor e Number s and Locations in 2010 At financial year end for Inditex for 2009 31 January 2010 Inditex had 4607 stores as follows The outline of Inditex s 2009 sales for each of its 8 store concepts was as follows deep down the total, 3983 were company managed stores and 624 were franchised collar cast up 2 for detail. In 2009, 92% of sales were in company owned s tores.Geographically, 1900 of the stores were in Spain, 1856 stores were in other European countries, 485 stores were in Asia and Africa and 366 stores were in North and South America moot lengthiness 3 for enlarge. The Group opened 343 stores in 2009 and change magnitude its retail meshing in all of Europes major markets with noteworthy egression in Russia (37 new stores) and Poland (34). In Asia, Inditex continued its strategic push into the regions exonerate tercet markets, which posted significant harvest-festival, with 41 new stores in chinaware, 12 in South Korea and 10 in Japan.Retail sales area increased by 8% in 2009 see reference 4 for details by store concept. During its first quarter 2010 from 1 February to 30 April , Inditex opened a further 98 stores as follows This took the total number of stores to 4705 at 30 April 2010. The percentage of Inditexs sales achieved in each geographic region for the finish 3 financial years was as follows 2009 31. 8 % 45 . 7 10. 2 12. 2 2008 33. 9 % 44. 8 10. 7 10. 5 2007 37. 5 % 42. 4 10. 8 9. 4 Spain Europe excl.Spain Americas Asia The despoil ket The array retail industry consists of the sale of all menswear, womenswear and childrenswear. The sector also includes footgear, activewear and accessories. The menswear sector includes all garments made for men and boys. It includes both outer and under garments. The womenswear sector consists of the retail sale of all womens and girls garments including dresses, suits and coats, jackets, tops, shirts, skirts, blouses, sweatshirts, sweaters and underwear .Both womenswear and menswear can be segmented by purpose or use of the clothing item eg casual wear, essentials, activewear, formal wear , special occasion formal wear and outerwear age group lifestyle eg sporty, conservative , fashion conscious , hippie, urban, rural ethnic group styles eg Afro-Caribbean , African American , Asian or middle eastern or music group styles eg rapper, reggie, punk , rocker price eg ranges from low price to expensive designer label to exclusive haute couture of Paris, Milan, London, Tokyo and New York or by a combination of these factors.The childrenswear sector is defined as sales of garments for children between the ages of 0-2 years. The socio-political environments coupled with the need for individual and group identity makes retail clothing essential to consumers. Style, however, is an abstract concept that defines individuals, is often an extension of temper and therefore highly individualized. Fashion, by its very nature, is unpredictable. The products are determined by trends in society, designers and creative industries and are subject to sharp and unpredictable changes.Where customer brand loyalty exists, it is more likely to be to the designer than the retailer, although this is ordinarily towards the top end of the industry. Counterfeiting of brands is a enigma in parts of the clothing and accessories industry. plunder ket in Eur ope The European apparel retail industry grew by 2. 1% in 2008 to gain ground a think of of 287. 7billion ($420. 9 billion). Its new-fashioned history per Datamonitor 4) was as follows The consumer market for clothing and footwear in the European Union (or EU) has undergone important changes in recent years 5).Arguably, the superlative regard has come from market forces under the auspices of the World Trade brass instrument (WTO) as a ten-year transitional Agreement on Textiles and clothing (ATC) came to an end with the abolition of textile and clothing import quotas on 31 declination 2004. With the removal of quotas, there was an initial increase in relatively cheap imports of clothing and footwear into the EU, mainly originating from China. For example, in the first 40 days after the end of the ATC, imports of trousers from China were 3. 3 times higher than during the satisfying of 2004 and imports of pullovers 4. times higher. A bilateral agreement between the EU an d China (the so-called Shanghai Agreement) on a further, transitional percentage point during which the outgrowth of imports of clothing could be managed through until the end of 2007 was agreed in June 2005. In addition to trade developments, consumer groups and other bodies are increasingly holding manufacturers and retailers accountable for ensuring that social standards and working conditions of their suppliers meet international labour standards. There are examples of retailers responding to this pressure.For example, in October 2007 the Inditex group subscribe an International Framework Agreement on corporate social responsibility with the International Textile, Garment and Leather Workers compact (ITGLWF), which expresses the companys commitment to respect fundamental rights at work throughout their entire production chain. Fair trade garment initiatives have also been taken, slackly to break that a fair price is gainful to producers who meet minimum social, and in so me cases environmental, standards and that trading relationships between producers and buyers are more equal, rather than guaranteeing core labour standards.There has also been a response within the EU to concerns about environmental and safety issues. These concerns have preponderantly focused on the use of chemicals (such as dyes, pigments or bleaches in the clothing manufacturing process) and on waste water discharge. On 1 June 2007, new command on chemicals and their safe use came into force crossways the EU. REACH (Registration, evaluation and Authorisation of Chemicals) aims to improve the protection of human health and the environment through the better and earlier identification of the intrinsic properties of chemical substances.Within the EU 5) fellowship usance on clothing and footwear accounted for 5. 7% of total mob consumption outlay in 2005 The vast majority of this, almost three quarters, was washed-out on clothing garments Spending on clothing and footwea r tended to rise as a function of income, with the upper income 20 percent in the 27 countries of the EU devoting 6. 1% of their total household compute to these products, while those in the lowest income 20 percent spent 5 % the tract of total expenditure spent on clothing and footwear was generally much higher among households with dependent children, ascent to 7. % of the household calculate for those households comprising two adults with dependent children, compared with 4. 6 % of the budget for single persons. Annual expenditure on clothing and footwear mean(a)d 800 per person in the 27 countries of the EU in 2006, with national averages ranging from 100 per person in Romania to 1200 per person in Italy . See seize 5 for details of 2000 and 2006 expenditure per person. Over the period from 2000 to 2006 , the volume of clothing and footwear bought rose in most countries of the EU particularly in the United Kingdom and Poland where volumes increased by over 40%.In contra st , Germany and Italy reported declines in the volume of clothing and footwear bought (the only member states of the EU to do so). flesh out are shown at join on 6 for the 6 countries which account for over 70% of the EUs population Germany, France, Italy ,UK, Spain and Poland . Over the same 2000- 2006 period, whilst consumer prices for clothing and footwear declined by 0. 1% for the EU overall, there were substantial differences in the Top 6 countries listed above.The UK put down price decreases of over 20% , Poland of over 15% and Germany of over 2%, whilst price increases were recorded in Italy (over10%) , Spain ( over 13%) and France ( 1%) see Annex 6. Between 2007 and 2008 , the volume of clothing and footware bought in the EU overall declined by 0. 5% . France , Italy and Spain recorded declines of over 2% whilst Germany , UK and Poland recorded increases see Annex 6. In 2008 , UK households spent less on average per week on clothing and footwear than at any time si nce 2001-02 6) Early indications are that volumes also fell in 2009 versus 2008 in Europe.France reported a year on year decline of 3. 6% . a) cosset ket Segmentation by Gender and Age Womenswear sales dominated the European apparel retail industry in 2008 4) generating 54. 4% of the industrys overall revenues 157 billion ($ 229 billion) . Menswear accounted for 30. 9 % 89 billion ( $130 billion)- and Infantswear the remaining 14. 7%. Details of womenswear market growth and segmentation in Europe are shown at Annex 7 and of the menswear market in Europe at Annex 8. b) Analysis by Major Countr y Italy accounts for 19% of the European apparel retail industrys value , Germany 18. % and the UK 14. 4% . Shares for other countries are shown below c) Mar ket Value For ecast The European apparel retail industry was forecast by Euromonitor to grow by only 1. 3 % in 2009 versus 2008 including price changes. In 2013, the European apparel retail industry is forecast to have a value of 320 billion ($467. 6 billion), an increase of 11. 1% from 2008. Details are shown at Annex 9. d) Retail crop ce of Pur chases Consumers in Europe are able to purchase clothing and footwear from a wide-cut variety and large number of retailers, specialised and non- specialised.Specialist clothing and footwear retailers represent imprisonment (such as H, C or Zara) and independent clothes stores. Nonspecialist retailers include department stores (that have clothing and footwear departments), hypermarkets and supermarkets, as well as mail- order retailers. According to Datamonitor, 69% of purchases of womenswear and 55% of purchases of menswear in 2008 was in durance or independent specialist clothing, footwear and accessories shops . Purchases at hypermarkets, supermarkets and discounters accounted for 19. 5% of womenswear sales and 12. 1% of menswear with department stores taking a 6. 9% of womenswear and 24. % of menswear in 2008 ( see Annexes 7 and 8). There are generally higher l evels of retail absorption in northern Europe5). The overwhelming majority of clothing and footwear sales in Germany, France and particularly the United Kingdom are made in non-specialist stores. The popularity of independent clothing and footwear retailers is good higher in southern Europe. For example, in Italy and Spain, the highest proportion of clothing sales was among independent retailers (65% and 53 % individually in 2004), and this tendency was even stronger in terms of footwear (76 % and 88 % respectively in 2003).Despite these differences, clothing markets in Europe are generally becoming more concentrated, as clothing chains, department stores and supermarkets/ hypermarkets selling clothing and footwear open additional outlets in many of the countries that have joined the EU since 2004. Indeed, the structural make-up of clothing retailers in the EU has changed considerably over the past 15 years, according to a 2007 report on Business relations in the EU clothing cha in carried out for and funded by the European delegating 5).The market share of independent retailers in the five largest EU markets (Italy, Spain, France, Germany and the United Kingdom, that together account for almost three quarters of the EUs clothing market) declined from 46. 8 % of total clothing sales to 27. 1 % by 2007. In contrast, there was steady growth in the share of speciality chains (from 18. 7 % to 25. 1 %), hypermarkets and supermarkets (5. 1 % to 6. 8 %) and emerging formats such as variety stores and large sports chains (whose share of clothing sales collectively rose from 14. 0 % to 27. 2 %).A recent survey on consumer rejoicing 5) provides further information on the obtain habits of European consumers for clothing and footwear. More than half (55. 7%) of those surveyed in the EU in 2008 replied that they themselves or a member of their household had bought clothing and footwear in a retail chain store, a clean higher proportion than for small, independent cl othing retailers (50. 2 %). Department stores (30. 7%), supermarkets/ hypermarkets (23. 0 %) and street markets (16. 3 %) were also popular places for buying clothes and footwear see Annex 10.Furthermore, compared with a number of other products, a relatively high proportion of European consumers used mail or phone order (8. 0%) or the Internet (6. 1 %) to purchase clothing and footwear. When purchasing clothing and/or footwear in 2008, 10. 9 % of EU consumers reported facing at least one problem 5). The most common complaint was product tone (69% of unsatisfied customers) followed by problems returning unwanted goods (9. 2% of respondents) then quality of service provided (8. 8% of respondents). Details are shown at Annex 11.This data also provides an acumen into consumers priorities when purchasing clothing and footwear . Mar ket in USA Americans spent almost $326 billion on clothing and footwear in 2009 equivalent to only 2. 98% of disposable personal income the lowest ever i n U. S. history. Spending on clothing as a share of income has locomote in 20 out of the last 22 years, from 4. 78% in 1988 to less than 3% in 2009 see Annex 12 for details . Quality, variety and avail susceptibility have all improved over the years . The same applies to footwear.Since 1992, prices in general have risen by 57%, while prices for clothing have fallen by 8. 5% see annex 13. With significantly falling prices in real terms, clothing has become more and more affordable almost every year, requiring small shares of US household income. This has freed up disposable income that can now be spent on other consumer goods (eg electronics, travel, entertainment, etc. ). Mar ket in Asia peaceable 7) The Asia-Pacific apparel retail market has been growing at a broad-shouldered pace for the last few years. The Asia-Pacific apparel retail industry generated total revenues of $224. jillion in 2008, representing a compound annual growth rate (CAGR) of 4. 1% for the period spanning 200408. The performance of the industry is forecast to improve further and to reach a value of $259. 6 one thousand thousand by the end of 2013. backbone Retail Competitor s Inditexs secernate competitors in Europe include Hennes and Mauritz ( H ) Levi Strauss ( via franchised and company managed stores and third party retailers) Adidas sportswear ( including Reebok ). In the UK, key competitors include Primark ( a division of Associated British Food) , Next, and Marks and Spencer . ASOS. com is a major retailer of mens nd womens clothes and accessories via the internet and is now the UKs largest independent on-line fashion retailer. Worldwide, key competitors also include opening move and Fast sell (Japanese parent company of Uniqlo and Asias biggest clothing retailer). In terms of sales value, Inditex overtook Gap in 2009 and is now the worlds largest clothing and apparel retailer. Summary financial profiles of Hennes and Mauritz, Levi Strauss , Primark and Gap are shown at Annexes 14 ,15 and 16. A recent word about the current prospects for Fast retail is shown at Annex 17. Manufactur ing Sour ces Gener alKey suppliers to the retail clothing industry are clothing manufacturers and wholesalers, with retailers able to source from both. Recently, significant increases in power cost, dyes &038 chemical cost and rapidly rising cotton cost have strengthened supplier power in an industry that relies on the availability of raw material. The wholesale and clothing manufacturing sectors in most countries, however, are fairly fragmented. As international trade liberalizes, clothing manufacturers in the developed regions such as Europe and America face substantial competition from manufacturers in low-wage regions such as Asia eg from China. Apparel manufacturing is almost always labor intensive, due to the difficulty of automating processes such as the sew together of garments. ). Key issue for clothing retailers in selecting its suppliers include price an d quality volumes the ability of its suppliers to cope with sudden changes in demand in an industry susceptible to changes in fashion social, political and environmental pressures to ensure that suppliers in developing countries meet minimum international ethical standards for working, social and environmental conditions.Many major retailers such as Inditex, Gap and Primark now undertake unfaltering audits of their suppliers to ensure that such standards are met and maintained and report their findings as part of their corporate social responsibility in their annual reports. Manufactur ing Pr ocesses The key processes used in garment manufacture are as follows Cloth manufacturing ( eg cotton or wool) spinning weaving dyeing pattern printing finishing. Certain aspects are labour intensive eg sewing . Garment manufacturing from the done for(p) cloth cutting sewing and assembly buttons and accessories attachment.There have been many scientific developments in materials u sed over recent years including non-iron shirts, washable silk and man- made fibres. Key Aspects of the Inditex Business Model 3) A) Over view The Inditex business model has a high degree of vertical integration compared to other models developed by its international competitors. It covers all phases of the fashion process design, manufacture, logistics and distribution to its own managed stores and has a strong customer focus in all its business areas.The key element in the organisation is the store, a carefully designed space conceived to make customers comfortable as they discover fashion concepts. It is also where Inditex obtains the information required to adapt the offer to meet customer demands. The key to this model is the ability to adapt the offer to customer desires in the shortest time possible. For Inditex, time is the main factor to be considered, above and beyond production costs.Vertical integration enables Inditex to shorten turnaround times and achieve greater flex ibility, minify stock to a minimum and diminishing fashion risk to the greatest possible extent. B) Design The success of Inditexs collections lies in the ability to fill out and assimilate the continuous changes in fashion, constantly designing new models that respond to customer desires. Inditex uses its flexible business model to adapt to changes occurring during a season, reacting to them by bringing new products to the stores in the shortest possible time.The models for each season -over 30,000 in 2009 are developed in their entirety by the creative teams of the different chains. Over 300 designers -200 for Zara alone- take their main inspiration from both the normal trends in the fashion market and the customers themselves, through information received from the stores. C) Manufacturing A significant proportion of production takes place in the Groups own factories, which mainly manufacture the most fashionable garments.The Group takes direct control of fabric supply, markin g and cutting and the final finishing of garments, while subcontracting the garment- fashioning stage to specialist firms located predominantly in the northwestern of the Iberian peninsula. The Groups external suppliers, a high percentage of which are European, generally receive the fabric and other elements necessary for making the clothing from Inditex. The number of garments produced and available for sale at Inditexs stores has grown as follows from financial years 2005 to 2009 On 31 January 2010, Inditex had a network of 1,237 suppliers with which it maintains stable relationships and which are governed by its External Manufacturers and Workshops Code of Conduct. This code describes the minimum ethical, working practice, quality, safety and environmental standards expected of its suppliers and must be real to maintain commercial relations with the Group. Further details of Inditex network of suppliers is shown at Annex 18. Inditex audits its network of suppliers regularly a nd ceased using 145 suppliers in 2009 and one hundred seventy-five in 2008 because of their non-compliance.In 2008, the manufacturing sources in terms of volumes of garments produced for Inditex were as follows 46% 11% 36% 5% 2% European Union Non EU Europe Asia Africa Americas D) Logistics completely production, regardless of its origin, is received at the logistical centres for each chain, from where it is distributed simultaneously to all the stores worldwide. The distribution takes place twice a week and each delivery always includes new models, so that the stores are constantly refreshing their production and offer.The logistics system, based on software designed by the companys own teams, means that the time between receiving an order at the distribution centre to the delivery of the goods in the store is on average 24 hours for European stores and a maximum of 48 hours for American or Asian stores. Inditex logistics centres are located in Arteixo (A Coruna), Naron (A Coru na), Zaragoza, Meco (Madrid), Tordera, Palafolls and Sallent de Llobregat (Barcelona), Leon and Elche (Alicante).Together, their surface area exceeds one one thousand thousand square metres. Further details are shown at Annex 19. In 2008, 700 zillion garments were distributed by 5000 employees at Inditex logistics centres. E) Stor es In Inditex, the point of sale is both the end and start of its value adding processes, as the stores act as market information gathering terminals, providing feedback to the design teams for each of the 8 formats and account the trends demanded by customers. As retailers, the stores constitute the chains main advertising medium.Their chief signs include Preferred locations in the worlds main shopping streets Meticulously designed window displays Unique internal and external store design Tailored coordination and display of the product Excellent customer service. The main development system for the Inditex sales formats is the opening of stores managed by companies in which Inditex is the resole or majority shareholder. In 2009, 86% of stores were own managed. In smaller or culturally different markets, the Group has extended the store network through franchise agreements with leading local retail companies.The main characteristic of the Inditex franchise model is the total integration of franchised stores with own managed stores in terms of product, human resources, training, window- dressing, interior design and logistical optimisation. This ensures uniformity in store management criteria and a global image in the eyes of customer around the world. F) Other Aspects of Mar keting 1) Internet Each of Inditexs 8 store formats has its own website and these are constantly updated with the latest fashion offerings. In 2009 , the store websites were launched and included in social networking websites. 2) Affinity cardThe Intitex Affinity circuit card is the Groups payment and loyalty card valid for its holders in any Group es tablishment Zara, Massimo Dutti, Bershka, Pull and Bear, Stradivarius, Oysho, Zara Home and Uterque. Available in Spain for more than 15 years, the Affinity Card is also held by customers in Mexico and Greece where it was launched in 2007, and in Portugal where it has been available since 2008. Currently there are more than a million Affinity Card holders in these four countries. totally of them have a card that offers financial advantages and methods of payment based on the holders needs. Inditex Financial Per for manceA summary of Inditexs financial performance over the last 6 years is as follows Details of Inditexs P for 2006 to 2009 are shown at Annexes 20-22 sales and contributions by store format are shown at Annex 23 balance sheets for 2006 to 2009 at Annexes 24 and 25 2006 to 2009 gold flow statements at Annexes 26 and 27. Details of Inditexs 1st thread financial results for 2010 are shown at Annexes 28 and 29. Boar d of Dir ector s Shareholders approved the 2009 re port at Inditexs July 2010 Annual General run into including the proposed dividend of 748 million up 13% on the previous year.Inditexs share price closed at 51. 20 on 29 July 2010 up 38% on its price of 38 a year ago see Annex 30. The board of Inditex consisted of 9 Directors as at 31 January 2010 3 Executive Directors and 6 Non Executive Directors. The Executive Directors are Amancio Ortega Gaona ( Chairman) Pablo Isla Alvarez de Tajera ( chief operating officer and 1st Deputy Chairman. Appointed to board in 2005) Antonio Abril Abadin ( Board monument and General Counsel). Their total remuneration was 4. 35 million in the year ended 31 January 2010. The senior management of Inditex who are not executive directors is shown at Annex 32.Their total remuneration was 10. 9 million in the year to 31 January 2010. Details of the board including the 6 non executive directors are shown at Annex 31. Employees Inditex is a multi-cultural and multi-racial company with 92,301 employees at 31 January 2010 representing more than 140 nationalities. On-going training plays an essential role, particularly that of store staff. This training, which also includes basics in customer service, focuses on specialist knowledge of fashion trends and the ability to seize and interpret the information that store staff receive from customers every day.The number of employees has grown as follows The largest percentage are employed in the stores as follows Inditex directly owns 13 textile manufacturing companies in Spain and 12 logistic companies including one for each of its 8 store formats. Inditex also has its own in-house building contractor and several companies to manage its store and other properties. These companies are all owned by Inditex and their financial results and employee numbers are fully amalgamated in those of the Inditex group. In 2009 81. 4% of Inditexs employees were female 18. % were male 40% of employees were full time 60% were part time. Inditexs Str ategy At his monstrance at the July 2010 AGM, Inditexs Deputy Chairman and CEO, Pablo Isla underscored confidence in the Inditex business model and its clear strategic focus on international expansion, soon targeted at European and Asian markets. He confirmed that Inditex has earmarked about 570 million in capital expenditure to open between 365 and 425 new stores in its financial year 2010 of which approximately 95% will be in Inditexs international markets outside Spain.Some 70% of the appropriate contracts have been signed although in some cases openings may be delayed until 2011. The planned increases by store format are as follows Our priority is to focus growth in Europe and Asia, said Isla. We see significant opportunities in Eastern Europe and the Russian Federation, and there is a great potential to expand profitably in Europe for many years, as our market share is below 1% in most countries. He said the main areas of growth for Asia are China, Japan and South Korea . We see huge long-term potential for Inditex in Asia markets, he said.Over the next three years, the company expects to see space growth of between 8% and 10%. Isla was asked earlier by analysts why they arent paying out an even bigger portion of net income in dividends given the groups huge cash balance. Our main priority is to decorate in the future growth of the business. We always want a high level of flexibility we always wanted more steady growth in the dividend, rather than big jumps, he said. He also confirmed that Zara will start online sales in France, Germany, Italy, Portugal, Spain and the UK on 2 September, 2010.Key bare to be Consider ed Is Inditexs current strategy likely to succeed . If so why ? Or do you conclude that the strategy needs to be adjusted in light of your analysis of this case study ? If so, what changes do you propose and why ? References 1) 2) 3) 4) FT article 9 June 2010 Answers. com 2010 Inditex Press dossier 2009 Datamonitor Apparel retail in Europe August 2009 . The industry value is calculated at retail selling price (RSP), and includes all taxes and levies. The data for Europe includes Russia, Poland, Czech Republic, Hungary, Romani and Ukraine.All currency conversions in the Datamonitor report and forecasts have been calculated at constant 2008 annual average shift rates. 5) European Commission report Consumers in Europe 2009 published by Eurostat 6) UK Office for National Statistics January 2010 7) Datamonitor report Apparel retail in Asia Pacific August 2009 Shar eholdings of Dir ector s in Inditex as at 31 J anuar y 2010 Annex 1 Annex 2 Annex 3 Page 1 Annex 3 Page 2 Annex 4 Sales Ar ea by Stor e Concept Squar e Metr es Totals 2,180,889 1,914,493 EU Expenditur e on Clothes and footgear per head 000 Countr y EU (27 countries) 700 Belgium 700 Bulgaria N/A Czech Republic 200 Denmark 800 Germany 800 Estonia 200 Ireland 900 Greece 600 Spain 600 France 700 Italy 1100 Cyprus 800 Latvia 200 Lithuania 100 Luxembourg11 00 Hungary 100 Malta 500 winherlands 800 Austria 1100 Poland 200 Portugal 600 Romania N/A Slovenia 400 Slovakia 100 Finland 600 Sweden 700 United Kingdom 1000 memoranda Turkey 300 Iceland 1100 Norway 900 Switzerland 900 2006 800 800 N/A 300 N/A 800 400 900 800 700 700 1200 900 N/A 400 1100 200 400 800 1100 200 N/A 100 500 200 800 N/A 1100 300 1100 N/A 900Annex 5 semen Consumers in Europe 2009 edition published by Eurostat , the statistical office of the European Commission Pr ice and Volume Changes within Household Expenditur e on garments and Footwear EU Aver age and Selected Countr ies (a) Annex 6 Germany France Italy UK Spain Poland EU Average (b) Cumulative Percentage Price extend/(Decrease) 2000-6 (2. 6) % 0. 1 10. 4 (23. 5) 13. 3 (15. 7) 0. 1 % Cumulative Percentage Volume add/(Decrease) 2000-6 (1. 7) % 5. 8 (8. 3) 44. 5 2. 7 44. 3. 5 % Percentage Volume Increase/Decrease) 2006 -7 2007 -8 3. 1% 1. 7 0. 1 2. 7 4. 5 4. 5 2. 0% 1. 4 (2. 1) (2. 6) 4. 4 (2. 5) 11. 2 (0. 5)% (a) = The 6 countries account for over 70% of total EU population (b)= over the 27 member countries Eur opean Mar ket for Womenswear Annex 7 Annex 8 Eur opean Mar ket for Menswear Eur opean Appar el Mar ket Value For ecasts Annex 9 Page 1 Eur opean Appar el Mar ket Value For ecasts Annex 9 Page 2 EU clothes and Footwear Sour ces of Pur chase 2008 Annex 10Note that these figures relate to trips made by consumers purchasing clothing and footwear, and they do not reflect the average expenditure or value of sales made in each retail format Customer Complaints Pr oblems faced by Consumer s when Pur chasing Clothing or Footwear in the EU in 2008 Per centage shar e of those exper iencing pr oblems (multiple answer s allowed) Annex 11 Source Retail satisfaction survey, IPSOS for the European Commission, August/September 2008 USA Clothing and Footwear Mar ket Annex 12 Annex 13USA Mar ket Consumer Pr ice Index Changes Annex 14 Summar y Financial Pr ofiles of Selected Appar el Retailer s H 1738 stores in 33 countries as at November 2008 Levi Strauss Gap Latest results for Gap for its financial year ended 31 January 2010 (Fiscal socio-economic class 2009) are shown in next annex . At average 2009 calendar year exchange rates of US $ 1. 3948 = 1 , Gaps net sales totalled 10,179 million in 2009 some 900 million lower than Inditexs sales of 11,083 million for the same period ended 31 January 2010 .January 2010 average exchange rate was US$ 1. 4272 = 1 Exchange rate source Banque de France Annex 15 Source The Gap Inc. annual report and accounts Annex 16 Number of stores 191 Number of stores opened in year 12 5 in Spain -4 in the UK 1 in each of Netherlands, Germany and Portugal ( first Primark stores in each country) Planned store openings in next year 11 ( including first store in Belgium) Selling space 5. 9 million square feet an increase of 9% versus prior year Pr imar k Key Data for Year Ended 12 September 2009Revenue for year ? 2314 million ( ? 1933 m in prior year) Year on year sales growth 20 % partly increase in selling space partly like- for- like sales growth of 7% operate profit for year ? 252 million ( ? 233 million in prior year) Source ABF annual report and accounts Annex 17 Cur rent Prospects for Uniqlos parent Fast Retailing Tadashi Yanai the president of Fast Retailing, Japans wealthiest man (net worth $9. 2bn), has seen the value of his 27 per cent holding in the Uniqlo parent fall by more than a quarter this year.Thats a slump three times worse than the benchmark, making Asias biggest clothier the worst-performing retailer across the region. Having watched new lines like polo shirts and jeans fail to fly off the shelves, even after steep price cuts, Yanai-san is now betting big on camisoles, leggings and crafty Dry, a summer version of its blockbuster heat-trapping underwear. This is no ordinary lean spell sales growth slowed the most in four years in the three months to May, causing Fast Retailing to trim i ts net income estimate for the year ending August by 5 per cent.Nimbler rivals such as United Arrows (up 22 per cent since the beginning of the year) and Honeys (+143 per cent), both between 30-40 times smaller by market capitalisation, will want to ensure Uniqlos discounting continues. For all its determination to build overseas this year it added stores in China and Russia to its UK, US, France and South Korean portfolios the company is on course to get 95 per cent of this years operating income from anaemic Japan. It carcass a hard stock to divest, though.Not only are Fast Retailings returns on invested capital consistently about 50 per cent better than peers, it is that rare thing in Japan a stock worth a fifth more today than it was ten years ago (over which period the Nikkei has shed more than two-fifths). BACKGROUND NEWS Japans Fast Retailing on Thursday cut its annual outlook for the first time in three years after the breakneck pace of growth at its Uniqlo budget fashion chain came screeching to a halt in recent months, reports Reuters.Fast Retailing enjoyed strong sales last year even as other retailers were hit by weak consumer spending, attracting thrifty shoppers with hit products like heat-trapping underwear and understanding marketing. But Uniqlos same-store sales have been on the decline in the second half of the current financial year to August 31st, which some analysts see as a sign that the recent round of robust growth has run its course. Source FT article Published July 8 2010 Annex 18 Details of Inditex Suppliers Key supplier countries include Bangladesh, India, Turkey, Morocco , Spain, Portugal and Cambodia (Source 2008 annual report)Annex 19 Inditex Logistics Centr es in 2009 Inditex Pr ofit and Loss Account for Financial Year s 2009 and 2008 Annex 20 Notes refer to details in Inditex annual report for 2009 see Inditex. com/investor relations/annual reports/2009 Operating Expenses consisted of 2009 m 2008 m 2007-m 2006- m Staff costs 1,791 1,703 1,473 1,251 Store office 1,134 1,028 855 718 rental costs Other Store 1,027 976 898 831 operating costs, logistics and general command processing overhead time costs a) 3,953 3,708 3,226 2,800 a) = Including transportation of product from logistic centres to stores Annex 21Details of Financial Results shown in Inditex P&038 L Financial Results shown in the consolidated P&038 L consist of ( 000) And for 2007 and 2006 Inditex Pr ofit and Loss Account for Financial Year s 2007 and 2006 ( in 000s) Annex 22 Net Sales Cost of merchandise Gross Profit Operating Expenses Other net operating expenses &038 income Oper ating Pr ofit (EBITDA) Amortization and Depreciation Oper ating Pr ofit (EBIT) Financial Results Equity Accounting losses Income Befor e Taxes Income Tax Net Income Net income attributable to minority interests Net Income Attr ibutable to the Par entEarnings per share (cents) Notes refer to details in Inditex annual report for 2007 see Inditex. com/inve stor relations/annual reports/2007. Details of Operating Expenses and Financial Results are shown in earlier annexes Sales and Pr ofit Contr ibutions by Stor e For mat 2007- 2009 Store Format No. of Stores at 31 Jan 2010 1608 626 497 651 515 392 261 57 4607 Net Sales in Financial Year 2009 m 7077 771 790 1177 702 280 243 44 11084 Annex 23 Zara (incl Zara Kids) Pull and Bear Massimo Dutti Bershka Stradivarius Oysho Zara Home Uterque TotalsOperating Profit EBIT in 2009 m 1105 101 117 196 149 38 25 (2) 1729 Store Format No. of Stores at 31 Jan 2009 1520 583 470 591 456 374 239 31 4264 No. of Stores at 31 Jan 2008 1361 519 426 510 381 290 204 0 3691 Zara (incl Zara Kids) Pull and Bear Massimo Dutti Bershka Stradivarius Oysho Zara Home Uterque Totals Store Format Net Sales in Financial Year 2008 m 6824 720 722 1026 633 242 222 17 10407 Net Sales in Financial Year 2007 m 6264 614 696 925 521 213 201 0 9434 Operating Profit EBIT in 2008 m 1067 119 108 155 144 21 14 0 1628 Operating Profit EBIT in 2007 m 1091 99 106 154 119 40 16 0 1625Zara (incl Zara Kids) Pull and Bear Massimo Dutti Bershka Stradivarius Oysho Zara Home Uterque Totals Inditex Balance aeroplanes for Financial Year s 2009 and 2008 Annex 24 Notes refer to details in Inditex annual report for 2009. The share capital of Inditex amounts to 93. 5 million divided into 623. 3 million shares each with a par value of 15 Eurocents fully bid and paid at 31 January 2010 . This has remained unchanged since Inditexs financial year 2006 Inditex Balance Sheets for Financial Year s 2007 and 2006Annex 25 Notes refer to details in Inditex annual report for 2007 Inditex Cash Flow Statements for 2009 and 2008 Annex 26 Annex 27 Inditex Cash Flow Statements for 2007 and 2006 Inditex Gr oup P&038 L for 1st Quar ter s 2010 and 2009 Annex 28 Annex 29 Inditex Gr oup Balance Sheet for 1st Quar ter s Ending 30 Apr il 2010 and 2009 Inditex Shar e Pr ice fr om August 2009 to J uly 2010 Annex 30 Source Inditex. com/ Investor Rel ations Annex 31 Boar d of Dir ector s of Inditex as at 31 J anuar y 2010The 6 Non Executive Directors are Flora Perez Marcote ( representing Gartler S. L. , the holding company controlled by Mr Ortega Gaona and owning just over 50% of Inditexs shares) Carlos Espinosa de los Monteros Bernaldo de Quiros ( board member from 1997) Francisco Luzon Lopez ( board member from 1997) Irene Ruth miller ( board member from 2001) Juan Manuel Urgoiti Lopex de Ocana ( board member from 1993) Jose Luis Varquez Marino ( board member from 2005) higher-ranking Management of Inditex as at 31 J anuar y 2010 Annex 32