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REV: MARCH 7, 2014 JOHN R. WELLS GALEN DANSKIN Inditex:-(Answered)


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I need your help in answering the following questions (as much detailed as possible) getting the answers from the attached case study, and from external sources if necessary.

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  1. In?one?page?can?you?summarize?and?assess?this?case?(10?mark)
  2. What?Inditex?strategic?position?in?term?of?Mission,?objectives?and?strategies?(5?marks)
  3. Identify?the?brands?of?Inditex?and?analysis?the?market?position?of?each?along?with?its?unique?selling?position.?(6?marks)
  4. How?do?you?explain?the?financial?portfolio?of?Inditex???and?how?it?reflect?on?its?business?sustainability?(6?marks)
  5. What?are?the?ingredient?of?success?for?this?company?and?explain?what?lessons?other?companies?in?this?business?sectors?can?learn?from?Inditex?case.?(5?marks)
  6. Develop?the?appropriate?matrix?of?SWOT?analysis?when?analysing?the?history?profile?of?the?company?what?are?the?uniqueness?and?characteristics?of?each?top?management.?(5?marks)
  7. Elaborate?and?assess?the?company?online?strategy?and?suggest?how?it?can?be?improved.??(5?marks)
  8. Identify?the?risk?can?be?associated?with?the?future?expansion?strategy?and?outline?strategy?to?overcome?this?risk.?
  9. Outline?the?business?model?of?the?company?and?critically?analysis?it's.?Elaborate?on?the?input,?process,?output?and?feedback?control.
  10. Develop?the?appropriate?KPI?on?the?bases?on?balance?score?card.
  11. Diversification?across?different?cultures?required?element?of?understanding?explains?the?possible?challenges?company?can?face?in?China.?
  12. Refer?to?the?financial?data?attached?to?the?case?develop?matrix?analysis?across?the?eight?brands?the?company?operates?and?what?recommendations?you?can?suggest?for?each?brand.
  13. Identify?the?appropriate?financial?ratio?along?with?their?interpretation?from?the?data?provided?in?the?case.?
  14. If?you?are?going?to?develop?one?more?brand?beside?the?existing?eight,?what?it?will?be?and?why.?
  15. Explain?the?role?of?information?technology?and?business?intelligence?technologies?on?the?company?strategic?objectives.
  16. Refer?to?the?Michael?portal?competitive?model?and?apply?it?to?this?case.?
  17. Explain?the?relationship?of?the?company?operation?components?design,?supply?chain,?distribution?and?stores?and?products.
  18. Elaborate?and?assess?the?pricing?structure?the?company?adopt?and?how?it?can?be?improved.
  19. What?is?your?concern?regarding?the?future?and?why???If?yes,?what?are?they?

REV: MARCH 7, 2014








Inditex: 2012



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In the 11 years since its public offering, Inditex and its flagship brand, Zara, had expanded into 86


countries, achieved $21.6 billion in revenue, and become the largest specialty apparel retailer in the


world. In marked contrast to the general malaise of the Bolsa de Madrid, Inditex?s share price tripled


from 2008 to 2012 and traded at 25 times expected 2013 earnings, a 15% premium over Swedish rival,


H&M.1 From 1,080 stores in 2000, it had expanded to 6,009 locations while sales and operating profits


grew 25% p.a. over this period. It had also established online stores across 23 different markets, with


plans for launches in Russia and Canada during 2013.2


Many analysts and observers were concerned at the breakneck speed of expansion and the


proliferation of retail banners; Inditex operated 8 different brands in 2012, although Zara accounted


for 66% of sales. CEO Pablo Isla, remained confident of future success. He planned to continue store


expansion at 8%?10% per year for the next three to five years. He remarked, ?When you have a global


presence, you have plenty of opportunities to open stores.?3



Company History4,5


Amancio Ortega Gaono began Inditex as a way to bring high fashion apparel to the market at an


affordable price. After years working in the apparel retail industry in La Coru?a, Spain, Ortega left


his job in the early 1960s to begin manufacturing trendy designer pieces in cheaper materials and


selling these items to local shops. In 1975, Ortega opened his first retail store, Zara. Women flocked to


the store, drawn by its inexpensive, fashionable merchandise, and Ortega expanded the Zara chain




In the 1980s, Ortega joined with computer expert Jos? Maria Castellano to design a highly


responsive supply chain that could quickly produce the latest fashions. A team of designers would


replicate popular items, nearby factories would produce them, and they would be shipped from a


central warehouse to stores. Sophisticated proprietary information systems would allow designers,


factories, warehouses, and stores to communicate with each other rapidly and avoid fashion misses.


In 1985, Ortega restructured the company and named it Industria de Diseno Textil S.A., or Inditex.


Expansion in Spain continued under the Zara brand and, in 1988, Zara entered Portugal and, in 1989,


the United States. By 1990, Inditex managed 85 Zara stores, generating sales of $694.4 million.6





Professor John R. Wells and Research Associate Galen Danskin prepared this case. This case was developed from published sources. Funding for


the development of this case was provided by Harvard Business School, and not by the company. HBS cases are developed solely as the basis for


class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective




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Through the 1990s, Inditex expanded internationally and diversified its brand portfolio. By 2000,


35% of Inditex?s stores were located outside of Spain. Zara had added childrenswear (1990), and four


new brands had been added to the portfolio; Pull & Bear (1991), Massimo Dutti (1991), Bershka


(1998), and Stradivarius (1999). In the process, Inditex?s sales had passed those of Italy?s Benetton,


and were now two-thirds the size of Sweden?s H&M, which was Europe?s leading specialist apparel


retailer. However, Inditex?s revenues were still only 15% of Gap, Inc?s sales. In 1997, Castellano was


named Deputy Chairman and CEO, but Ortega remained chairman, shaping the vision for the


company. 7



2000?2004: Jose Castellano



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On May 23, 2001, Inditex made its first public offering on the Bolsa de Madrid. Twenty-six percent


of the company was floated, with the IPO valuing Inditex at $8 billion. Ortega stated, ?The desire to


innovate and constantly improve with which we began this project 36 years ago is the guiding idea


that has brought us to the present situation. Accumulated experience is not enough to guarantee our


leadership. International expansion is the inevitable objective.?8 The offering made Ortega the


wealthiest man in Spain, with a fortune estimated to be more than EUR 4.6 billion.9


Over the next 12 months, Inditex?s stock price rose by nearly 50% and analysts became concerned


that the company couldn?t fulfill expectations. Javier Valverde, a retail analyst at ING Barings,


remarked, ?With this valuation, there?s no room for any disappointment. It?s very hard for any


company to keep growing at 20 percent each year. This isn?t like the pharmaceutical industry where


you can patent ideas. If a retailer is successful, people will start to copy.?10 Others remained


unconcerned. Goldman analyst, Keith Willis, stated, ?The underlying growth story remains, but


stocks on this sort of premium rating cannot withstand a bad season.?11


Inditex continued to expand aggressively, moving across Europe, Asia, the Americas, and the


Middle East (see Exhibit 3). However, this rapid expansion began to draw criticism. In London, the


rapid withdrawal of childrenswear from the Regent Street store attracted calls for further research


before entering foreign markets.12 Profits grew 10% in 2003, a dip from the 59% growth of the prior


year, and comparable store sales growth dropped to 1%. Willis noted, ?They need to expand at a


slower rate?they?re growing too quickly. If they can do it, there is scope for a profits rebound next


year, but there is now a high degree of earnings uncertainty. They don?t have a lot of room for


maneuvering.?13 Responding strongly to concerns about profitability, Castellano publically


committed Inditex to maintaining a higher same-store growth rate, aiming for like-for-like sales of 6%


in 2004 and confidently stating, ?That is the target of the company and we expect to reach that


target.?14 In 2004, comparable store sales growth reached 9%.


Analysts also questioned the global viability of Inditex?s supply chain. David Oliver, a principal at


a retailing-industry consulting firm, asked ?The question going forward is: how durable is the model


as it gets bigger and goes international??15 John Gallaugher, a professor of information systems at


Boston College, asked, ?One interesting question is: are they locked in? For Zara for penetrate the


United States on a large scale, it would probably have to duplicate its manufacturing and distribution


system in North America, perhaps in Mexico.?16


Inditex also continued its brand diversification. In 2003, Inditex opened a Zara Home store which


offered high-fashion, reasonably priced home and textile pieces. An Inditex spokesman noted, ?The


bulk (of Zara Home) is textiles . . . at the end of the day we?re moving with the market we know.?17 In


the same year, Inditex launched an intimate apparel brand, Oysho, and hired Sergio Bucher, former


head of purchasing and acquisitions at Cortefiel?s lingerie brand, Women?s Secret, to lead it.18 Retail





Week commented, ?It seems that wherever opportunities for growth exist, Inditex is getting in on the


act.?19 Other analysts, however, exhibited more concerns. One Madrid-based analyst stated, ?They?ve


already got eight concepts and to reach the same levels of profitability as before is going to be more


and more difficult.?20 The Financial Times asserted in 2003 that the proliferation of multiple store


concepts has led to the cannibalization of stores sales.21


On February 3, 2005, Castellano announced that he would be stepping down as CEO. A


spokesperson from the company stated, ?He will remain in a position of strategic vision for the


company, together with the chairman. What is wanted is to reinforce the management.?22 From 1998


to the end of 2004, Inditex had grown from 748 stores to 2,244 stores and increased its sales from $1.8


billion to $7.3 billion.



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In July 2005, Inditex announced that Pablo Isla would be replacing Castellano. Isla had previous


worked in logistics/international expansion with Altadis, a tobacco company. A spokesman for the


fashion group stated, ?We were looking for a young chief executive to head a new generation of


managers who will be in charge of Inditex?s expansion plans.?23 Ortega maintained his position as


Chairman. Although Castellano had committed to staying on the board, in September 2005, he


resigned over a separate financial conflict with Ortega.24



2005?2012: Pablo Isla


As the new CEO, Pablo Isla was committed to bringing costs under control and increasing the rate


of international expansion. His first strategic plan, ?Reduce three,? intended to expand margins by


reducing the rate of cost growth to below the rate of sales growth within three years. Inditex achieved


this plan within 12 months but refused to declare the project completed. Marcos Lopez, the director


of capital markets of Inditex, remarked ?We want to send a very clear, transparent message to the


market, and that is of stability. There is a series of objectives, it?s not just closing a factory, it?s


micromanagement. We can?t complete a three-year plan in its first year.?25 The market applauded


Isla?s moves. Javier Amta, an analyst with Banesto Bolsa, wrote, ?Isla is a good manager and team


coordinator, and will certainly leave his stamp on the company.?26


Isla also worked to refine the supply chain and increase Inditex?s ability to respond to shifting


market trends. In 2005, flat like-for-like sales during one quarter were transformed into 7% growth


when a renewed collection hit shelves and stoked customer demand. Isla stated proudly, ?We were


able to react early with the introduction of new collections.?27


Isla also pledged to increase international expansion. By 2006, Inditex has grown to 3,131 stores.


The Asia-Pacific region had grown by 73% over the past year, the Americas, by 19%, and the Middle


East/Africa region, by 15% (see Exhibit 3).


By 2006, Inditex had overtaken H&M as Europe?s largest specialty clothing retailer. Buoyed by


this success, Isla increased the dividend 40% in 2006, bringing dividend payments to 52% of net


profit. Isla also pledged to distribute 50% of total net profits as dividends on an annual basis.28


The economic downturn of 2007?2009 did not affect Inditex significantly. Isla stated, ?We are not


seeing this weakness up to now. . . . We have lived in this kind of environment before.?29 Luca Solca,


an analyst at Sanford Bernstein, wrote, ?Right now, people are only going to spend on the right


product and Inditex is better at supplying the right styles and products than rivals.?30 Sales dropped


by 5% in 2008, compared to 7.8% at Gap and 11% at H&M. In 2009, Inditex?s sales rebounded and the


company passed Gap as the largest specialty apparel retailer in the world.





Inditex continued expansion during the economic downturn, growing from 3,691 stores in 2007 to


4,607 stores by 2009. In 2008, Inditex launched Uterq?e, an accessories and footwear chain that


specialized in leather goods. Thirty stores across Spain, Portugal, and Greece were planned for the


first year of the launch.31 Pablo Isla commented on expansion and growth during a recession, ?We


continue to see many growth opportunities. There are markets where we?re just beginning, and there


are markets which remain very fragmented, where we?ve been present for many years but where our


market share is very low.?32



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In 2010, Isla opened Inditex?s 5,000th store, and he increased Inditex?s global footprint by 9% p.a.


between 2010 and 2012. Growth focused in Asia and Europe, with China receiving the most


investment. Isla noted, ?Thinking about the next five to ten years, China will be a very relevant part


of our expansion. The Chinese people like fashion very much. The opportunity is very big.?33 In 2010,


Inditex also expanded into India, in association with Tata Group.34


In 2008, Inditex began expanding online. The first portion of the company to go online was Zara


Home.35 In 2009, Inditex announced that Zara would begin to sell its clothes online by 2010. Anne


Critchlow, an analyst at Soci?t? G?n?rale, noted ?Zara going online will be taken as a strong positive


by the market. It had been falling behind in ecommerce.?36 In 2010, Zara rolled out online store access


in six European countries and, in 2011, it launched its U.S. store online. Inditex had spent 24 million


euros and two years in preparation for the US launch.37 In addition to a webpage, Inditex also


launched a Zara app for the iPhone, which received more than one million downloads in its first


three months.38 H&M, Zara?s closest competitor, had not announced a launch date for its U.S. site.


Of his online expansion plans, Isla stated, ?It basically follows the same model as our regular store


expansion. For us to enter a new country has a very small cost because with our twice-a-week


delivery model we have few start-up costs. We don?t need large logistical infrastructures, marketing


departments, or big central operations.?39 Soci?t? G?n?rale analyst, Anne Critchlow, spoke favorably


of Inditex?s digital expansion strategies. She noted, ?Inditex has low penetration in the vast majority


of its 85 markets, which means that online is giving customers access to Inditex?s concepts for the first


time as large numbers of them won?t be able to access a store easily.?40


In the beginning of 2011, Amancio Ortega handed over the chairmanship to chief executive, Pablo


Isla.41 Isla described the shift in power as representing ?the complete professionalization of the


company.?42 However, some insiders, speaking on conditions of anonymity, worried that Ortega


represented the ?muse? of the production team and that Inditex?s fashion tracking would fall off


without his support.43


The European economy continued to struggle in 2012, but Inditex?s international scope allowed


the company to continue posting strong sales growth. In 2012, Spanish sales only accounted for


around a quarter of total sales.44 Analysts at Chevreux noted, ?Our feeling is that Inditex has


managed to offset weak sales in southern Europe with online and Asian sales growth.?45 However, a


weaker purchasing climate in Spain still translated to a 1% sales growth from Inditex?s Spanish stores


over 2011.46


In 2012, Inditex rolled out online platforms for all eight of its brands and extended its Zara


platform to more than 20 countries, including China.47 Plans for 2013 included an online launch in


Russia.48 In 2012, the Zara website claimed two million daily hits while the other brands achieved a


combined one million daily hits.49 Additionally, Inditex began investing in larger store formats in


order to frame its physical locations as showrooms for later digital purchases. The company increased


capital spending in 2013 by 14% in order to achieve this end.50






Brands in 2012


In 2012, Inditex operated eight different brands: Zara, Pull & Bear, Massimo Dutti, Bershka,


Stradivarius, Oysho, Zara Home, and Uterq?e.





Zara sold high-fashion apparel, footwear, and accessories for women, men, and children. Stores


were sectioned into areas for each demographic and a dedicated store manager ran each section.


As of 2012, Zara had 1,925 stores and sales reached $14.3 billion, comprising 66% of Inditex?s total


revenue. Zara?s stores averaged 11,238 square feet and 1,465 (75%) of them were located outside of


Spain. In 2011, Zara entered the southern hemisphere, a traditionally difficult market due to the


reversed seasons. Inditex planned to expand Zara by 110?115 stores in the coming fiscal year.51


Zara?s main competition included: Next, Gap, French Connection, Monsoon, Kookai, H&M, and


Top Shop.52



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Pull & Bear


Pull & Bear sold casual, lower-priced clothing for young men and women. Inditex described Pull


& Bear as ?free-and-easy fashion.?53 In 2011, Pull & Bear began opening a new store design inspired


by New York City lofts. These casual stores had integrated technology hubs to encourage customers


to share new outfits and their retail experiences. To celebrate the 20-year anniversary of Pull & Bear


and the customers who have grown with them, the brand launched a ?Heritage Collection? and ?Pull


& Bear for Kids.?54


By 2012, Pull & Bear had 816 stores, averaging 3,356 square feet, and revenue reached $1.5 billion.


538 stores, or 65% of its total stores, were located outside of Spain. Inditex planned to expand Pull &


Bear by 40?45 stores in the coming fiscal year.55 In 2011, Pull & Bear had an online presence in 13


European countries.


Pull & Bear?s main competition included: Green Coast, Abercrombie & Fitch, Urban Outfitters,


and Quiksilver.56



Massimo Dutti


Massimo Dutti focused on ?contemporary, fashionable clothing for business, evening and casual


needs.?57 The brand?s main consumer was 25 to 45 and more affluent than Inditex?s other brands. In


addition to its internet launch in 2011, Massimo Dutti also launched ?MD Journal,? a


?communications platform with recommendations, lifestyle keys, cultural events, and news.?58


Massimo Dutti also expanded its product line to offer made-to-measure suits and shoes.


By 2012, Massimo Dutti had expanded to 630 stores, averaging 2,940 square feet and sales reached


$1.5 billion. 387 stores, or 61.4% of its total stores, were located outside of Spain. Inditex planned to


expand Massimo Dutti by 45?50 stores in the coming fiscal year.59 By 2011, ten European countries


could purchase Massimo Dutti online. .


Massimo Dutti?s main competition included: Hugo Boss, Zegna, Polo Ralph Lauren, Donna


Karan, Banana Republic, and Jigsaw.60








Bershka?s targeted demographic was girls and women aged 13 to 23, the youngest focus of all


Inditex?s brands. In order to attract this group, Bershka designed its stores to be lively social spots,


with music, food, movies, and hairdressing.61 In 2011, Bershka opened a four-floor store in Toyko


that incorporated a glass fa?ade and a large audiovisual display. This was followed by another store


in Berlin which also emphasized the avant-garde brand spirit through visual displays.62


By 2012, Bershka claimed 885 stores, averaging 4,116 square feet, and sales reached $2 billion. 617,


or 70% of its total stores, were located outside of Spain. Inditex planned to expand Bershka by 75-80


stores in the coming fiscal year.63


Bershka?s main competition included: H&M , Forever 21 and Top Shop.64






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Stradivarius offered clothing for young women aged 15?17 who were ?informal and


imaginative.?65 In 2011, Stradivarius launched its online store after heavy promotion through


Trendtation, a fashion centered social networking site. Stradivarius also launched Stradivas Magazine


in 2011, an online lifestyle and fashion magazine.


By 2012, Stradivarius had 780 stores, averaging 2,851 square feet, and revenue reached $1.3 billion.


489 stores, or 63% of total stores, were located outside of Spain. Inditex planned to expand


Stradivarius by 95?100 stores in the coming fiscal year.66


Stradivarius?s main competition included: Pimkie, Promod, and Top Shop.67





Oysho was founded in 2003 and marketed itself as a small enchanting boutique, simple and


welcoming? which sold lingerie, intimates, casual wear, and accessories.68 It aimed to provide


women with fun, sexy, and trendy undergarments at reasonable prices. In 2011, it launched a sports


line with Adidas marked as the ?GYM collection? that included specialty shoes, apparel, and


accessories for fitness activities.


By 2012, Oysho had 524 stores, averaging 1,534 square feet, and revenue reached $426 million. 328,


or 63% of total stores, were located outside of Spain. Inditex planned expand Oysho by 35?40 stores


in the coming fiscal year.69


Oysho?s main competitor was Victoria?s Secret.



Zara Home


Zara Home opened in 2003 and offered textiles, furniture, and dishware for the home. Collections


were offered under four themes: Contemporary, Classic, Ethnic, and White.


By 2012, Zara Home had 375 stores, averaging 2,809 square feet and revenue reached $475


million. 213 stores, or 60% of the total, were located outside of Spain. Inditex planned to expand Zara


Home by 35?40 stores in the coming fiscal year.70





Uterq?e was Inditex?s youngest chain and sold ?accessories, fashion extra, and a carefully chosen


selection of top-quality fabric and leather garments.?71






By 2012, Uterq?e had 92 stores, averaging 1,445 square feet and revenue reached $100 million. 51


stores, or 55% of the total, were located outside of Spain. Inditex planned to expand Uterq?e by 5?10


stores in the coming fiscal year.72



Operations in 2012




Each brand had a dedicated design team. Zara employed around 200 designers while the other


brands, with smaller and less fashion-sensitive collections, employed around 20 designers each.


Inditex?s designers drew inspiration from runway trends, street wear, current events, and other


sources to develop 12,000 different designs every year.73 Designers also tapped into Inditex?s


sourcing specialists, to ensure that the product could be developed at a competitive price, and


Inditex?s store managers, to keep close track of shifts in consumer preference. More than 80% of


designs were produced in response to data culled from stores.74 None of Inditex?s labels held to strict


seasonal collections. Rather, designs were produced year-round.



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Supply Chain


Of Inditex?s brands, only Zara was back integrated into manufacturing, although it still


outsourced more than 50% of its needs. Less time-sensitive pieces were outsourced while more


fashion-forward or detailed items were produced in-house. All of Zara?s footwear was outsourced to


different factories in Europe and all of its accessories and fragrances were purchased from third


parties.75 Even for its own manufacturing, Zara subcontracted some stages of the process. More


capital intensive production stages such as cutting were done internally while sewing was


subcontracted. Zara?s in-house manufacturing network was comprised of 18 local factories and 400


sub-contracted workshops.76 Where most competitors committed to 40%?60% of their product line six


months before a season started and had locked in 80% of their line at the start of the season, Zara


committed only 15%?25% of its product line six months in advance and had only 50%?60% of its line


set by the start of a season.77 Zara also reserved 85% of its in-house factories? production capacity for


in-season adjustments.


The other seven brands outsourced all of their production.78 In 2011, Inditex operated a network


of 1,398 suppliers; 625 in Asia, 457 in the European Union, 130 in non-EU Europe, 122 in North


Africa, and 64 in South America.79 Products sourced to Asia were estimated to be 20% cheaper to


produce than those sourced locally.80 Inditex did not require contractual commitment from its


suppliers, which left the company free to leave suppliers at will if they did not deliver to Inditex?s




In 2011 and 2012, Inditex began promoting and organizing seven major business clusters, in


Portugal, Morocco, Turkey, India, Bangladesh, China, and Brazil, which collectively represented 87%


of Inditex?s production. Inditex described these clusters as ?spaces of co-operation made up of


suppliers, manufactures, trade unions, business associations, and international purchasers with the


common objective of promoting a sustainable productive environment in a strategic geographic area


for the development of the Inditex business model.?82





All the brands followed the same central distribution center model delivering products to stores


twice weekly, but each brand operated its own distribution center. If a store was out of a particular





item, Inditex could...


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