Zara Analysis

Topics: Fashion, Clothing, Inditex Pages: 13 (5047 words) Published: May 18, 2008
Turning the Fashion World Upside Down

13 December 2007

ZARA is the flagship chain store for the Spanish Inditex Group owned by Spanish tycoon Amancio Ortega, who also owns brands such as Massimo Dutti, Pull and Bear, Stradivarius and Bershka. Today, Inditex is probably the world's fastest growing clothing retailer with over 3,100 stores around the world in over 70 countries (more than four times the 2000 figure) the Zara format taking around 1,000 of those stores. In March 2006, the group overtook Sweden's Hennes & Mauritz (H&M) to become Europe's largest fashion retailer. A. Industry Analysis

Inditex belongs to the clothing industry (also called ‘textile products’ - SIC sector 2299). Although the company is also involved in the design and the manufacturing of its products, its main activity is the retail by means of its own stores present in Europe, North and South America, Asia, and Oceania. This industry is extremely large and gathers a huge number of firms sorted in sub-categories like footwear, men/women/children clothing, fashion, et cetera. As no comparison can be made between companies of other sectors, Inditex (and Zara in particular) must be filed in the sector of fashion family clothing, which consists of the design and the retail of trendy clothes for young men and women. The direct competitors of Inditex are Gap Inc., H&M, and Abercrombie, for example. This specific sector of industry appeared by the end of the XVIIIth Century when the use of sewing machine led to the standardization of textile products. In the following century appeared several manufactures that introduced the notion of trend related to the brand name and not only the product. Fashion clothing, an adult market, has been aimed at young people -especially teenagers- only very recently (beginning of XXth Century). This sector is growing because of several factors: the increase of brand recognition and the fashion importance in nowadays’ society and the increase in population coupled with the globalization of the cultures and trends. This sector is mainly led and owned by Western European and North American Companies and the retail takes place mainly in the biggest cities of developed countries first. However, the manufacturing activity of the clothing industry is often concentrated outside these countries because of relocation in countries where labor and facilities are cheaper (Asia, South America, Maghreb, etc.). The volatility of the industry’s economy is high because it is linked with the economy of the developing countries that provide the manufacturing of the products. Thus a big impact on market prices can result from a very minor political, economic, or social crisis. This is what happened in 2004 when the textile crisis exploded: customs’ fares as well as regulations of ethics and quality led to a decrease of the industry’s growth. But such crisis are often short in duration because of the important demand that allows the biggest companies to make up profit very quickly, and especially in the field of fashion products where the demand is quasi-inelastic and for which an increase of price does not have a very strong dissuasion effect (what is fashionable has to be expensive to introduce customer selectivity). The usual growth rate for the last ten years has been between 12% and 18%, in comparison to 17.95% in 2006 and during a recession of -1.98% in 2004 (See Attachment 1). B. Environmental Scan

The companies that share the market have different profiles and can be divided in several economic groups related to their financial performances. On one side, Gap, H&M, and Inditex are seen as the dominant players. They have very high sales numbers. However, Gap and Inditex make more profit with a lower amount of sales than H&M. On the other side, smaller brands are gathered in another group (Abercrombie, Esprit, American Eagle, and Camaieu for example). They have more or less the same ratio Sales...

Cited: Craig, Amanda, et al. “ZARA: Fashion Follower, Industry Leader” Philadelphia University: April 2, 2004.
Ferrer, Jaume, et al
Zara’s Annual Report, 2006.
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