The Inditex Company
The Inditex Company is an international organization established in the retail industry. The company has its headquarters and its origins in Spain but operates expansively in the world through different fashion brands and retail stores. The Inditex Company has the business function of designing, manufacturing, and selling footwear, apparel, and accessories. These products are designed for men, women as well as children, and Zara the focus of the case is one of its branded retail china of stores for its products. About 46 percent of the revenues the company generates through its chain of stores in Spain whole 54 percent contribution to sales are made through its international retail operations.
Historical Key Events
The key historical events that have surrounded the company include the establishment of the first Zara retail store in 1975. The Zara brand was launched as a fashion brand that was stylish, easily accessible as well as affordable for the consumers in the market. Following its establishment, the company had established five stores to its retail network for Zara by the end of the 1970s which were operating in the Galician cities. The company was one of the first pioneers in retailing information technology in the mid-1970s. The company under Inditex in the 1980s managed to roll out stores all over Spain and in the 90s, it expanded into the international market through takeovers, acquisitions, and foreign direct investment in different countries in Europe. “Zara then began to open stores outside Spain and to make quantum investments in manufacturing logistics and IT. The early 1990s was also when Inditex started to add other retail chains to its network through acquisition as well as internal development” (Nueno & Ghemawat, 2006).
The strengths of the company pertain to Zara’s competitive advantage in the market. The retail proposition accounts for 10 to about 76 percent of the sales for Inditex. The company tends to sell high street fashion products to the market which are produced in limited quantity and sold at lower prices as compared to the competition. Supported by the good quality of the products, the markdown concept is restricted, therefore enabling the company to earn high profits and encourage frequent purchasing. The company also has a very extensive and wide geographic spread of operations which enable it to capture untapped markets as well. The company has operations in Japan, America, Argentina, United Kingdom, UAE, Turkey as well as in Switzerland, Sweden, Venezuela, and Russia. Moreover, the company has also been facing a constant increase in its revenues since 2001.
The weaknesses of the company however pertain to the financial performance of the company, which after its remarkable increase in growth, its profitability is restricted. The like for like sales slowed from a total of 11 percent in the year 2003 to a meager 1 percent in 2004. The brand concept of the main flagship brand of stores, Zara is very strong in the local as well as in the international market but the other chains of stores do not share such reputation, wide acceptability, and brand equity. Moreover, the company has also been facing increases in cash-based costs and expenses since the fiscal year of 2003. This is harmful to the company as it limits future growth.
The opportunities that are present for the company pertain to progressing into the Italian fashion market which is highly developed, competitive as well as profitable. The company is planning to expand with 15 stores to Italy by 2013 while also increase its presence in the UK and France. The company also has the opportunity to increase its presence in the Japanese market as there exists a high demand by consumers for fashion and fashion-based products and services. Furthermore, the company can also expand into the French footwear market.
The threats that are faced by the company pertaining to the decline in the CPI for apparel in the region of Spain. Spain previously enjoyed a high CPI in this category which lead to much of the profitability for the company. However, the decline in this segment could bring down the sales and the revenues for the company. Other threats that are faced by the company include the company’s expansion strategy. The company is rapidly expanding in the local and the international markets which can create staffing problems as well as problems about lack of proper integration. Lack of proper management of stores, as well as the proper training of the staff at the stores, could lead to the compromise of the company image and that of its brands like Zara. Other threats include the new avenues for fashion which are being utilized by competitors in manufacturing, distribution, and the overall management of the supply chain.
The Marketing and Global Strategy
The market position strategy of the company has been to leverage the Zahra business and brand by establishing it as a high-end fashion market retailer which is stylish, innovative as well as compelling while being accessible and affordable by the target market of the company. While being a retailer Zahra operated as a fashion house by reducing two lines of designs in a year for the spring-summer, and the fall/winter line. The company uses trade shows, industry publications as well as trend analysis of the market to determine the changes taking place in the fashion industry as well as the changing orientation and needs of the customers. Through this, the company was able to provide its customers with exactly what they wanted through its Zahra brand. Moreover, the company established itself in the market by positioning the brand as a high-end fashion brand. The company did this by setting up retail stores in sophisticated neighborhoods frequented by business people, country clubs, and elite segments of society. The stores were formatted in such a manner that they combined the designs of a fashion house and a retailing business to suit the image of Zara. To be on the safe side, the company only kept a rapidly changing line of products so that it could keep its products diversified and original. The main expansion, global strategy of the company was to establish franchises of the Zara retailer business in the target market countries or launch joint ventures there.
Could Inditex cope with the complexity of managing multiple chains without compromising the excellence of individual chains, especially since its geographic scope was also abroad?
The nature of business for Inditex Company is unique as it operates as a fashion house for different brands through a set of retail chains. The company manages multiple chins aside from Zahra as well, but the main flagship business and brand for the company is the Zara fashion retail china. The reason for this is mostly because the company has been focusing since its inception on leverage Zara as a premium brand in the market, relative to its other chains. One of the main threats as mentioned above is that the excellence of the individual chain of Zara has overshadowed the performance of its other fashion retail business. This is mostly due to the reason that the company has been focusing on maintaining the position of Zara in the market while creating a strong position for it. This has taken resources and attention from other chains, resulting in their nonpopularity comparative to Zara in the market. Therefore if the company were to start managing its other retail chains in a better manner, the performance of the Zara chain would be inadvertently affected as the company would be shifting its focus and funds from Zara to other businesses. This would be complicated by the large-scaled expansion of Zara in the global market which can create problems about lack of system, data, and strategy integration, as well as isolation of Zara operations in the different parts of the works with a resultant, comprise on the quality of the chain and its products.
Should Zara acquire additional chains?
As mentioned earlier, one of the main reasons as to why the company has been facing problems about financial performance while the revenue of the company has been exponentially incrementing. The main reason for this has been the fact that the company has been aggressively expanding in the last decade. The company employed a franchising and joint venture-based expansion strategy whereby it expanded into the international markets. Now the Zara chain operates in more than ten countries. This rapid expansion has created problems in terms of management of the chain as well as problems pertaining to maintenance of service quality and standards in fro all its operating markets as well as those relating to increasing overheads of the company, increasing short terms costs and expenses which even with high revenues, tends to decrease the profitability of the company. Therefore it is recommended that the company should not seek to acquire additional chains for Zara as yet. The company should wait a while out and try to fine-tune its operations in the current markets and make the brand of Zara a stringer brand in these markets. In the long run, however, after properly establishing Zara in its target markets, the company can and should seek to acquire additional chains for Zara.
Which top management pegged at +20% per annum while sales growth was 9%?
It has been depicted earlier on in the case analysis that the company has been having problems in terms of the financial performance of the company and the growth of the company which has been restricted depict the increase in the revenue, the customer base, and the markets targeted by its chins, especially Zara Fashion. The management, therefore, pegged a requirement of increasing the growth percentage of the company to at least 20 percent on an annual basis to improve the financial position of the company. The decision for this rate was determined by the Inditex Company and its senior management who are responsible for the long terms business strategy development for all the fashion chains which fall under the umbrella of Indicted. The 20 percent target was provided to increase the sales for like by like sales which have been growing only by 9 percent a year, currently.
What would be the best Strategy to preserve margins?
Currently, the fashion brand of Zara is established and positioned in the market as a fashionable high-end brand for apparel, accessories, and other fashion items which is competitive in the market in terms of its price. However, the tight margins due to the increased costs of the companies in recent years are providing a threat to the sustainability of position for the company as it might have to revise its sales price for its products resulting in a disgruntled customer base who can shift to other brands for their fashion needs. As a result, the strategy that should be taken by the company to improve and preserve the margins will pertain to increasing the cost efficiency of the organization and decreasing the operational costs and overheads/. This can be done by investing in an integrative technology that can aid the company in managing data and information across its operation globally while training can be provided to staff about the Zara concept which would be specific to the business, its service quality, and the standards of excellence and quality which are expected of the brand. Specific short and long-term strategies can be to the staff about the establishment of service quality through proper training.
Conclusion & Recommendations
Conclusively the specific recommendations that can be made to the company to better improve their operations include the preservation of the margins for the company by making the operations of the company efficient. Moreover, the company should also seek to solve its current problems and weaknesses as identified before going o to expand its operation in the international market. The long-term objective of the company should be to improve the financial position of the company as well as its growth and efficiency, while in the long term it can seek to expand into diversified as well as new markets.
Ghemawat, P., Nueno, J.L., (2006), ZARA: Fast Fashion, Harvard Business Review.
Leknes, H.M., Carr, C., (2004), Globalisation, International Configurations and Strategic Implications: The Case of Retailing, Long Range Planning, Vol. 37 Issue 1, p29, 21p, 2008. Web.