Zara Assignment Operations Management

Question 1.1 - Competitors
It is most interesting to compare Inditex’s financial results with H&M.
Similarities
Low prices and relatively high fashion content
Both are mainly European based
Strong international expansion strategy
Both have reasonable but not excessive physical quality
In terms of positioning, Gap and Benneton are less fashion driven and more expensive
Differences:
H&M mainly outsources its production (outsources 50% of its production in Europe as well, but has slightly longer lead times)
H&M spends more on advertising
H&M is more price-oriented
However, the operating revenues of H&M are more similar to those of Inditex compared to Benetton and Gaps

Question 1.2 – Operating Economics

Comparisons indicate that:
Inditex is less liquid than H&M, as it has more fixed assets and quick turnover
Inditex is more efficient in generating a greater profit per euro of sales; that is because COGS and operating expenses are lower than those of H&M
Mainly because of in-house production and lower advertizing expenses

Question 1.3 Capital Efficiency
Inditex’s relative capital efficiency is lower than that of H&M due to the fact that Inditex’s working capital and profits per store are much less than those of H&M
Inditex is opening more stores based on projections and anticipated future value of the buildings
As long as Inditex’s profit margins stay high, they will have the money to invest and pay expenses.
Question 2.1 – Advantages Compared to Average Retailers

Zara follows fashion closely. Zara is better able to react to actual consumer demands (fashion), instead of forecasting it
Due to its high response capability with regard to production, combined with trials of entirely new (risky) items in key stores, its IT enabled system to track sales, and store managers feedback on customer preferences/demands.
Design and production is done throughout the sales period, as such the customer is provided with very updated products.