Zara Fast Fashion Case Write-Up
External issues: * Stock valuation- Rapid profitable growth in 2001 caused stock to be overinflated to real earnings expectations. The growth rate of 20% is being passed down from the Board’s estimates. * Increased Consumer variation- Within Western Europe there are instances of country separation of important product factors. Consumers have differing tastes locally. * Steep competition- Firms like the Gap and Benetton were eagerly awaiting a chance to move on Inditex market share * High unemployment- High unemployment in their home markets makes it difficult to entice customers to spend. At this point Inditex is not acting in a manner consistent with slowing growth. * Seasonal boost- Due to increased sales, July and January historically marks increased costs of hiring hundreds of temporary workers to supplement the 1000 permanent employees.
Internal Issues: * Core competency- Ortega, a known gadgeteer, used an early data system to gauge market interest in products. * Divisional separation of chains- Chains in Inditex were broken down to 6 brands that captured 50% of their total companies. This implies transfer pricing that kept minor division profitability low. * Independent chains- Chains were responsible for their own strategy. This either benefited individual brands or created a lack of a single corporate vision. * Zara erosion- Revenue forecasts indicate Zara market share was eroding 3 percent per year despite being the principal driver of growth. * Strong Vertical Integration- Inditex benefited from strong control of customer orders up through the purchasing, designing and building of materials. * Diseconomies of Scale- Speculators do not feel Zara can expand further using the same distribution system
Significant Factors:
Trend-spotting suggests that Far East markets may expand substantially.
Zara accounts for most if not all production by providing technology, logistics and financial support to network of
Internal Issues: * Core competency- Ortega, a known gadgeteer, used an early data system to gauge market interest in products. * Divisional separation of chains- Chains in Inditex were broken down to 6 brands that captured 50% of their total companies. This implies transfer pricing that kept minor division profitability low. * Independent chains- Chains were responsible for their own strategy. This either benefited individual brands or created a lack of a single corporate vision. * Zara erosion- Revenue forecasts indicate Zara market share was eroding 3 percent per year despite being the principal driver of growth. * Strong Vertical Integration- Inditex benefited from strong control of customer orders up through the purchasing, designing and building of materials. * Diseconomies of Scale- Speculators do not feel Zara can expand further using the same distribution system
Significant Factors:
Trend-spotting suggests that Far East markets may expand substantially.
Zara accounts for most if not all production by providing technology, logistics and financial support to network of