Zara Retailing Analysis - Essay Example

?Zara – Fast Fashion Introduction Zara is the largest of Inditex’s apparel retail chains. It is currently at its international expansion. In line with this, there is a need to come up with detailed analysis on how Zara might continue to expand and be successful enough in its strategic moves in the future. Key competitive advantage Among of Zara’s competitive advantages are its manpower and human resource management. It is noted that 80% of its employees were engaged in retail sales in stores and 8.5% were involved in manufacturing, design, logistics, distribution, and the remaining were part of headquarters’ activities. This only implies that Zara is good at optimizing its entire operation especially on its supply chain management. Zara is also aggressive in its expansion program considering that 80% of its capital expenditures is appropriated to new store openings, 19% on refurbishing and 10% on logistics. This is one of its competitive advantages because its renowned international competitors are not that aggressive in their expansion program. Zara is also known to consider great savings on employment. It tries to gain more in its manpower expenses by choosing personnel with substantial experience in the clothing industry but with a relatively cheap labor. This is one of the reasons why Zara is generating much competitive income in its operations compared to its competitors. The three international leading competitors of Zara are the Gap from the United States, Hennes & Mauritz from Sweden, and Benetton from Italy. Geographically speaking, it is an advantage for Zara because apparel disposal in 2000 is higher in Europe which is 34%, and followed by the United States which is 29% and in Asia which is 23% (Case 32: Zara: Fast fashion). Zara is based in Europe and this is an advantage on its part because of its proximity in the profitable market for apparel in the world. The proximity is an advantage because this has something to do with other strategic advantage when it comes to culture and understanding customer’s needs at the deepest level. In fact, it is in line with this that Zara has continuous innovation based on customer’s desires. Inditext’s financial comparison Shown in Table 1 are some of the indicators of the financial performance of Inditex, Benetton, H&M, and Gap. Gap has the highest net operating revenue among the three other retailing companies which is an indication that it may either has more retail outlets than the other or it is really at its best in stimulating needs or demand for its product offerings. Next to Gap is H&M followed by Inditex and finally Benetton. The net revenue can be an indication of market share and in this case, Inditex is not far behind the Gap and H&M. The same trend goes on from gross profit margin until operating efficiency. The operating efficiency is the operating expenses as a percentage of net operating revenues. The above indicators are not enough to tell which among of the four companies have higher profitability. When it comes to profitability, Inditex is more profitable compared to Gap, H&M and Benetton. Inditex has 10.5% net profit margin which is an indication that it has substantially generated more profits. This is the effect of maximizing its operation and resources. In fact, its PPE (property, plant and equipment) as percentage of net operating revenue is also higher than the other retailing companies. This is another indication that Inditex has substantially maximized its operation and resources to the fullest compared to the other retailing companies. Table 1. Financial performance of Inditex and its three international competitors Operating results (€ Millions) Gap H&M Benetton Inditex Net operating revenue 15,559 4,269 2,098 3,250 Gross margin 4,656 2,204 909 1,687 Operating efficiency 27.4% 37.8% 29.7% 30.2% Net profit margin -0.05% 9.6% 7.1% 10.5% PPE (% of net operating revenue 30.2% 15.9% 34.3% 37.8% Zara’s fast response model Zara’s fast response model contributes to its competitive advantage. The market for young adults and teenagers is very promising considering that communication has become richer in the midst of globalization, trending and integration of one popular culture in the world. Fashion in this case has become very timely for Zara’s strategy in creating needs and demands for its product offerings. Its aggressive effort for expansion is very timely. In fact, the very reason why H&M slowed down was due to its passive expansion program. Therefore, the H&M’s fashion miss reduced its net income. Zara is very innovative and it continues to serve customers based on their desires. It has not become a problem for Zara to create needs for its offerings because they are very timely and integrated with its aggressive expansion program. The World Co. in Japan on the other hand is very traditional in general despite the fact that Japanese market is composed of certain segment for young trendy generation. This only proves that a fast response model is not necessarily an assurance for success because there are specific segments in the market that can be considered traditional and there are also those that are after of innovation and something new that goes with the trend. The entire thing is a matter of focus and identifying specific market niche that can be transformed into opportunity. International expansion and Zara’s future success International expansion is very important for Zara considering that it is into new trends of fashion especially for young adults and teens. The advent of globalization and localizing popular culture is a timely moment for Zara. Culture is respectively associated with the latest trends in fashion. However, the advent of advanced communication system makes it easy for Zara to promote and stimulate needs for its product offerings. Conclusion Apparel retail chains are making good business in the advent of globalization and advanced communication system. The localized culture is another sustainable advantage. This is due to the fact that culture is associated with the latest trends in fashion. Zara is on the right track and its aggressive effort for innovation is timely and significant for its retail activity. For Zara, the whole event is a matter of striking while the iron is hot. Reference Case 32: Zara: Fast fashion, 130-152. Read More