Saturday, July 14, 2012
Wednesday, July 11, 2012
Inditex...What's Next?
Inditex now has the largest market capitalization (€43.1B) in Spain. In 2011, revenues increased by 10% from 2010 to €13.8B.
The largest clothes-retailer worldwide, Inditex owns - Zara, Bershka, Pull and Bear, Oysho, Stradivarius, and Massimo Dutti. Through these brands, Inditex has been able to capture different segments of the clothing retail market; for example, its brand, Pull and Bear caters to a younger males and females while Zara caters to the everyday professional woman and quite possibly her family with mid-quality goods; Massimo is for the more upscale man and woman.
The groups runs very efficiently, for example, Zara store managers are able to directly order additional merchandise from centralized warehouses through highly integrated IT systems. Store managers can also let designers know which styles and colors are more popular so the designers can quickly incorporate any modifications and roll them out to other stores. Zara fosters a strong entrepreneurial spirit amongst its employees leading to quicker sharing of best practices amongst its employees and quicker decision making.
Some of Inditex's other strengths are that it has successfully vertically integrated itself along its value chain. It has accomplished this by managing the design, sourcing materials, manufacturing, logistics and distribution channels (retail stores and online shop). By doing so, the group has been able to achieve economies of scale and become a low-cost producer. Finally, it operates a very efficient logistics and supply chain system. Amidst these strengths, some weaknesses are that the group has been very dependent on Spain (represents about 34% of its total revenues) and the rest of Europe (about 46% of total revenues). As a result of these dependencies, the current economic downturn in Europe might adversely affect the group's turnover if demand for its products in Europe falls considerably.
Considering these challenges, what can Inditex do to maintain its competitive advantage? One of the group's strengths has been its ability to foster the entrepreneurial spirit amongst its employees. Clearly, it needs to continue to encourage this initiative to ensure its employees continue innovating it's logistics systems and store operations. Beyond this, Inditex should focus on expanding to emerging markets like India (expansion is already underway -- the group formed a joint venture with the Tata Group), and to other promising markets like Sri Lanka, Ghana, etc. In addition, based on how the current stores in the regions outside Europe and North America such as Chile, China, UAE etc., are doing they can either open additional Zara stores, or Pull and Bear, Uterque stores there. E-commerce is another avenue that Inditex could further develop - doing this would provide more exposure for its brands and allow it court consumers in countries where there are no physical Zara stores. It could also identify local designers in the emerging markets it can collaborate with to create capsule collections featuring unique lines of accessories and clothing. This would allow the group further localize its brands in order for it to connect with its different customer segments and increase its market share. Doing so, would differentiate it from its major competitors ( The Gap Inc., H&M Hennes and Mauritz, and El Corte Ingles).
References
Johnson, M (2012) Inditex Now Spain’s Most Valuable Group. Financial Times. Retrieved on July 11, 2012 from http://www.ft.com/intl/cms/s/0/18216e6a-a961-11e1-9972-00144feabdc0.html#axzz20KqYI9eQ
Retail Global Expansion: A Portfolio of Opportunities. Retrieved on July 11, 2012 from http://www.atkearney.com/index.php/Publications/retail-global-expansion-a-portfolio-of-opportunities2011-global-retail-development-index.html
Company Profile: Industria de Diseno Textil S.A. Retrieved on July 8, 2012 from www.marketline.com