Feasibility of ZARA in Peru
Market Seeking Opportunity
Erin Bereit
Tarun Hingorani
Matthew Raffa
Taras Sanow
Jonathan Solis
For Internal Discussion Purposes Only
1
Peru represents the next logical step in our
strategy for the Americas
ZARA
Macroeconomic
Stability
 Stable exchange rates and low rates of inflation.
 Continuous GDP growth per capita.
Existing Footprint
 We have operated in South America since 1998.
 Distribution centers in Argentina, Brazil, and Mexico.
Local Demand for
Goods
 Lima population over 8 million.
 Target customers annual clothing and footwear
expenditure $390 million in 2010 and doubling in 10 years.
Profitable
 Store profitable within first 2 years of operation.
 Total net benefit of $13.0 million over the first 7 years of
operation.
For Internal Discussion Purposes Only
2
Overview of Inditex / ZARA
 Inditex

ZARA


HQ in Arteixo, Spain
$14.7 billion in operating revenues
(2009)
4,607 stores, 8 brands, 74 countries
 ZARA





Flagship brand of Inditex
First Store in 1975.
1,680 stores in 72 countries (2009)
$9.1 billion in operating revenues
(2008)
Goal of 80% of stores outside of
Spain in 2020 (Current 55%).
For Internal Discussion Purposes Only
3
ZARA
Inditex has been operating its ZARA
brand in South America since 1998.
Country
ZARA Stores (FY 2008
Year End)
Argentina
7
Brazil
25
Chile
6
Colombia
7
Uruguay
2
Venezuela
11
Total
59
Regional Distribution Center(s)
Argentina
Brazil
Mexico
Source: Inditex FY 2008 Annual Report.
For Internal Discussion Purposes Only
4
ZARA
Inditex has been operating its ZARA
brand in South America since 1998.
Country
ZARA Stores (FY 2008
Year End)
Argentina
7
Brazil
25
Chile
6
Colombia
7
Uruguay
2
Venezuela
11
Total
59
Regional Distribution Center(s)
Argentina
Brazil
Mexico
Source: Inditex FY 2008 Annual Report.
For Internal Discussion Purposes Only
5
Why invest in Peru?


ZARA




Lima is 4th largest city in Latin America
Bilateral free trade agreements e.g. US, China,
and EU (currently negotiating)
Political stability
Legal environment conducive to investment
Investment grade bond rating
Largest GDP growth in region in 2010 (6%)
For Internal Discussion Purposes Only
6
Macroeconomic stability leading to…
Balance of Payments 2000 - 2009
(% GDP)
(Source: Central Reserve Bank of Peru)
10
Current Account balance
ZARA
Capital Account balance
Balance of Payments
5
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-5
Inflation Level
Annual Percentage Change 2000 - 2010
(Source: IMF World Economic Outlook Database 2009)
Public Debt as % of GDP
2000 - 2009
7.8
(Source: Central Reserve Bank of Peru)
6.8
50
45
40
35
30
25
20
15
10
5
0
5.8
4.8
3.8
2.8
1.8
0.8
-0.2
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2000
2001
For Internal Discussion Purposes Only
2002
2003
2004
2005
2006
2007
2008
2009
7
ZARA
Increasing FDI
For Internal Discussion Purposes Only
8
ZARA will operate in a unique, sustainable position
within the Peru Clothing and Footwear Marketplace
 Mango
Expensive

ZARA


ZARA
ZARA
Topitop
Generic Domestic
Retailer
Fashionable
Plain
Mango
HQ in Spain
Currently 5 retail stores in
Lima (6 total in Peru)
Currently pursuing a move
in market position.
 Topitop


HQ in Peru
Inexpensive semifashionable retailer
 General Domestic Retailer

Provide service to mass
market
Cheap
For Internal Discussion Purposes Only
9
ZARA – Resources & Capabilities
Competitive Advantage
Effective Team of
Designers
Presence at High-end
Retail Locations
ZARA
Fashion & Cost
Conscious Customers
Latest Trends
Spotting Team
Low Advertising
Costs
Frequent Apparel
Updates
10,000 Designs
Per Year
Appearance of
Scarcity
Quick to
Market
Selective Outsourcing
of Basic Manufacturing
Production in
Europe
Predominately
Company-owned
Distribution System
Fast Fashion
Image
For Internal Discussion Purposes Only
10
Proposed Operating Plan


ZARA




1Q 10
Company owned store
Locate in Lima’s upper end shopping
district (Larcomar)
Country management team
Local employees for day-to-day operations
Utilize existing regional distribution centers
Open 3Q 2011
2Q 10
3Q 10
4Q 10
Recommend
Market Expansion
Country
Management
Team
Real Estate
Contracting
Permitting
Strategy
1Q 11
2Q 11
3Q 11
Local Staff
Construction
Stocking
Implementation
Zara in Peru
11
For Internal Discussion Purposes Only
ZARA in Lima will break-even in 2 years and total net benefit
of $13.0 million over the first 7 years of operation.
Scenario Market Shares for Total Clothing
and Footwear Spending
Annual Profit After Taxes & Tariffs
$40,000,000
Peru - Conservative
Mexico Market Share
Chile Market Share
$35,000,000
ZARA
$30,000,000
Peru Conservative
Current
Mexico
Current
Chile
2011
0.1%
0.9%
1.4%
2012
0.3%
1.8%
2.7%
2013
0.35%
1.8%
2.7%
2014
0.4%
1.8%
2.7%
2015
0.4%
1.8%
2.7%
2016
0.4%
1.8%
2.7%
2017
0.4%
1.8%
2.7%
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$2011
$(5,000,000)





2012
2013
2014
2015
2016
2017
Key Assumptions
 COGS is 43 percent of sales revenue.
Average cost of new store in new market is $1.6 million.
Size of store = 1,380 square meters (firm’s system-wide average).  SGA is 20 percent of sales revenue.
 Corporate tax rate (existing and future) is 30 percent of profit.
Annual cost of prime real estate in Lima is $37 per square meter
($51,000 per year).
 Tariff rate is 17 percent of the value of imports (merchandise)
Ninety (90) employees are needed to service Peru.
 Cost of capital is 6 percent.
Avg. monthly salary per employee is 3,500 Nuevo Sols ($1,100)
 Amortization period is 20 years.
For Internal Discussion Purposes Only
12
ZARA
Questions? ¿Preguntas?
Thank You
Gracias
13
For Internal Discussion Purposes Only
ZARA
Sources
Inditex. (2008). Inditex 2008 annual report. Retrieved f rom
http://www.inditex.es/en/shareholders_and_investors/investor_relations/annual_reports
Tiplady, R. (2006, April 4). Zara: taking the lead in f ast-f ashion. Bloomberg Businessweek, Retrieved f rom
http://www.businessweek.com/globalbiz/content/apr2006/gb20060404_167078.htm?chan=innovation_branding_brand+prof iles
Zara. (2010, April 2). Retrieved f rom http://www.zara.com/
Zara. (2010). Wikipedia. Retrieved (2010, April 28) f rom http://en.wikipedia.org/wiki/Zara_(clothing)
[1] Kumar, N. (n.d.). How Zara worked on its supply chain to bring low-cost high f ashion to the shelves - at high speed. Businessworld, Retrieved
f rom http://www.businessworld.in/index.php/Spanish-season.html
Cia the world factbook - peru. (2010, April 16). Retrieved f rom https://www.cia.gov/library/publications/the-world-f actbook/geos/pe.html
Fmi: perú crecerá cerca del 6 percent en 2010 y será la envidia en la región. (2009, October 29). La Republica.
Ministerio de comercio exterior y turismo del peru. (2010, April 17). Retrieved f rom http://www.mincetur.gob.pe
Central bank of peru. (2010, April 28). Retrieved f rom www.bcrp.gob.pe
U. S. Department of State - Background Note: Peru. Accessed at http://www.state.gov/r/pa/ei/bgn/35762.htm on May 1, 2010.
Perspectives on the Peruvian Economy”. Ipsos APOYO. January 2010. Accessed at http://www.livinginperu.com/blogs/business/1246 on April
23, 2010.
About Doing business. (2010, April 22). Retrieved f rom www.doingbusiness.org
Valez, P. (2009, December 16). Peru wins third investment grade rating. Reuters, Retrieved f rom
http://www.reuters.com/article/idUSN1611592020091216
Vasquez, I. (2007, December 5). Peru may become latin america’s next success story. Retrieved f rom http://www.cato-atliberty.org/2007/12/05/peru-may-become-latin-americas-next-success-story/
Perspectives on the peruvian economy. (2010, January). Retrieved f rom http://www.livinginperu.com/blogs/business/1246
Ghemawat, P, & Nueno, J. (2003). Zara: Fast Fashion. (2003). Boston, MA: Harvard Business School.
Mng by mango. (2010, April). Retrieved f rom http://www.mango.com/pv/index.html
China remains mango's biggest challenge. (2010, April 8). Fibre 2 Fashion, Retrieved f rom http://www.f ibre2f ashion.com/news/fashion-companynews/newsdetails.aspx?news_id=84474
14
For Internal Discussion Purposes Only
ZARA
Sources
Topitop. (2010, April). Retrieved f rom http://www.topitop.com.pe/home_retail.aspx?grp=2&len=2
Lima . (2010). Wikipedia. Retrieved (2010, April 1) f rom http://en.wikipedia.org/wiki/Lima#Economy
South America: Peru. (2010). The World Factbook. Retrieved (2010, April 18) f rom https://www.cia.gov/library/publications/the-worldf actbook/geos/pe.html
Zara. (2010, April 2). Retrieved f rom http://www.zara.com/#/en_GB/shops/Store percent20Finder/
Inei: peru's economy up 3.63 percent in january. (2010, March 16). Andean Air Mail & Peruvian Times, Retrieved f rom
http://www.peruviantimes.com/inei-perus-economy-up-3-63-percent-in-january/165328
Peru: incidence of total poverty. (2010, April). Retrieved f rom www.inei.gob.pe
Cia the world factbook - peru. (2010, April 16). Retrieved f rom https://www.cia.gov/library/publications/the-world-f actbook/geos/pe.html
Metropolitan lima: average monthly income from principal occupation. (2010, May 2). Retrieved f rom www.inei.gob.pe
World bank development indicators. (2010, March). Retrieved f rom www.worldbank.org/data
Peru: Clothing & Footwear. Euromonitor. Retrieved (2010, April 18) f rom
https://login.library.lausys.georgetown.edu/login?url=http://www.portal.euromonitor.com/Portal/DocumentView.aspx
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For Internal Discussion Purposes Only
Market Expansion Considerations
 Macroeconomic stability
ZARA
 Urban economic development
 Relative ease of market entry
 Local demand for clothing
 Cost of doing business (taxes &
tariffs)
 Accessibility of distribution centers
 Availability of prime retail space
 Profitability within two years of
operation
For Internal Discussion Purposes Only
16