MGMT 495
Summer 2011:
Kelly Bossolt
Marta Kovorotna
Sarah Smith
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Financial Analysis:
• How big is the apparel industry?
• IPO
• Inditex compared to competition
External Analysis:
• Competition, who and where
• Global Retailing
• Trends (QR)
Internal Analysis:
• JIT
• Telecommunications
• Backward Integration
• Each brand, separate entity
• MGMT
• Vertical Integration
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How big is the world apparel trade market??
http://www.teonline.com/industry-overview.html
Company:
Operating
Margin:
EBITD:
Current Ratio:
Inditex (ITX.MC)
18.07
23.20B
1.66
H&M (HMb.ST)
19.98
23.61B
2.36
Gap (GPS)
12.91
EBITDA 3.48B
2.33
http://uk.reuters.com/business/quotes/financialHighlights?symbol=ITX.MC
http://uk.reuters.com/business/quotes/overview?symbol=HMb.ST
http://finance.yahoo.com/q?s=GPS&ql=0
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End of 2001
• €340 million net income on revenues of €3,250 million
• 1,284 stores
• 515 outside of Spain generated 54% of revenue
• Capital Expenditure split 80%, 10%, 10%
2002
• €510-560 million of CAPEX: 230-275 was spent on new stores (across
all chains)
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May 2001
• Launch of IPO (26% of shares sold to public)
• Stock price increased 50% by 2002
• Market valuation of €13.4 billion
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2001
• Largest and most internationalized of all 6 chains
• 507 stores, 282 of which were in 32 countries outside of Spain
• €1,050 million of company’s capital (72% of the total)
• EBIT at €441 million (85% of total) on sales of €2,477 million (76% of
total)
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Net Sales: €2,960m
Gross Profit: € 1,741m
Net Income: €332m
78 countries
5,154 stores
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Apparel trade 1990s
• China – export powerhouse, Japan
• European Union: Turkey, North Africa, sundry Eastern Europe
• United States: Mexico, Caribbean Basin
Multi-Fiber Arrangement (MFA), since 1974
• 2002, post-MFA world
• 2005, reduced tariffs (7-9%)
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Li & Fung, Hong Kong’s largest trading company
• Multinational supply chain:
 Jacket: Filling- China, outer fabric-Korea, zipper-Japan, inner
lining- Taiwan, elastics and label–Hong Kong – shipped to US.
Liz Claiborne, 1976
• Outsourced production
• 1990s, restructure of suppliers
Backwards Integration vs. pure middleman
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1990s, the increasing
concentration of apparel retiling
• Retail chain’s sales: 85% U.S.,
70% Europe, 40% Latin
America and East Asia, 10%
China and India
Promotion of Quick Response
(QR)
• Reduced forecast errors and
inventory risks
• Probing the market
• Compression of cycle times
• Improved information
technology
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Globalized apparel retailing
2000, spending on apparel €900
billion
• Per capita spending
• Local variation in customers
• “get big fast”
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The Gap
• 1969, San Francisco
• 90% international
production
• 1987, international
expansion: UK, Germany,
Japan
• 1990s, Banana Republic,
The Gap, and Old Navy
• Frailer to repositioning
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Hennes and Mauritz (H&M)
• 1947, Sweden
• All production outsourced
• Quick to internalize
• Lower price than Zara
• Expensive advertising
• Fewer designers
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Benetton
• 1965, Italy
• Investment in controlling
subcontractors’ production
activities
• Little downstream
investment
• Narrowing product lines
• 1990, hit saturation
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World Co. of Japan
• Comparable cycle times
• Integrated backward into
manufacturing
• Depressed Japanese
market
• Comparable cycle times
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Retailers to aristocracy
Home to thousands of small
apparel workshops
Sophisticated local demand
Spanish consumer vs. Italian
buyer
Quality fabric from local
suppliers
1980 Vertical integration
Sourcing from Far East
200 external suppliers
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Third party delivery services
• KLM & DHL
• Customers know the
delivery day
“Buy now because you will not
see this item later”
Market entry via franchising
and joint ventures
• Cyprus, 1996
• Turkey, 1998
• 49:50 split
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Just in Time (JIT) Manufacturing
• Enabled a Quick Response
 Improved Coordination
 Faster market shifts with increased flexibility
 Reduced forecast errors and inventory risks
 Compressed cycle time
Telecommunications
• Supply, production, sales locations
Tracking system
• Preferences
• Repeat orders
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Backwards Integration
• Manufacturing of most time-sensitive items
 Ship directly from the central distribution center to stores
• Fast cycle times
 New design to finished good in 4-5 weeks
 Modifications in 2 weeks
 Industry had 3-6 month cycle times
 Reduced working capital and enabled continuous
manufacturing
 Bulk of products out much later than competitors with more
time to prepare
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Each brand was its own separate entity
• Different Strategies, Product Designs, Manufacturing,
Distribution, Image, Personnel, etc.
• Group management
 Strategic Vision, coordinated concepts, administrative
services
• Learning by doing
 Created item daily, only about 1/3 was produced
 Failure rate was 1%, industry was 10%
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Store Manager
• Responsibilities
 Hiring and Training
 Small business feel
• Salary
 Incentive to earn up to half with performance
• Training
 15 day training
 Corporate for managers and overseas management
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Value
• Zara Name
 Well known, scarcity, attractive ambience, fresh
Vertical Integrated
• Control the supply
• Quick turnover (no more than 3 days in warehouse)
• Short supply chain and lead times
Organization
• Organized to exploit their resources
• Similar products in all stores
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Remain consistent
Hold up with European expansion: Greece
Keep investing in technology
Advertise! Increase the awareness