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Inditex Report Essay

The aim and objectives of writing this report is to analyse the business strategies or models adopted by the Inditex Group and to review whether this strategies will support its operation in accomplishing their future obligation. Furthermore, it aims to evaluate the strategic option of the organization in either from a corporate strategy view or strategic business unit (SBU) perspective that could be adopted by the Inditex Group. This report will also highlight the vision, mission and objectives of the Inditex Group Company. In addition, the report will go further by accessing the group human resources and management in order to clearly pinpoint any management changes in the organization, if there is any, and to know who the management are and their position in the decision making process of the company. In order to achieve the principle objectives of this report, the report will be categorised into Internal and External analysis. This is done in order to fully analyse the current position of Inditex Group in the market from all perspectives, also to access if Inditex is a healthy company to invest in, and also accessing the current strategic adopted by the company.

The company Internal analysis will be based on the following; Financial Analysis: This will focus on all the financial aspect of the company. Human resources and Management Analysis: focus on the management system of the company. Market Analysis: This will focus on the company’s current market position. Operations Analysis: This will focus on how and where the company perform it day-to-day activities. Prioritized Strength: This will analyse the strengths of the company internally. Prioritized Weakness: This will analyse the internal weakness of the company that can hinder them from achieving their goals.

The company External analysis will be based on the following; Pestel Analysis: this will analyse the possible influence of the failure or success of the company strategies. Porter 5 forces: this will help in analysing the way of attractiveness of the Clothing Industry. Critical Success Factors (CSF’s): This will focus on some unique resources that make the company successful. Prioritized Opportunity:

Prioritized Threat:

Company: Inditex Group.
The Inditex Group Company, a textile design Industries is a Spanish Multinational clothing company. Inditex have its headquartered based in Arteixo, Galicia in Spain. The Inditex Group was founded and created by Amancio Ortega Gaona the wealthiest man in Spain and third richest man in the world in 1985 and by 2001 they went public and listed on the Bolsa de Madrid stock exchange market1. The Inditex Group which is now considered as the world’s largest clothing apparel company in terms of sales is made up of over 100 companies operating in textile designs, manufacturing, and distributions. Inditex currently have 8 strategic business units operating in four geographical market segments2 which includes Spain. These strategic business units includes; Bershka, Massimo Dutti, Oysho, Pull & Bear, Stradivarius, Uterque, Zara, and Zara Home. Inditex strategic business units collectively occupied about 6249 stores in 86 markets. Company Vision: Good Faith, Dialogue, and Transparency.

Company Mission: Is to respond with agility to the demands of the market. This means that Inditex focus highly on the customers’ needs and combines these needs with high degree of vertical integration across all their business area.

Internal Analysis
Financial Analysis:
The key profit driver for Inditex Group Company is Zara, contributing 66.11% of the total net sales and 68.5% per square metre in 2012, while Bershka comes 2nd with 9.31% of total net sales in 2012. In terms of geographical region, the Europe (excluding Spain), and Spain accounted for 45% and 21% of the total net sales respectively. While the Americas and Asia (Including rest of the world) represents a significant lower amount of 14% and 20% respectively. In 2012 saw Inditex Group stores increases massively from 4264 stores in 2008 to 6009 stores in 2012. This shows an increase of 40.92% in stores from 2008 to 2012.

Inditex Group Profitability, Liquidity and Efficiency
Net sales increases year over year from 2008 to 2012. This shows an increase of 10.3% from 2007-2008, 6.2% increase from 2008-2009, 13.40% from 2009-2010, 10.2% from 2010-2011, and 15.61% from 2011-2012. This is boosted by the increase of sales, higher profits margin and numbers of new stores opened3. Overall, net sales show an increase of 53.22%. While the Net profit soared by a massive 87.26% between 2008-2012. Prior to this, Inditex growth rate has maintained an average of 16% sales growth and net income of 12% for the past 10 years. The decreasing pattern of ROCE from 2008-2009, and also in 2011 is due to a proportionate increase of operating expenses. The Gross Profit Margin (GP%) has seen a slow increase from 2008-2012. This is due to the slower increase of cost of sales (COS). EBITDA increases by 20% when compared to the previous years and EBIT also increased by 24% when compared to the previous years.

A very low geared company, as Inditex Group Company managed to pay back some substantial amount of debts through cash reserves. The Group has 0.08% of debt to capital ratio which means that the company pay little attention when it comes to using debts to finance projects. Investors Related

Market Capitalization of 66.883 bn euro.
Share price 106 euro as at 06/03/14
Earnings per share has been increasing significant from 2008-2012. Dividend per share increased by 12.5% from 2011 to 2012.
Inditex Group Company has a slow increase of sales volumes over the years; while some of the key ratios reported a decline pattern during some period. Inditex mostly depends on the Europe excluding Spain and Spain market, however, with an optimistic future growth in the Asia market. The company also has a low gearing ratio which gives them more financial edge in terms of future expansion. Funding

Inditex Group Company funds for its company through the issuing of ordinary share equity, debt financing, credit facilities and self-financing. The company have been profitable over the year which makes them assumed reasonable responsibility of not securing enough debt to finance its operations. So therefore, in terms of liquidity, the company is not exposed to any significant liquidity risk as it maintains sufficient cash and cash equivalent which meet the outflows of its daily operations. More so, the group are not as concerned about credit risk as they have a policy in place that cover any sales franchises and as their majority of revenue is made from retail sales, so they make use of cash collections or credit payment. Inditex Group Company also funds its business by investing in marketable securities which includes short and long term debts with a maturity of 90 days and 12 months respectively. This helps the Group in meeting its short term obligations. The group also have close to 50% stakes in each of the five Economic Interest Groupings they invest in, these groups are involves in leasing of assets.

Human Resources and Management
Inditex is a multi-cultural and multi-racial company with 120,314 employees and also created about 10,802 jobs in 2012. 82% of Inditex staffs works under an indefinite contract. In terms of its multi-cultural pedigree, Inditex employees are of over 130 nationalities and 45 working languages. Inditex has a young workforce with an average age of 31 years old and 78.7% of its employees are females. Pablo Isla Alvarez de Tejera is the Chairman and Chief Executive Chairman of Inditex Group Company along with his Deputy Jose Amau Sierra has transformed the fashion industry and created the world’s largest clothing and apparel company in terms of revenue, and the also developed a strong distribution model which helped the group to minimise their design to distribution process within a week.

Overall, the Inditex board consist of 9 directors which include 4 executives’ directors and 5 non-executives directors. Inditex Group Company operates a multidivisional structure which helps them in supporting their global operations. At Inditex, the board of directors are the highest decision maker; they supervise and control the body of the company apart from the matters that were reserved to the general meeting of the shareholders. Inditex board of directors are also entrusting with direction, administration, management and representative of the company and management of the day-to-day activities of the company to the executives. They also manage the team and focusing its efforts on general supervising function which include directing Inditex policy, making relevant decisions and acting as a link with the shareholders of the company.

Market Analysis
Markets and segment
Most attractive market segment is Asia market
Market segment by age. Young and middle age group.
Inditex have constant changes to its products lines.
They have identical products in all market segments.
Inditex maintain health and safety products standard4.
Customers’ orientation: they analyse customers’ feedbacks in order to be able to identify customer trends. Price
Inditex has a standard price in all markets segments.
The pricing could be different in terms of exchange rate factors due to globalization. It also gives seasonal discount5 like December sales.
Inditex price is considered to be medium with an exception of Massimo Dutti. Inditex Amongst Competition.

Inditex has a strict policy and zero advertisement.
Online website for each business unit which systematically updates It has an Affinity card for customers: this influences customers’ loyalty6. It communicates with its customers through social networks.

Location: All of Inditex stores all located at the main shopping streets. A unique design which is influence by the culture of the markets. A display tailored of the product
They have excellent customers service
Online stores for all its 8 business units available in some major country7

The key strategy of the Inditex marketing departments are performed through customers’ orientation and satisfaction. Inditex main sale-point is where managers received feedbacks from customers, the managers then report to the design departments in order to identify and carried out what the customers’ value. Another factor that did the trick for Inditex is their glamorous stores, where customers’ access its latest products which are always updated four times in a month. The product lifecycle and BCG matrix as you can see on the charts indicates an accurate balancing position within the Inditex portfolio. However, since just one business unit is placed on as a Cash Cow, so therefore, numerous investments might be needed so as to transform the Question Marks into Stars.

Inditex Product Lifecycle.


Operation Analysis:
Value Chain- Primary Activities
Approximately 1000 designers are responsible for recognising any changes in fashion and they are in charge of developing new models to satisfy customers’ desires. Most of the production takes place in the Group’s own factory. The group take full responsibility control of fabrics supply, marking and cutting of the fabrics till the finish goods. Over 50 percent of Inditex manufacturing is carried out by local suppliers. By the end of 2012, Inditex already had a total of 1434 suppliers and all suppliers must agree to adhere to Inditex Code of Conduct. The cost of merchandise includes the cost of raw materials and consumables8. The Inditex Group has its own logistic centre, where all production is received and carried out, and then distributed to various stores worldwide9. Inditex operates 8 logistic centres, at least one for each brands and all of which are in Spain. Stores play significant roles in Inditex business model10.

Value Chain- Secondary Activities
Research and Development using advanced technology11.
Operates manufacturing and procurement12.
Research and Development of eco-efficiency13.
Human Resources and Management14.
Firm Infrastructure15.
Corporate Social Responsibility16.
Joint ventures and Strategic Alliances17.

Inditex unique management business model is based on flexibility and innovation, and its vision of fashion along with quality design and creativity, together with a rapid response to customers demand has resulted in Inditex fast international expansion and an excellent performance of its commercial formats. Inditex business model is centred to its customers, stores, design/production, teams, and logistics. However Inditex group adopted a high degree of vertical integration business model when compared to its competitors. This allows Inditex to cover all phases of its fashion process which includes design, manufacture, logistics and distribution. The group also incorporated a degree of flexibility structure with a strong focus on customers’ demands in all its business areas. Inditex views social and environmental variables as a strategic factor for growth and sustainment for customers demand. The key to Inditex model is its ability of attending to customers desires in a shortest amount of time possible. This is a key value added activities of the Inditex group Company.

Inditex Business Model Structure.

Inditex Logistics Centres

Prioritized Strengths
Inditex is the world largest clothing and apparel company in terms of revenue. Inditex has a great organization knowledge and expertise. This stands for unique resources and core competences of the company. It also has a strong business model (core competence)

It has strong brand (unique resource)
Inditex has a diversifying marketing strategy (core competence)

Prioritized Weakness
Inditex depend on one global brand (Zara which generate 66.11% of its total revenue). It also depends on two geographical regions (Europe excluding Spain and Spain). Inditex is exposed to commodity inflation,

It has a centralized logistic centre which may cause some problems in future expansion. High training cost.

External Analysis
P.E.S.T.E.L Analysis
Global trade agreement18
National trade relationship19
Value added tax (VAT) and foreign taxation policies.
Change in government.
Pressure group20.
Exchange rate: related to GBP, Us dollars, Japanese Yen: As the crisis in Europe area might cause the Euro to be weaker than the Yen, so the company is likely to have exchange loss. Year on year change in GDP21.

Financial market uncertainty.
Commodity price inflations: for instance, the fuel price increase in the Middle East due to the civil unrest may affect the company margins and also increase the cost of transportation. Inflation22 and Interest rate23.

Social dimension, corporate social responsibility24 and reputations. Consumers’ complaints.
Changes in consumers preferences.
Changes in lifestyles and trends. New trends among the younger generation in Europe and America. Technology
Spending on research and development
Information system
E commerce26
Kyoto protocol
Waste and Recycling: more focus on the attention of areas such as sustainable development. The effect of global climate to the production of organic cotton. Toxic chemicals: this includes carbon footprint.

Employment law: this has something to do with Child labour and rules and regulations that relate to labour. Consumer law: this regards law and regulation which relates to fashions and clothing Patents and trademarks

Supplier rights
Health and safety law

European companies will be assisted by the abolition of textile and clothing import quotas (ATC) in order to enter into the emerging market of Asia which undoubtedly counted for a huge significant amount of the population of the world. However, due to the uncertainties associated with political and economic situations, this could increase the risk of further expansion strategies. Although the price of cotton has increases by more than $5 over the years while unemployment has risen high especially in Greece and Spain with 28% and 26% respectively which force textile companies to potentially increase their market prices, while disposable income on clothing has decrease because the ongoing problem in the Eurozone consumer gives negatives signal to consumers which affect their confidence, but the confident level in the emerging market (Asia) is optimistic. However, the price deflation of cloths which has been dated back to the 1990s till the start of the financial crisis, the reversing trends now after the financial crisis have an effect on the overall productivity of the apparel industry positively.

Porters 5 Forces
Threats of New Entrants
There is economic of scales
It involves large capital investment
There is a brand loyalty in the industry
There is a product differentiation
Patent and protection tariffs
Moderate force which can be overcome
Threat of Substitute
Price/performance ratio
Inditex other brands
There is zero switching cost
Weak force
The Bargaining Power of Buyer
Decentralized and Centralized Buyer
There is a low switching cost
There is zero buyer competition threat
Moderate force
The Bargaining Power of Buyer
There is fewer supplier in the industry
There is a low supplier competition threat
Suppliers of textile and raw materials
Weak force
Competitive Rivalry
There is existing retailers equally sized
Slow growth in the apparel industry
Great differentiation
Moderate force
Three moderate forces and two weak forces make the clothing and apparel industry unattractive for new competitors to break into the industry. However, changes to substitute depends on the consumers’ preferences according to their perception of taste, style and budget, therefore it is high to switch to other providers. Competitive rivalry is the strongest force assisted by the slow growth of the market.

Prioritized Opportunity
There is still room to grow in the emerging market in this industry. The
abolition of quotas
Organic market development
Technological Innovation
New strategic Alliance
Prioritized Threats
There is high competitive rivalry in the industry
There is slow market growth in the industry
Increase in commodity inflation
Changes in consumers’ taste or trends
Exchange rates.

Strategic Position
Zara which is Inditex main source of revenue because of the amount it generated in terms of sales is ranked on the 4th option of the Bowman strategic clock, it implement a broad differentiation strategy. It offers products to customers at an affordable and reasonable price or a little higher because of its good perception of quality, enriches customers’ satisfaction and loyalty. However, the excellent deployment of its unique resources and its core competences assist Zara to considered as the first mover in the industry27. One of its key value added activities is its focus on customers’ needs and a constant change in its product lines whilst maintaining the same level of price allows Zara to achieve a competitive advantage. Inditex has expanded and grown, according to the Ansoff matrix. By product development: (EcoFootDesign) Systematic changes in products line and innovation. Market penetration: it has increase shares of its key existing markets. Market development: in 2010 saw Uterque one of Inditex business unit opens its first store in Russia which also pave way for Zara home and Zara to follow through. By related and unrelated Diversification: Zara and Massimo Dutti entered into the Indian market in 201028 and 201329 respectively and Inditex enters the furniture retail industry30 through unrelated diversification. Inditex method of pursuing its strategies.

Organic development: Inditex continuous performance and innovation is acquired through their knowledge and experience according to their existing resource and capabilities. Through Acquisition and Takeover: in 1995-1996, Inditex acquired the whole of Massimo Dutti in a 100% acquisition. Form a Strategic Alliance: A Joint Venture with the Tata Group to open the first Massimo Dutti stores in New Delhi, India. Inditex license to other companies: production of finished goods through external suppliers. The Inditex Group Company adopted a parenting role by providing a clear vision of its company objectives, it also assists employees by providing continuous training and facilitating, and enhancing through synergies.

Improvement in all Inditex departments is as a result of a great focus in performance evaluation and monitoring. Inditex adopted different portfolio management for each of its business units. According to the results of the strategic analysis, financial analysis, and SWOT analysis above, it has been well documented that the Inditex Group Company has a strong portfolio which make the company likely to overcome any future uncertainties, as it was evidence in its financial performance that they keep growing even during the financial crisis of 2008-2009, they still achieve a significant increase in revenue. However, the problem which the Inditex Group could be facing regarding their adopted strategies will be the over dependence of its other seven (7) business units which includes Bershka, Massimo Dutti, Oysho, Pull and Bear, Stradivarius, Uterque, and Zara Home over Zara which is the unit that generates over half of its total sales (66.11%). The Group should also find a way to increase the percentages of sales to geographical region like America which is has the lowest sales geographically and also in Asia which is an emerging market other than Europe.

Proposed strategy for the strongest SBU (Zara)
Product development: the company should produce better quality of future product lines. Market development: the company should go on with further expansion in Europe market and the US market. Diversification: the company should enter into the apparel sport wear industry. Market penetration: the company should enter into the Australian market. Corporate

Market penetration: further expansion in the Asia market.
Backward integration: to acquire a fabric supplier
Consolidation: weaken business units should be strengthen
Forward integration: manufacturing and logistic process should be decentralised. Do Nothing: continue with the current operations.

Inditex SA, Bloomberg Market, [Online] Available at: http://www.bloomberg.com/quote/ITX:SM Accessed on 20th of February, 2014. H&M (2014), “ H&M Opens first store in East Asia” [Online] Available at: http://about.hm.com/en/About/facts-about-hm/people-and-history/history.html Accessed on 23rd of February, 2014. Inditex, (2008) Inditex annual report 2008, annual report 2008, A Coruna: Inditex. Inditex, (2009) Inditex annual report 2008, annual report 2008, A Coruna: Inditex. Inditex, (2010) Inditex annual report 2008, annual report 2010, A Coruna: Inditex. Inditex, (2011) Inditex annual report 2008, annual report 2011, A Coruna: Inditex. Inditex, (2012) Inditex annual report 2008, annual report 2012, A Coruna: Inditex. Index Mundi, [Online] Available at: http://www.indexmundi.com/commodities/?commodity=cotton Accessed on 20th of February 2014.

Unemployment Statistics, [Online] Available at: http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics Accessed on 20th February, 2014.
Textile and Clothing, [Online] Available at: http://www.companiesandmarkets.com/MarketInsight/Textiles-and-Clothing/Global-Apparel-Industry/NI7468 Accessed on 22nd of February, 2014.
The Economics Times, [Online] Available at: http://articles.economictimes.indiatimes.com/2013-04-29/news/38904773_1_brand-massimo-dutti-foreign-investment-promotion-board Accessed on 24th of February, 2014.

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