Zara is the flagship company of Inditex, an international clothing retailer. Zara began its business as a small retail store in Spain founded by Amancio Ortega Gaona in 1975. In the following decades Zara has grown to nearly 450 store location in 29 countries by the year 2000. Zara consistently accounts for more than 80% of Inditex’s net sales as indicated by Figure 1; linking the success of Inditex to the success of the strategies of Zara.
Figure 1 Inditex Net Sales by Concept
The success of Zara is linked to its vertical integration strategy with local sourcing that differentiates it from other international clothing retailers.
Zara uses a combination strategy when sourcing their …show more content…
Figure 3: Leverage Measures
Viewing the progressing of Zara from year to year provides insight into how well these financial metrics are managed.
Figure 4: Percentage Change Financial Ratios
A clear trend to decrease the leverage metrics is seen except in 1999 where there was a marked increase from 1998. For profitability, there has been mostly positive increase from year to year but these are relatively small compared to the change from 1996 to 1997. This year marks the largest single year gain for all the profitability metrics. The relatively small changes in profitability metrics would indicate that Inditex may have reached a plateau in its current operating configuration. This plateau effect may necessitate the need to look at other strategies.
Zara’s current strategy can continue to be as useful as the company expands, however it will become increasingly more difficult. With the growth of the company, the in-house manufacturing facilities will at some point meet their peak production level, resulting in the inability to meet their retailer demands.
The current outsourcing strategy will need some modification as Zara grows its international market; with growth in market, its other objective is to decrease production costs. With current infrastructure, in order to accommodate this change, Zara should also focus on opening up a new manufacturing facility which can help service a defined subset of its retailers. With the