Inditex assignment

Module name: Sustainable Strategy - from Planning to
Implementation

Title of the assignment: Strategic Analysis of Inditex

Student name :
Submission date :

Executive Summary

Irrespective of the amount of resource that a company has if the company is not able to adopt
a suitable strategy to carry out its operations. Further such strategies need to address the
objectives of key stakeholders such as share holders and other main stake holders. Corporate
strategy of the Inditex was evaluated in the light of its goals and objectives. A brief introduction
of company was produced in the introduction part highlighting key aspects of the company.
Strategic position of the company was analysed using PESTLE analysis, five forces, SWOT
analysis. Further industry life cycle was analysed using Industry life cycle. The results from
such analysis were discussed further in this report. BCG matrix was used to analyse the
strategic direction of Inditex. Further Ansoff’s growth matrix also used for this purpose. Further
Suitability, Feasibility, Acceptability and Sustainability of the strategy of Inditex was discussed
in this report. Finally conclusions and recommendations were made for the Inditex to achieve
its corporate objectives.

.

Sustainable strategy Inditex Page 2

Contents
Introduction .................................................................................................................................................. 4
Strategic position .......................................................................................................................................... 4
PESTEL analysis ......................................................................................................................................... 5
Michel Porter’s five forces ........................................................................................................................ 6
SWOT Analysis........................................................................................................................................... 8
Strategic Directions ....................................................................................................................................... 8
Suitability, Acceptability, Feasibility and Sustainability .............................................................................. 11
Suitability ................................................................................................................................................ 11
Acceptability ........................................................................................................................................... 11
Feasibility ................................................................................................................................................ 11
Sustainability ........................................................................................................................................... 12
Conclusion and recommendation ............................................................................................................... 12
Conclusions ............................................................................................................................................. 12
Recommendations .................................................................................................................................. 12
References .................................................................................................................................................. 12
Appendix 1 .................................................................................................................................................. 13


Introduction

Started in 1975 in Spain with one shop, in 2011 Inditex has become one of the world’s largest
fashion retail group. Currently it operates 5527 fashion stores in 82 countries across the globe.
It offers its products through eight types of stores those are,

Zara
Uterque
Massimo Dutti
Oysho
Bershka
Zara Home
Pull & Bear
Stradivarius

(Source, http://www.inditex.com/en/who_we_are/our_group)

The headquarters of the company is still located in the same town where it started its operations
in 1975. Among other countries Inditex stores can be found in Europe, America and Asia.
The co- founders of the company were Amancio Ortega and Rosalia Mera. In 2010 the revenue
of the company was amounted to € 12.5 billion while the net profit recorded was € 1.7 billion.
In the early days most of all the products were manufactured in spain however currently the
production activities were shifted to countries where there is low labor cost such as china and
morocco.

Strategic position

Strategic position concerns about the possible impact on the strategy of the company from
external environment, resources and competencies exist internally and influence and
expectation of key stake holders.
(Johnson & Scholes, 2005).


Strategic position is a part of the strategic management process which gives an idea as to the
strategic choices that should be made and implemented subsequently.

The external environment that influence to the strategy of Inditex can be analysed using
following models.

PESTEL analysis

Political factors

Reduce of restrictions of import quotas to Europe and USA
It is noted that imports from china increased from 17% to 30% in Europe and 16% to
50% in USA after the relaxation of restrictions.
The civil unrest in the middle east region
Since the company is speeded in Middle East the civil unrest in this area affect to the
operations of the company.
Free trade policy in European union
Import tariff are four times high when goods are imported from developing countries to
developed countries.

Economic Factors

The higher borrowing cost and the financial crisis exist in the European region.
The economic crisis spreading across the Europe and other countries may affect the
operations of the Inditex as it is highly depend from the European region.
With increase in the interest rates the inflation will increase and buying power of the
customer will decrease.
Increase of fuel prices due to the civil unrest in Middle East may increase the transport
cost and affect to the margins of the company.
Exchange rates
With the crisis in the Europe Euro may be weaker than the currency in china and Inditex
may have to bear exchange losses.

Social Factors
New trend among younger generation in Europe and USA for fashion.
This has a positive impact on the Inditex strategy as they can easily promote their new
designs among the younger generation in Europe.
Low growth in the population in Europe.
This may affects adversely to Inditex. Accordingly the population growth in Europe in
2010 was 0.09%.


Technological factors
Latest technology in manufacturing such as Auto CAD (Computer Aided Design) and
Auto CAM (Computer Aided Manufacturing).
High technology used in transportation activities
New ideas in online shopping

Environmental Factors
High demand for environmental friendly garments
Effect of global climate to organic cotton production
Attention of areas such as sustainable development
Carbon footprint of the company

Legal Factors
Laws and regulations relating to fashion and clothing
Child labour and rules and regulations relating to labours.

Michel Porter’s five forces

(Source, www.hbr.org)

1. Threat of new entrants

Since the fashion industry is a dynamic industry the threat of new entrants is high as there are
lots of parties with innovative and creative ideas. Such threats can be eliminated by


Increasing entry cost by investing latest technology
Introducing customer loyalty programs
Increasing economies of scales

2. Bargaining powers of suppliers

When considered the bargaining powers Inditex has taken measures to reduce the
bargaining powers of its suppliers those are
Enhanced supply chain with 1337 suppliers who participate actively to the supply
chain.
The company has take steps to produce 50% of its products by on its own
manufacturing facilities.

By these actions Inditex was able to decrease bargaining power of suppliers.

3. Bargaining powers of Customers

Since the company offers new and fashionable products the bargaining power of the customer
is low. Further due to the brand loyalty of customers Inditex was able to reduce the bargaining
power of customers.

4. Threat of substitutes

Threats from substitutes such as new fashion designs are controlled through offering all range
of clothing and customer loyalty. Further when considering online trading it is noted that the
competition is low than in other industries.

5. Competitive rivalry within the industry

Company faces severe competition from competitors such as M&E, GAP. Due to the low growth
in the fashion industry in Europe this competition has become more severe.

It can be noted that the company is operating in a oligopoly marker as there are few companies
who engaged in this industry. Further company has lots of market opportunities as they have
lots of patent rights which they can use for growth of their operations.


SWOT Analysis
We can notify the Strengths, weaknesses, opportunities and threats and how we can convert
those threats to strengths weaknesses to opportunities.

Strategic Directions

The strategy of the company is considering of multi format global growth. Accordingly company
has taken steps to grow its store location around the world. According to the annual report of the
company in the financial year 2010 company has opened stores in 45 countries across the
globe.

(Inditex annual report 2010, page 15).

Further following key performance indicators of the company shows positive signs,

Number of store opened during the year
Turnover
Net profit After tax
Earnings Before Interest & Tax
Return on Capital Employed (ROCE)
Leverage

(Inditex annual report 2010, page 17)

Inditex’s strategic direction can be identified by Ansoff’s growth matrix.

Products/Services

Existing New

Existing MARKET PENETRATION PRODUCT DEVELOPMENT
 Expand the operations in  Offer new fashionable


Europe and other cloths to existing market
continents where the including Europe.
company currently carrying  Expand in to new
out operations. businesses such as other
Markets consumer goods using
existing market
operations.
New MARKET DEVELOPMENT DIVERSIFICATION
 Expand operations to new  Moving to new markets
countries or areas where with new designs of
company sees more cloths. .
potential..

When analysing the strategy of the Inditex it can be noted that the company mainly focus
market development strategy. That is expanding operations in to new markets with its
existing brands. Such as,
Zara
Uterque
Massimo Dutti
Oysho
Bershka
Zara Home
Pull & Bear
Stradivarius

Further company also adopt market penetration strategy concentrating mainly markets such as
America and Asia.

BCG matrix can be used to identify the life stage of the company


(Source, www.bcg.com)

When analysing the life cycle of the company it can be concluded that the company is in the
cash cow stage as its existing operations generate sufficient cash flows to expand operations in
to new markets.

The industry life cycle of the Inditex can be analysed as follows,


Market size

Development Growth Shake-out Maturity

It can be concluded that the industry is in the maturity stage as the growth of the industry
is low.

Suitability, Acceptability, Feasibility and Sustainability

Suitability
The strategy of the Inditex is suitable in the light of its goals and objectives. It can evidence that
the operations of the company is directed towards achieving its goals and objectives.

Acceptability
Strategy of Inditex can be accepted in terms of shareholder point of views. That is, strategy
implemented by Inditex is focussed in achieving it’s shareholders objectives.

Feasibility
The strategy of the company is feasible as over the past period the company has achieved its
key performance indicators. Further it has the required resources both financial and non
financial to execute such strategies.


Sustainability
The strategies adopted by Inditex can be identified as sustainable since those strategies are fair
in the light of countries, environment and economies it currently operates.

Conclusion and recommendation

It can be noted that from the inception Inditex came a successful journey through its life time. Further it
has a high growth potential in other continents.

Conclusions
1. Inditex existing market operations seems to be create sufficient amount of cash flow
2. Market operations in the region can be expand further by introducing new brand to the market
3. The company is having a strong brand portfolio
4. The company has a strong supply chain compared to its competitors

Recommendations
1. Expand market operations to other parts of the world using funds from existing business.
2. Introduce new brands to existing Europe market to increase the customer base
3. Us e the company’s brands to expand in to new countries.
4. Use its strong supply chain to increase operational efficiencies and profitability.

References
 European Union (March 2012) Trade / Committed to free and fair trade [online] available
at: http://europa.eu/pol/comm/index_en.htm. Last accessed [31 March 2012]


 Ethical Fashion Forum (n. d.) Trade Tariffs and barriers [online] available
at:http://www.ethicalfashionforum.com/the-issues/trade-tariffs-and-barriers. Last
accessed [31 March 2012].

 Annual report Inditex 2010,<
http://www.inditex.com/en/shareholders_and_investors/investor_relations/annual_reports>

 BCG Matrix, Available (online) http://www.bcg.com/about_bcg/history/history_1968.aspx
[Accessed on: 15/3/2012]
 Chisnall, Peter: Strategic Business Marketing, 1995
 Johnson G, Scholes K, Whittington R. (2005): The Environment: Exploring Corporate
Strategy, Pearson Education
 Porter, M.E. (2008) "The Five Competitive Forces That Shape Strategy", Harvard
Business Review, January 2008, pp. 79-93

Appendix 1
Strengths Weaknesses
1. Vertical integration- 1. High reliance on Europe market –
The company has integrated its The company’s 2/3 of profit is
operations vertically in an efficient generated from retail shop, ZARA


manner so that they can have a which is located in European
strong supply chain. market.
2. Diversified products- 2. Low advertising-
Company offer diversified products Especially company does not carry
range to customers customer base. out visual advertisements to
promote its products.
Opportunities Threats
1. Foreign markets 1. Competition
Company can expand its operations in The competition faces by the company
to more foreign markets such as USA from M&E and GAP etc may affect to the
and Asia where there is a high demand profitability of the company adversely.
for new fashion. 2. Slow growth and economic downturn
2. Growth in online sales in Europe region may affect the
Company can penetrate online sales as company’s operations adversary.
there is more potential to develop online
sales.
3. More opportunities in Asia region
Company can access in to larger markets
such as India and china as there is a
positive outlook for fashion industry in
those countries.


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