615-059-1 1" !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ! _________________________________________________________________________________________________________! ! ! ! ! by$ ! Kasra$Ferdows$(McDonough$School$of$Business,$Georgetown$University)$ Jose$A.D.$Machuca$(Department$of$Finance$and$Operations$Management,$ University$of$Seville)$$ Michael$A.$Lewis$(University$of$Bath$School$of$Management)$$ ! ! " " " " " " " " Note:!This!case!is!an!updated!and!extended!version!of!the!prize5winning!ZARA!case!(#!603500251,! The! Case! Centre,! 2003)! by! the! same! authors.! It! was! ranked! 15th! in! the! top! 40! best! selling! Case! Centre!cases!(197352013).!! __________________________________________________________________________________________________________________! Copyright! ! 2014! Kasra! Ferdows,! Jose! A.D.! Machuca,! Michael! A.! Lewis. No! part! of! this! publication! may! be! copied,! stored,! transmitted,! reproduced! or! distributed! in! any! form! or! medium! whatsoever! without!the!permission!of!the!copyright!owner.! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ! case centre Distributed by The Case Centre www.thecasecentre.org All rights reserved North America t +1 781 239 5884 f +1 781 239 5885 e info.usa@thecasecentre.org Rest of the world t +44 (0)1234 750903 f +44 (0)1234 751125 e info@thecasecentre.org Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 ! 615-059-1 1" !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ! ______________________________________________________________________________________________ ___! ! ZARA":"The"world's"largest"fashion"retailer" Professors! Kasra! Ferdows! (McDonough! School! of! Business,! Georgetown! University),! Jose! A.D.! Machuca! (Department! of! Finance! and! Operations! Management,! University! of! Seville)! and! Michael! A.! Lewis! (University! of! Bath! School! of! Management)! wrote! this! case! for! class! discussion.! It! is! partly! based! on! the! case! \"Zara\"! ECCH! 603T002T01! they! wrote! in! 2002.! Continued! cooperation! of! Inditex!is!gratefully!acknowledged!(particularly!Mr.!Pablo!Isla!(CEO),!Jess!Echevarra!(Chief!Communications!&!Corporate!Affairs! Officer,!Inditex),!Jos!M.!lvarez!Gallego!(Director!of!Corporate!Development,!Inditex),!Miguel!Daz!(Director!of!Finance,!Zara),!and! Lorena!Alba!(General!Director!of!Logistics,!Inditex)!for!this!case).!Shahryar!Kabir!(Research!Assistant!at!Georgetown!University)!and! Dr.!Pedro!Garrido!(Universidad!de!Sevilla)!also!helped!in!this!research.!Certain!facts!and!figures!have!been!disguised.! Copyright! ! 2014! Kasra! Ferdows,! Jose! A.D.! Machuca,! Michael! A.! Lewis. No! part! of! this! publication! may! be! copied,! stored,! transmitted,!reproduced!or!distributed!in!any!form!or!medium!whatsoever!without!the!permission!of!the!copyright!owner.!! 2 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 " In#2014#Zara,#and#its#parent#company#Inditex,#were#still#the#subject#of#intense#curiosity.#By#all# measures# it# was# a# phenomenal# success# story.# Inditex'# sales,# with# Zara# still# accounting# for# almost#twoBthirds,#had#grown#from#3.25#billion#in#2001#to#18.1#billion#in#2014,#making#it#the# largest#apparel#company#(by#sales)#in#the#world.#Its#profits#had#grown#at#an#even#faster#rate:# from# 340# million# in# 2001# to# # 2.5# billion# in# 2014# The# number# of# stores# during# this# period# increased# from# 1284# in# 39# countries# to# 6683# in# 88# countries.# This# translated# into# an# average# rate# of# more# than# one# new# Inditex# store# opening# every# working# day# during# these# 14# years,# many#of#them#in#upscale#locations#such#as#Fifth#Avenue#in#Manhattan,#ChampsBElysees#in#Paris,# Ginza#in#Tokyo,#and#West#Nanjing#Road#in#Shanghai#or#Pitt#Street#in#Sidney.## # How#did#a#company#with#humble#beginnings#in#La#Corua,#a#small#city#in#the#far#northBwest#of# Spain,#become#the#world's#largest#apparel#company,#employing#128,000#people?#How#could#its# founder,#Mr.#Amancio#Ortega,#who#had#started#his#first#business#in#the#early#1960's#with#15000# pesetas# (90),# have# become# the# richest# man# in# Europe# and# third# richest# man# in# 2014# in# the# world# according# to# the# Forbes# magazine?# How# could# it# continue# its# remarkable# growth# unabated,#even#during#the#post#2008#economic#crisis?# # Had# Inditex# discovered# something# that# its# powerful# and# indisputably# competent# peers,# celebrated# firms# like# Gap,# H&M# and# Benetton,# had# missed?# \"There# are# really# no# secrets,\"# explained# Mr.# Pablo# Isla,# CEO# of# Inditex.# \"Our# strategy# is# clear:# Find# out# what# our# customers# want# and# design,# produce# and# distribute# it# quickly.\"# Mr.# Jess# Echevarra,# Chief# Communications#&#Corporate#Affairs#Officer,#added,#\"The#core#of#our#business#is#not#really#fast! fashionit#is#accurate!fashion.\"##But#what#was#not#so#clear#was#how#this#company#managed#to# execute# this# strategy# so# wellremarkably# better# than# its# peers.# What# was# the# management# system#that#supported#this#strategy?## # According#to#Mr.#Isla,#even#the#management#system#was#simple:#\"We#empower#our#people#at# all# levels# to# make# thousands# of# decisions# every# day.# They# usually# make# good# decisions,# but# even# if# they# make# a# mistake,# it# is# often# not# a# serious# problem# and# they# can# correct# them# quickly# themselves.# We# are# far# from# perfect.# Whatever# we# analyze,# we# see# lots# of# room# for# improvement.#Continuous#improvement#is#in#the#heart#of#the#company.\"#Mr.#Miguel#Daz,#Zara# Finance#Director,#added,#\"We#know#that#this#business#is#an#art,#we#try#on#a#daily#basis#to#add# science#to#that#art,#but#it#is#still#an#art.\"#Mr.#Echevarra#also#observed:#\"Many#things#here#are# decided# naturally.# There# are# not# many# formal# processes# for# how# to# do# things.# The# culture# is# not# hierarchicalit# is# essentially# entrepreneurial.\"# Mr.# Daz# stressed:# \"We# give# lots# of# responsibility# to# young# people.# You# don't# have# to# be# a# star# to# work# here# but# you# must# be# competent#and#have#an#entrepreneurial#spirit.\"# # However,#many#questions#still#remained.#How#could#such#a#large#company#continue#to#react#to# fast#moving#global#markets#so#accurately#and#rapidly?#How#could#it#design,#produce,#distribute,# and#sell#its#new#products#so#quickly#Bin#as#little#as#two#weeks#if#neededwhen#many#firms#in# the# industry# still# required# several# months?# Could# it# continue# to# grow# at# such# phenomenal# pace?# # Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 Inditex" " Amancio#Ortega#Gaona#began#working#as#a#delivery#boy#for#a#shirtBmaker#when#he#was#only#13# years# old.# He# later# managed# a# tailor# shop# where# he# made# nightshirts# and# pajamas.# In# 1963,# when# still# in# his# 20s,# he# started# Confecciones# GOA# in# La# Corua,# to# manufacture# women's# pajamas#(and#later#lingerie#products),#initially#for#sale#directly#to#garment#wholesalers.#In#1975,# when#a#German#customer#cancelled#a#sizable#order,#the#firm#opened#its#first#Zara#retail#shop#in# La# Corua.# The# original# intent# was# simply# to# have# an# outlet# for# cancelled# orders,# but# this# experience#taught#Amancio#Ortega#the#importance#of#the#'marriage'#between#manufacturing# and# retailing# # a# lesson# that# guided# the# evolution# of# the# company# from# then# on.# As# it# was# reiterated#in#2001#by#Mr.#Miguel#Daz,#a#senior#marketing#executive#at#that#time,#\"it#is#critical# for#us#to#have#five#fingers#touching#the#factory#and#the#other#five#touching#the#customer.\"# # Starting# with# six# stores# in# 1979,# the# company# established# retail# operations# in# all# the# major# Spanish#cities#during#the#1980's.#In#1988#Zara#opened#its#first#store#abroad,#in#Porto,#Portugal,# followed#shortly#by#New#York#City#in#1989#and#Paris#in#1990.#But#the#real#'stepBup'#in#foreign# expansion# took# place# during# the# 1990s# when# Inditex# entered# 29# countries# in# Europe,# the# Americas#and#Asia#(particularly#during#1998#to#2001#when#it#entered#21#of#these#29#countries).# The# pace# of# foreign# expansion# accelerated# during# the# 2000s# and# early# 2010s,# particularly# in# Asia.# (See# Exhibit# 1# for# number# of# stores# by# brand# and# Exhibit# 2# for# geographic# sales# breakdown).# # In#parallel#with#its#overseas#expansion,#Inditex#had#diversified#its#retail#offering#by#adding#and# acquiring#new#brands#in#order#to#target#different#customer#segments.#The#company#introduced# Pull#&#Bear#in#1991#to#offer#low#price#men's#casual#wear#with#a#\"sporty\"#image.#The#same#year# saw# the# addition# of# the# group's# most# upmarket# concept,# Massimo# Dutti,# offering# more# expensive# (although# still# good# value)# stylish# men's# clothing.# Inditex# initially# acquired# 65%# of# Massimo#Dutti#(which#started#trading#in#1985)#eventually#taking#full#ownership#by#mid#1990s.# In# 1995,# it# added# woman's# wear# to# both# brands.# In# 1998,# the# company# opened# Bershka,# targeting# very# low# price# but# 'cuttingBedge'# fashion# at# 14B24# year# old# young# women.# In# 1999,# Inditex# acquired# Stradivarius,# strengthening# its# market# presence# in# the# young# woman# sector,# and# two# years# later,# in# the# summer# of# 2001,# it# launched# a# new# brand,# Oysho,# specializing# in# underwear,# sportswear,# accessories# and# cosmetics.# In# 2008# it# introduced# Zara# Home,# ### 3 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org 615-059-1 Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 specializing#in#home#decorations,#and#the#latest#addition,#Uterque,#selling#fashion#accessories,# costume#jewelry#and#a#selection#of#fabric#and#leather#garments,#was#launched#in#2011.# # Each#brand#operated#independently,#with#its#own#stores,#ordering#system,#designers,#factories,# subcontractors,# suppliers,# warehousing# and# distribution# systems.# They# shared# only# a# few# corporate# services,# like# legal,# finance# and# acquisitions,# but# they# all# followed# similar# management# models# for# control# of# supply,# production# and# distribution,# and# role# of# store# management# to# maximize# speed# to# market.# In# fact,# there# was# a# degree# of# competition# between#some#of#them#in#the#marketplace.# # The# aggressive# pace# of# expansion# program# had# been# financed# almost# entirely# internally.# Inditex#operated#with#\"negative#operating#working#capital\"it#collected#its#cash#faster#than#it# had# to# pay# it# outso,# in# principle,# it# had# access# to# a# larger# amount# of# cash# as# it# grew.# (See# Exhibit#3#for#Inditex's#income#statement#and#Exhibit#4#for#its#balance#sheet.)#Even#during#the# financial# crisis# of# 2009B2011,# when# most# companies,# especially# those# in# Spain,# were# facing# substantial# problems,# Inditex# continued# to# open# new# stores# and# increased# its# sales# and# profitability.#\"Our#growth#is#organic,#bubbles#up#from#operations,#and#not#because#of#a#precise# blueprint# or# mandate# by# the# board# of# directors# to# grow# by# x# %# per# year,\"# explained# Mr.# Echevarra.# # Zara" " Accounting#for#about#twoBthirds#of#total#retail#sales,#Zara#was#the#largest#division#of#Inditex#and# was# wellBknown# for# offering# 'cutting# edge'# fashion# at# affordable# prices.# Zara's# headquarters# was#next#to#Inditex's#headquarters#in#Arteixo,#a#suburb#of#La#Coruna.#In#January#2015,#Zara#had# 1923# stores# in# 88# countries# with# the# largest# concentration# in# Spain# (323# stores),# followed# by# China#(165#stores),#France#(127#stores),#Japan#(95#stores),#Italy#(94#stores),#Russia#(85#stores),# and# Germany# (79# stores).# See# Exhibit# 5# for# location# of# Zara# stores.# The# strategy# for# entering# new# international# markets# and# the# rhythm# of# their# expansion# was# flexible# and# depended# on# local#conditions.#The#pace#of#expansion#was#also#controlled#to#ensure#that#it#would#not#pose# disproportionate#operational#risks.# # Zara#leased#most#of#its#stores#worldwide.#An#important#advantage#of#leasing#was#the#flexibility# of#moving#the#location#in#case#the#successful#commercial#areas#in#a#city#changed.#It#preferred# to#form#wholly#owned#companies#when#entering#new#countries.#Even#when#it#had#started#with# joint#ventures,#it#had#often#bought#out#the#partners'#shares#after#a#few#years.#The#reasons#for# starting#with#joint#venture#varied.#In#Japan#and#Italy,#for#example,#the#main#reason#was#to#gain# access# to# prime# realBestate;# in# Germany,# having# seen# that# other# global# retailers# had# often# failed,# it# was# access# to# local# expertise# and# being# cautious;# in# India,# which# in# 2014# was# essentially# the# only# notable# remaining# joint# venture,# it# was# to# comply# with# the# legal# requirement#(as#well#as#to#access#local#expertise).#\"We#don't#mind#investing#in#joint#ventures# to#learn,#but#prefer#to#go#alone,\"#explained#Mr.#Jose#M.#lvarez#Gallego,#Director#of#Corporate# Development#at#Inditex.# # Less#than#10%#of#the#stores#worldwide#were#franchises.#These#included#the#stores#in#most#of# the#Middle#East#(Arab#countries#and#Israel),#Indonesia,#Central#America#and#Venezuela.##Again# the#reasons#were#a#mix#of#legal#requirements,#access#to#local#knowledge#(both#about#retailing# ### 4 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org 615-059-1 and#dealing#with#local#government,#customs#and#regulations),#access#to#prime#realBestate,#and# reducing# investment# risks.# Zara# sometimes# bought# the# franchisee's# operations# after# gaining# local# experience.# For# example,# it# did# that# in# Russia.# # In# Venezuela,# interestingly,# it# did# the# reverse:#started#with#its#own#stores#but#changed#them#to#franchisees.# # Franchised#and#JV#stores#operated#essentially#like#other#stores.#\"RealBestate#and#stocks#belong# to#the#'local#partner,'#but#we#are#deeply#involved#in#managing#the#stores'#'commerce'#[orders,# inventories,# and# sales# information].# The# feeling# is# the# same,\"# according# to# Miguel# Daz.# Mr.# Echevarra#summarized#the#philosophy#behind#these#policies#as#\"Our#model#depends#on#having# information#about#the#customer#in#our#hands.\"# # The# decision# to# open# a# new# store# anywhere# in# the# world# was# made# in# La# Corua# by# an# expansion#team#headed#by#the#CEO,#Pablo#Isla.#Locations#were#selected#after#extensive#market# research,# and# usually# in# the# most# prominent# commercial# areas,# high# traffic,# and# prestigious# locations#available.#\"Store#is#the#heart#of#our#company,\"#emphasized#Mr.#Isla.#Zara#preferred#to# invest# in# its# stores# than# in# advertising.# Unlike# its# peers,# Zara# did# not# advertise# in# the# mass# media.# According#to#Mr.#Miguel#Daz,#\"Our#stores#and#wordBofBmouth,#do#the#advertising#for# us.#We#want#our#products#pull#the#customers#to#our#stores;#we#don't#want#to#push#them#there# by#ads.\"### # Zara# stores# also# reflected# the# evolving,# and# strategically# planned,# image# of# the# company.# As# Mr.# Alvarez# Gallego# explained,# \"We# are# constantly# optimizing# and# differentiating# our# retail# proposition.#A#notable#recent#development#is#the#enlargement#of#our#global#flagship#stores.\"#A# clear# example# was# the# store# in# Manhattan# opened# on# March# 15,# 2012.# Located# on# the# Fifth# Avenue#and#52nd#street,#one#of#the#most#exclusive#shopping#areas#in#New#York#City.#,#the#store# occupied#the#entire#four#stories#of#an#impressive#and#highly#visible#building#which#offered#3000# square#meters#of#floor#space,#double#the#size#of#the#average#Zara#store.#Another#example#was# the#store#opened#in#Hong#Kong#on#June#24,#2014.#This#one#was#a#sixBstory#building#in#the#heart# of#Hong#Kong#on#Queens#Road#with#5200#square#meters#of#floor#space#(See#Exhibit#6.).# # Inside# the# stores,# Zara# paid# careful# attention# to# create# a# pleasant,# spacious# and# uncluttered# shopping# environment# that# invited# customers# to# walk# around# and# browse.# The# layout# of# the# stores,# the# furniture,# and# even# the# window# displays# were# all# designed# centrally# to# give# the# same# image# worldwide# and# a# \"flying# team\"# from# headquarters# was# usually# dispatched# to# a# new# site# to# set# up# the# store.# Even# after# startup,# stores# still# relied# heavily# on# central# staff,# located# in# either# La# Corua# or# their# region,# to# assist# with# major# refurbishment# and# other# constructionBrelated#issues.## # A#typical#Zara#store#had#women's,#men's#and#children's#sections,#with#a#manager#in#charge#of# each.#Women's#wear#usually#accounted#for#more#than#half#of#the#store's#sales,#with#the#rest#of# the#turnover#equally#divided#between#men's#wear#and#children's#wear.#The#store#manager#was# usually# also# the# head# of# the# women's# section.# Zara# placed# a# great# deal# of# emphasis# on# the# training# of# its# sales# force# and# correspondingly# emphasized# internal# promotion.# The# primary# responsibility# of# store# managers# was# to# increase# sales.# All# the# investment# decisions,# merchandizing#decisions,#(both#for#new#and#existing#products),#retail#prices,#discounts,#sale#and# promotion# campaigns# were# essentially# made# by# La# Coruna.# La# Coruna# also# tracked# the# inventory# at# every# store# and# generally# determined# which# items# should# be# replenished,# ### 5 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 especially# if# the# item# was# temporarily# in# short# supply# and# had# to# be# allocated# among# stores.# The# store# manager# could# of# course# influence# the# process# by# providing# better# forecasts# and# qualitative#information#about#the#demand#at#their#stores#and#the#trends#they#had#captured#in# the#preferences#of#their#customers.## # Zara's# strategy# required# generation# of# a# great# deal# of# product# variety# throughout# the# year.# \"We#are#in#the#fashion#business##not#clothing.#Our#customers#buy#our#products#because#they# like#it##not#because#it#is#Zara,\"#explained#Mr.#Daz.#To#many#of#its#customers,#Zara#stores#were# places# to# go# to# see# latest# affordable# fashion# trend,# a# place# for# shopping# pleasure# than# for# searching# for# specific# items.# The# garments# were# not# displayed# in# the# usual# way# (i.e.# skirts# together,# pants# together,# shirts# etc.)# but# often# mixed# together# for# better# presentation# and# encouraging#customers#to#buy#combined#outfits.#Typically#only#a#few#pieces#of#each#item#were# displayed,#which#reinforced#the#image#of#newness,#and#since#the#displayed#items#were#often# the#entire#stock#held#at#the#store,#it#also#promoted#an#image#of#exclusivity.#However,#holding# such# low# levels# of# inventory# meant# that# the# stores# depended# on# regular# and# rapid# replenishment#of#their#inventory.## " " OPERATIONS" # Creating# a# supply# chain# that# allowed# Zara# stores# to# offer# cutting# edge# fashion# at# affordable# prices# required# the# firm# to# exert# a# strong# influence# over# all# stages# of# design,# production,# distribution,#and#retailing#of#clothes.# # Retailing" # All#stores#worldwide#placed#orders#and#received#shipments#twice#per#week.#Orders#had#to#be# placed# at# preBdesignated# times:# stores# in# Spain,# southern# Europe# and# few# other# zones# on# Wednesdays#before#3#p.m.#and#Saturdays#before#6#p.m.#and#in#rest#of#the#world#on#Tuesdays# by# 3# p.m.# and# Fridays# by# 6# p.m.# If# a# store,# say# in# Belgium,# missed# the# Wednesday# deadline,# then# it# would# have# to# wait# until# Saturday.# \"We# are# very# strict# about# these# deadlines.# Orders# must#be#on#time,\"#emphasized#Mr.#Daz.# # The#composition#of#these#orders#was#usually#the#result#of#discussion#between#store#managers# and# country# managers# in# La# Corua.# They# had# very# frequent# and# direct# communications# (by# Skype,#phone,#email,#and#other#methods)#and#generally#developed#personal#relationships.#Zara# referred# to# each# store# by# namenot# a# numberto# reinforce# this# personal# relationship.# The# team# in# La# Corua# had# access# to# store's# inventory# level# and# made# the# pricing# decisions# (See# the#next#section,#\"Design,\"#for#more#detail#about#the#team#in#La#Coruna.)# # Most#items#did#not#stay#in#the#stores#more#than#two#weeks.#Zara#sought#to#minimize#the#risk#of# oversupply# by# keeping# production# volumes# low# at# the# beginning# of# the# season# and# reacting# quickly# to# orders# and# new# trends# during# the# season.# It# operated# with# much# smaller# average# \"preBseason#inventory#commitment\"#than# its# peers.# PreBseason#inventory#commitment#is# the# level#of#production#and#procurement#that#has#to#be#committed#in#the#supply#chain#before#the# start#of#the#\"season\"#(for#example,#in#late#July#for#the#fall/winter#season).#The#average#for#the# industry#was#80%#to#100%#of#the#anticipated#sales#during#the#season;#for#Zara#it#was#only#15%# ### 6 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 to# 20%# for# the# difficultBto# forecast# \"fashion# products\"# and# about# 40%# for# \"basic# products\".# Zara's#policy#was#to#wait#until#the#season#had#started#before#making#more#commitments.#The# \"inBseason# commitments\"# for# Zara# were# 40%# to# 45%# whereas# the# industry# average# ranged# from# almost# nothing# to# a# maximum# of# 20%.# Zara# had# to# react# faster# but# worked# with# more# reliable#market#information,#coming#from#the#stores#and#from#the#evolution#of#tendencies.## # Zara#refreshed#the#presentation#at#the#store#regularly.#Items#that#remained#on#the#shelves#for# more#than#two#or#three#weeks#were#normally#taken#out#of#the#store#and#shipped#to#another# store# in# the# same# country# region# (occasionally# very# small# amounts# were# sent# back# to# Spain# which# were# usually# shipped# to# other# regions# in# the# world.)# Rapid# movement# of# products# through# the# store# and# the# knowledge# that# some# of# the# products# may# not# be# replenished# created# an# additional# incentive# for# customers# to# buy# on# the# spot.# However,# Mr.# Daz# emphasized:#\"You#can#change#the#collection#in#the#store#frequently,#but#that#is#not#an#end#in# itself.#You#must#react#to#what#the#customers#are#or#are#not#buying#as#accurately#as#possible.\"# For# example,# warm# weather# in# October# 2013# in# parts# of# Europe# had# increased# the# sales# of# lighter# garments# (and# reduced# the# sales# of# heavier# ones),# which# had# required# quick# adjustments# in# orders# and# shipments# to# these# stores.# # \"Perhaps# our# production# and# distribution# system# can# react# faster# to# changes# because# we# started# as# a# manufacturer,\"# suggested#Mr.#Daz.## # All#this#meant#that#Zara#managed#to#carry#less#overall#inventory#per#unit#of#sales#than#its#peers# (see# Exhibit# 8)# and# had# less# unsold# items# that# had# to# be# discounted# at# end# of# season.# In# an# industry#where#the#average#product#fetched#usually#only#60%#to#70%#of#its#full#price,#Zara#sold# 80%#to#85%#of#its#products#at#full#price#and#even#for#the#rest#offered#less#discounts#at#end#of# the#season.\"Our!model!is!built!to!minimize!the!operational!risk,#sending#to#the#stores#exactly# what#the#customer#wants#in#the#correct#amount.#We#build#and#update#the#required#capacities# in# the# rest# of# the# Chain# as# needed.# This# allows# us# to# maximize# the# sales# at# full# price# and# to# maintain#a#very#stable#margin,#perhaps#the#most#stable#in#the#industry.#But#that#is#not#the#goal;# it#is#a#consequence#of#our#business#model,\"#said#Mr.#lvarez.### # Design"and"Order"Administration" # Zara#designed#all#its#products#itself.#In#2013,#Zara#had#350#people#in#the#\"commercial#team\"#at# its# La# Corua# headquarters,# including# designers,# country# managers# (also# known# as# \"market# specialists\"),#and#buyers.#About#100#of#them#were#considered#to#be#designers#(although#it#was# difficult# to# pinpoint# the# exact# number# because# many# members# of# the# \"commercial# team\"# participated# in# different# tasks).# Designers# were# generally# youngin# their# late# 20sand# Zara# encouraged# a# collegial# atmosphere# amongst# them# (there# were# no# design# \"prima# donnas\").# Design# inspirations# came# from# many# sources# from# around# the# worldBBtrade# fairs,# clubs,# catwalks,# magazinesand# close# follow# up# of# recent# trends# in# popularity# of# new# fabrics# and# colors.#Extensive#feedback#from#the#store#network#was#an#integral#part#of#the#design#process.# \"Unlike#many#other#companies,#the#designers#at#Zara#can#get#quick#feedback#from#customers# at#the#store,#and#refine#and#improve#their#creations#rapidly,\"#explained#Mr.#Echevarra.## # Zara#introduced#approximately#18000#new#products#annually,#which#reflected#combined#works# of# designers# (who# were# the# creative# type),# the# buyers# (who# dealt# with# sourcing# and# production),# and# the# country# managers# (who# dealt# with# merchandizing# at# stores).# Zara# ### 7 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 management# considered# that# the# continuous# interaction# between# these# three# groups# was# critical#to#make#quick#and#balanced#decisions#about#what#and#how#much#to#produce#following# the# information# from# the# stores.# The# designers# for# women,# men# and# children# wear# sat# in# different#halls#in#a#modern#building#attached#to#the#Inditex#headquarters.#In#each#of#these#big# open# spaces,# the# designers,# organized# by# products# (e.g.,# dresses,# TBshirts# and# denim,# accessories)#occupied#the#perimeter#areas#of#the#room#and#country#managers#and#buyers#sat# around#a#long#table#in#the#middle#area#(See#Exhibit#7).##The#layout#of#the#hall#was#designed#to# encourage# impromptu# meetings# with# an# air# of# informality# and# openness.# For# example,# Eduardo#Sabater,#head#of#a#product#group#in#the#women's#section#explained#the#process#in#his# section:# # We! have! many! meetings! all! the! time.! We! are! working! simultaneously! on! new! collections! and! supplementing! existing! ones.! For! new! collections,! we! meet! to! decide! which! trends! we! are! going! to! follow,! then! how! to! put! the! collection! together,! then! select!which!items!to!make!a!prototype,!which!items!to!produce!and!in!what!quantity.! Many! different! people! are! involved! formally! and! informally! in! these! meetings.! For! example,!in!the!section!that!designs!our!\"basic!collection,\"!the!design!team!may!come! up!with!500!design!ideas,!and!after!a!few!meetings!with!others!in!the!room!(reviewing! selection! of! fabrics,! colors,! textures),! ! and! checking! that! the! new! designs! could! be! produced!and!sold!at!a!profit,!we!may!arrive!at!40!designs!to!move!forward,!and!we! may! actually! choose! to! go! ahead! with! only! a! few! of! them.! We! don't! discard! the! remaining!designs,!of!course,!since!are!constantly!adding!to!the!collection.# # The# designers# usually# drew# their# sketches# using# a# CAD# system# where# further# changes# and# adjustments# (for# better# matching# of# weaves,# textures,# and# colors# etc.)# were# made.# Samples# were# made# by# skilled# workers# located# in# the# small# prototype# shopsconsisting# of# simple# equipment# for# patterns,# cutting# and# sewingin# a# corner# of# each# hall.# If# there# were# any# questions# or# problems,# these# workers# could# just# walk# over# to# the# designers# and# discuss# and# resolve#them#on#the#spot.## # Each#of#the#country#managers#had#a#responsibility#for#dealing#with#a#number#of#specific#stores# in# a# country# or# region.# As# experienced# employees,# who# had# often# been# store# managers# themselves,# they# recognized# that# it# was# crucial# to# establish# personal# relationships# with# the# managers# of# stores# assigned# to# them.# They# were# in# constant# contact,# especially# by# phone# or# Skype,# with# these# managers,# discussing# sales,# orders,# new# lines# and# other# matters.# # They# represented# many# nationalitiesChinese,# Moroccan,# Greek,# Indian,# Polish# and# may# others working# with# stores# in# countries# that# matched# their# language# and# cultural# knowledge.# Store# managers# relied# heavily# on# discussions# with# country# managers# before# they# finalized# their# orders.#Given#the#time#differences,#those#dealing#with#Asia#would#come#to#work#earlier#in#the# morning#and#those#dealing#with#the#Americas#would#stay#late#in#the#room.#Store#managers#also# used#digital#devices#for#communicating#with#La#Corua;#they#had#used#customBdesigned#handB held#devices#but#had#recently#replaced#them#with#tablets.# # The# third# group# in# the# hall,# the# buyers,# managed# sourcing,# procurement# and# production# planning.# They# planned# procurement# and# production# requirements,# monitored# the# inventories,#allocated#production#to#various#factories#and#thirdBparty#suppliers#and#kept#track# of#shortages#and#oversupplies.# ### 8 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 # Production" # Zara#produced#its#time#sensitive#fashion#products#\"in#proximity\".#This#term#was#not#referred#to# distance#but#to#fast#response.#Most#of#them#were#produced#in#Spain,#Portugal#and#Morocco,# and#the#rest#in#a#number#of#European#countries.#.\".#Eleven#of#these#factories#belonged#to#Zara,# of# which# ten# were# located# in# and# around# its# complex# in# Arteixo.# The# share# of# inBhouse# production# had# traditionally# been# substantial,# larger# than# most# of# its# competitors,# but# was# becoming#a#smaller#proportion#because#of#its#rapid#rate#of#growth#and#development#of#close# relationships# with# competent# suppliers# worldwide.# These# factories# generally# worked# a# single# shift,# and# occasionally# on# two# shifts,# and# were# managed# as# profit# centers.# Zara# sourced# the# rest#of#its#products#from#around#1600#suppliers#around#the#world.#A#third#of#this#volume#came# from# Eastern# Europe;# including# Turkey,# Bulgaria# and# Romania.# From# Asia,# Zara# procured# \"basic\"#products#and#those#for#which#the#region#had#a#clear#advantage.#With#its#relatively#large# and#stable#orders,#Zara#was#a#preferred#customer#for#almost#all#its#suppliers.#\"Our#relationship# with#most#of#our#suppliers#is#based#on#trust.#There#is#an#understanding#between#us:#we#have# placed#orders#with#them#for#many#years#and#they#can#rely#on#us#to#continue#to#do#that;#and#we# expect# them# to# meet# our# required# quality# and# speed# as# well# as# availability# of# sufficient# capacity,\"#explained#Mr.#lvarez.# # The#make#or#buy#decisions#were#made,#as#mentioned#earlier,#by#the#buyers#(in#the#commercial# team).# The# key# criteria# in# making# these# decisions# were# having# the# capability# and# available# capacity# to# meet# the# required# speed,# quality,# and# cost.# However,# such# decisions# were# made# carefully,#paying#great#attention#to#minimizing#the#risks#associated#with#the#particular#fashion# and#the#sensitivity#of#speed#to#market.# # Zara# purchased# its# raw# materials# from# suppliers# worldwide.# Some# of# the# fabrics# were# purchased#undyed#and#dyed#in#the#desired#color#later#in#the#production#process.#The#first#step# in#the#production#process#was#cutting.#A#typical#factory#had#several#cutting#machines#with#long# tables,# where# typically# 30# to# 50# layers# of# fabric# were# laid# out# under# a# top# paper# layer.# The# cutting# pattern# was# generated# by# special# software# that# helped# the# skilled# operators# arrange# the#pieces#in#a#pattern#that#minimized#fabric#waste.#\"Although#the#CAD#software#can#generate# the# cutting# pattern# automatically,# we# prefer# to# do# the# final# step# manually# because# skilled# operators#can#still#do#a#better#job#in#minimizing#fabric#waste.#They#can#do#it#because#they#have# a# feel# for# the# fabric# and# understand# the# design,\"# said# Mr.# Mendoza,# a# supervisor# in# one# of# Zara's#factories#for#men's#apparel.## # Once#the#pattern#was#generated,#it#was#sent#to#the#cutting#machine#and#drawn#by#the#machine# onto#the#top#layer#(so#that#cut#pieces#can#be#identified#later).#After#a#final#visual#check#by#the# operator,# the# machine# cut# the# multiple# layers# into# hundreds# of# different# small# pieces.# Operators# then# marked# each# piece# and# packed# them# into# clear# plastic# bags# (with# the# identifying#paper#layer#on#top).#This#was#a#time#consuming#and#laborious#task#that#had#to#be# done# carefully# because# it# was# very# easy# to# mix# up# the# pieces.# The# bags# were# then# sent# to# sewing#contractors.## # Zara# used# contractors# for# all# sewing# operations.# There# were# some# 200# sewing# contractors,# some#around#La#Corua,#others#in#rest#of#the#Galicia#region#and#a#few#even#as#far#as#Portugal.# ### 9 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 Contractors,# often# using# their# own# trucks,# usually# collected# the# bagged# cut# pieces# at# the# factory,# along# with# appropriate# components# (like# buttons# and# zippers).#Most# were# small# and# medium# size# companies# and# Zara# was# their# main# customer.# However,# as# one# of# the# senior# managers# at# Zara# said,# \"We# prefer# not# to# be# the# only# customer;# a# very# important# customer,# yes,#but#not#the#only#one.\"#Zara#monitored# contractors'#operations#closely# to#ensure#quality,# compliance# with# labor# laws,# and# especially# adherence# to# the# production# schedule.# Zara# believed# that# outsourcing# a# highly# labor# intensive# operation,# like# sewing,# helped# its# own# factories# to# remain# focused# and# increased# their# flexibility# to# change# production# volumes# quickly.## # Contractors# brought# back# the# sewn# items# to# the# same# factory,# where# factory# employees# inspected# every# piece# during# ironing# (by# machine# and# by# hand).# Finished# products# were# labeled# and# placed# in# plastic# bags# before# sending# them# to# the# distribution# center.# The# labels# included#price#in#local#currency#and#even#store#security#pins,#making#the#product#ready#to#be# placed# on# shelves# in# the# store.# A# system# of# aerial# monorails# through# underground# tunnels# directly# connected# the# factories# on# Zara's# \"campus\"# in# Arteixo# to# the# distribution# center.# Finished# products# procured# from# outside# suppliers# were# also# sent# directly# to# one# of# the# distribution#centers#in#Spain.## # Inditex#paid#increasing#attention#to#the#ethical#and#sustainability#issues#in#its#extended#supply# chain.# A# corporate# philosophy,# labeled# \"Right# to# Wear,\"# captured# its# strategic# intent# to# \"guarantee# the# quality# and# sustainability# of# all# our# products# and# business# activities.\"# This# philosophy#went#beyond#compliance#with#health,#safety#and#ethical#standards.#The#goal#was#to# be#proactive#in#developing#environmentally#friendly#products#and#investing#in#a#range#of#social# initiatives.# This# required# transparency# and# frequent# and# systematic# audits# across# the# supply# chain.# Inditex# had# already# progressed# significantly# and# was# being# recognized# as# one# of# the# leaders#in#these#areas.#For#example,#it#was#consistently#rated#the#highest#level#of#performance# by#the#United#Nation's#Global#Compact.# # Distribution" # Until# 2003,# Zara# had# only# one# distribution# center# next# to# its# headquarters# in# Arteixo.# It# occupied#a#five#story#building#with#500,000#square#meters#of#storage#space#and#used#the#latest# technology.# Almost# all# products# passed# through# this# large# and# sophisticated# distribution# center.# However# continued# expansion# of# the# company# had# necessitated# addition# of# new# distribution#capacity.#In#midB2001,#when#Arteixo#distribution#center#was#working#at#essentially# 50%#capacity,#Zara#announced#that#it#would#build#an#additional#distribution#center#in#Zaragoza# (Spain).# Costing# # 120# million,# the# 190,000Bsquare# meter# Zaragoza# distribution# center# was# completed#in#October#2003.#It#was#allocated#to#distribution#of#most#women#garments#globally.# In# 2007,# Zara# opened# a# third# major# distribution# center,# with# 180,000# square# meters# storage# space,#in#Meco,#near#Madrid.#Costing##150#million,#Meco#specialized#in#children#garments#and# few#other#items.## # The# scale# of# operations# in# these# distribution# centers# was# impressive.# The# three# DCs# handled# over#a#million#pieces#in#a#typical#day#in#early#2014,#and#had#the#capacity#to#do#much#more.#Fast# changing# fashion# garments# represented# the# major# share# of# these# items,# resulting# in# a# very# ### 10 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 large#number#of#stock#keeping#units#(SKUs),#which#created#additional#complexity#in#inventory# management,#order#picking#and#fulfillment.## # Zara#had#worked#with#some#of#the#world's#best#suppliers#of#hardware#and#software#to#develop# the# systems# for# these# warehouses# and# had# modified# them# by# its# own# teams# to# fit# its# operations.#For#example,#at#Arteixo,#optical#readers#tracked#the#network#of#the#overhead#rails# that#connected#the#factories#via#underground#tunnels#to#the#distribution#center#and#directed# individual# items# and# batches# to# specific# areas.# Orders# for# each# store# were# packed# automatically#in#boxes#from#moving#conveyors,#and#matched,#also#automatically,#with#items#on# hangers# for# the# same# store# in# the# shipping# areas# usually# in# 8# hours,# with# a# higher# activity# overnight.# Around# a# thousand# persons# worked# in# the# Arteixo# distribution# center,# supplemented# by# up# to# 200# additional# temporary# workers# during# peak# periods.# Zara# had# continued# to# deploy# the# latest# and# most# technologically# advanced# systems# in# its# newer# distribution#centers#in#Zaragoza#and#Meco,#giving#them#comparable#capacities#to#Arteixo#even# though#they#had#smaller#floor#and#fewer#operators.## # Zara# used# only# trucks# and# air# for# transporting# orders# from# its# distribution# centers# to# stores.# Since# orders# for# each# store# normally# required# items# from# all# three# distribution# centers,# they# were#consolidated#in#Zaragoza.#The#shipments#did#not#stay#more#than#a#few#hours#in#Zaragoza.# Stores# in# most# of# Europe# were# supplied# by# trucks,# carrying# Zara's# name# but# owned# and# operated#by#contractors.#These#trucksfrom#Arteixo#and#Meco#to#Zaragoza#and#from#Zaragoza# to# storesBBran# on# published# schedules# (like# bus# timetables).# Shipments# by# air# were# also# on# published# timetables# using# scheduled# flights.# # In# some# countries,# the# contractors# had# established# \"docking# stations\"# where# the# shipments# from# Spain# were# transferred# to# smaller# trucks#for#local#distribution.## # Typically,#stores#in#Europe#received#their#orders#in#24#hours,#in#the#United#States#in#48#hours# and# in# Japan# in# 48# to# 72# hours.# Speed# was# clearly# an# overBriding# concern;# as# Lorena# Alba# (General# Director# of# Logistics)# put# it:# \"For# us,# distance# is# not# measured# in# kilometers,# but# in# time.\"#For#example,#orders#from#stores#in#Tokyo#would#be#usually#on#the#flight#next#morning# and#in#Japan#the#following#day,#picked#up#by#a#third#party#contractor#and#delivered#to#the#Zara# stores#the#next#day.#The#goods#could#be#displayed#as#soon#as#they#were#taken#out#of#the#truck# because#they#had#already#been#labeled#and#priced.# # Zara%Online% # Zara's# first# foray# into# the# online# world# was# simply# a# catalogue;# allowing# customers# to# see# a# selection# of# products# but# still# needing# them# to# visit# the# store# to# make# a# purchase.# By# 2008# however,#Zara#decided#that#it#was#time#to#launch#its#own#onBline#offering.#Zara's#online#store# officially#opened#in#September#2010#for#customers#in#France,#Germany,#Spain,#Italy,#Portugal# and# the# UK.# Online# sales# grew# quickly# and# there# was# no# evidence# of# cannibalization# of# sales# from#stores.#In#fact,#since#many#online#customers#picked#up#their#orders#at#stores,#it#seemed# that#they#were#actually#helping#the#store#sales.## # Talking#to#analysts#in#March#2013,#Mr.#Isla#said#\"Inditex's#online#operations#have#seen#a#very# rapid#rollout#in#recent#years.#Our#business#model#allows#a#swift#expansion#of#our#online#sales# platform#globally.\"#Zara#quickly#built#an#online#presence#in#18#European#markets;#presence#in# ### " 11 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 the# US,# Japan# and# China# were# added# in# 2012,# and# in# Canada# and# Russia# in# 2013.# When,# in# 2014,# Greece,# Romania,# Mexico# and# South# Korea# were# added,# the# online# sales# reached# 27# markets.#The#ambition,#for#both#Zara#and#the#rest#of#the#Inditex#brands,#was#made#clear#by#Mr.# Isla,#\"We#will#continue#to#roll#out#online#sales#progressively#in#all#the#markets#in#which#we#are# present# with# stores\".# Analysts# at# Citigroup# concluded# in# 2013# that# the# results# indicated# that# Inditex# was# \"one# of# the# few# beneficiaries# of# the# ongoing,# rapid# channel# shift# to# online# from# storeBbased#apparel#sales\".#According#to#Mr.#Isla,#Zara'#operating#model#fitted#well#with#onBline# sale:#\"It#is#as#if,#30#years#ago,#we#had#decided#to#design#a#business#model#to#support#onBline# retailing.# # OnBline# orders# were# supplied# by# \"onBline# stores.\"# The# decision# to# open# an# on# line# store# followed#the#same#decision#making#process#as#for#any#other#store.#There#were#usually#one#onB line#store#per#country#or,#if#practical,#a#region,#and#it#operated#like#any#other#store#that#placed# orders# and# received# shipments# twice# per# week.# The# difference# was# that# the# orders# were# managed# by# a# dedicated# team# in# La# Coruna# ,# which# saw# all# onBline# orders# and# arranged# the# shipments# to# the# appropriate# \"on# line# store\"# using# the# standard# system# for# distribution.# Shipments#for#online#sales#in#each#country#were#sent#to#a#\"macro#store\"#in#that#countryjust# like#any#other#store.#The#macro#stores#were#in#reality#rented#warehouses,#which#were#bigger# than# storage# areas# in# a# typical# store# but# had# no# faceBtoBface# contact# with# customers.# They# were# operated# by# third# party# logistics# providers# who# shipped# the# individual# orders.# OnBline# customers# could# pick# up# their# orders# in# a# physical# store# for# free# (delivery# in# 3B5# days)# or# at# home#by#standard#delivery#(2B3#days)#or#express#delivery#(48#hours)#at#additional#costs.#" " Looking"into"the"Future" # During#the#last#decade,#Zara#had#defied,#repeatedly,#the#predictions#of#those#who#had#suggested# that# it# had# reached# the# limit# of# its# business# model.# In# 2014,# it# seemed# to# be# continuing# its# phenomenal# growth# into# the# future.# Nevertheless,# many# observers# still# wondered# whether# it# needed#to#modify#its#business#model#and#operating#systems#to#account#for#its#increasing#size#and# global#footprint.#For#example,#was#its#current#system#of#design,#production,#and#order#fulfillment# help#or#hinder#serving#the#growing#markets#in#Asia?#Would#it#facilitate#growth#of#online#sales?# Did#it#require#a#major#overhaul#of#its#wellBorganized#operating#processes?# # ### " 12 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 Exhibit"1" " Exhibit"2" " Inditex"sales"by"brand,"2014"(as"%"of"total)" ### " 13 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org 615-059-1 ! Inditex"historical"growth"of"number"of"stores" " 615-059-1 ! !!!!!!!!!!!!!!!!Exhibit!3.!Income!Statements!FY!201082014! FY2014! !F2013! Net#sales## ! ! ! ! ! 18,117% %16,724% %1%15,946% 13,793% 12,527% Cost#of#Merchandise## ,7,548% %%,6,802% %%,%,6,417% ,5,612% %,5,105% Gross"profit" 10,569! !!!9,923! !!!!9,529! 8,181! !7,422! Gross!Margin! 58.30%' '59.30%' '''59.80%' 59.30%' 59.20%' Operating#Expenses# Other#Net#Operating#income# (losses)# ,6,458% %%%,5,998% %%%%,5,605% ,4,919% ,4,452% Operating"cash"flow"(EBITDA)" 4,103! !!!3,926! !!!!!3,912! 3,259! !2,970! 22.65%' '23.47%' '''24.50%' 23.60%' 23.70%' ,736% %%%,676% 2,523! !!2,294! EBITDA!margin! 8% Net"Operating"Income"(EBIT)" EBIT!margin! EBIT!margin! Taxes# Net"Profit" Net!Income!margin! %%%%%%%%%,12% 3,198! !!!!3,071! !!!!!!3,116! ,3% 17.65%' ''18.36%' ''''19.50%' 18.30%' 0% 18.30%' 14% %%%%%%%%%,18% %%%%%%%%%%%%14% %%%%%%%37% %%%%%%%31% 3,245! !!!!!3,053! !!!!!!3,130! 2,560! !!2,325! Financial#results## Income"before"taxes" %%%1% 905% %%%%%%,855% %%%%%%%%,796% Amortization#and#Depreciation# Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 FY2012! F!!!!!!FY!2011! !!FY!2010! 17.91%' ''18.25%' ''''19.60%' 18.60%' 18.60%' ,735% %%%%%%%%,671% %%%%%%%%%,764% ,613% %%%%,580% 2,510! !!!!!2,382! !!!!!!2,366! 1,947! !!1,745! 13.86%' '''14.24%' ''''14.80%' 14.10%' 13.90%' " " " " " " " " " " " " " " " ### " 14 ! Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Million!Euros! Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 Exhibit"4."Inditex"Balance"Sheets"FY"2010Y2014" " ### " 15 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 615-059-1 " Exhibit"5."Zara"stores"around"the"worldY2014 ### " 16 Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 Crawford House, 70 Queen's Road Central, Hong Kong (55,000 sq ft) # # # " Exhibit"7" " Women's"Hall"at"Zara"Headquarters"" " " ### " 17 Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org 615-059-1 Exhibit"6."Selected"Zara"Stores" Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F273199 Earnings"(EBITDA"and"EBIT)" Inventory"as"%"of"Sales" # ### " 18 " # # # Purchased for use on the Master of Business Administration, at International Professional Managers Association (IPMA). Taught by Michael Wooi, from 11-Jun-2016 to 16-Jul-2016. Order ref F273199. Usage permitted only within these parameters otherwise contact info@thecasecentre.org 615-059-1 " Exhibit"8."" Comparison"with"Peers" "