Zara Case Study

Topics: Manufacturing, Financial ratio, Strategic management Pages: 4 (1027 words) Published: November 28, 2010
ZARA Case Assignment
1. With which international competitor listed in the case is it most useful to compare Inditex’s financial performance? What do comparisons indicate about Inditex’s operating economics? Why? There are 3 key international competitors mentioned in the case: The Gap, H&M and Benetton. The Gap‘s production was internationalized with more than 90% of it outsourced outside of the United States. Its stores, however, were US centric. Therefore, The Gap’s strategy was to own most of its stores, while outsourcing all production. The same was the case with H&M. Benetton on the other hand had a completely different business model; it had invested relatively heavily in production, but licensed its stores to third-party operators. Of these competitors, probably the one which is most useful to compare Inditex’s financial performance to is H&M, which was considered at the time of the case Inditex’s closest competitor. Inditex and H&M are both based in Europe and have a strong focus on international expansion. They are both placed in the 4th quadrant of the Product Market Positioning Map, which means they are both fashion forward but at lower prices. When we look at the financial status of both companies in the Exhibit 6, they seem to be very comparable. However, a closer analysis reveals that Inditex has enjoyed a competitive advantage in operating metrics over H&M. The following is a summary of the various ratios that can be used to compare the profitability and efficiency in operating economics for both companies: Financial Ratio| Inditex| H&M|

Current ratio = Current Assets/Current Liabilities| 1.023| 3.398| Operating Margin = Operating Income/Net Sales| 21.67%| 13.1%|

Although several such ratios can be calculated, the two above are crucial in trying to understand the operating economics. We can see that the Current ratio for Inditex is much lower than that of H&M, which means that Inditex is less liquid...
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