Presentation on theme: "Outsourcing Versus Vertical Integration in the Fast Fashion Apparel Industry: A Case Study of Inditex, H&M, and Gap Presented by Emily Zhang- Economics."— Presentation transcript:
1Outsourcing Versus Vertical Integration in the Fast Fashion Apparel Industry: A Case Study of Inditex, H&M, and GapPresented by Emily Zhang- EconomicsMentor: Dr. Gang Sun, Textile and Clothing Department
2Special thanks to the MURALS Program and Dr. Hope Medina
3Presentation outline Definition Company introduction Financial data analysisConclusionFurther study direction
5The Apparel Industry Value Chain Source: Appelbaum and Gereffi (1994) Retail Stores, Outlets, Catalog, E-commerceRaw Material NetworksNatural and Synthetic FibersComponents NetworksNatural and Synthetic FabricsProductionNetworksClothing ManufacturingBrand Name CompaniesInditex,H&M, GapDistributionRetailLogisticsValue is being added at each stage of activities: for instance, fabrics have a broader use than fibers, and branded clothing has more demand than the ones without brand.A value chain is a chain of activities for a firm operating in a specific industry. Each additional activity along the chain adds more value to the final products.
6Definition ContinuedFast Fashion: A contemporary term used by fashion retailers to acknowledge that designs move from catwalk to store in the fastest time to capture current trends in the market.Vertical integration: A strategy of production management control, to gain ownership of companies or activities along the business’ value chain.Backward integration: A fashion retailer establishes ownership of a clothing factory.Forward integration: A clothing manufacture establishes ownership of a fashion store.
8Company introduction inditex CEO:Pablo IslaFounder:Amancio OrgegaFounded in 1963No.5 richest man worldwide
9Company INTRODUCTION H&M CEO: Karl-Johan PerssonFounder: Erling PerssonHis son: Stephan Persson is the No.7 richest man worldwideFounded in 1947H&M, COS(timeless and distinctive trends), Monki(creativity&expression), Weekeday, and CheapMonday
10Company introduction gap CEO: Glenn MurphyFounder: Donald Fisher and Doris FisherFounded in 1969
11Company introduction Comparison Inditex has short lead time because first, it produces trendy products locally: manufactures in its own factories, then have them sewed in its small-work-shop suppliers. The products are then finished with ironing and hanging in its headquarter factory. The next process is to distribute the products to its 6 distribution centers where products are separated and packaged according to each store’s orders.Gap has reported consecutively for 5 years that its inaccurate prediction of market trend has resulted excessive inventory and mark downs that hurt its revenues. Apparently, fast fashion trend is different than that of designer or luxury brand(average survival year?). Fast fashion targets at young group of consumers who look for varieties, creation, and inspiration in their clothing, therefore, pooling the talent of a group of designers is far more efficient than relying on one principle designer. Zara’s designers are divided into groups so that each store have their designated designers who can constantly communicate back to region and store managers to make their design reflect the taste of the consumers. It closely follows the principle of supply and demand. It creates the types of products consumer want, instead of making a design and anticipating consumers would accept it.CompanyNo. of DesignerNo. of SupplierNo. of Distribution CenterProduct Lead TimeInditex(Founded, 1963, Spain)≈300≈1,23762 weeksH&M(Founded1947,Sweden)≈150≈70019Few weeks to 26 weeksGap1969, San Francisco)head designer≈1,0001226 weeks or more
12Company introduction Comparison Inditex has a more diversified market strategy with more brands targeting at different countries and customer groups
13Company introduction Comparison Inditex, store growth rate: 105%Gap, store growth rate:6%H&M, store growth rate:109%
19ConlusionVertical integration is not necessarily a profible strategyfor Gap, because H&M and Gap both outsources nearly 100% of their production to factories in Asia and Europe, however, H&M is two times profitable than GAP and is expanding rapidly.What is wrong?
20Design AND VARIETY& Pricing stretegy $60$80$25Gap’s clothing line is considered “dull,” yet pricy.
21Further directionIn-depth study on the factors that drive H&M profitable and efficient when it outsources 100% of its productionQuestions?Thank you!