1. MGMT 495 Summer 2011: Kelly Bossolt Marta Kovorotna Sarah Smith

2.  Financial Analysis: How big is the apparel industry? IPO Inditex compared to competition  External Analysis: Competition, who and where Global Retailing Trends (QR)  Internal Analysis: JIT Telecommunications Backward Integration Each brand, separate entity MGMT Vertical Integration

3.  How big is the world apparel trade market?? http://www.teonline.com/industry-overview.html

4. Company:Operating Margin: EBITD:Current Ratio: Inditex (ITX.MC)18.0723.20B1.66 H&M (HMb.ST)19.9823.61B2.36 Gap (GPS)12.91EBITDA 3.48B2.33 http://uk.reuters.com/business/quotes/financialHighlights?symbol=ITX.MC http://uk.reuters.com/business/quotes/overview?symbol=HMb.ST http://finance.yahoo.com/q?s=GPS&ql=0

5.  End of 2001 €340 million net income on revenues of €3,250 million 1,284 stores 515 outside of Spain generated 54% of revenue Capital Expenditure split 80%, 10%, 10%  2002 €510-560 million of CAPEX: 230-275 was spent on new stores (across all chains)

6.  May 2001 Launch of IPO (26% of shares sold to public) Stock price increased 50% by 2002 Market valuation of €13.4 billion

7.  2001 Largest and most internationalized of all 6 chains 507 stores, 282 of which were in 32 countries outside of Spain €1,050 million of company’s capital (72% of the total) EBIT at €441 million (85% of total) on sales of €2,477 million (76% of total)

8.  Net Sales: €2,960m  Gross Profit: € 1,741m  Net Income: €332m  78 countries  5,154 stores

9.  Apparel trade 1990s China – export powerhouse, Japan European Union: Turkey, North Africa, sundry Eastern Europe United States: Mexico, Caribbean Basin  Multi-Fiber Arrangement (MFA), since 1974 2002, post-MFA world 2005, reduced tariffs (7-9%)

10.  Li & Fung, Hong Kong’s largest trading company Multinational supply chain:  Jacket: Filling- China, outer fabric-Korea, zipper-Japan, inner lining- Taiwan, elastics and label–Hong Kong – shipped to US.  Liz Claiborne, 1976 Outsourced production 1990s, restructure of suppliers  Backwards Integration vs. pure middleman

11.  1990s, the increasing concentration of apparel retiling Retail chain’s sales: 85% U.S., 70% Europe, 40% Latin America and East Asia, 10% China and India  Promotion of Quick Response (QR) Reduced forecast errors and inventory risks Probing the market Compression of cycle times Improved information technology  Globalized apparel retailing  2000, spending on apparel €900 billion Per capita spending Local variation in customers “get big fast”

12.  The Gap 1969, San Francisco 90% international production 1987, international expansion: UK, Germany, Japan 1990s, Banana Republic, The Gap, and Old Navy Frailer to repositioning  Hennes and Mauritz (H&M) 1947, Sweden All production outsourced Quick to internalize Lower price than Zara Expensive advertising Fewer designers

13.  Benetton 1965, Italy Investment in controlling subcontractors’ production activities Little downstream investment Narrowing product lines 1990, hit saturation  World Co. of Japan Comparable cycle times Integrated backward into manufacturing Depressed Japanese market Comparable cycle times

14.  Retailers to aristocracy  Home to thousands of small apparel workshops  Sophisticated local demand  Spanish consumer vs. Italian buyer  Quality fabric from local suppliers  1980 Vertical integration  Sourcing from Far East  200 external suppliers

15.  Third party delivery services KLM & DHL Customers know the delivery day  “Buy now because you will not see this item later”  Market entry via franchising and joint ventures Cyprus, 1996 Turkey, 1998 49:50 split

16.  Just in Time (JIT) Manufacturing Enabled a Quick Response  Improved Coordination  Faster market shifts with increased flexibility  Reduced forecast errors and inventory risks  Compressed cycle time  Telecommunications Supply, production, sales locations  Tracking system Preferences Repeat orders

17.  Backwards Integration Manufacturing of most time-sensitive items  Ship directly from the central distribution center to stores Fast cycle times  New design to finished good in 4-5 weeks  Modifications in 2 weeks  Industry had 3-6 month cycle times  Reduced working capital and enabled continuous manufacturing  Bulk of products out much later than competitors with more time to prepare

18.  Each brand was its own separate entity Different Strategies, Product Designs, Manufacturing, Distribution, Image, Personnel, etc. Group management  Strategic Vision, coordinated concepts, administrative services Learning by doing  Created item daily, only about 1/3 was produced  Failure rate was 1%, industry was 10%

19.  Store Manager Responsibilities  Hiring and Training  Small business feel Salary  Incentive to earn up to half with performance Training  15 day training  Corporate for managers and overseas management

20.  Value Zara Name  Well known, scarcity, attractive ambience, fresh  Vertical Integrated Control the supply Quick turnover (no more than 3 days in warehouse) Short supply chain and lead times  Organization Organized to exploit their resources Similar products in all stores

21.  Remain consistent  Hold up with European expansion: Greece  Keep investing in technology  Advertise! Increase the awareness