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Fashion and Zara Store

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However, please contact ecch to check availability of a black and white version which can be supplied for reproduction. ecch the case for learning ecch UK Registered Office: Cranfield University, Wharley End Beds MK43 0JR, UK t+44 (0)1234 750903 f+44 (0)1234 751125 e [email protected] om w www. ecch. com ecch USA Registered Office: Babson College, Babson Park Wellesley MA 02457, USA t+1 781 239 5884 f+1 781 239 5885 e [email protected] com w www. ecch. com Responsive, High Speed, Affordable Fashion This case was prepared by Sophie Linguri under the supervision of Professor Nirmalya Kumar as a basis for classroom discussion rather than to illustrate either effective or ineffective handling of a management situation. Copyright © 2005 London Business School. All rights reserved.

No part of this case study may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without written permission of London Business School. London Business School reference CS-05-037 ecch the case for learning Distributed by ecch, UK and USA www. ecch. com All rights reserved Printed in UK and USA North America t +1 781 239 5884 f +1 781 239 5885 e [email protected] com 305-308-1 LBS-CS-05-037 Rest of the world t +44 (0)1234 750903 f +44 (0)1234 751125 e [email protected] om – 2 -305-308-1 LBS-CS-05-037 Zara: Responsive, High-Speed, Affordable Fashion In 1975, the first Zara store was opened in La Coruna, in Northwest Spain. By 2005, Zara? ’s 723 stores had a selling area of 811,100 m2 and occupied ? “privileged locations of major cities? ” in 56 countries. With sales of ?€3. 8 billion in financial year 2004, Zara had become Spain? ’s best-known fashion brand and the flagship brand of ? €5. 7 billion holding group Inditex. Inditex? ’s stock market listing in 2001 had turned Amancio Ortega, its founder and a self-made man, into the world? s 23 richest man, with a personal fortune that Forbes magazine estimated at $12. 6 billion. Zara strived to deliver fashion apparel, often knock-offs of famous designers, at reasonable costs to young, fashion-conscious city-dwellers. Zara used in- house designers to present new items of clothing to customers twice a week, in response to sales and fashion trends. Thus the merchandise of any particular store was fresh and limited. To produce at such short notice required that Zara maintain a vertically integrated supply chain that distributed the clothes through a single state-of-the-art distribution centre.

Unlike its competitors, 70- 80% of Zara garments were manufactured in Europe. In 2005, Pablo Isla was appointed the new Inditex chief executive. With plans to double the number of its stores by 2009, the rapid pace of growth was necessitating changes. First, Zara had opened a second distribution centre to increase capacity. Second, expanding into more distant markets meant that the number of items carried had increased to 12,000. Would Zara? ’s business model be able to scale up? Or would the resulting complexity compromise its speed advantage?

Would Pablo Isla be able to maintain the focus that Zara had established? – 3 -305-308-1 LBS-CS-05-037 THE RETAIL APPAREL INDUSTRY AND COMPETITORS The apparel industry was one of the most globalised industries, with 23. 6 million workers in over 20 countries. As labour costs in Western European countries had risen, labour-intensive manufacturing operations had become increasingly outsourced to less developed countries. Hourly wages in the textile industry could be as low as 60 cents in India and China, compared with $2 in North Africa, $3 in Eastern Europe, $8. 50 in Spain, and around $15. 0 in Italy. The 1974 Multi-Fibre Arrangement, which placed import quotas on garments and textiles from developing countries to the industrialised world, had expired on 1 January 2005 for all members of the World Trade Organization. This was amplifying the relocation of textile and garment manufacture to countries with lower labour costs, especially China. For example, in 2004, 400 Spanish textile groups went out of business, due to competition from Asia, resulting in the loss of 15,000 jobs. The Spanish textile guild predicted a loss of another 72,000 jobs by 2009. The apparel retail channels had consolidated during the 1990s, with a few large players dominating most major markets. Competitors included department stores, mass merchandisers (e. g. discounters and supermarkets) and specialty stores. Department stores were usually national players, like Marks & Spencer in the United Kingdom or Federated in the USA. Typically, they had lost market share in recent years. Mass merchandisers such as Target, Tesco and Wal-Mart had increasingly added private label clothes to their mix over the years to become major players.

There were many successful specialty chains like Benetton, C&A, Hennes & Mauritz (referred to as H&M), The Limited, Mango and Next. The traditional apparel industry model worked on long lead times (see Exhibit 1). The industry average was around nine months, around six months for design and three months for manufacturing. As a result, 45-60% of production was committed in the six-month pre-season period, with 80-100% committed by the start of the season. Only the remaining 0-20% was generally manufactured in-season in response to sales patterns.

Excess inventory was marked down at the end of the season, and typically accounted for 30-40% of sales. Despite their best efforts, Zara? ’s closest competitors, H&M and Gap, still took around five months to produce new clothing lines. H&M Swedish clothing chain H&M was founded in 1947. By 2005, it had close to 32,000 employees, just under 1,100 stores in 20 countries. In 2005, it planned to open 155 new stores in Europe and the US. Its 2004 sales were ? €6 billion, which yielded a profit of 1. 24 billion. With close to 30% of its sales, Germany was H&M? s largest market, while the US generated only Iman for H&M Germany – 4 -305-308-1 LBS-CS-05-037 6.

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4% of its 2004 sales. It manufactured 60% of its clothes in Asia. H&M? ’s business concept was to offer fashion and quality at the best price. In order to offer the latest fashion, H&M had its own buying and design department. It claimed to achieve the best price by: ?? Few middlemen ?? Buying in large volumes ?? Having a broad, in-depth knowledge of design, fashion, and textiles ?? Buying the right products from the right market ??

Being cost conscious at every stage ?? Having efficient distribution H&M? ’s clothing lines in men? ’s wear, women? ’s wear and children? ’s wear, as well as its cosmetics range, targeted cost-conscious shoppers. Within H&M women? ’s wear were different sub-brands: Hennes (women aged 25-35), L. O. G. G. (casual sportswear), Impuls (young women? ’s trends), BiB (plus-size line), Woman (classic), Clothes (current trends), MAMA (maternity) and Rocky (youth fashion). There were also different sub-brands within the men? ’s and children? ’s lines.

H&M stores generally had a somewhat chaotic, marketplace feel, with clothes packed tightly onto racks, frequent markdowns, and queues at the cash register. H&M devoted 5% of its revenues to advertising. Its high-profile ad campaigns featured celebrities, such as Claudia Schiffer, Johnny Depp, Naomi Campbell and Jerry Hall, wearing its low-cost clothes. Dedicated collections by star designers Karl Lagerfeld and Stella McCartney in 2004-5 continued to create buzz among its customers. The Gap Gap opened its first store in San Francisco in 1969, where it sold mainly Levis jeans.

In 1991, Gap announced its decision to sell only private label brands. With around 3,000 stores and 152,000 employees worldwide, Gap positioned itself as a provider of high quality, basic items, such as jeans, khakis and t-shirts. In addition to Old Navy and Banana Republic, Gap? ’s chains included GapBody, GapKids, and babyGap. Its 2004 sales were around ? €12. 5 billion, with a profit of $1. 4 billion. Nearly all of Gap? ’s products were manufactured outside the US, with 18% of its collection made in China. Gap? ’s stores were spacious, with stock well spaced Madonna for Gap and neatly presented.

There was an emphasis on service, with a call button in fitting rooms for customers requiring assistance with clothing sizes. Television advertisements featured hip music and dance sequences, with appearances by celebrities such as Madonna, Lenny Kravitz, Sarah Jessica Parker and Joss Stone. – 5 -305-308-1 LBS-CS-05-037 INDITEX HISTORY Spanish entrepreneur Amancio Ortega Gaona started a firm manufacturing lingerie and nightwear in 1963, after quitting his job as a runner for a shirtmaker in La Coruna. He founded Confecciones GOA in 1972, and opened the first Zara store in 1975, to sell stock after a customer cancelled a large order.

Ortega founded the Inditex group in 1985. After floating 26% of its shares on the Madrid stock exchange in 2001, he remained its majority shareholder, with 61% of the company? ’s shares. Ortega retained a low profile, rarely making public appearances (apart from during the run-up to the IPO in 2000), and had never given an interview. Jose Maria Castellano Rios joined Inditex in 1985 and became its Chief Executive in 1997. Castellano had previously been IT manager of Aegon Espana SA, and had a doctorate in economics and business studies. In 2005, Inditex developed a five-year plan, which included a board restructure.

As part of the restructure, Pablo Isla Alvarez de Tejera was appointed as Chief Executive in May 2005. Isla came from the Franco-Spanish tobacco group Altadis, where he had been co-chairman. Isla was chosen for his experience in international distribution. Ortega stayed on as the group? ’s Chairman, and Castellano remained the Deputy Chairman. Portfolio of Stores Besides Zara, which was targeted at trendy city youngsters, Inditex grew its portfolio of apparel chains throughout the 1990s. Each chain was targeted at a specific segment (see Exhibit 2): ?? Massimo Dutti ? – Young businessmen ?? Pull & Bear – Elegant male clothing ??

Berksha ? – Elegant fashion for young women ?? Brettos ? – Trendy young suburban women ?? Oysho ? – Lingerie ?? Stradivarius ? – Youthful fashion ?? Kiddy? ’s Class ? – Trendy children In 2003, Inditex opened a home furnishings chain called Zara Home. By 2005, Zara made up close to 70% of Inditex sales and led the group? ’s international expansion (see Exhibit 3). While, as a group, Inditex had about twice the number of stores as H&M, Zara? ’s 700 stores were fewer in number than H&M? ’s. Inditex was aggressively expanding, and planned to increase its 2,000 stores to 4,000 by 2009, in Europe, Asia, and the U.

S. (see Exhibit 4). In terms of profits, Inditex was performing well compared with its main competitor, H&M (see Exhibit 5 and Exhibit 6). Aamancio Ortega Gaona Inditex Chairman – 6 – 305-308-1 LBS-CS-05-037 THE ZARA STORE 91% of Zara stores were company-owned; the rest were franchises or joint ventures. Customers entering a Zara store on Regent Street in London, Rue Rivoli in Paris, Fifth Avenue in New York or Avenidas das Americas in Rio de Janeiro generally found themselves in the same environment: a predominantly white, modern and spacious store, well-lit and walled with mirror.

The latest fashions hung from the store racks around them. A long line of people typically waited at the cash registers to pay for their purchases: a few select items. Shop Window of Zara, New York In comparison with other clothing retailers, who spent 3-4% of sales on advertising, Zara spent just 0. 3%. The little it did spend went to reinforce its identity as a clothing retailer that was low-cost but high fashion (see Exhibit 7). Instead Zara concentrated on creating compelling store windows and to the design of its shops, which had won awards.

It relied on its shop windows, which were dramatically lit and used neutral backgrounds, to communicate its brand image. The shop windows of Zara stores were changed regularly, according to display designs sent by headquarters, and were critical for Zara to remain visible and entice customers. Store locations were carefully researched to determine that there was a sufficiently large customer base for Zara2, and as such were generally busy, prestigious, city centre shopping streets. Zara was a fashion imitator.

It focussed its attention on understanding what fashion items its customers wanted and then delivering them, rather than on promoting predicted season? ’s trends via fashion shows and similar channels of influence, that the fashion industry traditionally used. Its 200 in-house designers were trend-spotters who kept their finger on the fashion pulse, and translated trends into styles that were universally accessible. At Zara headquarters in La Coruna, store specialists (who were responsible for a number of stores in a region) worked closely with designers to develop styles that would work for different arkets. Collections were renewed every year, with an average of 11,000 styles produced annually, compared with the more typical collections of 2,000-4,000 produced annually by rivals H&M and Gap. Production and distribution of new clothing pieces was favoured over replenishing existing items, contributing to the perception of scarcity cultivated in Zara stores. Customers returned frequently to stores, to browse new items. The global average of 17 visits per customer per year for Zara was considerably higher than the three visits to its competitors. Visitors were also more likely to purchase, as one senior executive explained: Zara? ’s objective is not that consumers buy a lot but that they buy often and will find something new every time they enter the store. 4 – 7 -305-308-1 LBS-CS-05-037 Comments by Luis Blanc, and Inditex director, illustrated how Zara stores fostered an environment of immediacy: We want our customers to understand that if they like something, they must buy it now, because it won? ’t be in the shops the following week. It is all about creating a climate of scarcity and opportunity. Affordable prices helped to encourage purchases, and Zara? ’s offering was often referred to as clothing to be worn six to ten times. Zara? ’s pricing differed across country markets. It set prices according to individual market conditions, rather than using cost plus margin as its basis (which was the formula used by most of its competitors). In Spain, Zara products were low-cost, while in the US, Japan and Mexico, they were priced as a luxury fashion item. Prices in France were somewhat higher than in Spain, since the average French consumer was willing to pay more for fashion than most other European consumers.

For example, in 2003, the price of jeans in Zara stores in France was $34. 58 compared with $24. 87 in Spain and $54 in Japan. 6 Until 2002, Zara had used one price tag listing the price in different currencies, to simplify tagging of items. In 2002, however, it implemented a system of local pricing, using a bar code reader that printed the correct local price for items. Compared with its competitors, Zara generally priced its products somewhat higher than C&A and H&M, but below Gap, Next and Kookai. For example, a similar shirt cost $26 at Zara, compared with a price of $29 at Gap and $9 at H&M. Store Management Store managers were encouraged to run their store like a small business. Salespeople were well trained, and Zara promoted its people from within as much as possible. Store managers? ’ remuneration was partially dependent on the accuracy of their sales forecasts and sales growth. 8 Each evening a handheld PDA displayed the newest designs sent by headquarters, which were available for order. Order deadlines were twice weekly, and were issued via the handhelds. Store managers who failed to order by the deadline received replenishment items only.

Store managers regularly spoke with store specialists, who also received real time sales data from stores, to discuss which items were selling well or if customers had requested Zara Store, Barcelona specific items. This information was then fed back to the design process. 9 Deliveries arrived at stores twice per week from Zara headquarters, a few days after the order was made, and contained both replenishment items as well as – 8 -305-308-1 LBS-CS-05-037 new products. Headquarters also sometimes included products that had not been ordered, which stores expected to receive.

If demand of an item exceeded supply, some stores did not receive the product they had ordered. Zara also tested some of its products in limited numbers in its test stores, before introducing them on a wider scale. Failure rates of Zara? ’s new products were reported to be just 1%, considerably lower than the industry average of 10%. 10 Technology was a key part of enabling communications and information flow. While information technology was fundamental to its business, its IT infrastructure was relatively simple (even dated by some standards), which meant that Zara? s IT expenditure was significantly lower than its rivals (as much as five to ten times lower). 11 Deputy Chairman Jose Maria Castellano explained the key role played by technology: Technology in this company is important and will be more important in the future. The technology we use is mainly information technology and [enables] the communication between the shop managers and the design team here in headquarters. 12 THE ZARA SUPPLY CHAIN Around 50% of Zara? ’s garments were sourced from third parties. Unlike its competitors, Zara? s outsourced production came for the most part from Europe (60%), with just 27% coming from Asia, and another 10% from the rest of the world. The products sourced from Asia were basic collection items or wardrobe ? “staples,? ” with minimum fashion content, such as T-shirts, lingerie and woollens, and where there was a clear cost advantage. Formal contracts were kept to a minimum, and Zara was generally a preferred customer due to its order volume and stability. 13 Externally manufactured items were shipped to Zara? ’s distribution centre. Zara intended to source more of the collection from Asia in the future, as commented by Castellano: ? In the next few years, we will source more basic items from China and Vietnam, but the high value added fashion items will continue to be made closer to home.? ”14 The other 50% of Zara? ’s garments, those that were more fashion-dependent, were manufactured in-house, in more than 20 Zara factories located in nearby Arteixo. 15 For its in-house manufacturing, it purchased fabric from Comditel, a subsidiary of Inditex. Half of this fabric was purchased grey (undyed) to enable Zara to respond to changes in colour trends during the season. Dye was purchased from Fibracolor, in which Inditex held a stake.

A team of 200 young, talented yet unknown designers were hired (often recent graduates of top design schools) to create designs, based on the latest fashions from the catwalk and other fashion hotspots, which were easily translatable to the mass market. 16 Working alongside the market specialists and production planners, designers for each of Zara? ’s collections (Woman, Man, Child) kept in-touch with market developments, to create around 40,000 new designs per year, of which around one-quarter were manufactured. 17 The design and – 9 -305-308-1 LBS-CS-05-037 production working environment was consistent with Zara? s flat hierarchical structure, in which prima donnas were not tolerated. 18 Illustration: Fast Fashion Computers were used to guide the cutting tools, using patterns made from selected designs. Zara tried to keep its offering of any style simple, usually in three sizes and three colours only. The labour intensive sewing of the garments was outsourced to around 500 local subcontractors, who used seamstresses in cooperatives. Zara was usually their sole client, and they worked without any written contracts. Zara paid these subcontrators a flat fee per type of garment, (e. g. , ? 5 for a pair of trousers and ? €15 per jacket) and they were expected to operate on short lead times and fast turnaround. Subcontractors picked up the prepared fabric pieces from Zara, and returned them to the 500,000 m2 distribution centre. 19 At the Zara distribution centre, optical reading devices were used to sort and distribute over 60,000 items per hour. The garments were then picked up and transported by truck to different destinations all over Europe (which made up about 75% of deliveries). Products for more distant destinations were transported by air (about 25%).

Throughout the process, garments were tracked using bar codes. Shipments tended to have almost zero flaws, with 98. 9% accuracy and under 0. 5% shrinkage. 20 Since Zara? ’s garments were produced in-house, it was able to make a new line from start to finish in just three weeks (see Exhibit 8). This varied somewhat depending on the type of garment: new garments took about five weeks from design to store delivery, while revamped existing items could take as little as two weeks. As a result Zara could be responsive to fashion items that were selling well during the season, and to discontinue those that were not.

By constantly refreshing the collection, and manufacturing items in high-intensity, Zara was a master of picking up up-to-the- minute trends and churning them out to stores around the world in a matter of weeks. ?•After Madonna? ’s first concert date in Spain during a recent tour, her outfit was copied by Zara designers. By the time she performed her last concert in Spain, some members of the audience were wearing the same outfit. ?•In 2003, when the Crown Prince of Spain announced his engagement to Letizia Ortiz Rocasolano, she wore a white trouser-suit for the occasion (pictured left).

In just a few weeks, the same white trouser-suit was hanging from Zara? ’s clothes racks all over Europe, where it was snatched up by the ranks Crown Prince Felipe of Spain and Letizia Ortiz Rocasolano of the fashion-conscious. – 10 -305-308-1 LBS-CS-05-037 short-runs, Zara was able to prevent the accumulation of non-saleable inventories. It was estimated that Zara committed just 15-25% of production before the season began, 50 to 60% at the start of the season, and the remainder manufactured in-season. Percentage of Zara sales consisting of markdowns was 15-20%. In some cases, stores ran out of stock.

However, this was not viewed as a negative since it contributed to customers? ’ perception of the uniqueness of their purchase: ? “Customers are actually satisfied to see items out of stock as they are then confident that there is little chance that many other customers will wear the same dress.? ”21 Castellano explained the rationale for this departure from industry norms: We don? ’t want to compete in the bottom end of the market. We offer fashion with a high design content. If I tried to source my collections in Asia, I would not be able to get them quickly enough to our stores.

By manufacturing close to home, I can scrap collections when they are not selling. And without this rapid response, I would not be able to extract a good relation between quality, price and fashion which is what our customers have come to expect. 22 A study in 2000 estimated that Zara managed to generate 14. 7% operating margins as a percentage of sales, compared with 10. 6% for Gap and 12. 3% for H&M. Additionally, the same study put Zara? ’s inventory turnover at 10. 67 outpacing Gap at 7. 18 and H&M at 6. 84. 23 THE FUTURE Following Zara? ’s success, competitors sought to reduce their own lead times.

The competitive advantage achieved by Zara? ’s vertical integration appeared to be eroding. With its highly centralised structure and its rapid growth, Zara was producing around 12,000 different items per year by 2005. As it opened stores in increasingly distant markets, would Zara be able to retain its flexibility in adjusting production to accommodate differences in local trends? Would the increase in complexity result in a need to create regional production facilities? How would this affect the advantage Zara gained from its centralization?

Might Chinese clothing manufacturers prove to be a competitive threat to Zara, with their high capacity and continuous improvements in quality? Castellano discounted this threat: ? “Being a Zara or Gap is not just about designing fashionable clothes and manufacturing them cheaply. You must also make the transition to being a retailer. It is a big step from manufacturing to distribution. There is also the question of managing the location and presentation of stores, training staff and so on.? ”24 The Zara model seemed to work better in markets where customers had an appetite for fashion (such as France, Italy, Japan and the UK).

However, in countries such as France and Italy, Zara had received bad press for copying – 11 -305-308-1 LBS-CS-05-037 designs from couture labels, and the French Fashion Federation had called for limited access by reporters to fashion shows to minimize imitation by copycatters. In other markets, where consumers were less fashion-focussed (e. g. Germany and the U. S. A. ) Zara seemed somewhat less successful. Would Zara be better served in the long run by increasing penetration in these fashion- sensitive markets, or by extending its global reach through increased presence in more markets? – 12 -305-308-1 LBS-CS-05-037

Exhibit 1: Traditional Season for a High Street Store Adapted from Dutta, 200425 – 13 – 305-308-1 LBS-CS-05-037 Exhibit 2: Inditex Stores and Sales Sales, by Division (2004-5) Zara Home Kiddy? ’s Class Pull & Bear 6. 7% Massimo Dutti 8. 5% Bershka 9. 1% Zara 67. 4% Stradivarius 4. 3% 1. 3% Oysho Source: Handelsbank, 2005 Source: Financial Times, 2005 Percentage of Stores (2005) 0. 7% 2. 1% Zara Home Kiddy? ’s Class 3% Oysho 5% Stradivarius 10% Pull & Bear 16% 6% Zara 31% Dutti 15% Bershka 14% – 14 – 305-308-1 LBS-CS-05-037 Exhibit 3: Number of Zara Stores by Country (31 March 2005) Russia Slovenia2 2Hungary Czech Rep.

Lithuania1 Asia Pacific = 21 Japan14 Malaysia3 Europe = 576 3 Sweden Denmark Finland Iceland 2 2 1 1 4Romania 3Estonia 1Latvia1 Singapore Hong Kong Mexico Venezuela Brazil Argentina Chile Uruguay El Salvador Panama Dominican Rep. 1 Spain244 Portugal41 France83 Greece30 UK34 Belgium17 Germany34 Italy23 Eire4 Turkey11 Cyprus3 Holland6 Switzerland 6 Poland7 Austria6 Malta1 Andorra1 Luxembourg 2 3USA16 1Canada12 Americas = 98 Middle East & Africa = 40 Saudi Arabia Israel UAE Kuwait Lebanon Jordan Qatar Bahrain Morocco 13 13 4 4 2 1 1 1 1 34 8 13 5 5 2 1 1Adapted from Inditex, 2005 Exhibit 4: Inditex Store Formats ZaraKiddy? sPull & Bear Class – 15 -305-308-1 LBS-CS-05-037 MassimoBershkaStradivariusOyshoZara Home Dutti 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 No of stores723626 Turnover* 3,820 3,220 129103371350 121 90 379 288 22 18. 0 56 19 12. 8 13. 4 30. 5 31 2. 11. 96. 76. 3 61% 80% 44% 16% 327297302 481 389 516 75 60 83 41. 9 40. 9 35. 7 8. 58. 59. 1 50% 56% 52% 253227191104 395 242 162 72 57 394 16 33. 8 15. 4 16. 6 31. 5 8. 64. 33. 51. 3 46% 43%5% 52% 766226 45 40 11 2 0. 3 (0. 5) 35. 1 12. 7 8. 5 10. 70. 2 7%2%– Operating Income* % international sales 648 476 65. 8 63. 5 67. 470 % of Inditex ROCE 38% 33% in millions of Euros, rounded off. Source: Inditex press dossier, 2005 – 16 -305-308-1 LBS-CS-05-037 Exhibit 5: Key Indicators of Gap, H&M and Inditex (Financial Years 2003 & 2004) GapiH&MInditex 29 29 30 30 31 31 Reporting Date Sales (millions ? €) Gross Profit (millions ? €) Operating Profit (millions ? €) Profit (millions ? €) Profit after tax (millions ? €) Total Assets (millions ? €) Inventories (millions ? €) January 2005ii January 2004iii November 2004iv November 2003v JanuaryJanuary 20052004 12,47012,6966,0295,3305,6704,599 4,8924,7803,4492,9943,0342,306 1,5981,5221,1981,019925627 1,4351,3491,2361,062886613 882826817706628446 ,7038,5793,1592,8474,2093,510 1,3901,365577558514486 Stores Employees 152,000150,00031,70128,40947,04639,760 Countries 56 20185648 2,9943,0221,0689452,2441,922 Total square3,3993,3931,364vin/a metres (thousands) 1,175988 Source: Inditex, H&M and Gap, 2005 i Gap Inc? ’s stores include Gap, Old Navy and Banana Republic. Gap? ’s sales were ? €5. 6 million, with 1643 stores, and 1. 43 million square metres. ii Exchange Rate of 29 January 2005 is used for all currency calculations: 0. 76660 USD = 1? € iii Exchange Rate of 29 January 2004 is used for all currency calculations 0. 80080 USD = ? 1 iv Exchange Rate of 30 November 2004 is used for all currency calculations 0. 11230 SEK = 1? € v Exchange Rate of 30 November 2003 is used for all currency calculations 0. 11050 SEK = 1? € vi Estimated (Adapted from Datamonitor, 2005). Exhibit 6: Iniditex vs. H&M (1998-2004) Sales, Inditex vs H&M (Millions, ? €) – 17 – Inditex H&M 305-308-1 LBS-CS-05-037 Number of Stores, Inditex vs H&M (1999-2004) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2500 2000 1500 1000 500 0 22244 66029 5670 1922 55,058 5330 1558 11284 682771 99451068 IInditex H&M 44599 1080 613 44,196 3,980 3,250 922 8844 33,255 1,614 2,035 3,508 2,615 ,631 1999 2000 2001 2002 2003 2004 NNumber of Countries, Inditex vs H&M (1999-2004) 60 50 40 30 20 10 556 11998 1999 2000 2001 2002 2003 2004 44 14 448 330 12 339 33 1414 118 220 IInditex H&M 0 0 11999 2000 2001 2002 2003 2004 AAdapted from Inditex and H&M, 2005 – 18 -305-308-1 LBS-CS-05-037 Exhibit 7: A Zara advertisement The Cheap Frock coat (119) White shirt (25) ZARA Black necktie (65) HACKETT Woollen Trousers (45) and Black boots (55), both ZARA The Expensive Black cashmere frock coat (950) White tuxedo shirt (190) Black necktie (86) and Woollen Trousers (380) both RALPH LAUREN Black boots (500) are by UNGARO 19 -305-308-1 LBS-CS-05-037 Exhibit 8: Zara Season Adapted from Dutta, 2004 Endnotes – 20 -305-308-1 LBS-CS-05-037 1 Crawford, L. (2005) ? “Inditex sizes up Europe in expansion drive,? ” Financial Times, 1 February 2005, p. 30. 2 Ferdows, K. J. , A. D. Machuca and M. Lewis (2003) ? “Zara,? ” CIBER Case Collection, Indiana University. 3 D? ’Andrea, G. and D. Arnold (2003) ? “Zara,? ” Harvard Business School Case 9-503-050, p. 7. 4 ? “Zara, la deferlante de la mode espagnole,? ” Interview with Stephane Labelle, MD of Zara France, Enjeux-Les Echos, February 1996. 5 Crawford, L. (2000) ? Inside Track: Putting on the style with rapid response,? ” Financial Times, 26 February 2000. 6 D? ’Andrea, G. and D. Arnold (2003) ? “Zara,? ” Harvard Business School Case 9-503-050, p. 19. 7 D? ’Andrea, G. and D. Arnold (2003) ? “Zara,? ” Harvard Business School Case 9-503-050, p. 18 8 Ferdows, K. J. , K. M. Lewis and J. A. D. Machuca (2003) ? “Zara,? ” Supply Chain Forum 4(2): 62. 9 Ferdows, K. J. , A. D. Machuca and M. Lewis (2003) ? “Zara,? ” CIBER Case Collection, Indiana University, p. 6. 10 Ghemawat, P. and J. L. Nueno (2003) ? “Zara: Fast Fashion,? ” Harvard Business School Case 9-703-497, p. 10. 11 ? The Future of Fast Fashion,? ” The Economist, 18 June 2005, p. 63. 12 ? “Zara: A Retailer? ’s Dream,? ” from http://www. fashionunited. co. uk/news/archive/inditex1. htm 13 Ferdows, K. J. , A. D. Machuca and M. Lewis (2003) ? “Zara,? ” CIBER Case Collection, Indiana University, p. 7. 14 Crawford, L. (2005) ? “Inditex sizes up Europe in expansion drive,? ” Financial Times, 1 February 2005, p. 30. 15 Fraiman, N. , M. Singh, L. Arrington and C. Paris (2002) ? “Zara,? ” Columbia Business School Case, p. 5. 16 Ghemawat, P. and J. L. Nueno (2003) ? “Zara: Fast Fashion,? ” Harvard Business School Case 9-703-497, p. 0. 17 Fraiman, N. , M. Singh, L. Arrington and C. Paris (2002) ? “Zara,? ” Columbia Business School Case, p. 5. 18 Ferdows, K. J. , A. D. Machuca and M. Lewis (2003) ? “Zara,? ” CIBER Case Collection, Indiana University, p. 6. 19 Fraiman, N. , M. Singh, L. Arrington and C. Paris (2002) ? “Zara,? ” Columbia Business School Case, p. 6. 20 Ferdows, K. J. , A. D. Machuca and M. Lewis (2003) ? “Zara,? ” CIBER Case Collection, Indiana University, p. 8. 21 Interview with Anthony Pralle, Senior Vice President of Boston Consulting Group, Madrid, 13 July 1999, as quoted in Harle, N. , M. Pich and L.

Van der Heyden (2002) ? “Marks & Spencer and Zara: Process Competition in the Textile Apparel Industry,? ” INSEAD Case 602- 010-1. 22 Crawford, L. ?“Inditex sizes up Europe in expansion drive: Rapid design, manufacture and distribution keep pressure on rivals,? ” Financial Times, 1 February 2005. 23 D? ’Andrea, G. and D. Arnold (2003) ? “Zara,? ” Harvard Business School Case 9-503-050. 24 Crawford, L. (2005) ? “Inditex sizes up Europe in expansion drive,? ” Financial Times, 1 February 2005, p. 30. 25 Dutta, D. (2004) ? “Brand Watch: Zara,? ” Images Fashion Forum Presentation, New Delhi, 12 February 2004.

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