Drivers of Success of Inditex:
Inditex is defined by the success of its brands, which include Zara, Massimo Dutti, Strativarious, Bershka, Lefties, Pull and bear and Osysho.
They employ a multiband strategy and charge premium prices because people are willing to pay for design and fashion. They also have products with medium quality and low price.
Some drivers of success include:
No advertisements- This saves money (5% of revenues), which is a lot considering they have 10billion euro revenues per year that means they are saving 500 million Euros. They can accomplish this because of word of mouth advertising from customers, which is free and effective as well as impulse purchases (items are in the store and out quickly) These extra 500 million Euros go to Research and development and real estate.
Zara has a wide variety of products. Over 5,000 SKU (stock keeping units) per year.
This is possible because Zara has the shortest cycle in the industry. Their products go from design to retail in a short time period. Zara also owns their own manufacturing sites, which keep production costs low. 80% is manufactured in Europe with 60% in Spain and 40% in Galacia.
Flagship Strategy- Zara opens in the most expensive area of a city. These prominent locations draw crowds, grab headlines and provide a venue for innovation.
Forecast Demand: Zara gets info from clients in the store. Data about product purchases can be computed, plotted and understood to determine monthly, yearly, seasonal and product trends.
Sponsorship- Collections for celebrities/designers. Celebrity endorsed products are recognizable with consumers and can drive high demand and margins.
High Margins- Zara has very high margins on their products because they have control over the pricing. Other stores may not have the capacity to carry the wide range of products like Zara does therefore they can mark up the prices very high and have immense profits.
(2) What are the main barriers of entry for new players wanting to enter the industry of Inditex?
Retail Industry- High barriers to entry
Location– It is extremely difficult to obtain or purchase a good location for a retail store in the world. All good locations (generally in city centers) are already monopolized by big retail chains such as Zara. Some prime locations may be too expensive for other retail outlets. Zara’s locations are in the best areas and generate hype, a great deal of foot traffic and draw large crowds.
Brand Loyalty- Customers who have shopped at Zara expect and know they will receive a high level of product offerings, appropriate pricing, customer service, and other beneficial services that keep them coming back. Zara has a high level of brand loyalty and brand awareness. Consumers are very hesitant to switch to another retailer.
Cash Flow- Zara has the shortest cycle time in the industry which contributes to their healthy cash flow. Other competitors most likely cannot match this and compete with Zara. Zara also spends 500million in research and development each year which other competitors may not be able to match which gives Zara a great advantage in developing new products and techniques.