Apparel industry inditex

Industrial Economics

Final Case



Table of Contents
INTRODUCTION 2
Overview of the company 3
STRUCTURE 4
Seller Concentration 4
Buyer concentration: 4
Product Differentiation 5
Entry Barriers 7
1. Quality and standards for outerwear 8
2. Non-tariff trade barriers 8
3. Tariffs and quota 10
4. Other barriers 12
Cost structures 12
Vertical integration 14
CONDUCT 16Pricing strategies 16
Product strategies 17
Advertising 18
Mergers 19
Collusion 19
PERFORMANCE 20
Allocative efficiency 20
Production Efficiency 22
Technical progress 24
Product quality 25
GOVERNMENT POLICIES 25
CONCLUSION 33
REFERENCES 34

INTRODUCTION

In this case study we aim to formulate a strategy for Inditex to grow.
Inditex (Industria de Diseño Textile, S.A) isa Spanish company which is performing globally, the Group’s headquarter is located at Arteixo, near La Coruña in the Northwest of Spain. More than 34,000 employees work for the Inditex Group in a total of 34 countries (19,000 in Spain and 15 thousand abroad).
The group manufactures high quality clothing and textile and sells it worldwide at mid-market prices through its own branded retail stores.At Inditex all stages of the value generation process are controlled: design, production, management of the supply chain, logistics, and retail sales.
Inditex is one of the worlds largest fashion distributors, with eight sales formats -Zara, ,Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Kiddy's Class.
The process of formulating a strategy is done in our case byfollowing the structure-conduct-performance approach and by analyzing the government policies targeted to this industry.

Overview of the company

Inditex, the Spanish clothing chain which was founded in 1963 as a maker of ladies’ lingeries in the Galician town of La Coruña, is considered to be ‘a spectacular exception to the rule’ according to which ‘vertical integration has gone out of fashionin the consumer economy’.
Over the past five years, Inditex has increased the number of stores from 180 (mainly in Spain) to 450 in 30 different countries. Revenues have grown by an average of 27% a year since 1998.
Inditex’ success is based on a vertically integrated business model embracing design, just-in-time production (starting with basic fabric dyeing), marketing and sales. This gives thecompany the flexibility needed to respond to fast changing fashion trends. Its products are developed in a design-and manufacturing centre in La Coruña, with most of the sewing down by 400 local subcontractors. Designers are in constant touch with store managers to find out which items are most in demand. As they are also supported by realtime sales data from all 450 stores, they are able to feedrepeat orders and new designs into the manufacturing plant. The plant, in turn, ships the goods to the stores twice a week, which eliminates the need for warehouses and keeps inventories low.
As a result, Inditex only needs three weeks to make a new line from start to finish compared to an industry average of nine months. 10,000 new designs are created each year, none of them staying in a storefor more than one month. Whereas Inditex has committed only 15% of its production at the start of a season, the figure at the average EU retailer is as high as 60%. Inditex can therefore more easily dump a product line which has turned out to be unpopular.

STRUCTURE

Seller Concentration

In order to begin the new formation of strategy one must consider the current situation in the market.The seller concentration, meaning that how many sellers are there, is first.
The clothing industry is a very broad industry selling products ranging from pants and shirts to accessories. It is affected by the latest trends in design, models, colours and styles, and also by consumer preference. There are several similar companies selling comparable products, so competition is incredibly hard. It...