Zaras Chic and Fast Fashion - Case Study Example

Zara’s Chic and Fast Fashion. NAME: INSTITUTION: COURSE: LECTURER: DATE: COMPANY SITUATION The company is the best growing in the fashion business ranking good profits and earning new customers despite having had problems in the past it has thrived by opening new stores to the wider market and designing new fashion trends and ones that are affordable to everyone. In 2012 the owners of Zara reported annual profits of $2.6bn and that’s an increase by11% on the previous year which was an increase compared to the raise in profits by 4% in 2011. Despite having the slowdowns since of competition and flooding of markets with the same commodity from different competitors they opened 483 stores in 2011 making their total to 5.527 retailer shops worldwide but still had planned to add 520 stores in 2012. Also by increasing its manufacturing business by the wanting to link with china due to increase in demand for their fashion line making their distribution more satisfactory to its clients. Which later in 2012 grew to 30 stores being opened in China. Through expansion into other countries sparked a growth in their fiscal of2012 Inditex(the owners of Zara) reported total sales of $20.7 Billion, Zara represented 66% of total sales $13.6 Billion with 120 stores world-wide ,with their other divisions include Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterque which also helped them with their sales. Zara’s growth rate is immense judging from their sales in the previous years since it was mostly located in Spain before their expansion to other countries. Competitors such as H&M, GAP and Benneton were receiving losses upto 25%in the year 2011 Zara was improving in sales and profits since by that time Zara has started expansion into other regions for example the Middle East, America. From the table below we see increase in sales which means increase in profits over the years TURNOVER (IN MILLIONS OF EUROS) 2012 2011 2010 2009 Sales 15,946 13,793 12,527 11,048 OTHER RELEVANT INFORMATION 2012 2011 2010 2009 2008 Number of stores 6009 5,527 5,044 4,607 4,264 Net openings 482 483 437 343 537 Number of markets with commercial presence 86 82 77 74 73 Number of Employees 120,314 109,512 100,138 92,301 89,112 From the table above we can see an increase in employees meaning their was work to be done to meet the demand of the people especially from their sales report the company it shows the company is still in its growth stage in that through expansion before they get a feel of the ground to know who they are competing with will take time because it is a rising star with a rebranded way of marketing and doing things from a company which only had sales in Spain to being opened in countries and even their small retailer stores selling their products and getting good results. Zara is an international success by the having an effective supply and chain management, having a good and responsive market and lastly having an excellent Human Resource Management Team. From having good sustainable growth and also good internal growth has made Zara rebrand itself and be one of the top brands in the market. Zara’s stores release upto 10,000 new trends a year and making a new outfit after designing takes two weeks compared to other brands that takes six months and before it gets the approval it will take half an year to reach the stores thus the vast growth in their business since they keep customers in touch with the new trends at affordable prices. Comparing Zara to the other fashion moguls in the industry over the years has proven that it is the top brand in most states where it is being sold at. The financial highlights of its competitors from 2009-2011 is as follows: GAP Fiscal Year Ends Jan 27th Most Recent Quarter (mrq) Jul 28th Profitability Profit Margin 5.94% Operating Margin 10.41% Management Effectiveness Return on Assets 12.54% Return on Equity 29.46% H&M( In Euros) Sales 128,810 126,966 Net Income 20,379 24,659 Profit Margin Net income/sales 16% 19% Total Assets 60,188 59,182 Total Equity 44,104 44,172 Return on Assets(ROA) Net income/Total sales 0.34 0.42 Return on Equity (ROE) Net income/ Total sales 0.46 0.56 The issues that the company is facing are mostly the competition from various companies as much as they make the clothes at affordable prices gaining the customers faith and trust will take time since in most countries they are expanding to are knew to them. Also trying to meet the demand of the customers since their brand is taking the fashion arena vastly and hence becoming the top brand. In terms of liquidity Zara’s current asset can cover up their current liabilities which makes the current ratio as seen in the table below form the year 2011&2012. Since liquidity is determined in ratios as seen from the figures below the current asset is more than 1 hence its capability to cover it own liabilities which is good for the company. 2012 2011 Quick Ratio 1.4589 1.4366 Quick ratio is not the same compared to the current ratio since it looks at the company’s quick assets. 2012 2011 Current ratio 1.5180 1.5104 The leverage ratio in the company is determined by how much from the total asset that is financed by the total debt.The higher the result will cause a higher financial risk. A healthy company should have a good a low debt to asset ratio since if it is higher it would lower flexibility of the company for expansion, but from the figure below Zara is in good shape, especially from the figures shown below which were taken from 2011 and 2012 2012 2011 Debt To Total Equity 0.5198 0.0460 The ratio defines the amount used from equity that is financed by debts. Since the ratio is below one shows a good that its not totally financed by debt but the increase in ratio over the year in alarming since it means they increased their amount and used more debt to finance their dealings. Also in the activity ratio whereby it is determined by mostly the inventory turnovers of the company in terms of distribution and the supply and chain management but mostly it is all about how fast the company can liquidate their inventory (Products).Due to insufficient data I cannot provide the inventory record of the year 2011 but from the profit margin it is seen to have increased in sales meaning that they had increased by 24 which is a good number. 2012 2011 Inventory Turnover 24.6203 N/A (5612216/0 Even from the asset turnover which is to turn assets to sales Zara has proven that it can in big amounts. The higher value the higher the company’s effectiveness. 2012 2011 Total Asset Turnover 1.2371 1.2585 Zara’s current financial situation is normal and their growth rate will increase in tremendously since all their marketing strategies are working for the better and their turnovers are good. The company will continue growing vastly in their field of business but they need to keep in check when it comes to their leverage ratio since if they reduce or lack flexibility in supply and distribution the company will have a lot of losses. THE SWOT ANALYSIS The SWOT analysis helps to know where the company is at and where it is going to be in the future plus knowing its weakness and knowing how you will curb them.The strength of the company is that it is well established and known all over the world off its good traits of making good fashion trends and affordable prices and yet fashionable (Matherly, 2012). Through it is expansion it has had access to the wider market hence having many stores open up making them good profits. The brand is known all over the world without investing too much into advertising thus making it successful in that they di not need to advertise themselves to increase their turnovers their clothes and bags spoke for themselves hence the turnovers (David, 2013). Weakness about the company is that it doesn’t tap into what is going on with the people everyone these days in online everything you want you can get it online and by having a weak online presence they might miss some customers since nobody has the time these days to walk into a shop and buy stuff when they can do it from the comfort of their homes. By improving their online activity the profits might even be larger. Also in not advertising themselves assuming that it is the best and known worldwide but advertising can be to their benefit for example letting customers know if a new line is out for them to shop (Chae & Hill, 1997). Having a centralized distribution is a good thing since you can keep an eye on what is going on to the company but delays the distribution to other countries so by expanding also their distribution centers to other places might make it easier for the supply and chain management (Eisenhardt & Sull, 2001). Opportunities the company has is online marketing which it’s the “in” thing these days since everything is going digital which will be even better since you can get a wide group of new customers and also in continuing to invest in the expansion plan especially in Asia will bring more profit to the company instead of adding stores in places they already have stores they should take a risk and tap into an unsourced market (Achrol, 1991). The threats they face are usually the Global and Local competitors in the area and also the fluctuation in the exchange rates since they mostly deal with different foreign currency if either fluctuates it is not a good dealing. Also the economic recessions that happen in various states might bring down their profits since no one will have money to buy their goods hence low turnover. RECCOMENDATIONS The company should cooperate with various range of designers giving them new designs that are upbeat and will be well received by the market so that it can maintain its competitive edge with other fashion moguls in the industry. Also by doing that it will bring diversity in its designs hence the better acceptance it will be to their customers for example adding different cultures in their designs will make even the country associated with the culture buy the product more. By cooperating with any channel of production from all over the world will increase its products and distribution hence expansion of the company. Also advancing into the new generation which is more digital tapping into that market will bring more to the company Increasing their distribution centers and sparsely locating them far will enable Zara to be more faster and effective in their distribution of products. Since they are more centrally located and most of their far markets bring more turnovers that the Spain stores so why don’t they put a distribution center there? Investing more to advertising will make the company reach everyone and be known with everyone, and this may help them when the competitors become more competitive and their products demands starts to decline. By sticking to their mission ,visions and objectives the company will thrive more to being the top brand in the world hence start competing with the bigger picture such as Gucci e.t.c but till the satisfying the consumers’ needs and keeping the fashion know-how will make the company bigger and better. The recommendation stated down are for the good of the company all round from profits to keeping their customers happy and satisfied and making it bigger and better by advising them on which direction to go. REFERENCES Achrol, R.S. (1991), “Evolution of the marketing organization: new forms for turbulent environments”,Journal of Marketing, Vol. 55, October, pp. 77-93. Chae, M. and Hill, J.S. (1997), “High versus low formality marketing planning in global industries: determinants and consequences”,Journal of Strategic Marketing , Vol. 5 No. 3, p. 22. David, F. (2013).Strategic Management: Concepts and Cases. New Jersey: PearsonInternational Edition. Eisenhardt, K.M. and Sull, D.N. (2001), “Strategy as simple rules”,Harvard Business Review, January-February, pp. 107-16. Matherly, L., (2012). Zara: Chic and Fast Fashion. Abu Dhabi, UAE: Zayed University   Read More