Class assignment on Zara Inditex as a business.

1. ZARA (INDITEX)
Andrew Marsha Mulia – AMM657
MGMT 581 - 30

2. Competition Comparison
Zara H&M
 Fast fashion but luxurious
 Discounting seasonally
 Millennial and young adult consumers
 Internal designer
 Fashion forward
 Industry technology leader
 Higher price point
 Focused on greener future
 Own its own factories
 Fast fashion, stylish and affordable
 Discounting inventory all year round
 Gen-Z consumers
 Designer collaboration hype
 Broad fashion coverage
 Industry technology follower
 Lower price point
 Focused on greener future
 Outsources supply processes

3. Financial Comparison
Revenue
Revenue
Growth
Net Income
Operating
Income
Operating
Income
Growth
NWC Total Debt
Zara 31,373 5% 4,045 5,301 6% (1351) 7,379
H&M 21,806 (10%) 145 361 (80%) 3706 9,335
Advantage Zara Zara Zara Zara Zara H&M Zara
 Zara has a higher focus on reinvesting in itself as
evident by the high negative NWC
 Zara has a much higher profit margin and operating
income compared to H&M
 Zara is experiencing revenue growth despite the
pandemic, which could be attributed to its increased
online channels Revenue Growth
6%
Operating Income
Growth
Profit Growth
5%
-10%
-80%
3%
-90%
Zara H&M

4. ROIC Tree (in Millions USD)
Zara
H&M
ROI
Profit
Revenue
Price
Volume
Investment
Var. Cost
Per Unit
Variable
Cost
Fixed Cost Capacity
Cost
2019 29,924.50 24,307.70
2020 31,373.10 21,806.50
Average
Price
$40.87 $29.82
2019 732.19 594.76
2020 767.63 533.56
2019 24,938.70 22,496.20
2020 26,971.40 21,445.20
2019 3,946.40 1,403.90
2020 4,045 144.90
2019 13,496.60 11,519.40
2020 15,293.30 10,901.90
2019 11,442.10 10,976.80
2020 11,678.10 10,543.30
2019 $18.43 $19.37
2020 $19.92 $20.43
2019 1.84 1.28
2020 1.53 0.24
2019 2,146 1,099.50
2020 2,636 611.4

5. ROIC Analysis
Zara continued commitment to investing in its stores have helped it to
survive the Pandemic better.
 Zara invested 22.83%, whilst H&M reduced investment spending by -44.39%
 Zara saw profits grow by 2.5% whereas H&M saw profits decline by -89.68%
Overall, both companies have generally seen in the past positive ROI for its
continued investment into its products. However, Zara should evaluate
whether it is experiencing diminishing returns for its investments and
explore other avenues.
The biggest difference between Zara and H&M is the average price of their
products. Zara’s higher average price of around $10 allows it to absorb
more costs than H&M and not as sensitive to volume changes.
 H&M losing 10.29% of its sales volume resulted in the company losing almost all
of its profit.
 Zara is comfortable raising its variable cost per item if it means the consumer
receives a better product or shopping experience
Zara also has a lower Var. Cost per unit than H&M.
Source: Inditex 2016, Annual Report

6. Risks/ Assumptions and Recommendation
Risks and Assumptions
Average price of product was taken from Fashion Network and converted from Euro to USD
Volume was taken from Revenue/ Average Price | Var. Cost Per Unit was taken from Variable Cost/ Volume
Investment was taken from “Cash from Investing” from cashflow statement of both companies
Zara has a significantly high negative NWC which can be a problem in the future and at risk for bankruptcy. Zara should consider allocating
more of its net income to increase future NWC budget to reduce long term risk for Zara.
Recommendations
Zara should continue its increased investment into its technology offering as it has allowed it become a more dynamic company able to
weather unanticipated supply and demand shocks. This could be in the form of further inventory analysis and even demand prediction/ AI
recommendation for consumers.
Zara should push its ESG labeling as consumers become more ESG conscious and educated. This ESG labeling will also allow it to charge
at a reasonably higher price point, combatting the notion that fast fashion is bad for the environment or employs underpaid labor in
developing countries.
 Zara should continue to invest in its internal design team to be able to respond to change in fashion trends faster.