Zara case analysis 19B15M088For use on.docx

Zara case analysis
1
9B15M088
For use only in the course Competitive Strategy at University of
New Brunswick Saint John taught by Dan Doiron from
September 01, 2015 to December 31, 2015.
Use outside these parameters is a copyright violation.
WHAT BUSINESS IS ZARA IN?1
Daniel J. Doiron wrote this case solely to provide material for
class discussion. The author does not intend to illustrate either
effective or ineffective handling of a managerial situation. The
author may have disguised certain names and other identifying
information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized
or otherwise reproduced in any form or by any means without

the permission of the copyright holder. Reproduction of this
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rights organization. To order copies or request permission to
reproduce materials, contact Ivey Publishing, Ivey Business
School, Western University, London, Ontario, Canada, N6G
0N1; (t) 519.661.3208; (e) [email protected];
www.iveycases.com.
Copyright © 2015, Richard Ivey School of Business Foundation
Version: 2015-09-24
What would 2016 have in store for Inditex and its flagship
brand Zara with its “fast fashion” business model? It had taken
years for new competitors to build business models that could
effectively compete with Zara’s approach.2
Many would recall the early deference many had towards Zara
and its counter-intuitive business model. Why would anyone
invest in a fashion manufacturer and retailer who produced their
clothes in the high- cost labour market of Spain (versus Asia),
spent very little on advertising, ostensibly overspent on
positioning high-end stores in chic retail districts across
Europe, carried substantially less inventory than competitors,
manufactured clothes that were, arguably, of a lesser quality
and finally, charged 15 per cent less at the cash register. By all
accounts, this approach was viewed as a formula for disaster in
the highly competitive retail fashion industry.3
At the time, most observers were just not forward thinking
enough to see the value in Zara’s approach. And, over time,
Inditex took great pride in proving them wrong. By 2014, Zara
was, by far, the number one fashion retailer in the world by
many measures.4 It really was its unique business model that
enabled this astounding success.

Inditex, however, could not dwell on past successes, as the
future was full of significant challenges associated with the
many new upstart and copycat competitors who had infiltrated
the market. These new firms would, more than likely, also enjoy
a good degree of success. Disruptive innovations, such as Zara’s
business model, inevitably were copied. Examples of how
industries evolved around disruptive business models included
Southwest Airlines leading the discount airline industry and
Wal-Mart dominating the discount department store industry.
Perhaps it was time for Inditex to reinvent the industry business
model, once again.
25
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THE EARLY YEARS
In 1963, when Amancio Ortega Gaona started his small
dressmaking firm in La Coruña, Spain, at the tender age of 16,5
he never dreamed it would lead to the world’s largest retail
fashion empire. Nor did he aspire to become the fourth richest
person in the world.6 What he did come to understand over the
next twelve years was that textile manufacturing was a very
risky, often frustrating, business when you were one step
removed from your customers. This was especially true in the
fast changing women’s fashion segment of the market. So, in
1975, he opened up his first Zara store in the centre of La
Coruña, Spain, a town of 246,000 people and was driven by the
overriding principle that the key to success as a fashion retailer
was to link fashion design to manufacturing and distribution in

a way that allowed for rapid response to the finicky, and often
changing, needs of the customers. This was the sole foundation
for the creation and growth of Zara. It still is. Early success
spurred the opening of nine new stores in Spain’s largest cities
over the next eight years.7
Ortega also learned that to be successful he would have to take
advantage of the intelligence and trust the judgment of his
employees throughout his company.8 In other words, a top
down decision-making model, as it related to new product
design and distribution, would be counterproductive to his
overriding notion of reacting quickly to his customers’ needs.
Thus, he put critical processes of product design, manufacturing
and distribution decisions in the hands of his employees across
the company.
It was the combined approach of manufacturing new clothes as
quickly as possible in response to customers’ needs and desires
while adopting a decentralized decision-making process that
allowed Zara to thrive and grow in the ultracompetitive retail
fashion industry. Over the next 17 years following the launch of
Zara in 1975, Ortega opened more than 1,000 new stores,
culminating in an initial public offering on May 23, 2001. The
funds raised through this offering would provide the fuel for a
tremendous evolution that would see Inditex grow to operate
6,683 stores in 88 markets across eight brands, with fiscal 2014
revenue of €18.1 billion9 and industry leading profit margins
(see Exhibit 1).10
THE GLOBAL FASHION RETAIL INDUSTRY

The global retail apparel industry had revenues of US$1.323
trillion in 2013, employing approximately seventy-five million
people. The industry was expected to grow at a pace of 5.1 per
cent annually to reach an estimated US$1.685 trillion by the end
of 2018.11
The industry was influenced by a number of factors, including
changing demographics and urbanization of the global
population. A full 64.4 per cent of the Asian population would
be urbanized by 2050, up from 45 per cent in 2011. Likewise,
Europe would see 82.2 per cent of its population living in urban
centres, 88.6 per cent in North America.12 According to the
McKinsey & Company report on succeeding in the future
fashion market, “by 2020, a quarter of global wealth will be
concentrated in just 60 mega- cities, some of which will be
larger than countries.”13 With the global population predicted
to grow to over nine billion people by 2050, from the 2014 level
of seven billion,14 it would seem the industry was on a
trajectory for massive growth. This, tied to a growing middle
class in developing nations, like China and India, could lead to
a substantive increase in spending on fashion clothing. In 2010,
the Brookings Institute predicted that by 2021 “on present
trends, there could be more than two billion Asians in middle
class households, [with] China alone [accounting for] over 670
million middle class consumers, compared with only perhaps
150 million today.”15 Middle class spending was projected to
rise from US$21 trillion today to US$51 trillion in 2030.16 This
would surely fuel the retail fashion apparel industry for years to
come (see Exhibits 2 and 3).
Page 3 9B15M088
The women’s apparel market was predicted to grow by 4.8 per
cent annually from 2010 to 2025, outpacing the previous growth

of 3.3 per cent for the six years prior.17 Lu et al. stated that
“some 80 per cent of top growth cities for total apparel sales by
2025 will be in emerging markets.” They went on to say that
these cities would enlarge the world apparel markets by an
additional US$100 billion over this time period.18 Emerging
markets at that time would represent 55 per cent of mid-market
women’s apparel sales (see Exhibit 4).
NDP Group suggested that in 2013 the U.S. women’s apparel
business alone reached US$116.4 billion, a 4 per cent increase
over 2012. Online purchases were on a fast growth trajectory as
well, representing 15 per cent of women’s apparel sales in the
United States, up an astounding 17 per cent over 2012.19
Trends and challenges in this market were many. Responsible
sourcing, including greater visibility across the entire supply
chain, topped the list. Tragic events, like the blaze at the
Tazreen garment factory in Bangladesh in November of 2012,20
had heightened the need for textile manufacturers and retailers
to strengthen their supply chains to ensure fair trade, safe work
environments, living wages, social commitment and responsible
resource development.
Industry growth opportunities, specifically in developed
countries, included the plus-size categories. This was a US$17.5
billion market in the 12 months ending April 2014 in the United
States, up 5 per cent over the previous year,21 and was a direct
reflection of the obesity epidemic under way in the developed
world where seven of 10 Americans were now overweight.22
The apparel industry moved hand-in-hand with fluctuations in

the global economy, with the demoralizing recession of 2009 –
2010 having had a significant negative impact on the industry.
According to a study by comScore in 2011, there was a
noteworthy decrease in consumer’s willingness to buy the brand
they want most, from 54 per cent in 2008 to 45 per cent in
2010.23 Price point clearly became a defining factor during
economic downturns, with branded retailers such as Gap and
H&M (Hennes and Mauritz) suffering the most.
Other factors impacting the industry included global transport
costs, linked to the price of oil. It would seem, with oil prices
near or below US$60 per barrel by mid-2015, these costs were
likely on a downward swing. Technological innovation in textile
manufacturing was having an impact on important metrics
within the industry beyond cost reduction. Mass customization,
small batch manufacturing and time to market were becoming
key risk management factors. These drove a deeper focus across
the entire supply chain. New fabric innovation was also having
a strong positive impact on the growth of the apparel industry,
specifically in the sportswear market.
Commodity prices could significantly impact the industry cost
structure, and specifically cotton, which represented
approximately 36 per cent of the textile fibres market.24 In
2014, global cotton prices tumbled by 20 cents per pound to an
average price of US$1 per pound on lower demand,25 with total
global production at 116.7 million bales, down 5 per cent from
the previous year.26
Additionally, the rapidly growing aging population of
consumers over 60, referred to as a “demographic earthquake”
in developed countries would become one of the fastest growing
segments for consideration along with their expenditures on
clothing.27
Page 4 9B15M088

CUSTOMER BEHAVIOURS
Perhaps the most significant factors driving change to the retail
apparel industry were associated with shifting customer
behaviours. Customer buying behaviours and patterns could
directly influence a firm’s ability to succeed and in many cases,
these behaviours would determine a firm’s approach, and indeed
the resulting industry business model. The urban retail fashion
market, where Zara played,28 was inextricably tied to two key
customer behaviours:
Hard to Predict and Influence
Fashion apparel customers were a fickle group that could be
extremely hard to predict and influence. They could be easily
swayed by unpredictable factors, such as celebrity fashion,
friends’ fashion choices or the need to differentiate themselves
in a crowded urban environment. These variables made it
extremely challenging to predict the next fashion hit and
contributed to the single largest risk in retail apparel: a “fashion
miss.” In turn, fashion misses resulted in discounts and
markdowns in order to make room for new inventory. For
example, in 2014, H&M had 24.2 per cent of their entire online
offering on discount, with close to 10 per cent discounted by 50
per cent or more.29 Studies have shown that specialty apparel
retailers could end up marking down from 30 to 40 per cent of
their inventory by up to 60 per cent on average.30 To mitigate

this risk, many apparel retailers spent an exorbitant amount of
money on advertising, with a focus on building brand awareness
and loyalty. And it worked — to a degree. For example, Gap
spent US$637 million on advertising in 2013 on sales of
US$16.148 billion; representing
3.9 per cent of sales or 10.1 per cent of gross profit.31 In the
highly competitive fashion industry this could be a defining
driver of profitability.
Tastes Change Often
Fashion cycles could also be notoriously short, especially in the
urban womenswear segment. Trends came and went, which
drove fashion retailers to introduce new fashions more often and
avoid replenishing old items where old stock might necessitate
potential discount. At H&M, upwards of 23.1 per cent of its
current range of online offerings had been replenished;32 this
impacted both their inventory turnover ratios and ability to sell
items at or near full price. Introducing new fashions frequently
could have the positive desired effect of enticing customers
back to the store more often. An average customer would visit
the typical fashion store(s) four times per year, while some
fashion retailers, such as Zara, enticed their customers back as
many as 17 times per year with fresh fashion choices appearing
more often.33 A fashion retailer’s ability to react quickly to
shifting fashion preferences could be a defining success factor.
INDITEX AND ZARA — A UNIQUE APPROACH
Inditex was the public holding company for Zara and seven
other retail brands, including Bershka, Massimo Dutti, Pull &
Bear and Stradivarius. After 23 years of diversifying into these
new categories, Zara still represented the vast majority of the
sales (and profitability34) of Inditex. In 2014, Zara represented

64 per cent of Inditex’s revenue across 2,085 stores35 (see
Exhibits 5 and 6) and a full 66.4 per cent of its EBIT.36
Inditex had been on a tear for the last decade. It had taken its
sales from €5.67 billion in 200437 to €18.1 billion in fiscal
2014.38 This had been accomplished through a focused
geographic expansion effort that had
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seen the company open, on average, 1.22 stores per day across
88 countries.39 Its recent focus for geographic growth was
primarily Asia, where 450 stores in China alone where opened
by the end of 2014.40
The company’s approach was very different from its traditional
competitors. For instance, it was highly vertically integrated,
and unlike all its competitors, it manufactured the majority of
its own clothes. In fact, it manufactured about half of its own
products in what most would consider, the high cost labour
markets of Spain, Portugal or other nearby countries, relying
less on Third World outsourced manufacturing.41 Its
competitors, by contrast, outsourced the vast majority of their
production.
Unique Capabilities
Inditex had built a number of defining competencies, which its
competitors did not possess. The first was associated with time
to market. The company could move from a sketch of an idea to

a product ready for shipment in as little as two weeks.42 This
was precisely why Zara had been dubbed as the leading
champion of the relatively new “fast fashion” industry.
However, Pablo Isla, chief executive officer (CEO) and
chairman of Inditex, did not endorse this term. “I don’t identify
with the concept of fast fashion,” he said. “We are not about
selling a million striped T-shirts as fast as possible.” He went
on to say that the success was “based not on speed but on
accuracy, on understanding exactly what customers want, week
by week, and store by store.”43
This highlights a key capability at Inditex — its ability to
identify customer needs and desires and translate these critical
inputs back to the design teams in La Coruña. Zara achieved
this through employee groups dubbed “commercials.” There
were three essential levels of commercials that worked closely
with one another at Zara. The design team commercials, which
typically consisted of four employees — two product managers
and two designers were responsible for designs in a specific
category, such as women’s sport clothing. They were given all
the decision authority required to succeed, including
independence in setting designs, ordering fabric, manufacturing
quantities and pricing. These teams decided what Zara would
make and sell. In fact, they introduced an astounding 18,000
new individual designs for Zara stores each year. These teams
were supported by regional commercials responsible for liaising
with store managers (and customers) across certain geographic
footprints. Their overriding responsibility was to identify the
clothing styles that would sell in their markets. They did this
through observing what people were wearing (and importantly
wanted to wear), along with the insights (and orders) coming
from the store managers.44
Store managers were the third level of commercials. Their
primary responsibility was to select the inventory they believed
would sell in their stores, accomplished through talking with

and observing customers. They had to also be up to the minute
and intimate with their store inventory levels and sales. They
ordered new inventory within each category in the store twice a
week. For many years Zara chose to not implement a store-wide
inventory management system, requiring store managers to
count inventory by hand. This, among other things, forced the
store managers onto the floor and, by default, to interact with
customers. The insights gained from this interaction helped
managers purchase inventory for their store that was more
relevant and compelling for their customers. However, store
managers would not always receive the items they ordered. At
times, the regional commercials would place new items in stores
to “see how they would sell.” They usually made these new
clothes in small batches to avoid any significant markdowns in
the event they were not popular.45 This approach drove fashion
failure rates for Zara’s new products that were as low as 1 per
cent, which was considerably lower than the industry average of
10 per cent.46
Page 6 9B15M088
Commercials were encouraged to remain vigilant at introducing
new items weekly and not restocking old items, giving Zara a
replenishment rate of only 2.8 per cent.47 This led to two
unique customer behaviours. Firstly, Zara customers would visit
stores often (17 times per year48) as there were always new
fashions to be had. Secondly, when customers found something
they liked, they were motivated to avoid deferring their decision
to purchase, as Zara had created a sense of scarcity; it simply
would not be there next time. These two behaviours drove Zara
to an industry-leading inventory turnover ratio of 29.58 in
2013.49

These three levels of commercial teams were the heart of Zara’s
success, and they ultimately represented how Zara delivered
what customers wanted and when they wanted it, as CEO Pablo
Isla had implied.
A core capability at Zara related to its ability to efficiently
manufacture clothes in small batches. Not only could it move a
new item from concept to market very quickly, it was able to
accomplish this in small batches permitting it to test the market
with very little risk.50 The challenges of having achieved this
level of mass customization should not to be underestimated.
Inditex invested heavily in automation within its manufacturing
plants, tied to effective management of its entire supply chain,
with a focus on breaking down any bottlenecks in the
manufacturing process. For instance, it operated a local dye and
finishing plant close to its factories in La Coruña and did most
of its own pre-cutting prior to delivering product to its sewing
subcontractors. This was not without cost implications; its
clothes typically cost 20 per cent more to manufacture than its
competitors, who manufactured in vast quantities in third world
countries.51
Distribution was centrally managed through a large distribution
centre located in La Coruña. All clothes sold by Zara, even
those manufactured in Portugal or Morocco (or China for that
matter), were sent to Spain for distribution. Bloomberg
Business reported:
Beyond the distribution center are the 11 Zara-owned factories.
Every shirt, sweater and dress made in them is sent directly to
the distribution centre via an automated underground monorail.
There are 124 miles of track. Across the surrounding Galicia
region are subcontractors, some of whom have worked for the

company since Amancio Ortega founded it in 1975.”52
This enabled Zara to ship new inventory to every store in its
network at least twice a week. Orders typically arrived two days
after the store placed their request.
Additionally, Zara looked to manage its production costs by
focusing on fabricating apparel that was designed to be worn
only a small number of times, driving lower cost of materials.
This did not seem to be an issue with its customers who enjoyed
changing their fashions often.
Marketing
The foundation of Zara’s marketing strategy had always been its
stores. New stores were opened at a dizzying pace; 1.22 a day
over the past decade.53 The company took store location,
design and layout very seriously. Window front designs were
viewed as its pre-eminent form of advertising. In fact, Zara had
a “full team of window front designers who constantly travel
around to international locations to understand the culture and
customers of each store. They then create the window design
that is unique to the store, and all the props and details are then
shipped to each store to be put up under strict guidelines.”54
Zara traditionally had spent lavishly on its store locations. In
fact, it completely revamped each store every four to five years,
with minor tweaks in-between. Its stores were characterized by
its high-end look and feel, along with relative low levels of
inventory. This was somewhat anti-intuitive in relation to its
competitors who liked to fill their stores with inventory in an
attempt to optimize the revenue of their retail space
30

9B15M088
investment. On the contrary, Zara had always been focused on
making the shopping experience as pleasant as possible for its
customers, enticing them to come back more often.
There were 2,085 Zara stores in 88 markets at the end of 2014.
These stores were primarily situated in the high-end retail
sectors of major urban centres. Inditex recently announced the
purchase of a 4,400 square metre commercial property in the
heart of New York’s SoHo district for an astonishing US$280
million. They also announced plans to open up a 2,800 square
metre store in the World Trade Center.
Zara spent very little on advertising; only advertising (some)
new store openings and twice yearly sales events. It spent
purportedly 0.3 per cent of its revenue on advertising, versus
the industry standard of between 3 per cent and 5 per cent.
There was no advertising line item in its financial reports as
this category had not amounted to a material expenditure.
Marketing Magazine’s Assistant Editor Belle Kwan said it best:
No four-page spread in a glossy publication, no gaudy red
posters with tacky WordArt bubbles screaming discounts, no
half-naked B-grade celebrity with perfect hair prancing across a
billboard.
This is a story about the brand that made it sans advertising,
sans endorsement and sans almost all forms of mainstream
marketing. And when we say “made it,” we mean a loyal global

following across 78 countries, and a name that draws squeals of
excitement from consumers and nods of respect from industry
experts.55
Zara typically priced its clothes an average of 15 per cent lower
than its competitors.56 It had been Amancio Ortega’s goal from
his humble beginnings in La Coruña in 1975 to provide good
quality fashion clothing at affordable prices.57 The difference
was Zara did not look like any discount fashion store in the
marketplace. As Derek Thompson of The Atlantic put it, Zara
liked to “cozy up to the most famous brands in the world to sing
their luxury ambitions even as they profit off a brilliant, cheap,
short supply chain that delivers similar fashion at a much lower
price.”58 Zara enjoyed placing its stores close to luxury brands,
such as Prada and Gucci, that, of course, tried to keep as far
from Zara as possible.
COMPETING INDUSTRY BUSINESS MODEL
Traditionally, industry titans, such as Gap introduced the
majority of their new clothing launches twice a year during the
spring and fall fashion seasons. These introductions were
preceded by up to nine months of centralized planning,
production and marketing. New line items were revealed to the
market on fashion runways and vetted through a team of elite
fashion designers and corporate executives. Small runs were
made at Third World manufacturers, shipped to centralized
facilities, vetted once more, changed and finalized. At this
point, large orders were placed with these manufacturers for
production at ultra-low per unit cost. Orders were shipped and
stored in regional warehouse facilities relatively close to retail
outlets. Retail point-of-sale strategies were drawn up and store
layouts designed. Inventory levels, determined centrally, were
shipped to stores. Subsequently, the advertising and selling
began in full force to push product offerings to prospective

customers.59
This approach carried the risk of fashion misses, which
traditionally, were more than offset by the super low costs of
manufacturing offshore. This led to industry-standard gross
profit margins of approximately
35 per cent in 2014.60 Growth was accomplished through both
geographic expansion and brand expansion. For example, Gap
grew from 1,640 stores in 200461 to a peak of 3,700 in 2014.62
They also grew across multiple brands representing different
market niches, including Gap, Banana Republic, Old
33
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Navy, Piperlime (an online boutique), Athletica and Intermix.63
It was not uncommon to have multiple Gap-branded stores in
one mall or shopping district.
INNOVATIVE NEW FASHION COMPETITORS
As with any successful new business model that changed an
industry, inevitably, a host of new competitors emerged, who
presented either variations of the model or totally new
approaches. Zara was experiencing this first hand with the
emergence of competitors such as Uniqlo and Topshop.

Uniqlo was a Japanese firm that had been labelled a technology
company, not a fashion company, with a sole focus on
revolutionary fashion changes through technology innovation
around the products, not the fashion. Kensuke Suwa, Uniqlo’s
director of global marketing, explained its approach:
Between fashion and sports is a new area. There are a lot of
fashion trends going on, but there is no true innovation that
impacts your actual life. How to make your life better could be
in the middle between fashion and sports. For example, athletes
wear technically sophisticated uniforms; some of the essence of
that could result in better clothes that would change clothing
itself, instead of just following fashion trends.64
This approach helped Uniqlo quickly grow to 1,574 stores65
with sales forecast of US$13.7 billion in their 2014 fiscal year
(ending August 31, 2015).66 For 2014 Uniqlo was the largest
apparel chain in Asia, with an eye to becoming number one in
the world and a near-term goal of expanding in the United
States.
Topshop, a U.K.-based clothing retailer, had been trying to beat
Zara at its own game and could be aptly defined as “faster
fashion with a bite.” It boasted more than 300 new products per
week, versus Zara’s
200.67 Its market positioning was slightly different than Zara,
with pricier clothes that were arguably higher in quality. “With
more than 300 stores across the U.K., over 250,000 shoppers
visiting the frankly
jaw-dropping Oxford Circus flagship every week, and more than
140 stores in international territories, it’s no exaggeration to
say the Topshop is a shopping institution.”68 It had a presence
in 31 countries,69 across Europe, Asia and Latin America, with
an eye to expansion in the U.S. It had a thriving online business
that attracted 1.9 million users per week.70 Topshop was a great
example of a firm that had taken Zara’s business model,

modified it and created a unique value proposition in the
market.
NEXT STEPS
The competitive landscape was changing. The fast fashion
world Zara had invented and dominated was changing. Perhaps
it was time to reposition how Zara and the other Inditex brands
competed in this changing world. Zara had changed the retail
fashion industry once, could it do it again?
Page 9 9B15M088
EXHIBIT 1: INDITEX 2012 / 2014 FINANCIAL RESULTS
INCOME STATEMENT
As of:
(In Millions of U.S. dollars)
January 31, 2012
January 31, 2013
January 31, 2014
January 31, 2015

Revenues
15,505
17,925
18,800
20,365
TOTAL REVENUES
15,505
17,925
18,800
20,365
Less Cost Of Goods Sold
6,309
7,213
7,646
8,484
GROSS PROFIT
9,196
10,712
11,154
11,881
Selling General & Admin Expenses, Total
5,530
6,300
6,743
7,259
Depreciation & Amortization, Total
827
895
954
1,016
Other Operating Expenses
4
13

(2)
9
OTHER OPERATING EXPENSES, TOTAL
6,361
7,208
7,695
8,284
OPERATING INCOME
2,835
3,504
3,459
3,597
Interest Expense
(4)
(12)
(13)
(11)
Interest And Investment Income
34
27
25
29
NET INTEREST EXPENSE
30
15
12
18
Income (Loss) On Equity Investments
0
0
0
36
Currency Exchange Gains (Loss)
23
1
(33)

(2)
Other Non-Operating Income (Expenses)
(12)
0
0
0
EBT, EXCLUDING UNUSUAL ITEMS
2,876
3,520
3,438
3,649
Other Unusual Items, Total
0
0
(8)
(2)
EBT, INCLUDING UNUSUAL ITEMS
2,876
3,520
3,430
3,647
Income Tax Expense
690
859
754
826
Minority Interest In Earnings
(14)
(7)
(5)
(11)
Earnings From Continuing Operations
2,172
2,654
2,671
2,810

NET INCOME
2,172
2,654
2,671
2,810
Page 10 9B15M088
EXHIBIT 1 (CONTINUED) BALANCE SHEET
As of:
ASSETS
January 31, 2012
January 31, 2013
January 31, 2014
January 31, 2015
Cash And Equivalents
3,898
4,321
4,325

4,270
Short-Term Investments
0
293
239
250
TOTAL CASH AND SHORT TERM INVESTMENTS
3,898
4,614
4,564
4,520
Accounts Receivable
243
334
346
403
Other Receivables
374
685
678
642
TOTAL RECEIVABLES
617
1,019
1,024
1,045
Inventory
1,436
1,778
1,885
2,091
Other Current Assets
163
113
132
333

TOTAL CURRENT ASSETS
6,114
7,524
7,605
7,989
Gross Property Plant And Equipment
8,651
9,714
10,559
12,074
Accumulated Depreciation
(4,083)
(4,472)
(4,783)
(5,282)
NET PROPERTY PLANT AND EQUIPMENT
4,568
5,242
5,776
6,792
Goodwill
245
233
229
223
Long-Term Investments
11
5
23
170
Deferred Tax Assets, Long Term
401
430
596
723
Other Intangibles

691
689
722
769
Other Long-Term Assets
293
370
515
623
TOTAL ASSETS
12,323
14,493
15,466
17,289
LIABILITIES & EQUITY
Accounts Payable
2,067
2,518
2,665
2,791
Accrued Expenses
598
901
839
825
Current Portion Of Long-Term Debt/Capital Lease
1

3
3
9
Current Portion Of Capital Lease Obligations
0
0
0
4
Current Income Taxes Payable
229
186
100
169
Other Current Liabilities, Total
144
310
284
417
TOTAL CURRENT LIABILITIES
3,039
3,918
3,891
4,215
Long-Term Debt
1
4
2
0
Capital Leases
1
1
1
3
Minority Interest
46
40

36
43
Pension & Other Post-Retirement Benefits
43
25
36
69
Deferred Tax Liability Non-Current
205
216
244
271
Other Non-Current Liabilities
651
793
859
960
TOTAL LIABILITIES
3,986
4,997
5,069
5,561
Common Stock
105
105
105
105
Additional Paid In Capital
23
23
23
23
Retained Earnings
8,161
9,489
10,586

11,577
Treasury Stock
0
0
(52)
(81)
Comprehensive Income And Other
48
(121)
(265)
104
TOTAL EQUITY
8,337
9,496
10,397
11,728
TOTAL LIABILITIES AND EQUITY
12,323
14,493
15,466
17,289
Page 11 9B15M088
EXHIBIT 1 (CONTINUED) STATEMENT OF CASH FLOWS
As of:

January 31, 2012
January 31, 2013
January 31, 2014
January 31, 2015
NET INCOME
2,172
2,654
2,671
2,810
Depreciation & Amortization
657
746
774
817
Amortization Of Goodwill And Intangible Assets
105
99
102
116
DEPRECIATION & AMORTIZATION, TOTAL
762
845
876
933
Amortization Of Deferred Charges
0
12
18

16
(Gain) Loss From Sale Of Asset
0
0
41
46
Asset Writedown & Restructuring Costs
45
89
13
8
Other Operating Activities
(59)
39
(318)
(33)
(Income) Loss On Equity Investments
0
0
0
(35)
Change In Accounts Receivable
(88)
(319)
28
(74)
Change In Inventories
(62)
(414)
(157)
(269)
Change In Accounts Payable
(74)
582
(5)
231

CASH FROM OPERATIONS
2,696
3,489
3,167
3,633
Capital Expenditure
(1,191)
(1,313)
(1,230)
(1,795)
Cash Acquisitions
(116)
0
12
0
Sale (Purchase) Of Intangible Assets
(134)
(135)
(147)
(184)
Investments In Marketable & Equity Securities
(14)
(287)
34
34
CASH FROM INVESTING
(1,456)
(1,735)
(1,331)
(1,944)
Short-Term Debt Issued
0
1
0
7
Long-Term Debt Issued

0
4
0
2
TOTAL DEBT ISSUED
0
5
0
9
Short Term Debt Repaid
(16)
0
(1)
0
Long Term Debt Repaid
(26)
0
0
0
TOTAL DEBT REPAID
(41)
5
(1)
9
Repurchase Of Common Stock
0
0
(51)
(30)
Common Dividends Paid
(961)
(1,098)
(1,304)
(1,660)
TOTAL DIVIDEND PAID
(961)

(1,098)
(1,355)
(1,689)
Special Dividend Paid
(137)
(137)
(206)
0
Other Financing Activities
(7)
(9)
(8)
(4)
CASH FROM FINANCING
(1,146)
(1,239)
(1,570)
(1,684)
Foreign Exchange Rate Adjustments
16
(20)
(52)
88
NET CHANGE IN CASH
110
495
214
92
Source: Bloomberg L.P., “Industria De Diseno Textil
(ITX:ContinuousMarket (SIBE),” Bloomberg Business, August
31, 2015,
www.bloomberg.com/research/stocks/financials/financials.asp?t
icker=ITX:SM&dataset=cashFlow&period=A&currency=US
%20Dollar, accessed August 31, 2015.

9B15M088
EXHIBIT 2: THE GROWING EMERGING ECONOMY AND
MIDDLE CLASS HOUSEHOLD SPEND
Copyright: @ McKinsey & Company.
Source: Richard Dobbs, Jaana Remes, James Manyika, Charles
Roxburgh, Sven Smit and Fabian Schaer, Urban World:Cities
and the Rise of the Consuming Class,
McKinsey & Company, June 2012,
https://www.mckinsey.com/~/media/McKinsey/dotcom/Insights
%20and%20pubs/MGI/Research/Urbanization/Urban%20worl
d%20-
%20Rise%20of%20the%20consuming%20class/MGI_Urban_wor
ld_Rise_of_the_consuming_class_Full_report.ashx, accessed
February 18, 2015.
EXHIBIT 3: INDITEX GROWTH DATA
Copyright: @ Inditex.
Source: Inditex, Inditex Annual Report 2014, Inditex, June
2015,
www.inditex.com/documents/10279/18789/Inditex_Annual_Rep
ort_2014_web.pdf/a8323597-3932-4357-9f36- 6458f55ac099,
accessed July 14, 2015.

9B15M088
EXHIBIT 4: GLOBAL WOMEN’S APPAREL MARKET
GROWTH
Copyright: @ McKinsey & Company.
Source: McKinsey & Company, Unleashing Fashion Growth
City by City, McKinsey & Company September 2014,
www.mckinsey.com/search.aspx?q=unleashing+fashion+growth
+city+by+city, accessed January 22, 2015.
EXHIBIT 5: INDITEX BRANDS AT A GLANCE
Net Sales (millions of €)
Number of Stores
Net Openings in 2014
Markets Served
Online Markets
Zara
11,594
2,085
94
88
26

Pull & Bear
1,284
898
24
65
21
Massimo Dutti
1,413
706
41
68
24
Bershka
1,664
1,006
52
68
17
Stradivarius
1,130
910
52
59
17
Oysho
416
575
26
40
15
Zara Home
548
437
43
48
23

Uterque
68
66
-10
12
14
Source: Inditex 2013 Annual Report, Inditex, June 2014,
www.inditex.com/documents/10279/18789/Inditex_Group_
Annual_Report_2013.pdf/88b623b8-b6b0-4d38-b45e-
45822932ff72, accessed February 2, 2015.
EXHIBIT 6: ZARA INDICATORS
Source: Inditex, Inditex 2013 Annual Report, Inditex, June
2014,
Page 14 9B15M088
ENDNOTES
1 This case has been written on the basis of published sources
only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of Inditex or any
of its employees.

2 Most would agree that the term fast fashion represented only a
part of Zara’s core business model, not the entire foundation of
their success.
3 Devangshu Dutta, “Retail @ the Speed of
Fashion,” Third Eyesight, 2002,
http://thirdeyesight.in/articles/ImagesFashion_Zara_Part_I.pdf,
p. 3, accessed August 31, 2015.
4 Graham Ruddick, “How Zara Became the World’s
Biggest Fashion Retailer,” The Telegraph, October 20
2014,
www.telegraph.co.uk/finance/newsbysector/retailandconsumer/1
1172562/How-Inditex-became-the-worlds-biggest-fashion-
retailer.html, accessed August 31, 2015.
5 Vivienne Walt, “Meet Amancio Ortega: The Third-Richest
Man in the World,” Fortune, January 8, 2003,
http://fortune.com/2013/01/08/meet-amancio-ortega-the-third-
richest-man-in-the-world/, accessed January 20, 2015. 6 Forbes
Media LLC, “The World’s Billionaires,” Forbes, January 20,
2015, www.forbes.com/profile/amancio-ortega/, accessed
January 20, 2015.
7 Inditex, “Our History,”
www.inditex.com/our_group/our_history, accessed January 20,
2015.
8 Andrew Mcfee, Vincent Dessain and Anders Sjoman, “Zara:
IT for Fast Fashion,” Harvard Business Publishing, Boston, MA,
September 6, 2007, p. 3.
9 €1 = US$1.09843 as of July 31, 2015.
10 Inditex, Inditex Annual Report 2014,
ort_2014_web.pdf/ a8323597-3932-4357-9f36-6458f55ac099,
accessed July 14, 2015.
11 MarketLine, Apparel Retail: Global Industry Guide,
September 5, 2014, www.researchmoz.us/apparel-retail-global-

industry-guide-report.html, accessed January 22, 2015.
12 Krones AG, Annual Report for Krones AG 2013, p. 57,
www.krones.com/en/investor_relations/krones-ag-annual-report-
2013.php, accessed January 21, 2015.
13 Carsten Keller, Karl-Hendrik Magnus, Saskia Hedrich,
Patrick Nava and Thomas Tochtermann, “Succeeding in
Tomorrow’s Global Fashion Market,” McKinsey & Company,
September 2014,
http://mckinseyonmarketingandsales.com/succeeding-in-
tomorrows-global-fashion-market, accessed January 22, 2015.
14 Deere & Company, ”John Deere Committed to Those Linked
to the Land — Strategy Overview,” December 2014, p. 19,
http://investor.deere.com/files/doc_presentations/Strategy-
Presentation-Final-Web_v001_g81y92.pdf, accessed January 20,
2014.
15 Homi Kharas and Geoffrey Gertz, “The New Global Middle
Class: A Cross-Over from West to East,” Wolfensohn Centre for
Development at Brookings, 2010, p. 2; Draft version of Chapter
2 in China’s Emerging Middle Class: Beyond
EconomicTransformation, edited by Cheng Li, Brookings
Institution Press, Washington, DC, 2010,
www.brookings.edu/~/media/research/files/papers/2010/3/china
%20middle%20class%20kharas/03_china_middle_class_kh
aras.pdf, accessed January 20, 2015.
16 Lily Kuo, “The World’s Middle Class Will Number 5 Billion
by 2030,” Quartz, January 14, 2013, http://qz.com/43411/the-
worlds-middle-class-will-number-5-billion-by-2030/, accessed
January 20, 2015.
17 Nathalie Remy, Jennifer Schmidt, Charlotte Werner and
Maggie Lu, Unleashing Fashion Growth City by City, McKinsey
& Company, October 2013, p.2,
www.mckinsey.com/search.aspx?q=unleashing+fashion+growth
+city+by+city, accessed
January 20, 2015.
18 Nathalie Remy, Jennifer Schmidt, Charlotte Werner and
Maggie Lu, “Fashion Sense: Apparel Companies Should Look to

Cities for Growth,” Forbes, April 23, 2013,
www.forbes.com/sites/mckinsey/2013/04/23/fashion-sense-
apparel-companies- should-look-to-cities-for-growth/, accessed
January 20, 2015.
19 The NDP Group, “The NDP Group Reports U.S. Women’s
Apparel Market Grew 4 Per cent in 2013,” NPD Group, April
16, 2014, www.npd.com/wps/portal/npd/us/news/press-
releases/the-npd-group-reports-us-womens-apparel-market-
grew-4-
percent-in-2013/, accessed January 20, 2015.
20 The Economist, “A ‘Distinctly South Asian’
Tragedy,” December 6, 2012,
www.economist.com/blogs/banyan/2012/12/garment-factory-
fires, accessed August 31, 2015.
21 NPD Group, “Sizing Up the Plus Sized Market:
Segment Up 5 Per Cent, Reaching $17.5 Billion,”
https://www.npd.com/wps/portal/npd/us/news/press-
releases/sizing-up-the-plus-sized-market-segment-up-5-percent-
reaching-17-billion/, accessed January 20, 2015.
22 Katie Little, “Outsize Growth, Underserved Market: Rent the
Runway’s Plus-size Bet,” CNBC, September 29, 2013,
www.cnbc.com/id/101065567#, accessed January 20, 2015.
23 Robin Bowmer, “The Effects of the Recession on Brand
Loyalty and ‘Buy Down’ Behaviour: 2011 Update,” IAB
Europe, October 2011, p. 3,
www.iabeurope.eu/files/3213/6852/2155/comscore20study20on2
0brand20purchasing.pdf, accessed
January 20, 2015.
24 Janet Bealer Rodie, “Fiber First — Eco-friendly Raw
Material and Fiber Production Are the First Links in a
Sustainable Textile Manufacturing Chain,” Textile World,
September/October 2011,
www.textileworld.com/Issues/2011/September-
October/Features/Fiber_First, accessed January 22, 2015.
25 Inam Ahmed, “Textile Industry on a Rocky Road,” The Daily
Star, August 24, 2014, www.thedailystar.net/textile-industry-

on-a-rocky-road-38398, accessed January 21, 2015.
26 James Johnson, Stephen MacDonald, Leslie Meyer, Bryan
Norrington and Carol Skelly, “The World and United States
Cotton Outlook,” February 21, 2014,
www.usda.gov/oce/forum/2014_Speeches/Cotton.pdf, accessed
August 31, 2015.
Page 15 9B15M088
27 A. T. Kearney, “Understanding the Needs and
Consequences of the Ageing Consumer,” March 2013,
https://www.atkearney.com/paper/-
/asset_publisher/dVxv4Hz2h8bS/content/understanding-the-
needs-and-consequences- of-the-ageing-consumer/10192,
accessed August 31, 2015.
28 Zara defines their target customers as “young, price
conscious and highly sensitive to the latest fashion trends.” Arif
Harbott, “Analysing Zara’s Business Model,” The Digital
Executive, March 3, 2011,
www.harbott.com/2011/03/03/analysing- zaras-business-model/,
29 Katie Smith, “Zara Versus H&M — Who’s in the Global
Lead?” Web blog post, EDITD, April 15, 2014,
https://editd.com/blog/2014/04/zara-vs-hm-whos-in-the-global-
lead/, accessed January 22, 2015.
30 Doug Hardman, Simon Harper and Ashok Notaney, “Keeping
Inventory — and Profits — Off the Discount Rack,” 2008, p. 2,
www.strategyand.pwc.com/media/file/Keeping_Inventory_and_

Profits_Off_the_Discount_Rack.pdf, accessed January 20,
2015.
31 Gap Inc., “Embracing the New Customer Reality — 2013
Annual Report,” pp. 60 and 69,
www.gapinc.com/content/attachments/gapinc/GPS_AR13.pdf,
accessed January 20, 2015.
32 Smith, op. cit.
33 Adrian Swinscoe, December 21, 2011, “Customer Focus in
Action: Why ZARA Stores Became a Customer Magnet,”
www.adrianswinscoe.com/customer-focus-in-action-why-zara-
stores-became-a-customer-magnet/, accessed August 31,
2015.
34 In 2013, Zara represented €2.089 billion of Inditex’s €3.071
billion in earnings before interest and taxes. Inditex, “Inditex
FY2013 Results Presentation,” March 19, 2014, p. 18,
www.inditex.com/documents/10279/98254/Results+FY2013.pdf/
8c54eb89-6319-446c-ac34-9a78d8ccb2e3, accessed January 20,
2015.
35 2,085 of 6,683 stores in total, representing 31.20 per cent of
Inditex stores. “Inditex 2013 Annual Report,” Inditex, June
2014,
36 Inditex, “Full Year 2014 Results Presentation,” March 13,
2015, p. 25,
https://www.inditex.com/documents/10279/144578/FY+Results
+2014.pdf/71be7a85-1b3c-421f-af83-c312ae0c2043, accessed
June 20, 2015.
37 Inditex, “Annual Report 2004,” June 2005, p. 13,
www.inditex.com/documents/10279/18789/Grupo_INDITEX_inf
orme_anual04.pdf/b8b53824-f2b7-4a2c-9a2f-8b0877cdf5b4,
accessed January 20, 2015.
38 Inditex, “Annual Report 2014,” March 2015, p. 2,
ort_2014_web.pdf/a8323597-3932-4357-9f36- 6458f55ac099,

39 Calculated as follows: 6,683 stores to end 2014 (“Inditex
Annual Report 2014”), compared with 2,244 in 2004 (“Inditex
Annual Report 2004”) across 3,653 days.
40 Graham Ruddick, “How Zara Became the World’s Biggest
Fashion Retailer,” The Telegraph, October 20, 2014,
retailer.html, accessed January 23, 2015.
41 Susan Berfield and Manual Baigorri, “Zara’s
Fast-Fashion Edge,” November14, 2013,
www.bloomberg.com/bw/articles/2013-11-14/2014-outlook-
zaras-fashion-supply-chain-edge, accessed August 31, 2015.
42 Stephanie Huang, “Why Fashion Is Getting Faster: Zara’s
Two-Week Fashion Cycle,”
www.thescrippsvoice.com/archives/2013/11/08/why-fashion-is-
getting-faster-zaras-two-week-fashion-cycle, accessed August
31, 2015.
43 Tobias Buck, “Fashion: A Better Business Model,” Financial
Times, June 18, 2014, www.ft.com/intl/cms/s/2/a7008958- f2f3-
11e3-a3f8-00144feabdc0.html#slide0, accessed January 22,
2015.
44 Graham Ruddick, “How Zara Became the
World’s Biggest Fashion Retailer,” October 20,
2014,
retailer.html, accessed August 31, 2015.
45 Kerry Capell, “Zara Thrives by Breaking All the Rules,”
October 8, 2008, www.bloomberg.com/bw/stories/2008-10-
08/zara-thrives-by-breaking-all-the-rules, accessed August 31,
2015.
46 Andrew Pearson, “The Story of Zara — the Speeding
Bullet,” Unique Business Strategies, p. 2,
www.uniquebusinessstrategies.co.uk/pdfs/case%20studies/zarat
hespeedingbullet.pdf, accessed January 22, 2015.

47 Katie Smith, “Zara vs H&M — Who’s in the Global Lead?”
April 15, 2014, https://editd.com/blog/2014/04/zara-vs-hm-
whos-in-the-global-lead/, accessed August 31, 2015.
48 Pearson, op. cit., p. 1.
49 Hokey Min, “Zara’s Rapid Rise as a Cool Supply Chain
Icon,” June 25, 2015,
www.ftpress.com/articles/article.aspx?p=2359420&seqNum=12,
50 Gemma Goldfingle, “Inside Inditex: How Zara Became a
Global Fashion Phenomenon,” October 20, 2014, www.retail-
week.com/sectors/fashion/inside-inditex-how-zara-became-a-
global-fashion-phenomenon/5065325.article, accessed August
31, 2015.
51 Hardman et al., op. cit., p. 2.
52 Susan Berfield and Manuel Baigorri, “Zara’s Fast-Fashion
Edge,” Bloomberg Business, November 14, 2013,
www.businessweek.com/articles/2013-11-14/2014-outlook-
zaras-fashion-supply-chain-edge, accessed January 22, 2015.
Page 16 9B15M088
53 Calculated as follows: 6,683 stores to end 2014 (“Inditex
Annual Report 2014”), compared with 2,244 in 2004 (“Inditex
Annual Report 2004”) across 3,653 days.
54 Belle Kwan, “Spanish Domination — Zara Brand Profile,”
Marketing Magazine, September 23, 2011,
www.marketingmag.com.au/blogs/spanish-domination-
6575/#.VNJL7lXF_uI, accessed February 4, 2015.

55 Ibid.
56 Hardman et al., op. cit., p. 2.
57 Mike Bird, “How Amancio Ortega Came from Poverty
to Become Europe’s Richest Man,” May 29, 2015,
http://uk.businessinsider.com/the-rags-to-riches-story-of-
europes-richest-man-zara-founder-amancio-ortega-2015-5,
58 Derek Thompson, “Zara’s Big Idea: What the World’s Top
Fashion Retailer Tells Us about Innovation,” The Atlantic,
November 13, 2012,
www.theatlantic.com/business/archive/2012/11/zaras-big-idea-
what-the-worlds-top-fashion-retailer-
tells-us-about-innovation/265126/, accessed January 23, 2015.
59 Hiroko Tabuchi and Hilary Stout, “Gap’s
Fashion-Backward Moment,” June 20, 2015,
www.nytimes.com/2015/06/21/business/gaps-fashion-backward-
moment.html?_r=0, accessed August 31, 2015.
60 CSIMarket Inc, “Retail Apparel Industry Profitability
Ratios,” CSIMarket,
http://csimarket.com/Industry/industry_Profitability_Ratios.php
?ind=1301, accessed January 29, 2015.
61 Gap Inc., “2004 Annual Report — Gap Inc,” p. 9,
http://media.corporate-
ir.net/media_files/IROL/11/111302/GPS_AR_04. pdf, accessed
January 29, 2015.
62 Gap Inc., Key Facts,
www.gapinc.com/content/gapinc/html/aboutus/keyfacts.html,
63 Intermix is a brand with 30 boutiques across Canada and the
United States, which was acquired by Gap in December 2012.
64 Vikram Alexei Kansara, “With an Evolutionary Approach,
Uniqlo Aims to Create New Category,” The Business of
Fashion, April 19, 2013, Disclosure: Vikram Kansara travelled
to Paris as a guest of Uniqlo,
www.businessoffashion.com/2013/04/ with-an-evolutionary-
approach-uniqlo-aims-to-create-new-category.html, accessed

February 2, 2015.
65 With 342 in China alone.
66 Walter Leob, “Uniqlo Aims to Be the World’s Number One
Apparel Brand,” Forbes, April 17, 2015,
www.forbes.com/sites/walterloeb/2015/04/17/uniqlo-aims-to-
be-the-worlds-number-one-apparel-brand/, accessed August 31,
2015.
67 Katherine P. Harvey, “Topshop / Topman Brings Top-Speed
Fashion,” The San Diego Union-Tribune, October 30, 2014,
www.utsandiego.com/news/2014/oct/30/topshop-topman-store-
opens-fashion-valley/, accessed February 2, 2015.
68 Arcadia Group Limited, “Our Brands —Topshop,” Arcadia,
www.arcadiagroup.co.uk/about-us/our-brands/topshop, accessed
February 2, 2015.
69 Andrew Clark, “Topshop Bites into the Big Apple,” April 2,
2009, www.theguardian.com/business/2009/apr/02/top-shop-
opens-in-new-york, accessed August 31, 2015.
70 Arcadia, “Topshop — About Us,”
https://www.arcadiagroup.co.uk/about-us/our-brands/topshop,
40
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