Inditex Group, owned by Ortega Gaona-one of the richest men in Spain, has touched the grounds of three continents with stores growing from 180 stores mainly in Spain in 1995 to 1080 stores over 33 countries in 2000. Among the five brands of Inditex, Zara shines as the leading brand. Zara’s unique “design-on-demand” concept and focus on vertical integration stimulated extensive debates about the sustainability of this model in the fashion retailing world. Zara’s senior executives continue to examine the international expansion strategy, especially to North and South America, along with the arising challenges.
Challenges to Consider with Global Expansion
In the increasingly complex and challenging apparel retailing market, Zara’s major competitors in North America are H&M and Gap. Based on the financial ratio analysis (Appendix E), H&M is the direct competitor with stronger financials in terms of solvency and profitability. Moreover, H&M is planning to expand in the USA by adding 85 more stores by 2003.
Future Distribution Constraints
When expanding to new areas around the world Zara needs will need to weigh the option of continuing their existing vertically integrated structure as opposed to franchising or selling merchandise via other retailers. Zara also needs to review the distribution strategy with regards to expansion. Our analysis shows that the total number of global Zara stores will grow by an average annual growth rate of 12% (Appendix G). Over a ten-year period, that will mean approximately 1000 new stores will be added to the Zara network.
Expansion into Counter-Seasonal Markets
Most of Zara’s stores are currently in the northern hemisphere (Appendix G). Opening and operating stores in the southern hemisphere will pose a counter-seasonal issue. Zara’s centralized management system currently caters to markets in the Northern hemisphere. Southern hemisphere expansion will add complexity to this model-an issue that must be addressed.