Procurement and Outsourcing Strategies On January 15, 2002, José Maria Castellano Rios, chief executive officer of the Spanish apparel com- pany Tnditex, stepped to the podium at the Jacob Javits Convention Center in New York City to accept the International Retailer of the Year award from the National Retail Federation, The year just closed had been a tumultuous one on the interna tional scene, and for retailers it had been a down year, Retail consolidations and bankruptcies were ‘occurring at 2 fast pace. Yet Inditex and its fagship company Zara had managed yet another year of impressive growth and strong profitability. Indeed, 2001 had in many respects been a landmark year for Inditex, for founder Amancio Ontegs Gaons and for Castellano. ‘Source; Protesocs Nelson Fraiman and Medini Singh of Colunbia ‘orness School, together with Linda Arrington and Carolyn Pasi, repired this cas asthe bass for cas cscsson eather thant is trae ether effective or infective handing of a busines situation, "Tus ease was prepared under the aupics ofthe W. Edwards Deming Cente I war sponsored by the Chazen Institute and the Center fr Tnteratonal Bosnes Edocation “The authors wish to thank Joxé Marla Castellano Rios of Tits and Li Batic and Francisco Gonailez of BBVA far making this ‘roe pssibie ‘Copysght © 2002 by Columbia Busines Schoo, HISTORY OF ZARA Amancio Ortega Guona, a native of Galicia, had ‘worked as a clerk at a ladies? apparel retailer before: starting his own housecoat manufacturing business in 1963. He opened the first Zara store in La Corufia in 1975; by 1989, there were 82 Zara stores in Spain, and Ortega began international expansion with Zara stores in Portugal, Paris and New York. Zara's parent company Inditex took on 4 other formats, Pull & Bear, Massimo Dutti, Bershka and Stradivarius,’ and. in 2001 had launched Oysho, an intimate apparel and. swimwear brand, See Table 9-1 for selected financial information. The brand names Zara, Pull & Bear, Bershka and Oysho were invented, generic names suitable for “export”; and by fiscal 2000, over half of Inditex sales were outside Spain. During 2000-2001, Inditex received widespread Favorable press and analyst coverage, touting Inditex’ success and attributing it to Zara's unique integrated (65 percent of 2000 sales) was launched in 1991 asa men’s base caaal line, with women's apparel addedin 198. Inditex puhesed nese in Messin Dat (7-8 perent of 200 sales) 2 feu’ shirt company, n 1991 and sequzed 100 percent a 1995, the meantime evelving tito a moc classic and upscale ie for men and women In 1998, Bers (5.2 percent of 200 sale), clad” Took lie for teeige gil, wae lances, anda 99 percent intrest ‘Studivarvs (28 perceat of 2000 sales) alin of day or sect wear for teenage pis, was acute i 1999. See Figure 91 for position of salou nate produc 267‘2GB_o=SIGNNG AND MANAGING THE SUPPLY CHAN PAB Le et ______s ‘SELECTED FINANCIAL INFORMATION FOR INDITEX Fiscal Year (Euro rilions) 1997 1998 Income Statement Data Not Sales erin 547 Growth 20.7% 32.6% Grose Prof 5981 e148 Grose Margin 93.2% 505% ‘Operating income 128 224 Operating Margin 15.8% 15.0% Nat Ingome ua Balance Sheet Data ‘Cash & Equivalents 2089 Acoount Receivables 145.1 Inventors 2461 Other Current Assets 62 LLongitrm Assots 19057 Good Deter Charges Tota Assets Labities ‘Short-erm Debt Other Curent Liabiios LLong-tarm Debt (Other Long-term Liabitios ‘otal Uabitios Shareholders Equity Total Las Financial Statisties Days invntory (ye) Net Working Caplal (123.4) 193.7) Operating Statisies Total Reta Sales (milions) 615255 €3,9988 Average Sales per Store (rillons)_€2.04 ei ear Total Fal Storos 748 922 1,080 ‘Average Sales per [Link] —_€4,752.38 eas8.09 eajess.82 Total Saling Sq. Motors 21,000 41,000 537,000 Same Store Sales 110% 5.0% ‘9.0% IncitexNet Sales & EBIT by concept Net Sales (Euroin millions) 1908 1998 zara es042 e034 Pull Bear 1319 1438 Massimo Dut 1205 1442 Bershka 228 eat Sracivarue NA 263(CHAPTER e: PROCUREMENT AND OuTsOURCMG STRATEGIES 26 (Euro mons) Zara Pull Bear Massimo Dut Berenka Stadvarius Source: Intex May 2001 Oring Memorandum, Next Cortef! Fashion Massimo Dutti_+ Fashion, Voesle Zara Mango Stradivaris Fast FEM eisika Matalan Pall and Bear + Casual Bershka Gap a, Sidivacis Hen Next = Young Mango Cortef ‘Massimo Dutt ++ Formal 1. Inditex’s product positioning.