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Following my previous blog post about Inditex performing a boost in net profit, I thought it would be worthwhile to compare the fashion giant with H&M by doing a small interesting analysis of both.
Speed to MarketThe secret of Zara's success is its speed: Zara can originate a new design, produce and hit it to shops in 4 to 5 weeks. The same process can take up to 6 months for H&M.
Distribution & Manufacturing Model34% of Inditex's manufacturing is outsourced to Asia, and 14% to parts of Europe including Turkey, those tend to be more basic items. The high-fashion stuff, 49% of what it sells, is cut and finished in Spain. Zara is controlled from Spain, the sole logistics hub.
H&M has distribution centres dotted around Europe. Some 65% of its products is made in lower-cost countries in Asia. That means its cost base is lower than Inditex’s.
Some experts caution that Zara faces the challenge that keeping a large amount of production close to home, loses its benefits when a growing number of stores are far away. The efficiency of the supply chain is coming under more pressure the farther abroad they go.
Pablo Isla, Chief executive of Inditex, said that logistics center in Asia, where the comany produces around a third of its goods, would only make sense if Zara have many stores in the region. I guess that now Inditex is growing in Asia, especially in China, where it will open 80 more stores this year, it could be considered.
Market pricesA big question which is pointed out in The Economist is that how long Zara can go on charging such markedly varying prices in different countries. The company makes up for some of the cost by charging more for goods sold overseas. In the U.S., for instance, Zara clothes cost up to 40% more than they do in Spain. Japanese customers pay about half as much again as west Europeans. Zara also charges more in China, but according to researchers (from Sanford Bernstein research firm) consumers in China see high prices as part of a product’s appeal. However, the varying prices could lead to an inconsistent brand image, a risky strategy in a globalizing world, some critics warn.
H&M, which is further ahead in this, seems to be maintaining its big regional markups. Especially in Germany, the Netherlands and Austria H&M has caught on, thanks to its higher market penetration.
Sources: The Economist, The Wall Street Journal
