Differences on the Profit Margins for Zara, Gap, and H&M
Individual Case Analysis: Zara: An Integrated Store and Online Model (A) -2020.
This case study is in the course module.
Grade: This assignment is 30% of your final grade.
Assignment: To prepare for the business challenge and team deliverables you will will complete an individual analysis of a case study focused on the retail industry. There are important strategies and applicable concepts in this case study that will help you and your teammates navigate through the business challenge.
Case Study Prep: In preparation for this assignment, read the questions below and then skim the case once to get an overview. Afterward, re-read the case more carefully for details so that you can answer the questions completely in detail.
The purpose of the case is to understand the key issues while eliminating any extraneous details. Like real business situations, the cases give you more information than you need. You need to understand what information is relevant for a given context.
Make sure you are not using any outside material to help you with this case. Use only the facts given in this case and the additionally reading Blurring the Lines between Physical and Digital Spaces: Business Model Innovation in Retailing by Milan Jocevski. Do not surf the web for outside answers, look at other sources, or share your work/collaborate with other students in the course. This is an independent assignment and as the honor code applies suspected similarity in work will be referred to the Academic Integrity Committee (AIC).
Failure to adhere to APA guidelines will result in an automatic 10-points deduction.
Some of these questions, like in real business situations do not have clear answers but require you to develop a position and argument that can be defended to defend your position. However, there are answers that are better reasoned than other answers.
Make sure that you can FACTUALLY defend your answers using facts from the case.
In marketing, we use quantitative proof if available in the case to make a case. Therefore, cite facts from the case to draw conclusions and recommendations. This means you're required to use APA in-text citation and referencing in your submission. Incorrect APA use or a Turn It In similarity score of 15% or higher will be flagged and reviewed for plagiarism by the Academic Integrity Committee (AIC).
Case Questions:
Compare the profit margins for Zara, Gap, and H&M. What can explain some of the differences?
Should Zara continue to aggregate smaller stores in an urban area into one flagship store (for example, in Bilbao, replacing four stores with one flagship store)? Why or why not?
Under what conditions should Zara fill online orders from stores rather than from online distribution centers (DCs)? That is, what criteria would you use to decide whether you fill an order from an online DC or from a store?
Should Zara replicate the integrated store and online DC model in other markets? Why or why not?
Would you advise Zara’s competitors to invest in similar RFID technology?
THIS QUESTION IS FOR MIM-DD STUDENTS ONLY:
In Change Management, Professor Anthony taught the strategy Force Field Analysis (FFA). Please answer question 2 and then apply (FFA).
Please use the link provided to make a FFA visual. You can choose any of the models provided. Once complete please PDF the file. You will add this as an appendix to your paper. This visual should be aligned with your thoughts in the above question: https://online(dot)visual-paradigm(dot)com/diagrams/features/force-field-analysis-template/ Links to an external site.
THIS QUESTION IS FOR MIM-FY STUDENTS ONLY:
With the financials provided from this case study- please conduct a breakeven analysis. The analysis must be executed on Excel with an explanation/steps of getting to the answer. Additionally, please explain the importance of a breakeven analysis as it relates to this case study. You can validate your thoughts from this answer using lectures and readings from Professor Chavez’s Financial or Marketers class.
Sources: 1) attached file
2) reading "Blurring the Lines between Physical and Digital Spaces: Business Model Innovation in Retailing by Milan Jocevski".
Zara Individual Case Analysis
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Institutional Affiliation
Course
Instructor
Due Date
Zara Individual Case Analysis
Compare the Profit Margins for Zara, Gap, and H&M. What can Explain Some of the Differences?
Brands
Revenue ($M)
COGs ($M)
Gross Margin ($M)
EBIT ($M)
EBITDA ($M)
Net Income ($M)
Inditex
26,145
11,085
15,060
4,357
5,457
3,448
H&M
21,117
9,705
11,413
2,172
3,040
1,709
Gap
15,855
9,789
6,066
1,442
2,001
848
Zalando
5,043
2,842
2,201
211
254
116
Source: Moreno (2021)- Case Study Exhibit 8
Inditex (Zara's parent company) recorded higher gross margins than its competitors (H&M and Gap). There are various reasons for the differences in profit margins between the three companies. First, Zara is a larger company compared with H&M and Gap giving it economies of scale advantage. This scenario allows Zara to spread its fixed costs over many units sold. Zara's pricing strategy matches the quality of the products they are offering. Zara offers their products at reasonable prices and matches the quality. It does not underprice to keep customers coming in. Moreover, Zara's delivery and lead time are shorter compared to H&M and Gap (Moreno, 2021). Faster delivery attracts more customers increasing sales which translates to more profits.
Second, Zara is an upward direction coordinated company that controls every step, from product design to delivery. This type of coordination ensures that products meet the requirements and delivery time is as scheduled. In general, it enables the company to identify any challenges and address them in time. Taking time to address challenges in any organization is costly in the long run. Thus, this type of coordination enables Zara to avoid markups in its processes, allowing it to keep its costs low. For instance, the company can fill orders in stores quickly compared to its competitors. Through this, the company could operate with small and fast-moving stocks ((Moreno, 2021). Through its technology, stores can transmit information about orders, customer reactions and preferences, upcoming trends, and sales data twice a week and get responses such as having the products within two days. This action enabled the company to play with customers since when a product was out of stock, the remaining ones were taken to stores and replaced with new products. The activity happened every few weeks and prompted customers to visit the company to check and see new products. Through this, customers perceived scarcity and were compelled to buy any new product because it could be out soon ((Moreno, 2021). This perceived scarcity and compelled customer purchase contributed to the company’s high-profit margins compared to its competitors.
Finally, Zara has a fast turnaround time for trend changes compared to H&M and Gap. Since the fast fashion industry mainly depends on trend changes, Zara can design, manufacture, and distribute new trends quickly. Unlike other companies such as Gap, which takes ten months from product design to delivery, this flexibility enables the company to attract more customers. The fast fashion industry goes with trends, and customers want their products before they get out of trend. Zara has successfully ensured that it takes shorter to deliver products to their customers ((Moreno, 2021). More customers translate to more sales, contributing to the company’s overall profit margins.
Should Zara Continue to Aggregate Smaller Stores in an Urban Area into One Flagship Store (for example, in Bilbao, Replacing Four Stores with One Flagship)? Why or Why not?
In the modern world, shopping is essential in our daily activities. In this fast-changing lifestyle, most people prefer shopping in flagship stores to small ones. Many people in modern society believe that one flagship store should replace many small stores. At the same time, some argue that many small stores are essential to an organization, and we should not advocate for one flagship store because it diminishes small stores. One flagship store has various benefits for the business and customers (Jocevski, 2020). Based on my inclination, Zara should continue aggregating smaller stores in urban areas into one flagship store.
The primary reason for this action is that shopping in one store with all the facilities and products is a factor people in urban areas consider when shopping. This behavior saves time, money, and energy for busy people. For instance, one flagship store has all the products and services that customers need making them comfortable. One small store may not have items that a client wants but be available in another store in the same urban area. This scenario will necessitate either the customer moving to the store or the management going for it. Either way, time and money are wasted to get the product. The customer wastes time and money to move to the other store affecting the customer's shopping experience. In contrast, the company wastes money getting the product from different stores, affecting company profit margins. Therefore, one flagship store saves money and time for customers improving their shopping experience and resulting in brand loyalty or repeat clients. This action increases its sales ((Moreno, 2021). With a strong brand name, more customers are likely to troop in hence growing sales, which translates to increased profit margins.
Another reason is that aggregating helps the company to determine future production requirements. By aggregating, the company can access the demand and market needs for various products it provides (Jocevski, 2020). Moreover, aggregating smaller stores into one flagship store will help the company's long-term decision-making. This activity will involve assessing changes in the industry to come up with responding strategies, especially in changes with trends.
Under What Conditions should Zara Fill Online...