Inditex’s success in a difficult market suggests that their global strategy is indeed working. Although it operates a chain of fashion stores across a number of countries, the company is still enjoying success to a surprising degree in a difficult market during a period of economic hardships. The company’s success, especially within the fashion market through Zara stores, is pegged to its flexibility in a dynamic and ever changing environment.
In addition, the company also operates from a central location with most of its stores serviced with merchandise all the way from Spain. However, the company’s expansion program in various countries is beginning to face challenges, due to the fact that expenses for most of the new stores are accumulating faster than revenues. This is further exacerbated by the global economic downturn, which has made selling some of its premium brands more difficult, as well as the fact that the company has failed to expand its production line sufficiently over the last few years to keep up with the increased demand from new stores. Due to globalization and a rapid expansion process, Inditex is facing a number of challenges (Continued Growth for Zara and Inditex” 1).
Because of the rapid expansion in terms of the number of stores under its management, operating from a central location in a manner that allows it to retain its competitive advantage is proving quite difficult. Effectively monitoring its 4,430 stores across 73 countries is proving a challenge for the company, as it is no longer able to monitor the popularity of various clothes lines within its stores. This has considerably curtailed its flexibility and ability to promptly respond to trend changes and changes in fashion preferences.
Furthermore, keeping a large amount of its production so close to home has led to growing costs as well as a strained supply line for the numerous number of stores. Although keeping production close to home guarantees quality, it has raised the costs of production considerably due to higher labor costs and transport costs, especially for its stores outside Europe. This has forced the company to price its products differently in various regions, which could lead to an inconsistent brand image. Furthermore, such a pricing strategy could pose significant challenges within its online market curtailing the company’s ability to utilize such an important marketing tool.
The global nature of Inditex’s market exposes it to currency fluctuations, which significantly reduce the company’s realized profits. For instance, the company’s gross profit margin fell from 56.4% to 55.3% in 2009 due to a strong dollar performance, a loss of about 1.1% in profits simply due to fluctuations in a single currency. This poses a huge challenge for a company that operates in more than 73 countries (“Continued Growth for Zara and Inditex” 2)
The best solution to some of these challenges faced by Inditex due to globalization would be to decentralize its operations. By spreading its management and production centers, the company could easily deal with challenges such as increased transport costs and the lost flexibility. Spreading the workload of monitoring fashion trends will ensure that the company does not lose its sense of awareness. Increasing the number of production centers according to the distribution of its stores will also allow the company to exploit cheaper labor costs and keep its tradition of supplying its stores twice a week. Furthermore, such an approach could also lessen the company’s vulnerability to currency fluctuations, as its costs and sales would be conducted using the same currency.
Works Cited
Continued Growth for Zara and Inditex. 2013. Web.