1. With which of the international competitors listed in the case is it most interesting to compare Inditex's financial results? Why? What do comparisons indicate about Inditex's relative operating economics? Its relative capital efficiency?

We think H&M’s financial results are the most interesting one to compare with Inditex’s. H&M is the most important and largest competitor of Inditex and due to their similar background, both being large international European apparel brands and offers fashionable clothing with in season style.

We have notice and quoted from Exhibit 6, their net operating revenues, aka their sales, are more alike when compared to Gap and Benetton; and their net incomes are also similar. The negative ROE in Gap, …show more content…

These help minimize the inventories that needed to be sold at marked-down price at the end of the season during the sales period. As a result, the overall markdown percentage of Zara was much smaller than other competitors.

Other than the markdown percentage, less advertising also gives Zara a big advantage over the others. Zara usually limits the advertising to only at the start of the sales period at the end of the season. All new items and new designs were first displayed and arrived in its major stores in each twice-weekly shipment. So the customers of Zara always know when will the new designs come. As a result, Zara doesn’t need to advertise its newest designs and thus its cost spent on advertisements was much lower than the other competitors.

In conclude, due to its distinctive features of business model, Zara would have advantage on markdown and advertising cost which makes Zara’s profit margin is higher than that of other competitors.

Moreover, we have assumed that the manufacturing cost of Zara is half of its RSP and thus is higher than other average competitors. However, Zara sources most of the materials and 60% of its finished garments from all over the world. Especially for the basic items, they were outsourced to Asia’s contracted suppliers which were cheaper than European suppliers. As a result, Zara’s production cost shouldn’t be