Inditex SA – Part 2

Strengths and weaknesses analysis / Fundamental analysis: 
Strengths:

• Because Inditex applies an innovative supply and distribution chain model – push instead of pull, the time to market is well below the market average and operating cycles are extremely short,
• Inditex maintains long-standing relationships with its suppliers, which allows the company to benefit from better deals,
• The company’s expansion potential is huge; it is still barely present in the US or Asia,
• Historically, capital allocation has been perfectly executed,
• Inditex’s vertical business structure is well protected, with its foundation in local suppliers, which traditional retailers do not have,- The company has started to expand into e-business,
• The company could start a share purchase program to redistribute some of the cash it has on hand. This would improve operating ratios in due course.

Weaknesses:

• The fashion business is highly seasonal; predicting consumer demands is extremely difficult. Recuperating from the misinterpretation of a single fashion trend can take several quarters,
• Inditex is exposed to higher corporate social responsibility expectations than in the past,
• Although protected by brand names, Inditex’s products can be copied by its competitors anywhere, anytime,
• The expansion into little known territories is a major threat to the company. The vertical business model runs well in Europe, yet consumer and supplier behavior is different in Asia and the States. It’s unlikely Inditex will be able to apply its European based model on a “one-to-one basis” in all three markets,
• Weaker consumer sentiment across Europe, where the company achieves 65% of sales, is a major threat to ongoing success,
• The founder maintains a 59% stake, and although he is no longer the CEO, he still can direct the company’s vision. This could be a threat to the management approach implemented by the incumbent CEO.