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Outsourcing Versus Vertical Integration in the Fast Fashion Apparel Industry: A Case Study of Inditex, H&M, and Gap Presented by Emily Zhang- Economics Mentor: Dr. Gang Sun, Textile and Clothing Department Slide 2 Special thanks to the MURALS Program and Dr. Hope Medina Slide 3 PRESENTATION OUTLINE Definition Company introduction Financial data analysis Conclusion Further study direction Slide 4 DEFINITION Slide 5 The Apparel Industry Value Chain Source: Appelbaum and Gereffi (1994) The Apparel Industry Value Chain Source: Appelbaum and Gereffi (1994) Retail Stores, Outlets, Catalog, E-commerce Raw Material Networks Natural and Synthetic Fibers Components Networks Natural and Synthetic Fabrics Production Networks Production Networks Clothing Manufacturing Brand Name Companies Inditex, H&M, Gap Inditex, H&M, Gap Distribution Retail Logistics Logistics A value chain is a chain of activities for a firm operating in a specific industry. Each additional activity along the chain adds more value to the final products. Slide 6 DEFINITION CONTINUED Fast Fashion: A contemporary term used by fashion retailers to acknowledge that designs move from catwalk to store in the fastest time to capture current trends in the market. Vertical integration: A strategy of production management control, to gain ownership of companies or activities along the business value chain. Backward integration: A fashion retailer establishes ownership of a clothing factory. Forward integration: A clothing manufacture establishes ownership of a fashion store. Slide 7 COMPANY INTRODUCTION Slide 8 COMPANY INTRODUCTION INDITEX Founder: Amancio Orgega Founded in 1963 No.5 richest man worldwide CEO: Pablo Isla Slide 9 COMPANY INTRODUCTION H&M CEO: Karl-Johan Persson Founder: Erling Persson His son: Stephan Persson is the No.7 richest man worldwide Founded in 1947 H&M, COS(timeless and distinctive trends), Monki(creativity&expression), Weekeday, and CheapMonday Slide 10 COMPANY INTRODUCTION GAP CEO: Glenn Murphy Founder: Donald Fisher and Doris Fisher Founded in 1969 Slide 11 COMPANY INTRODUCTION COMPARISON CompanyNo. of Designer No. of Supplier No. of Distribution Center Product Lead Time Inditex (Founded, 1963, Spain) 3001,23762 weeks H&M (Founded 1947,Sweden) 15070019Few weeks to 26 weeks Gap (Founded 1969, San Francisco) head designer 1,0001226 weeks or more Slide 12 Inditex has a more diversified market strategy with more brands targeting at different countries and customer groups COMPANY INTRODUCTION COMPARISON Slide 13 Inditex, store growth rate: 105% Gap, store growth rate:6% H&M, store growth rate:109% COMPANY INTRODUCTION COMPARISON Slide 14 FINANCIAL DATA ANALYSIS Slide 15 Slide 16 Slide 17 H&M Slide 18 H&M, average:13.60% Inditex/Zara, average: 11.61% Gap, average: 5.75% Slide 19 CONLUSION Vertical integration is not necessarily a profible strategyfor Gap, because H&M and Gap both outsources nearly 100% of their production to factories in Asia and Europe, however, H&M is two times profitable than GAP and is expanding rapidly. What is wrong? Slide 20 DESIGN AND VARIETY& PRICING STRETEGY $60 $25 $80 Gaps clothing line is considered dull, yet pricy. Slide 21 FURTHER DIRECTION In-depth study on the factors that drive H&M profitable and efficient when it outsources 100% of its production Questions? Thank you!