Zara Or Mango Case Study

BARCELONA, Spain — Two years ago, Spanish retailer Mango could barely convince its employees to wear its dresses, skirts, and blouses, which many workers — and customers — thought were too formal.

Today, Mango has ditched the glitz in favor of more casual attire like that from Spanish rival Inditex SA, the world’s biggest seller of apparel and owner of the Zara brand. The change has helped Mango outpace Inditex in Spain’s 16.2 billion-euro ($21 billion) clothing market.

“We had gone way too far with our focus on clothes for parties and events,” said Enric Casi, general manager of the Barcelona-based retailer. “Not even our employees wore Mango.”

The casual push wasn’t the only lesson Mango took from Arteixo, Spain-based Inditex as it sought to address a decline in profit of almost 60 percent in the two years through 2011. That year, Isak Andic, the founder, chairman, and owner of almost 100 percent of the company, stepped back into a stronger day-to-day management role to help reformulate strategy.

Since then, Mango says, the chain has cut prices by about 20 percent across the board, bringing them closer to Zara’s. And the company has stepped up expansion outside of crisis-weary Spain and placed more emphasis on the fast-fashion model that has helped Inditex prosper.

“Mango is emulating Zara as much as it can,” said Luis Benguerel, an equity trader at Interbrokers in Barcelona. “It needs to follow a successful business in order to fix its mounting problems and achieve the type of growth Inditex has seen.”

Fourth-Richest

Two years ago, about 70 percent of Mango’s revenue came from party and event clothing and 30 percent from casual wear. Now, it’s the other way round, Casi, 57, said in an interview.

Mango’s changes are bearing fruit just as the growth that made Inditex founder Amancio Ortega the world’s fourth-richest man shows signs of faltering. Inditex’s profit rose 12 percent in the three months through January, the slowest pace in five quarters and below analyst estimates.

Inditex shares closed at 101.05 euros in Madrid trading on Friday, down 6.8 percent since it announced annual earnings on March 13. Hennes & Mauritz AB, Europe’s No. 2 fashion chain, slid 0.9 percent in that time period, and have gained 2.4 percent since it released its first-quarter results on March 21. Mango isn’t publicly traded and doesn’t plan to sell shares in the short term, according to Casi.

While Inditex faces a “difficult situation” in its domestic market, according to Chief Executive Officer Pablo Isla, Mango is gaining traction in Spain even as retail sales plunge amid record 26 percent unemployment. Profit almost doubled last year after falling in 2011 to the lowest in almost a decade, Casi said.

Inditex IPO

Spanish sales for Inditex, a fifth of the company’s total, fell 5 percent last year. Mango’s home-country revenue gained about 20 percent, Casi said. H&M sales in Spain, including value-added tax, were flat in 2012. First-quarter revenue in the country fell 6 percent, the Stockholm-based company said last week.

Globally, Mango remains far behind Inditex, where revenue has gained every year for the past decade to 15.95 billion euros last fiscal year, making it the best performer in the Stoxx 50 since its May 2001 initial public offering. With a market capitalization of 63 billion euros, Inditex is Spain’s biggest company.

Mango’s revenue hit 1.41 billion euros in 2011. Last year, group sales grew about 22 percent, according to Casi --outpacing Inditex’s 16 percent growth. Still, that’s short of the 30 percent growth Mango forecast in its 2011 annual sustainability report. Mango predicts revenue will almost double from 2011 to 2015, to 2.75 billion euros. Inditex sales may rise 57 percent to 21.7 billion euros in the same period, according to the average estimate of 18 analysts compiled by Bloomberg.

H&M’s total revenue in 2012, excluding value-added tax, climbed 9.8 percent 120.8 billion kronor ($18.6 billion).

Sleeveless T’s

The Mango store on Calle de la Princesa in Madrid sells jeans for 29.99 euros, about the same as a similar pair at Zara next door. Mango’s 9.99-euro sleeveless cotton T-shirts, though, are double the price of Zara’s.

“Even if Zara still offers less-expensive garments, Mango has cut prices by a lot,” said Iratxe Lindosa, a 37-year-old social worker from Madrid shopping at the Mango in Calle de la Princesa. “A dress I liked but couldn’t afford in the past, I now buy it right away.”

Mango is cutting the time it takes for clothing to reach stores, keeping apparel fresh and appealing to younger customers, Casi said. That helps the company avoid constant discounting and restrict markdowns, he said.

Global Ambitions

Inditex’s gross margin, a measure of profitability, widened to 59.8 percent last year as H&M’s narrowed to 59.5 percent. Mango’s gross margin has shrunk for each of the last five years to 57.2 percent in 2011.

Mango now has more than 2,600 outlets in 109 countries. Inditex, which owns eight brands including Zara, Massimo Dutti and Bershka, has just over 6,000 in 86 countries. H&M says it has about 2,800 stores in 48 countries.

Mango is targeting 300 net store openings this year, or about the same as 2012. That compares with Inditex’s goal of about 450 new stores, a slower pace than the 482 net openings in the past fiscal year. H&M plans to add 350 new stores, up from the 325 previously planned.

Mango’s expansion in Spain will be “very limited,” Casi said. Inditex doesn’t plan to increase its Spanish store count this year, according to CEO Isla.

Teen Line

In another nod to Inditex’s strategy, Mango has diversified by opening brands for men and accessories, and it plans to introduce brands for kids, sports and underwear later this year. Next year, it’s planning new lines for teenagers and plus sizes.

Undertaking so much change so quickly will tax Mango’s management, said Jose Luis Nueno, a professor at IESE Business School and co-author of a Harvard Business School case study on Zara. In the process, profit margins may suffer as the company lowers prices and moves manufacturing from Asia to higher cost countries closer to Europe to make it easier to supply stores with the latest designs.

“We’ll still have to see results,” Nueno said. “Turning around the company in one year is too optimistic.”

At least, Casi says, employees are wearing Mango’s clothing again.

By: Manuel Baigorri; with assistance from Julie Cruz in Frankfurt; editors: Paul Jarvis, David Rocks

BARCELONA, Spain — Shoppers in the 109 countries where Spanish fashion chain Mango has stores recognise its celebrity faces well, but few know much about the company behind the clothes modelled by Kate Moss, Gerard Pique and Scarlett Johansson.

"Mango is from Spain, part of the Inditex group, isn't it?" said Maria Lekae, 29, a Russian shopper browsing in the branch on Barcelona's smart street Passeig de Gracia.

Her misconception that Mango is one of Zara owner Inditex's cluster of brands is common. In fact, the 30-year-old Barcelona-based company is private and unrelated to the world's largest retailer, based in Galicia, northern Spain.

That could change if Mango successfully implements a 10-year plan to break out from under the shadow of its larger Spanish competitor and equal Zara's current level of sales, which topped 10.5 billion euros last year compared with Mango's 1.7 billion.

"We began later than them, that's why you need to give us 10 years to catch up!" Managing Director Enric Casi told Reuters in an interview at Mango's headquarters and design centre on an industrial estate 30 km from downtown Barcelona.

Mango has pushed out to even more markets than its larger listed peer, which opened its first store about 40 years ago. It aims to continue expansion at the rate of more than four new stores a week, entering four new countries this year.

It also said a new strategy to reduce production costs and prices of its clothes had halted a two-year profit fall, increasing net profit for 2012 by 82 percent to 113 million euros ($150.00 million).

Casi described how the firm recaptured European customers battling austerity, with designers creating less expensive clothes, less evening wear and more casual garments.

"In 2010, 2009, we made markdowns, but in 2011 we did so many we ate up half the profit," he said.

"We now start with a lower price but without discounts or markdowns later."

THE DANGEROUS MID-MARKET

Mango put prices alongside outfits in catalogues and advertising last year, in a similar way to H&M.

Budget retailers such as Primark, owned by Associated Foods , have thrived during the economic slowdown as consumers buy cheaper clothes. Some luxury brands have also held up.

But the mid-market is suffering. Mango makes 16 percent of sales and has 326 outlets in Spain, which is racked by high unemployment and recession. Even veteran department store El Corte Ingles is suffering.

The market repositioning is paying off, with 2012 global sales up 20 percent and the firm back in profit after dropping 32 percent in 2010 and 38 percent in 2011.

Cheap labour in China, source of 42 percent of Mango clothes, and countries including Turkey, South Korea, Morocco and Bangladesh will remain a central strategy for the company, Casi said.

The collapse of a building in Bangladesh, killing 1,129 people has raised questions about conditions in producing countries. Forms for a Mango sample order were found in April in the rubble of Rana Plaza.

"Today, if you want to produce textiles, apart from the cloth, you know the countries of the world where you must buy and if you buy in other places you go wrong and you fail," he said. "In China, they sew better than in Europe nowadays."

Mango's founders, the Andic brothers, Isak and Nahman, opened their first store at 65 Passeig de Gracia in 1984, when Casi worked as a consultant for them.

"It was an old fur shop and I remember we opened up so quickly we still had the name of the fur shop there and Mango's sign in red letters," he said.

NEW VENTURES

Since then, Mango has notched up about 2,600 stores. By comparison, H&M has over 2,900, while Inditex has more than 6,000, of which over 1,700 are Zara.

The retail empire has made Mango President Isak Andic and his family the fourth richest in Spain, according to Forbes. Andic, who loves yachts and art, resists giving interviews.

"We're now in another market, we're competing with Inditex, with H&M, and we're very satisfied," said Casi.

Key to Mango's 10-year strategy lies in developing a group of brands for men, children and older women, building on its Mango Touch accessories line started in 2011 and H.E. by Mango.

"It seems they want to use an umbrella brand and the doubt is whether they'll have the ability to not only grow but also adapt their structure to this new strategy," said Gerard Costa, marketing professor at Barcelona-based ESADE business school.

In Mango's 12,000-square-metre design centre El Hangar is a pilot shop where the display of the new formats is worked out.

Samples for the line Mango Kids, launching this summer, include gold hotpants costing 27.99 euros.

Mango also launches its Sport&Intimates underwear line this summer; next year, it plans to bring in lines targeting teens and mature women.

It aims for group sales of 1.98 billion euros by year end.

Additional reporting by Anna Ringstrom in Stockholm; Editing by Fiona Ortiz and Pravin Char

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