Zara is the flagship brand of the Spanish retail group. Inditex SA one of the super-heated performers in a soft retail market in recent years. When Inditex offered a 23 per cent stake to the public in 2001. Ther issue was over-subscribed 26 times raising Euro 2.1 billion for the company. What makes Inditex so tasty? Well for a start it seemed to show higher profit margins than comparable retailers and secondly. The trend seemed sustainable.good bet for most investors.
The Awkward Factor in the Profitabillity Formula.
Buy low sell high. Buy on credit sell on cash. Retail profitability often seerms like a no-brainer.
If you sell at X dollars and buy at Y dollars as long as your operating and financial costs are lower than the gross margin i.e. the difference between X (selling price) and Y(cost) you should be making money. And what with retailers running around with gross margins of 50-60 per cent (that is more than half of their retail price) making money should be no problem right.?