Evaluating Financial and Operational Performance in the Retail Apparel Industry, 2016

18 Pages Posted: 1 Jun 2017

See all articles by Elliott N. Weiss

Elliott N. Weiss

University of Virginia - Darden School of Business

Rebecca Goldberg

University of Virginia - Darden School of Business

Abstract

This case is suitable for management students who have already been exposed to the basics of accounting and operations-management decision making. It builds business intuition that integrates concepts from the courses of operations, accounting, and finance. As such, it is appropriate in an operations course, or in an introductory finance/accounting course. Students examine the financial statements of four competitors in the global retail apparel industry and calculate the financial ratios that comprise the return on equity for each. Then, they critically evaluate the links between each company's financial ratios and its unique operations strategy and financial situation. As a result, students gain insight into the effects that strategic operations management and financial decisions can have on financial statements and important financial ratios, as well as the insights one can gain by examining the equivalent ratios of close competitors.This case begins with an overview of the market forces that have the greatest effect on the global retail apparel industry. A brief overview of the history of the industry and how it has developed since the 1980s is provided as a backdrop to illustrate the financial and operations-management decisions that have been made by the four companies profiled. Then, a high-level introduction is provided for each of four major competitors: The Gap, Inc.; H&M Hennes & Mauritz AB; Urban Outfitters, Inc.; and Industria de Diseño Textil, S.A. The short company profiles include a description of each company's portfolio of brands, overall positioning and operations strategy, outsourcing decisions, history, and financial situation. Finally, a series of exhibits provides income statement and balance sheet information for each company.

Excerpt

UVA-OM-1557

Rev. Jun. 15, 2017

Evaluating Financial and Operational Performance

in the Retail Apparel Industry, 2016

Industry Background

In 2016, 150 billion new clothing items were produced annually by companies in the global retail apparel industry. The estimated global value of the apparel industry was $ 1.8trillion. The industry was characterized by low switching costs, low barriers to entry, and a high degree of fragmentation and rivalry. The category included both department stores, which featured other goods in addition to apparel, and specialty retail stores that catered to specific customer segments. Both usually sold through multiple channels, including web-based and mobile platforms as well as brick-and-mortar stores, and sometimes also through outlet stores. The term “retail apparel” referred to clothing worn by women, men, girls, boys, toddlers, and infants; categories included activewear, career wear, formal occasion wear, and intimates. Most purchases were made by the individual consumer, who might be driven by convenience, value, quality, and/or a desire to display a certain social or economic standing. Sales were often seasonal, and varied by country. For example, in the United States, retail sales volumes often increased close to observed holidays, sporting events, and back-to-school time.

. . .

Keywords: financial performance, operational performance, fashion, retail, garment, ratios, return on equity, Gap, H&M, Urban Outfitters, URBN, Inditex, consolidated financials

Suggested Citation

Weiss, Elliott N. and Goldberg, Rebecca, Evaluating Financial and Operational Performance in the Retail Apparel Industry, 2016. Darden Case No. UVA-OM-1557. Available at SSRN: https://ssrn.com/abstract=2975038

Elliott N. Weiss (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/html/direc_detail.aspx?styleid=2&id=4375

Rebecca Goldberg

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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