For Internal Discussion Purposes Only 1

Feasibility of ZARA in PeruMarket Seeking Opportunity

Erin BereitTarun Hingorani

Matthew RaffaTaras Sanow

Jonathan Solis

For Internal Discussion Purposes Only 2

Peru represents the next logical step in our strategy for the Americas

Existing Footprint

Local Demand for

Goods

Profitable

We have operated in South America since 1998.

Distribution centers in Argentina, Brazil, and Mexico.

Lima population over 8 million. Target customers annual clothing and

footwear expenditure $390 million in 2010 and doubling in 10 years.

Store profitable within first 2 years of operation.

Total net benefit of $13.0 million over the first 7 years of operation.

Macroeconomic Stability

Stable exchange rates and low rates of inflation.

Continuous GDP growth per capita.

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Overview of Inditex / ZARA

Inditex HQ in Arteixo, Spain $14.7 billion in operating revenues

(2009) 4,607 stores, 8 brands, 74 countries

ZARA Flagship brand of Inditex First Store in 1975. 1,680 stores in 72 countries (2009) $9.1 billion in operating revenues

(2008) Goal of 80% of stores outside of

Spain in 2020 (Current 55%).

For Internal Discussion Purposes Only 3

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Inditex has been operating its ZARA brand in South America since 1998.

Country ZARA Stores (FY 2008 Year End)

Argentina 7

Brazil 25

Chile 6

Colombia 7

Uruguay 2

Venezuela 11

Total 59

Regional Distribution Center(s)

Argentina

Brazil

Mexico

Source: Inditex FY 2008 Annual Report.

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For Internal Discussion Purposes Only 5

Inditex has been operating its ZARA brand in South America since 1998.

Country ZARA Stores (FY 2008 Year End)

Argentina 7

Brazil 25

Chile 6

Colombia 7

Uruguay 2

Venezuela 11

Total 59

Regional Distribution Center(s)

Argentina

Brazil

Mexico

Source: Inditex FY 2008 Annual Report.

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For Internal Discussion Purposes Only 6

Why invest in Peru?

Lima is 4th largest city in Latin America Bilateral free trade agreements e.g. US, China,

and EU (currently negotiating) Political stability Legal environment conducive to investment Investment grade bond rating Largest GDP growth in region in 2010 (6%)Z

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Macroeconomic stability leading to…Z

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-0.2

0.8

1.8

2.8

3.8

4.8

5.8

6.8

7.8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Inflation LevelAnnual Percentage Change 2000 - 2010

(Source: IMF World Economic Outlook Database 2009)

-5

0

5

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Balance of Payments 2000 - 2009(% GDP)

(Source: Central Reserve Bank of Peru)

Current Account balance

Capital Account balance

Balance of Payments

Public Debt as % of GDP 2000 - 2009

(Source: Central Reserve Bank of Peru)

05

101520253035404550

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Increasing FDIZ

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ZARA will operate in a unique, sustainable position within the Peru Clothing and Footwear Marketplace

Mango HQ in Spain Currently 5 retail stores in

Lima (6 total in Peru) Currently pursuing a move

in market position.

Topitop HQ in Peru Inexpensive semi-

fashionable retailer

General Domestic Retailer

Provide service to mass market

Cheap

Fashionable

Expensive

Pla

in

Generic DomesticRetailer

Mango

Topitop

ZARA

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ZARA

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ZARA – Resources & CapabilitiesCompetitive Advantage

Effective Team ofDesigners

PredominatelyCompany-owned

Distribution System

Presence at High-endRetail Locations

Fast FashionImage

Frequent ApparelUpdates

Low AdvertisingCosts

10,000 DesignsPer Year

Fashion & CostConscious Customers

Selective Outsourcingof Basic Manufacturing

Appearance ofScarcity

Latest TrendsSpotting Team

Production inEuropeQuick to

Market

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Proposed Operating Plan

Company owned store Locate in Lima’s upper end shopping

district (Larcomar) Country management team Local employees for day-to-day operations Utilize existing regional distribution centers Open 3Q 2011Z

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1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11

RecommendMarket Expansion

CountryManagementTeam

Local StaffConstructionStockingImplementation

Real EstateContractingPermittingStrategy

Zara in Peru

11

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Key Assumptions Average cost of new store in new market is $1.6

million. Size of store = 1,380 square meters (firm’s

system-wide average). Annual cost of prime real estate in Lima is $37

per square meter ($51,000 per year). Ninety (90) employees are needed to service

Peru. Avg. monthly salary per employee is 3,500 Nuevo

Sols ($1,100)

COGS is 43 percent of sales revenue. SGA is 20 percent of sales revenue. Corporate tax rate (existing and future) is 30

percent of profit. Tariff rate is 17 percent of the value of imports

(merchandise) Cost of capital is 6 percent. Amortization period is 20 years.

ZARA in Lima will break-even in 2 years and total net benefit of $13.0 million over the first 7 years of operation.

Peru - Conservative

Current Mexico

Current Chile

2011 0.1% 0.9% 1.4%

2012 0.3% 1.8% 2.7%

2013 0.35% 1.8% 2.7%

2014 0.4% 1.8% 2.7%

2015 0.4% 1.8% 2.7%

2016 0.4% 1.8% 2.7%

2017 0.4% 1.8% 2.7%

Scenario Market Shares for Total Clothing and Footwear Spending

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$(5,000,000)

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

2011 2012 2013 2014 2015 2016 2017

Annual Profit After Taxes & Tariffs

Peru - ConservativeMexico Market ShareChile Market Share

Questions? ¿Preguntas?Z

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For Internal Discussion Purposes Only

Thank You

Gracias

13

SourcesZ

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Inditex. (2008). Inditex 2008 annual report. Retrieved f rom http://www.inditex.es/en/shareholders_and_investors/investor_relations/annual_reportsTiplady, R. (2006, April 4). Zara: taking the lead in fast-fashion. Bloomberg Businessweek, Retrieved f rom http://www.businessweek.com/globalbiz/content/apr2006/gb20060404_167078.htm?chan=innovation_branding_brand+prof ilesZara. (2010, April 2). Retrieved f rom http://www.zara.com/Zara. (2010). Wikipedia. Retrieved (2010, April 28) f rom http://en.wikipedia.org/wiki/Zara_(clothing) [1] Kumar, N. (n.d.). How Zara worked on its supply chain to bring low-cost high fashion to the shelves - at high speed. Businessworld, Retrieved f rom http://www.businessworld.in/index.php/Spanish-season.htmlCia the world factbook - peru. (2010, April 16). Retrieved f rom https://www.cia.gov/library/publications/the-world-factbook/geos/pe.htmlFmi: perú crecerá cerca del 6 percent en 2010 y será la envidia en la región. (2009, October 29). La Republica.Ministerio de comercio exterior y turismo del peru. (2010, April 17). Retrieved f rom http://www.mincetur.gob.peCentral bank of peru. (2010, April 28). Retrieved f rom www.bcrp.gob.peU. S. Department of State - Background Note: Peru. Accessed at http://www.state.gov/r/pa/ei/bgn/35762.htm on May 1, 2010. Perspectives on the Peruvian Economy”. Ipsos APOYO. January 2010. Accessed at http://www.livinginperu.com/blogs/business/1246 on April 23, 2010.About Doing business. (2010, April 22). Retrieved f rom www.doingbusiness.orgValez, P. (2009, December 16). Peru wins third investment grade rating. Reuters, Retrieved f rom http://www.reuters.com/article/idUSN1611592020091216 Vasquez, I. (2007, December 5). Peru may become latin america’s next success story. Retrieved f rom http://www.cato-at-liberty.org/2007/12/05/peru-may-become-latin-americas-next-success-story/Perspectives on the peruvian economy. (2010, January). Retrieved f rom http://www.livinginperu.com/blogs/business/1246 Ghemawat, P, & Nueno, J. (2003). Zara: Fast Fashion. (2003). Boston, MA: Harvard Business School.Mng by mango. (2010, April). Retrieved f rom http://www.mango.com/pv/index.htmlChina remains mango's biggest challenge. (2010, April 8). Fibre 2 Fashion, Retrieved f rom http://www.f ibre2fashion.com/news/fashion-company-news/newsdetails.aspx?news_id=84474

SourcesZ

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Topitop. (2010, April). Retrieved f rom http://www.topitop.com.pe/home_retail.aspx?grp=2&len=2Lima . (2010). Wikipedia. Retrieved (2010, April 1) f rom http://en.wikipedia.org/wiki/Lima#EconomySouth America: Peru. (2010). The World Factbook. Retrieved (2010, April 18) f rom https://www.cia.gov/library/publications/the-world-factbook/geos/pe.htmlZara. (2010, April 2). Retrieved f rom http://www.zara.com/#/en_GB/shops/Store percent20Finder/Inei: peru's economy up 3.63 percent in january. (2010, March 16). Andean Air Mail & Peruvian Times, Retrieved f rom http://www.peruviantimes.com/inei-perus-economy-up-3-63-percent-in-january/165328Peru: incidence of total poverty. (2010, April). Retrieved f rom www.inei.gob.peCia the world factbook - peru. (2010, April 16). Retrieved f rom https://www.cia.gov/library/publications/the-world-factbook/geos/pe.htmlMetropolitan lima: average monthly income from principal occupation. (2010, May 2). Retrieved f rom www.inei.gob.peWorld bank development indicators. (2010, March). Retrieved f rom www.worldbank.org/dataPeru: Clothing & Footwear. Euromonitor. Retrieved (2010, April 18) f rom https://login.library.lausys.georgetown.edu/login?url=http://www.portal.euromonitor.com/Portal/DocumentView.aspx

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Market Expansion Considerations

Macroeconomic stability Urban economic development Relative ease of market entry Local demand for clothing Cost of doing business (taxes &

tariffs) Accessibility of distribution centers Availability of prime retail space Profitability within two years of

operation

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