Effective strategies are important for the growth and success of a company while it is going to operate in the new market. This report focuses on the strategic evaluation of the famous fashion retail company Zara. The report analyzes the environmental impact on the business operations of Zara. For this manner, report focuses on the internal and external analysis of the company in its operating market. Zara is considered as the big global fashion company in all over the world. The company was founded in 1975 by Amancio Ortega Gaona. The company is famous for manufacturing fashionable fabric products that suit the trends of the customers. Main objective of the company is to provide best quality of clothing products with proper supply chain management. Zara produces and launches around 10,000 new designs yearly. This report focuses on the strategies adopted by the company in the operating market. Report also elaborates the strategic issues faced by the company and provides effective recommendations to deal with those issues (Pearson, 2011).
It is well known that Zara is operating in almost every country of the world and now it is trying to expand the business in those areas where it does not have its presence. For this manner, it is important to analyze impact of the market environment in which the company is operating. By the internal and external analysis, Zara would be able to identify the threats and opportunities in the market.
For the company Zara, there are three main competitors of the company which are the cause of biggest threat. Those companies are Mango, H&M and the Gap. Almost every retailer in the industry can be the big threat for company because of the wide range of merchandise catagories. The Gap is considered as the big competitor of Zara because it has same product as at the affordable price and trendy styles. Along with this, company has its presence in all over the world. Further, H&M (Hennes and Mauritz) is one of the big competitors of Zara in retail industry (Moore & Pareek, 2010). The company is very attentive while entering in the global markets and enters in one country at a time. On the other hand, Zara enters many countries at a time. Another threat for Zara is that H&M is providing trendy clothes based on the taste and preferences of the consumers in the international market. Next, Mango is the famous for its supply chain management and excellent business model. Being a Spanish company, company has many stores in various countries for achieving high level of success. Similar as Zara, Mango has all the stores at the prime positions (Easey, 2009).
For Zara, there are various opportunities in the fashion retail industry. Zara can take advantage of the online shopping trends and make the clothing products available on the other e-commerce stores to improve the sales. Further, company has some designs which are flagship designs for its stores. This is lacking in Zara so, there should be some designs which should be sold from the Zara store. This strategy would bring great demands for the brand clothes. Along with this, Zara has opportunity of market expansion for the profit of the business. So, there is the need to keep a constant eye on the emerging markets where people can spend on the brand like Zara and can wear stylish clothes. For Zara, there are huge opportunities for the company in various global markets in which the company can explore (Gallaughar, 2008). Company can also enter into various segments and has opportunity to expand in those areas where company does not have its presence. Now, the market of online platforms and e-retail is booming and gaining importance so, Zara can have opportunity to advertise its products on the online and e-retailing platforms. Along with this, Zara has wide range of clothing products for various age groups with the kids’ collection also. Company has created all the clothing products with the good material with the innovative and fashionable designs (McLoughlin & Aaker, 2010).
The biggest strength of Zara is that it is the most powerful and renowned fashion company. Company has strong brand image in the Spanish market also. Zara has low cost and excellent supply chain management and most of the products processing of Zara are integrated vertically. Company follows ‘just in time’ process by which it is able to deliver the most fashionable collection on time as compared to other companies. Along with this, company has various clothing products for all the age groups including kids’ products. The clothing products of Zara are created with the good material and most innovative and fashionable designs.
Despite of much strength, there are some weaknesses in the business operations of Zara which impact on growth of the company. One of the weaknesses of Zara is that company has generalized collection of the products and that is the reason, customers shift towards the competitors of Zara. Further, there is the lack of advertising which is the weakness of Zara. By the advertising, company can attract more customers in the operating market. Along with this, there is the low safety stock in the company Zara. If the particular design is hit with the customers, then the design will not reach to its potential as there is no buffer or safety stock for those particular products.
From the above discussion of the SWOT analysis, it is observed that Zara has strong image in every part of the world. The company has effective supply chain management process and ‘just in time’ process so that the products can be delivered to the customers on time. The strong part of Zara is that company has clothing products for all the age groups. The clothing products are made by the good material that suits the fashion trends of the customers. Zara has capability to recreate fashion with new dimensions. In terms of weaknesses, it is observed that Zara is providing limited services as it is generalized collection of the products. So, the company is losing its customers gradually. Further, there is the lack of advertisements by Zara to attract the customers. In case of opportunities, Zara has opportunities to expand its business in those areas where it does not have its presence. Along with this, company has opportunity to advertise its products on the online platforms and e-retail sites. In case of threats, Zara is facing strong competition from various retail companies i.e. Mango, The Gap and H&M. In terms of supply chain management and business model, Zara has to deal with the competitors. The competitors have wide range of merchandise catagories which create major threat for Zara in its business operations (Gilligan & Wilson, 2009).
In the business process of Zara, the company has adopted cost leadership strategy in order to minimize the cost and maintain the trend of fashion at the same time. By its designing process, the company is able to maintain particular trend of fashion in all over the world. Company is doing effective business due to its cost leadership strategy. This strategy of the company is based on the small quantity of the production in each category of design. With the help of defined process, Zara is effectively able to determine the specific designs which are needed to be produced in the large volume. Along with this, company can cut the production process of any identified design at any time (Hill, 2009).
The business strategy of Zara depends upon the production of the clothing products. it is observed that 95% revenue of Zara is generated from the clothing products and accessories. Along with this, in the business model, company is continuously focusing on producing other fashion accessories rather than producing clothing items (De Charnatony, McDonald, & Wallace, 2011). For instance, it is observed that Zara is also involved in home furnishing with the brand name of Zara home. So, it is contributing 2.3% of total revenue to the company. Based on this condition, it can be said that Zara can focus on more areas along with the clothing manufacturing business (Deogratias, & Harorimana, 2009).
It is well known that innovation is an important part to develop the corporate strategy for the business effectively. Companies operating in the retail industry need to include three important elements in the business model i.e. governance, format and activities. A well maintained business model by the company is helpful in developing effective strategic options for the innovations and business expansion. Zara has effectively maintained above mentioned factors in its business strategies. To achieve success and growth within the transformational market, Zara has adopted an effective business model (Mihm, 2010).
Zara is highly focused on achieving efficiency at the local and global level by its innovative strategies. By the manufacturing of trending manufacturing clothes, company has maintained its strong presence in the global market. Based on the analysis of internal business operations of the company, company is able to have more flexibility to design and move the products from the production house to the stores effectively. The internal business process provides advantage to the company by the vertical integration of business strategy. Company has adopted transformational strategy as it is helpful to the company to respond to the local changes in terms of needs and preferences of the customers. Along with this, company directly forwards the important feedbacks of the customers to the design team by the application of its transformational strategy. Along with this, Zara is operating in various countries which reveal its unique cultural implications. Company understands the difference quality structure and governance at the global level for conducting effective strategic analysis to enter in the new markets (Charles & Gareth, 2012).
It is well known that the business world is adopting the platform of digital marketing for the effective marketing and business operations. Similarly, Zara has achieved popularity by adopting the digital marketing strategies. But, the company has to deal with some strategic issues while operating the business in the fashion retail industry. The strategic issues are now becoming serious issues for the company. Based on the analysis of internal strategies of the company, it is identified that most of the stores of the company is located in Europe that can be the cause of disruption in the region. So, the strategic issues in Zara can arise while the company is going to develop marketing tactics for the effective business operations (Hitt, Ireland & Hoskisson, 2009).
Further, it is observed that competitors in the fashion retail industry are focusing on reducing the lead-time in business. The buying decision of the customers for the particular products depends upon their personal taste and preferences. For this manner, Zara has adopted various marketing strategies to attract the customers and company has not advertised the implemented marketing strategies by the traditional media and platforms. So, there is one of the major issues in the marketing strategies of Zara i.e. pricing policy. To compete with the competitors in terms of pricing policy, the company set high prices for its clothing products. to deal with pricing strategies of the competitors, Zara has implemented competitive pricing strategy in the business (Hitt, Ireland, & Hoskisson, 2009). So, because of high prices of clothing products, company is losing its customers as customers want quality products with the low prices. Because of economic uncertainty, customers in the European countries may not be able to afford the prices of Zara.
Further, it should also be noted that the fashion industry is very dynamic in all over the world so companies are changing their marketing strategy on the regular basis. In this situation, entry of new companies in the industry can be a big issue for Zara. For dealing with issue, company has to implement diversification marketing strategy in its products (Romano, 2009). It is well known that 95% of total revenue of Zara is generated from the clothing products. In the retail store, company cannot keep the raw material and inventory for the long period of time as it can create various issues for the company (Ray, 2010). The products sell by the company are seasonal so, company has to be very careful about the inventory held for the production. So, sometimes Zara has to bear losses because maintenance cost is very high in the business. Along with this, company hires the labor on the contract basis which also sometimes creates issue for the business as the company has to hire the labor again and again. Although, on the contract basis company is able to get cheap labor but, it is not an easy task for the company and it leads higher cost also (Cowe, 2011).
Based on above analysis of strategic issues faced by Zara, it is observed that company needs an effective strategy to stay competitive at the global level. There are some recommendations for Zara to deal with the identified strategic issues in the business. Recommendations for the company are as follows:
Conclusion
The report provides a clear understanding on the strategies adopted by the famous retail company Zara. From the overall discussion, it is observed that Zara has potential to achieve sustainable growth due to its capability and competitive advantage in the fashion industry. The company has maintained its strong image by the unique business model. Zara has various opportunities in the market for the diversification of its products. It is also observed that the basic concept of Zara is to keep the design and production process for meeting the needs of the customers. It is recommended to the company that company should continue innovate and re-invent itself to stay competitive in the fashion industry. In present time, various companies are viewing Zara as the new standard of the fashion retail industry.
References
Armstrong, G. & Kotler, P., (2010). Principles of marketing. (13th). Pearson Education, Upper Saddle River
Charles, & Gareth, J., (2012). Strategic Management: An Integrated Approach. Cengage Learning. Pg 94- 109
Cowe, (2011). Sources of Competitive Advantage. (3rd). Essex, Pearson Education Ltd
De Charnatony, L., McDonald, M., & Wallace, E., (2011). Creating powerful brands. (4th). Butterworth-Heinemann
Deogratias, & Harorimana, (2009). Cultural Implications of Knowledge Sharing, Management and Transfer: Identifying Competitive Advantage: Identifying Competitive Advantage. IGI Global. Pg 144
Easey, M., (2009). Fashion marketing. Third edition. Blackwell Publishing
Gallaughar, (2008). Zara case: Fast Fashion from Savvy Systems. Retrieved on 16th October 2017from https://www.flatworldknowledge.com/node/440129#web-621509
Gilligan C., & Wilson R. M. S., (2009). Strategic Marketing Planning. (2nd). Elsevier, Oxford
Hill, (2009). Global Business Today. New York: McGraw Hill Irwin
Hitt, A.M., Ireland, R.D., & Hoskisson, R.E., (2009). Strategic management: competitiveness and globalization: concepts & cases. (8th). Canada: Cengage Learning Inc.
https://www.uniquebusinessstrategies.co.uk/pdfs/case%20studies/zarathespeedingbullet.pdf
McLoughlin, D., & Aaker, D. A., (2010). Strategic Market Management: Global Perspectives. (1st). John Wiley and Sons Ltd
Mihm, (2010). Fast Fashion in a Flat World: Global Sourcing Strategies. International Business & Economics Research Journal. 9 (6). pp 55-63.
Moore, K., & Pareek, N., (2010). Marketing: The Basics. (2nd). Routledge
Pearson, A. (2011). the Story of Zara – The Speeding Bullet. Retrieved on 16th October 2017 from Ray, (2010). Supply Chain Management for Retailing. IND: Tata McGraw-Hill Education
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