Discuss about the Strategic Management for Zara Limited.
Zara is Spanish clothing and accessories retailing company that provides huge variety of fashion apparels to male as well as female customers. The company follows a unique approach of fashion to fulfill the current and future needs of clothing industry. The report includes strategic approach to retail industry and the company is lacking in its strategic which is highly impacting its market growth. The company’s policy of imitation has been discussed in the below section and few suggestions are recommended to company to improve ethically and strategically as well.
Strengths: One of the major strengths of company is its global expansion as it has more than 70 stores across the world. The company enjoys a well established brand name all over the world. The supply chain management system of company is really effective. Another biggest strength of company is its trendy, well designed and quick delivery of goods.
Weaknesses: One of the major weaknesses of company is that it is low in store inventory. Also, the company is known for its centralized production which can be contemplated as its major weakness.
Opportunities: There are more international markets that have huge opportunities for Zara. For instance, Australian customers perceive Zara as a fashionable industry and hence, the company must plan to enhance its operations in Australia. They can also plan to enter into more target segments in which they have not planned its expansion yet. The company can use the online platform as it is a great opportunity to attract huge traffic with the help of this platform. Also, growth of company’s commodities in US has great potential.
Threats: Economic downturn is a major threat for the development of company. Nowadays, customer switching can be a major threat for companies like Zara. The company’s policy of “no advertising campaign” can be a major threat for its growth. Apart from this, higher price tag as compared to its competitors can be treated as a threat too. One of the major threats to Zara are online retailers as the company has not shown its major online presence yet. The neck to neck competition from other companies like H&M and Uniqlo is a major threat for Zara.
Zara has a great production process that aims to provide frequent new products to its customers at low cost. In this regard, the business strategy of company is based on both differentiation and cost leadership strategy and the amalgamation of both is regarded as integrated cost leadership and differentiation. Mainly, the company focuses to keep the balance between low cost and differentiated products (Mo, 2015). Differentiation strategy can be defined as the development of a product or a service that offer unique attributes and valued by most of its customers. On the other hand, cost leadership strategy can be defined as the establishments of products to offer its customers at minimum possible cost. The differentiation in the products of Zara can be seen in the number of available styles by reducing quantities of the same product in the inventory. In this manner, Zara manufactures differentiated products at low cost as minimum quantities help company to save inventory cost (Crofton and Dopico, 2007).
On the contrary to this, cost leadership is attained by company by selling its products to its customers at affordable price. With the main aim to maintain low cost with high maintenance of fashion apparels, the company imitates the latest designs and tries to manufacture similar products with cheaper materials. In this way, the company is capable enough of reducing selling price by using cost leadership strategy (He, 2015). This shows that Zara utilizes cost leadership and differentiation strategy as its business level strategy. Apart from this, Zara uses single business as its major corporate level strategy as 95% of company’s revenues come from its clothing business. Though, it is true that the company also operates in home furnishing and other arenas too but it does not contribute more to company’s revenues (Kordamentha, 2016).
The main aim of company is to attain global efficiency with local responsiveness and to ensure the same; the company has adopted transnational strategy which is the combination of the global strategy, the multinational strategy and the international strategy. The main objective of this strategy is to facilitate a firm’s global operations with the help of perfect combination, interdependence and cooperation. The company has become potentially strong to increase product’s awareness and market share with the help of this strategy (Business insider, 2017). On the other hand, Zara utilizes imitation strategy to enhance its sales volume with an ease. the company perceives that it is hard to please each customer and study the market to determine their choices as well as it is a time consuming process (Mo, 2015). Therefore, Zara finds those products which are used by large number of people and this helps company to study the preferences of its customers. In this manner, the company imitates those designs to present them in the market with the main aim to attract huge traffic and please its customers without any kind of difficulty.
Strategic issues refer to significant elements that need great attention with the main aim to attain business goals of a company. there is a need to pay proper attention to resolve such kind of issues as early as possible so that they do not impact the performance of a business in a critical manner. In context to this, some of the major strategic issues faced by the company may include:
One of the major strategic issues is its imitation strategy as Zara is contemplated as the fashion imitator. The company does not predict the desires of its customers as it sees the needs and their preferences and imitate them in a proper manner to satisfy its customers. For this purpose, Zara has a group of some special employee who are called fashion detectives. Here, the major problem with this strategy is the lawsuits and fines which are caused by transgression (The conversation, 2015). Zara is usually known for plagiarism in its products and pays fines up to tens of millions of Euros each year. For instance, Louboutin questioned Zara for imitating its open toed red soled sandals. Also, a French woman blamed Zara of stealing her snaps and printing them on its patent clothes. The whole scenario has deteriorated and impacted company’s reputation that Zara’s products are not for those customers who ask for originality. Therefore, lack of genuine design has become a critical issue for the effective development of company (Sun, 2014).
Another major issue faced by Zara can be its positioning problem which can be defined making an influential image or perception of product in the minds of customers. Zara is a big global brand image which is ranked 48th in the world’s top 100 brands. Basically, the company aims to provide the latest fashion designs to its customers at the right time at minimum possible cost (Lutz, 2015). Here, Zara offers broad product lines with high fashion content at reasonable prices but the major issue is that it does not offer excessive physical quality. It is believed that quality is one of the major pillars to win the hearts of customers and if a company is unable to make a positive image in the minds of customers that it does not produce excessive quality products then, this can be a major problem. Therefore, Zara must present a global image that it provides highest standards of quality to its customers (He, 2015).
Apart from this, international expansion problem can be contemplated as another major strategic issue of Zara. Zara has its business operations in more than 56 countries across the world with more than 1800 stores of Zara. In this context, Zara has been facing two critical issues in which one of them is that it is quite difficult for company to satisfy the desires of customers living in different regions. When it tries to satisfy the tastes of all the customers then, the process becomes very time consuming. In the same arena, another challenge is that the cost is high due to in house production and Zara has to import resources from other regions which make it difficult for company to lessen the cost of its products (Crofton and Dopico, 2007).
From the above analysis, it has been highly recommended to company that it should pay more attention to original designs rather than following the imitation strategy. Though, imitation strategy has given several benefits to company but company should move to ensure production of original production (Thomson and Baden-Fuller, 2010). Also, the company should plan to introduce some eye catching and attractive clothing which should be originally designed by a famous designer. Apart from this, Zara must present a global image that may offer the highest standards of quality with the main aim to serve reliable products to fashion lovers across the globe. Not only this, the company should ensure great cooperation with foreign suppliers by implementing flexible production techniques (Sumer, 2012).
Besides this, it is advisable to Zara to plan for new market entry by implementing diversification strategy to ensure innovation in its clothing designs. This would provide potential benefits to Zara to enhance its global sales with an ease. Another major recommendation to company is that it must reduce the costs by effectively utilizing new technologies (Hlavacka, et al., 2001). Lastly and the most important recommendation to Zara is that it should use online platform to ensure its effective promotion with the main aim to increase brand value as well as to enhance sales volume (Thomson and Baden-Fuller, 2010).
Conclusion
From the above discussion, it can be concluded that Zara has a growing market share across the world. It is true that the success and failure of company highly depends on what kind of competitive advantage and strategy this company offers to please its customers. By implementing the above mentioned recommendations, the company can improve its strategic image and can lead as a key player in such a highly competitive era.
References
Business insider. (2017) This clothing company whose CEO is richer than Warren Buffet is blowing the competition out of water.[Online]. Available at: https://www.businessinsider.in/This-clothing-company-whose-CEO-is-richer-than-Warren-Buffett-is-blowing-the-competition-out-of-the-water/articleshow/47655720.cms [Accessed: 30 January 2017].
Crofton, S.O. and Dopico, L.G. (2007) ‘Zara-Inditex And The Growth Of Fast Fashion,’ Essays in Economic & Business History, 25, pp. 41-54.
He, N. (2015) ‘How to Maintain Sustainable Competitive Advantages—–Case Study on the Evolution of Organizational Strategic Management’, International Journal of Business Administration, 3 (5), 45-51.
Hlavacka, S., Bacharova, E., Rusnakova, F. and Wagner, R. (2001) ‘Performance implications of Porter’s generic strategies in Slovak hospitals’; Journal of Management in Medicine, 15 (1), pp. 44-66.
Kordamentha. (2016) Fashion retailing and wholesaling in australia from catwalk to customer. [Online]. Available at: https://www.kordamentha.com/docs/default-source/publications/16-01_fashion-retailing-and-wholesaling.pdf [Accessed: 30 January 2017].
Lutz, A. (2015) This clothing company whose CEO is richer than Warren Buffett is blowing the competition out of the water. Business Insider [Online]. Available at: https://www.businessinsider.in/This-clothing-company-whose-CEO-is-richer-than-Warren-Buffett-is-blowing-the-competition-out-of-the-water/articleshow/47655720.cms [Accessed: 30 January 2017].
Mo, Z. (2015) ‘Internationalization Process of Fast Fashion Retailers: Evidence of H&M and Zara’, International Journal of Business and Management 10 (3), pp. 217-236.
Mo,Z. (2015) ‘Internationalization process of fast fashion retailers: Evidence of H&M and Zara’, International journal of business and management, 10 (3).
Sumer, K. (2012) ‘Business Strategies and Gaps in Porter’S Typology’, Journal of Management Research, pp. 110-112.
Sun, R. (2014) Big challenges and opportunities. China Daily Asia. [Online]. Available at: https://www.chinadailyasia.com/business/2014-02/24/content_15120150.html [Accessed: 30 January 2017].
The conversation. (2011). Zara’s Australian entrance to challenge local retailers. [Online]. Available at: https://theconversation.com/zaras-australian-entrance-to-challenge-local-retailers-272 [Accessed: 30 January 2017].
Thomson, N. and Baden-Fuller, C. (2010) Basic Strategy in Context: European text and cases. USA: John Wiley & Sons.
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