Part A:
Zara is a Spanish retail brand with its headquarters in Arteixo, Spain. The retail chain was founded by Amancio Ortega and Rosalía Mera and is the main brand owned by Inditex Group. It has emerged as one of the biggest brands in the international fashion industry. The group started its foreign expansion with Portugal and is now present in over fifty countries like the United Kingdom, France, Australia and Luxemberg (Zara.com 2017). The fashion brand is now looking forward towards strengthening its business in the emerging markets of Asia in countries like India and China.
The focus of the report is to analyse the business environment of Zara, the premium Spanish designer apparel brand. The aim is to find out the strategies Zara makes to take advantage of the internal and external environment.
The political factors like government decisions, policies framed by international organisations like the European Union and taxation laws have strong impact on the retail industry. Zara is a Spanish branded apparel manufacturer and profits from Spain’s membership of the European Union. The retail industry is one of the biggest industries of Spain and advantages from its European Union membership (European Union – European Commission 2017). Zara can use this membership to expand its business in the other countries like Europe like the United Kingdom and Portugal. The retail industry and Zara in particular are taking advantage of the strong ties Spain has with the profitable markets of Asia, North America, Australia, South America and Africa. However Zara is also affected by political changes in the market like international economic conflicts, adverse laws and terrorism (Kariuki 2014).
The economic factors like prices of land, availability of raw materials, natural resource available in countries, per capita income diversity and labour conditions impact the retail industry. Zara takes the advantage of the economic stability of Europe to expand its business into the other European countries like France and Portugal. The premium retail is strengthening its supply chains in the new markets like India and China to obtain raw materials in these countries at cheap rates. Being premium designer apparel brand Zara needs to acquire high quality raw material and qualified designers(human resources) to make its apparel collections. The firm acquires material and human resources from several countries. The firm should use sustainable raw materials like cotton and silk from these countries and abstain from using animal parts like fur.
The social factors like increase in income, increase in the lifestyle of the people and the changing tastes of the customers act as drivers of the retail chains. Zara is present in Europe and North America where increase in income and rising living standard fuel its demand. The firm is increasing its presence in the Asian markets which are experiencing similar increase in income and development of lifestyle. These factors are encouraging the sale of the retail brands, particularly Zara (Carvalho and Rezai 2015).
Zara uses modern technology to manufacture its garments and takes about a week to develop new products. The firm uses milk run type operation method and manufactures clothes as per the customers’ demand. Most of the textiles are manufactured in Spain, Portugal and Morocco. However, its production is also expanding into Asian nations to meet the growing demands of the Asian markets like China and India (Yan, Chien and Yang 2016).
The business level strategies of Zara include fast fashion system, creation of opportunity to introduce new products and maintenance of low inventory. The company manufactures its products in its own plants which helps it to protect the secrecy of its designs. The premium retail creates opportunity in the market by introducing new products. It does not maintain a large stock of products. It instead manufactures new products according to the requirements of the customers. The firm showcases its products at the top international fashion shows and attracts the elite people around the world who can afford designer clothes. The firm follows ‘no advertisement policy’ which restricts its market penetration. This strategy is faulty because it restrict the raising of awareness about the new products by Zara in the market. The other international designer retail chains like Marks & Spencer’s and Gucci advertise their products which help them to create demand in the market.
Zara takes to diversification to expand its business and hold on to its current markets. The designer apparel maker has a well diversified product line to attract large number of customers. the product line of the firm consists of apparels for men, women and children. The firm also offers shoes and bags to the customers. This diversification strategy of Zara has helped it to cater to a large consumer base and earn huge revenue (Oh, Sohl and Rugman 2015).
The next diversification strategy taken by Zara is to diversify its location. The firm has presence in several host countries in Europe, North America and Australia.
The issue with its diversification strategy lies in the fact that it is entering the emerging markets of Asia. However, it is not expanding its product line to match the traditional tastes of the Asian markets. Its product line is restricted to clothes and shoes and needs expansion into new areas like cosmetics
The mother company of Zara, Inditex takes the acquisition and merger strategies to expand its business. The international apparel giant acquires new firms to increase its control over the market and maximise its revenue generation. The firm has entered a joint venture with Primark and Macerich to acquire share of a floor space of Kings Plaza, a premium fashion outlet (Prnewswire.com 2017).
The acquisition and merger policy of the international retail chain of premium clothing is aligned with its market expansion strategies. The designer is selling its Massimo Dutti Line and entering into a joint venture with Trent Limited, the retail arm of the Indian business conglomerate Tata. The joint venture will enable Zara to sell upscale brands in India and expand its business (reuters.com 2017).
The international strategy of Zara is based on its business model of offering premium clothing made from superior fabric. Zara uses vertical integration to process orders from its international clients and manufactures the outfits in its own studios. This high quality production strategy of Zara helped it to expand internationally beyond the shores of Spain (Pastakia 2014). The largest international market of Zara is Europe and it is strongly present in the United Kingdom and France. The international strategy of Zara is flexibility in operations yet confirming to its quality parameters which has allowed it to enter the markets of Europe. Zara is slowly increasing its presence in emerging markets of Asia to further empower its foreign expansion. The issue with Zara is it must be aggressive in its business expansion in the east (Meyer and Peng 2016).
Zara follows no advertisement policy to promote its outfit which is a weak strategy of premium designer. The tough competitors of the firm like H&M advertise their products on the print media, audio visual media and digital media like online marketing. The advertisements of H&M allow it to reach and penetrate the markets of Asia, which is also one of the strategies of Zara. H&M is able to source cheap raw materials from Cambodia and Bangladesh. The company has succeeded in outsourcing its designer garments from these nations at low cost. The company is also increasing its stores in China and India (Somasekhar 2017). The company is a bigger brand name than Zara owing to its advertisements which help it locate partners in new and emerging markets of Asia. This clearly shows that Zara is losing out on market competition due to its lack of advertisement actions.
Recommendations:
The above discussion clearly points out that Zara should adopt advertisement strategies to promote its products. It should promote its brand value in the new markets to attract partners and suppliers. It is recommended that it should source cheap raw materials from Bangladesh which will help it to reduce its cost of production and yet maintain its high quality standards.
Issue 2: Localising of products:
One of the main opportunities before Zara is its expansion into the emerging markets of Asia. The company is seeking to expand and strengthen its position in the profitable markets of the Asian countries, particularly India and China. The countries of Asia have their own culture and dressing pattern which are different from Europe. For example, the people of China love their culture and an international brand like Zara should localise its products to suit their won culture. Moreover, China has its own designers like Peacebird who are slowly globalising their operations(The Business of Fashion 2017). They are slowly emerging to pose their European counterparts like Zara a stiff competition.
Recommendation:
It is recommended that Zara should localise its products to suit the Asian tastes like adding Chinese designers in its outfit. This localisation will help it to create product differentiation and give it an edge over its competitors. The discussion shows that there are several designers indigenous to China making western outfits like Zara. Thus, making outfits with Chinese designs will help Zara to show its power to accept and adapt to diversity. It can alternatively acquire Chinese premium clothing manufacturers which will help it to reduce competition from the emerging firms.
Issue 3: Expansion of product line:
Zara has restricted its product line to apparels, bags and shoes which is one of its weaknesses. Two of the tough competitors of Zara are the Italian luxury brand Gucci and Irish brand Primark. The product line of Gucci has apparels, jewellery, watches and beauty products (Gucci.com 2017). Primark sells premium clothing, beauty products and home care articles (Primark.com 2017). These premium brands cater to a large number of customers owing to their richer product line. They give stiff competition to Zara both in Europe and internationally.
Zara should expand its product line to compete with tough competitors like Gucci and Primark. The premium designer can launch its own range of beauty products under its label. This will help it to expand its market. Zara can alternatively acquire a beauty brand which will allow it to expand its product line.
Conclusion:
It can be concluded that Zara is among the top fashion brands in world with its headquarters in Spain. It is an international brand with a strong presence in Europe which are its strengths. The expansion into emerging markets like Asia presents a great profitable future which requires the firm to advertise its products. This will help it to gain partners and market penetration. Zara should localise its products and incorporate local designs or outfits to achieve product differentiation. The brand faces threat from the established rivals like Gucci and emerging but powerful rivals like the Asian brands. The firm requires expanding its product line to emerge victorious in the international market.
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