ZARA Final Paper

5/26/2018 ZARA Final Paper

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STRATEGIC MANAGEMENT PAPER

ZARA

Created By:

Anggita Sulisetiasih 1006718706

Kenji Wibawa Junardy 1006718990

Patricia M. A. Adam 1006805694

International Undergraduate Program

Faculty of Economics

University of Indonesia

Depok 2013


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TABLE OF CONTENTS

Chapter 1 .................................................................................................................................... 4

INTRODUCTION ..................................................................................................................... 4

1.1. Company Background ................................................................................................. 4

1.2. Vision and Mission...................................................................................................... 4

1.3. Long-term Objectives .................................................................................................. 5

Chapter 2 .................................................................................................................................... 6

VISIONMISSION ANALYSIS ............................................................................................. 6

2.1. Importance (Benefits) of Vision and Mission Statements .......................................... 6

2.2. Characteristic of a Mission Statement ......................................................................... 7

2.3. Mission Statement Components .................................................................................. 8

2.4. Vision and Mission Relation: Is It Achievable? ........................................................... 10

Chapter 3 .................................................................................................................................. 11

EXTERNAL ASSESSMENT .................................................................................................. 11

3.1 Michael Porters Five-Forces Model......................................................................... 11

3.2 External Factor Evaluation (EFE) Matrix ................................................................. 13

3.3 Competitive Profile Matrix ....................................................................................... 15

Chapter 4 .................................................................................................................................. 19

INTERNAL ASSESSMENT ................................................................................................... 19

4.1 Resource-Based View Analysis ................................................................................ 19

4.2 The Internal Factor Evaluation (IFE) Matrix ............................................................ 22

4.3 Financial Analysis ..................................................................................................... 27

Chapter 5 .................................................................................................................................. 33

STRATEGIES IN ACTION .................................................................................................... 33

5.1 The Strategies ............................................................................................................ 33

5.2 Michael Porters Five Generic Strategies.................................................................. 34

Chapter 6 .................................................................................................................................. 36

STRATEGY ANALYSIS AND CHOICE .............................................................................. 36

6.1 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix ........................ 36

6.2 The Strategic Position and Action Evaluation (SPACE) Matrix .............................. 37

6.3 The Boston Consulting Group (BCG) Matrix ........................................................... 39

6.4 The Internal-External (IE) Matrix ............................................................................. 40


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6.5 The Grand Strategy Matrix ....................................................................................... 41

6.6 The Quantitative Strategic Planning Matrix (QSPM) ............................................... 44

Chapter 7 .................................................................................................................................. 46

IMPLEMENTING STRATEGIES: MARKETING, FINANCE/ACCOUNTING, R&D, ANDMIS ISSUES ............................................................................................................................ 46

7.1 Marketing .................................................................................................................. 46

7.2 Finance ...................................................................................................................... 49

7.3 Research and Development (R&D)........................................................................... 49

7.4 Management Information System ............................................................................. 51

Chapter 8 .................................................................................................................................. 53

STRATEGY EVALUATION AND GLOBALIZATION CULTURE ................................... 53

8.1 The Balanced Scorecard ............................................................................................ 53

8.2 Globalization Culture ................................................................................................ 56

Chapter 9 .................................................................................................................................. 59

CONCLUSION ........................................................................................................................ 59

9.1 Zaras Competitive Advantage.................................................................................. 59

9.2 Vision, Mission, and Strategies ................................................................................. 60

BIBLIOGRAPHY .................................................................................................................... 62


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Chapter 1

INTRODUCTION

1.1. Company BackgroundZara is a Spanish brand of clothing founded by the

visionary Amancio Ortega Gaona and Rosalia Mera in Artexio,

Galicia. Zara was founded in the year 1975. It is one of the

major selling brands of one of the biggest fashion retailer

"INDITEX". Zara is now available in 86 countries with total of

1,763 stores worldwide.

Inditex itself is a huge fashion retailer company which owns 8 brands namely Zara, Pull

&Bear, Massimo Dutti, Bershka, Stradivarius,

Oysho, Zara Home and last but not the least

Uterque. Amancio Ortega is the founder of Inditex,

which was established in 1963. Amancio Ortega

adapted unique business model, which were

innovative and flexible. This made Inditex one of

the biggest retailers in the world. In 1975 Inditex

established Zaras first store in downtown A

Coruna, Spain. Zara offers fashionable designs for men, women, and kids. They also sell

accessories to complete their product lines.

1.2. Vision and MissionThe companys vision as stated on the website: Zara is committed to satisfying the

desires of our customers. As a result we pledge to continuously innovate our business to

improve your experience. We promise to provide new designs made from quality materials

that are affordable.

Zara states that its mission is that Through Zaras business model, we aim to

contribute to the sustainable development of society and that of the environment with which

we interacts.


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1.3. Long-term ObjectivesThe company states on their website the following as their objectives in the long-term:

1. Save energy, the eco-friendly store: They are implementing an eco-friendlymanagement model in their shops in order to reduce energy consumption by 20%,

introducing sustainability and efficiency criteria. This management model sets out

measures to be applied to all processes, including the design of the shop itself, the

lighting, heating and cooling systems and the possibility of recycling furniture and

decoration.

2. Produce less waste and recycle: Zararecycles their hangers and alarms, which arepicked up from their shops and processed into other plastic elements. This is an

example of their waste management policy. Millions of hangers and alarms are

processed each year and both the cardboard and plastic used for packaging are also

recycled.

3. Their commitment extends to all their staff, increasing awareness among theteam members: The Company holds In-company awareness campaigns and specific

multimedia-based training programs to educate their staff in sustainable practices,

such as limiting energy consumption, using sustainable transport and modifying

behavior patterns.4. Use ecological fabrics, organic cotton: Zara supports organic farming and makes

some of its garments out of organic cotton (100% cotton, completely free of

pesticides, chemicals and bleach). They have specific labels and are easy to spot in the

shops.

5. Use biodiesel fuel: Zaras fleet of lorries, which transport more than 200 millionitems of clothing a year, use 5% biodiesel fuel. This allows them to reduce their CO2

emissions by 500 tons.

We can see from the objectives that Zara is aiming to be an environmental-friendly

company. It is their top priority at least until the year 2020.


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Chapter 2

VISIONMISSION ANALYSIS

2.1. Importance (Benefits) of Vision and Mission StatementsZara clearly has a formalized mission statement and they are currently striving to

achieve their mission through strategies implemented though their objectives in long-term

period. According to King and Cleland, taken from Fred Davids Strategic Management

book, it is said that there are six benefits of having carefully-developed mission statement:

1. To ensure unanimity of purpose within the organization2. To provide a basis, or standard, for allocating organizational resources3. To establish a general tone or organizational climate4. To serve as a focal point for individuals to identify with the organizations

purpose and direction, and to deter those who cannot from participating further

in the organizationsactivities

5. To facilitate the translation of objectives into a work structure involving theassignment of tasks to responsible elements within the organization

6. To specify organizational purposes and then to translate these purposes intoobjectives in such a way that cost, time, and performance parameters can be

assessed and controlled

In case of Zara, their mission statement clearly and firmly emphasizes their purpose,

which is to be an environmental-friendly company and contribute to society development.

Their purpose is also their base in making allocation to their resources in which we know that

Zara allocates more on creating an eco-friendly operations and boosting its supply and value

chain other than spending for marketing campaigns. The mission statement, combined with

its corporate culture, somehow produces a conducive organizational climate for achieving

their objectives.

Moreover, since the mission statement is very clear and direct, it is easier for the

employees to set their mindset and behavior to be aligned with the companys objective. In

other words, employees know what they should do, how they should do it, in order to achieve

those objectives. Finally, Zara as a determined company, with the purposes of being a fast

fashion company that concern its environmental-friendliness, combined with their long-term


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objectives that are derived from their mission statement, create somewhat a clear standard of

their cost, time, and performance assessment, and it has been working well so far.

2.2. Characteristic of a Mission StatementA Declaration of Attitude

A mission statement is more than a statement of specific details; it is a declaration of

attitude and outlook (David, 2013). A good mission statement sets the companys objectives

and strategies without limiting the managements creativity. It also needs to be broad enough

to reconcile the stakeholders differences. Moreover, a good mission statement indicates the

relative attention that the organization/company will devote to; it reflects judgments about

future growth directions and strategies that are based upon forward-looking external and

internal analysis.

In case of Zarasmission statement, based on what is stated on the website and quoted

on this paper, it is said that through its business model, Zara aims to contribute to society

development and environment sustainability. That is their objective and the attention that

they devote to. Zara states that an eco-friendly company is what their direction is, other than

fulfilling their consumers fashion needs.

Furthermore, Fred David on his book summarizes nine Characteristics of a Mission

Statement, they are:

1. Broad in scope2. Less than 250 words in length3. Inspiring4. Identify the utility of a firms products5. Reveal that the firm is socially responsible6. Reveal that the firm is environmentally responsible7. Include nine components8. Reconciliatory9. Enduring

In Zara case, we can conclude that it is broad in scope. It clearly states their mission

statement and differentiated from their objectives, though the two are still aligned one

another. The length also does not exceed 250 words. However, in our opinion, their mission


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statement is too simple in order to inspire people to take actions. We think that a brief

statement of their act would be better if it is mentioned on the mission statement also.

Moreover, their mission statement is too direct to the companys direction that it does not

identify the utility of their products. However, Zara shows their emphasis on environmental

and social responsibility very well. The word sustainable developmentof society on their

mission statement not only shows that they are socially responsible, but also clarifies as an

enduring mission statement in term of program and actions.

On the other hand, Zaras mission statement does not completely include the nine

components of a Mission Statement. More of this will be discussed on the next section.

Lastly, it is also not reconciliatory.

A Customer Orientation

Fred David says on his book that a good mission statement reflects the anticipations of

customers. It identifies the customers needs and then provides a product or service to fulfill

them. Moreover, a mission statement should identify the utility of a firms products to its

customers. Zara implicitly states its customer orientation by using the phrase through our

business model. This will lead us to the explanation of Zaras unique business model, the

fast fashion.

The term fast fashion, by its definition, is an expression used by fashion retailers for

designs that move quickly from the catwalk to capture current fashion trends (Wikipedia,

2013). The designs are manufactured quickly and directly distributed to stores for end-

consumers. Specifically for Zara, they claim that they only take two weeks for new designs to

be sold at their stores, while normally it would take more than three months. This is a form of

Zarasquick-response for their customers who desire the latest trend of apparels.

2.3. Mission Statement ComponentsZara may not state all of the 9 components on their mission statement; however, they do

explain those components on the company website.

1. Customers:The customers of Zara are men, women and kids who love fashionand like to wear the latest trend of clothing and accessories in their daily life.

2. Products or services:Clothing, accessories, home and bedding sets collection


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3. Markets:Geographically, Zara now operates in 86 countries across the globe,in every continent, with total of 1,770 stores.

4. Technology: Zara uses the Hybrid Model Information, in which informationfrom stores to headquarters relies from combined human intelligence input and

from information technology, such as their PDA devices (Sandoval). The

technology used allows the company to boost its value chain and eventually lower

the manufacturing time. Moreover, nowadays Zara is aiming to practice an eco-

friendly technology throughout its worldwide operations.

5. Concern for survival, growth, and profitability: As one of the leading brandsin the fashion industry, company profitability and growth is of course important.

At the beginning of 2013, Inditex reported a 22% increase in their earnings as

they expanded in many emerging markets such as China, India, and Indonesia as

well as the online retail.

6. Philosophy: Zara, under the Inditex umbrella, shares the same core values withthe overall group, which is based on teamwork and open communication, and

performance expectations are very high. These principles underpin each staffers

personal commitment to meeting customers needs (Inditex, 2013). Moreover,

the company believes that in the course of doing business, they must implement

sustainable development standards that promote environmental protection,

ensure that resources are properly managed and meet society's needs. Inditex has

the strategy called Sustainable Inditex, which was initiated in 2007 and

continued up to today in which they try to reduce the CO2 emission by 10% in

2015, and 20% in 2020. Moreover, they are opening sustainable and

environmental- friendly stores worldwide.

7. Self-concept: Zarascompetitive advantages as one of the members of Inditexgroup are that it has compelling mix of latest fashion and quality at relatively

affordable price. It has unique product strategy with 36,000 new designs per

year with 2 6 weeks delivery time to each store. Zara also emphasizes

customer interaction by using the daily-in store feedbacks. Lastly, Zara also has

attractive stores in prime locations.

8. Concern for public image:As mentioned on their company mission, Zara aimsto be an environmental-friendly company that is successful in meeting their

customers needs.


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9. Concern for employees: Related with its philosophy, Zara places teamworkand communication among employees as one of the companys top priorities.

This is also aligned with their practice of IT which requires fast-delivering

information, which is why they educate their staff in sustainable practices. It is

one of their long-term objectives stated on their website.

2.4. Vision and Mission Relation: Is It Achievable?Today, Zara is one of the worlds largest brands. They are successful and still

expanding in many emerging markets. Even in Indonesia, they are loved by the fashionistas.

They produce new and good designs that their customers love, and their customers are also

loyal. Zarascustomers are so loyal that the value of each fan of Zara is placed the highest

among other customer-favorite brands (as shown on Figure 1). If we take a look back to their

vision, we can conclude that Zarasvision is not only achievable, but actually achieved.

Further, in case of their mission, since it is enduring and talks about their direction in

the future, we think that Zara is getting there. In addition, if we consider their long-term

objectives and their current strategies, then their mission is achievable, promising and

actually undergoing.

Figure 1 Value of a Fan: Across Brands 2013

Source: Syncapse 2013


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Chapter 3

EXTERNAL ASSESSMENT

3.1 Michael Porters Five-Forces Model

The model identifies and analyzes 5 competitive forces that shape and help companies to

determine their industrys degree of competitiveness and therefore helping the

companies to develop their strategies. The following is the Five-Forces Model for Fast-

Fashion with further analysis relevant to Zara:

Figure 2 Fast Fashion Five-Forces Model

We can take a look at each one more specifically of their measurement:

1. Barriers to entry: HIGHa. High fixed cost business requires economics of scale for sustained profitability

b. High SG&A which includes advertising, in-store promotions, etc.; up to 3.5%of its revenue, even though for Zara, the company is famous for spending

minimum level of advertisements and commercials. However, recently the

company announced that it invested 450 million in commercials as well as

logistics area (Inditex, Inditexs net sales rise 6% to 7.7 billion euros, 2013).

MODERATE

MODERATE

HIGH

HIGHLOW


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c. Concept to store which takes 6 months to a year which refers to long salescycle. However, in case of Zara, the lead time of clothes first-designed by the

designer teams to finished products sold at the store take only about two

weeks.

d. Brand equity which is valuable to consumers2. Substitues: MODERATE

a. Buyer propensity to substitute is high with several competitors to choose from(H&M, Uniqlo, MANGO, and many other fast-fashion brands)

b. Low buyer switching costs and easily substitutable where a customer can walkinto its neighboring store instead of Zara

c. Zara has gained substantial customer loyalty which has more visits per yearthan its competitors store

d. Copying of styles is quite prevalent in this industry, which can attract thecustomer who does not mind lower quality but similar looking apparel. The

example will be counterfeiting of Zara products in Indonesia which is

currently trending.

Example of Zara counterfeiting in Indonesia

3. Buyer Power: MODERATEa. Trendy fashion wear is appealing to regular consumers and they would not

shop lower quality apparel or accessories

b. Apparel consumers have lots of choices when it comes to trendy clothing andaccessories, but price can be a factor. In the case of Zara, for European,

American, and eastern Asian countries, Zara is positioned as the low-end


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products, however, in emerging markets such as India, China, and Indonesia,

Zara is considered as the high-end products.

4. Supplier Power: LOWa. Contract based cloth production and stitching functions readily available

b. Low price of fabricc. Local cooperatives work without contracts or labor unions

5. Rivalry: HIGHa. High exit barriers due to high fixed and SG&A costs and excess inventory

with lots of cash tied up in out-of-fashion inventory

b. High advertising expenses; 3.5% of revenue indicative of intense competition

3.2 External Factor Evaluation (EFE) Matrix

KEY EXTERNAL FACTORSWeights

0.0 to 1.0

Rating

1 to 4

Weighted

Score

OPPORTUNITIES

1. Increasing middle class in Asia 0.10 3 0.3

2. Opportunity to build distribution centers

in developing countries to lower costs0.05 1 0.05

3. New designers for better designs 0.10 3 0.3

4. Rising environmental issues 0.05 4 0.2

5. International Recognition 0.20 4 0.8

THREATS

1. Fierce Competition 0.2 4 0.8

2. Lawsuit related to sweatshops 0.05 2 0.1

3. Possible imitation of goods 0.05 2 0.1

4. Dilution of Brand Equity 0.2 4 0.8 +

TOTAL 1.00 3.45

The Opportunities of ZARA:

1. Increasing Middle Class in Asia weighs as 0.10 with a rating of 3; it is categorizedas highly-rated since it is an important factor. Not only because Asia is a booming

continent in which there are populous countries with growing GDP, but also

because people in Asian countries have the taste which Zara offers for its clothing.

Moreover, people in Asian countries, especially the teenagers and young adults

are usually western oriented. Meaning, they like to follow the trends that the

western culture currently has and adapt those trends in their country. One of those

trends is definitely apparel. Zarasrating for this factor is 3, which indicates that


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the response is above average because Zara is expanding aggressively in these

emerging markets of Asia (India, China, and Indonesia). They are also the first

mover in these countries. Therefore, we conclude that they have higher response

rate.

2. Opportunity to Build Distribution Centers in Developing Countries to LowerCosts weighs only 0.05 because even though it sounds interesting in order to cut

costs of distributing the finished products, but there are problems that may occur,

such as infrastructure problems in developing countries which might actually

hamper the companys super efficient supply and value chain. That is also the

reason why we put Zaras response as 1 or poor, because they are not interested in

this option.

3. New Designers for better design weighs a 0.10 with a rating of 3; this is veryimportant since they are based on fast-fashion which they need to change products

every 2 weeks. Therefore, excellent team of designers is crucial in this business.

Since Zara just cooperated with a lot of new designers, consequently their

response is categorized as above average.

4. Rising Environmental Issues weighs a 0.05 with a rating of 4 or superior; They arekeen to have a good reputation of being an eco-friendly company, they even set

their mission regarding this issue, but too bad that sometimes the consumers do

not care about the eco-friendly issue, especially consumers in Asian-emerging

markets like India, Indonesia, and China. They simply want exclusive and trendy

clothes.

5. International Recognition weighs a 0.20 with a rating of 4 or superior response;undoubtedly this factor is the most important for Zarasopportunities because it is

the key to successful expansion. In case of Zara, it is widely-known across the

globe with good reputation in most of the countries. Therefore, it is a winning

point for Zara to have such brand image in the eyes of global consumers.

The Threats of Zara:

1. Fierce Competition weighs a 0.20 with a rating of 4; one of the biggest threatsbecause of new and affordable products from different stores such as H&M,

Forever 21, and Uniqlo may harm Zara in terms of consumers loyalty. The

analysis from Five-Forces also gives us some details about how this fierce


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competition can affects Zara. However, somehow, regardless the amount of

advertising investments Zara made, this brand can still enjoy remarkable growth

across the globe. Allegedly it is the supply chain that makes it the winner.

Therefore, we conclude that the response rate is superior.

2. Lawsuit related to Sweatshops weighs a 0.05 with a rating of 2; this threat is notmuch of a threat because the cases were not highly publicized, and also because

the company has created a commitment to stop the practice of sweatshops in every

factory; in every country where they produce their products.

3. Possible imitation of goods weighs a 0.05 with a rating of 2; there is a risk ofZaras products being copied, either by their competitor (the designs) or by

irresponsible people that practice counterfeiting. However, since Zara is targeting

the middle-upper class, therefore, it is not much of concern. Moreover, Zaras

consumers are popularly known as loyal consumers to the brand.

4. Dilution of Brand Equity weighs a 0.2 with a rating of 4; this is also an importantthreat because it can decrease in its brand value in customer eyes. Therefore, Zara

is implementing their best strategies to increase the brand equity. Probably more

significantly to their European consumers through the eco-friendly company

campaign which is highly noticed and precedence by European consumers.

Based on the EFE Matrix result, we see that Zara has a score of 3.45 which indicates a

strong response from Zara towards the opportunities and anticipation of threats.

3.3 Competitive Profile Matrix

Critical Success

FactorsWeight

Zara H&M Uniqlo

Rating Score Rating Score Rating Score

Target foreign market

selection0.15 4 0.6 3 0.45 2 0.3

Enter marketing

strategy0.05 2 0.1 2 0.1 4 0.2

Timing of entry 0.05 2 0.1 2 0.1 4 0.2

Recognition of brand 0.12 4 0.48 3 0.36 3 0.36

Customers knowledge 0.1 4 0.4 3 0.3 3 0.3

Marketing support in

global market0.06 1 0.06 4 0.24 4 0.24

Location selection 0.04 3 0.12 2 0.08 3 0.12


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Design collection 0.12 3 0.36 3 0.36 2 0.24

Employee 0.05 2 0.1 2 0.1 2 0.1

Price policy 0.1 3 0.3 4 0.4 4 0.4

Sales promotion 0.05 1 0.05 4 0.2 4 0.2

Organization andcontrol business

0.11 4 0.44 2 0.22 3 0.33

TOTAL 1 3.11 2.91 2.99

a. Target Foreign Market Selection: One of the most important factors in determiningsuccess in this highly competitive industry which force its players to have massive

expansion strategy. That is why the weight is 15%. Comparing to its other 2

competitors, Zara has the highest score since they have been in the international

market longer then H&M and Uniqlo. Zara was the first to start opening new stores

in countries outside their country-of-origins continent. Zara expanded outside

Europe firstly in 1997 to Israel (Inditex, Timeline, 2013), followed by H&M which

is originated in Sweden, first opened their store outside Europe in 2001, located in

New York. Uniqlo was the last because they are a new player, established in 2005.

b. Enter Marketing Strategy: How the headquarter decides the mode of entering a newmarket defines the companys interest towards the host country, as well as the

companys capability and strategy to do international expansion. Uniqlo takes the

lead for this aspect, thanks to its advertisement and promotions which are

everywhere. They even outran H&M in Asian countries by expanding rapidly with

strategy of wholly-owned subsidiary which potentially gives more concentrated

strategy compared with Zara and H&Ms strategies in which both used third-party

to enter Asian markets. For example, Zara in Indonesia is under the management of

PT Mitra Adi Perkasa.

c. Timing of Entry: Uniqlo has the highest rating for its timing to entry because ofthe booming trend of East Asia in other Asian countries, like Indonesia which is

currently suffering from Korean Invasion. This perfect timing result a surge of

consumers dying to shop at Uniqlo stores just out of curiosity.

d. Recognition of Brand: Zara takes the lead on this factor due to its powerful brandequity across the globe, including in Indonesia and other countries as well, they do

not need much advertisement or promotion because they are already strong in

international market. Meanwhile, H&M and Uniqlo is catching up to Zara. That iswhy the company finally realized the need to invest more on commercials. They


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eventually invested more than 600 million euro to improve their commercials and

their logistic simultaneously.

e. Customers Knowledge: As the first mover in the international market, Zara winsagain for this factor. The first player usually gets the most advantage compared to

those who lagged. Moreover, customers knowledge is also important in order to

attract new consumers. Note that customers can also become tool for promotions

through the powerful word-of-mouth.

f. Marketing Support in Global Market: Zara has no lead here since after so manyyears, the company seemed not care about this factor, which then ties H&M and

Uniqlos full on advertisements and marketing. Not until just recently when Inditex

finally decided to improve their marketing efforts.

g. Location Selection: H&M is behind Zara and Uniqlo since it has just opened inonly two stores in Jakarta. That is just one of the examples of how H&M is lagging

behind the other two in international market. Zara, on the other hand, is opening

more and more new stores in current market, in new market, and almost in every

big malls, shopping streets, downtown city, all strategic locations in every

countries around the world. Meanwhile, Uniqlo is trying to catch up by opening

more new stores concentrated in Asian countries like the one which has just been

opened in Indonesia at Lotte Shopping Avenue.

h. Design Collection: In apparel industry, designs are the key. In order to besuccessful in this industry, designers must be able to produce designs that the

consumers currently like, designs that consumers will like in the future, and

designs that consumers did not expect they would ever like. Impressing the

consumers and be creative is important. Zara and H&M, in this case ties while

Uniqlo is behind. Zara not only sells clothing, accessories and perfumes, but also

furniture bedding, while H&M sells clothing, accessories, home perfume and make

up.

i. Employee: None of the stores takes the lead and are tied with a rating of 2, becausegenerally all companies evidently put their best service to attract customers

considering the high level of competition. In other words, no company outperforms

the others in this matter. Moreover, in apparel industry, employees (especially the

office employees) are not much of an effect more than the products itself, as a

result, the weight given is only 5%.


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j. Price Policy: Price matters in apparel industry. Moreover, since the rivalry amongfirms is high, therefore companies must be able to charge at competitive price. In

this aspect, H&M and Uniqlo ties on taking the lead for their more affordable

products than Zaras, especially Asian-developing countries like India, Indonesia,

and China.

k. Sales Promotion: H&M and Uniqlo also ties on taking the lead for promotions andadvertisement compared to Zara. This will relate to the companys strategy in

Marketing. Again, Zara has been very stingy when it comes to marketing

campaigns.

l. Organization and Control Business: In fast-fashion industry, the business controloperation is important. Because the lead time needs to be as low as possible,

therefore there is no room for defects. Zara is in the lead for this aspect, thanks to

their highly-integrated information response, by using PDA to directly inform the

headquarters about what is going on in the store. The report will be daily, or even

hourly.

Based on the result of CPM matrix, we see that Zara is still the winner among its

competitors with 3.11 score. Moreover, it also means that Zaras performance is above

average.


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Chapter 4

INTERNAL ASSESSMENT4.1 Resource-Based View Analysis

The RBV approach to competitive advantage contends that internal resources are

more important for a firm than external factors in achieving and sustaining

competitive advantage. Therefore, in this analysis, we will look deeper into the

internal factors that Zara is relying on for their success.

Further, RBV is divided into three main categories: Physical Resources, Human

Resources, and Organizational Resources. In order to be valuable, each resource must

be either: (1) rare, (2) hard to imitate, (3) not easily substitutable. The following are

the analysis of Zara using the RBV:

1. Physical Resourcesa. Prime Location: One of the best strategies that Inditex applies to all of its

brands, including Zara is that the stores are always located in prime

locations of the city. If the center of the crowd is in the shopping malls

like Jakarta, then that is where you will find Zara stores. In European

countries and USA, crowds are usually centered downtown or in

shopping streets, and that is exactly where Zara stores are located.

Choosing prime locations give more benefits to the company from the

amount of store visitors which can result more sales created.

b.

Attractive Window Displays: Even though Zara does not have manyadvertising or commercials, Zara does rely so much on its physical store-

Indoor Zara store (Plaza Indonesia, Jakarta) vs. Outdoor Zara store (42nd

Street, New York)


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experience. Their marketing strategy includes putting attractive and

creative window displays to attract consumers, and maintain them inside

the store with the store ambiance and service; hence, creating an

impressive shopping experience for consumers.

Examples of Zaras attractive window displays

c. Exclusive and Trendy designs: As the leader in fast-fashion industry,Zara is popular for its fast-changing designs. What makes it interesting is

that Zara is able to provide apparel designs that their customers love and

it is consistent, even in a very short amount of time. Their total designs

in 2012 reached 36,000 designs in a year. That is a marvelous number.

Examples of Zara collection per season and customers excitement towards Zara store

d. Sophisticated IT System: One of Zaras secret will be the integratedinformation system using the PDA and POS. Both will be explained

further in the following chapters.

2. Human Resourcesa. Trained designers: In order to boost their product quality in terms of its

couture value, Zara cooperates with many new designers and they give

training to the designers for them to able to produce in shorter lead-time,

and adaptive enough to produce with materials/fabrics that are available


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instead of designing the apparel first then finding the material/fabric.

That type of operation will cost more also consumer more time to the

company.

Zara designer teams in action

b. Caring Employees: In order to enhance the customer service in each ofits retail store, Zara, therefore, train their employees to prove better

service, including their attitude, professionalism, having a sense of

belonging to the store, and hard-working.

3. Organizational Resourcesa. Market-oriented Strategy: Just like what the old saying says, the

customer is the king. In the industry with high competition profile,

choosing to emphasize on your customer is important and wise. Because

in this type of industry, the key is to be able to make your customer loyal

so that they will not shift to other brands easily. By concentrating on

customers demand and preferences, supported by its operational

strategies, Zara shows their commitment towards their customers. That is

why Zaras customers are loyal; thus, Zara can reach its position right

now.

b. Staff-education: Related with the discussion on Zaras human resources,Zara is concentrating on customer service; thus, the need to educate their

staff is one of their top priorities.

c. Eco-friendly: The global warming issue is a hot topic nowadays. Moreand more companies start to put special attention to deal with this issue.

Especially in European countries, where the society is fully-aware withthe importance of eco-friendly business operation, having a mission of


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becoming an eco-friendly company will inevitably bring positive

response from the society. Note that the society is actually the

consumers.

d. Production strategy: One of the most innovative strategies that Zaraapplies is the production process. As mentioned before, instead of

designing the clothes first, the designers actually examine the available

materials and/or fabrics, then after that they will design apparel based on

the existing material and/or fabrics, therefore, the lead time can be

reduced and costs will be decreased.

e. Value chain: Zaras overall value chain differs from its competitors andit is unbeatable until today, especially its lead time of 2 weeks. Zaras

value chain is actually what makes Zara able to produce new designs in

just 2 weeks. We will analyze the value chain later in the following

chapters.

4.2 The Internal Factor Evaluation (IFE) Matrix

STRENGTHS

a. Global Outreach

Key Internal Factors Weight Rating Weighted Score

Strengths

Global Outreach 0.08 3 0.24

Strategic Location 0.08 3 0.24

Distribution Strategy 0.12 4 0.48

Store Image 0.12 4 0.48

Fast Changing collection 0.09 4 0.36

Responsive Employees 0.03 3 0.09

Brand Image 0.15 4 0.6

Weaknesses

Limited Stocks 0.08 2 0.16Price 0.12 1 0.12

Brand image closely

tagged to competitors

0.08 1 0.08

Lack of Marketing 0.05 2 0.10

Total 2.35


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Inditex, as the head company, expands Zara in a large amount of scale. Currently

they have more than 1,700 stores in exactly 86 countries around the world. This

condition is one of a good strength that Zara has because as an international brand

company, especially in apparel industry, Zara should reach every part of the world.

Therefore, a weight of 0.08 would be adequate for this factor.

We rank this strength 3 out of 4 because we think that this factor is definitely one

of Zaras strengths, even though it is not their major strength. Therefore, rating 3

(minor strength) would be sufficient to describe Zaras condition . In addition,

reaching global market is a foundation to step for an international brand to dominate

the industry.

b. Strategic LocationZara chooses where to locate their stores carefully because they are aiming for a

direct communication strategy to promote their products. They have a unique

approach in locating their store in each countries, and even cities. For example in

Indonesia, Zara locates their stores in almost every big shopping mall because it has a

high traffic everyday and it is the main place for people to go shopping. In France,Zara locates their store in downtown and main streets as the local people usually walk

down the street to go shopping. We gave this factor 0.08 of weight considering the

importance of convenience for consumers in the industry. Consumers will like it if

they can find good products available at their beloved shopping centers.

Since Zaras locations are strategic globally, we therefore give3 ofrating for this

brand. It is categorized as their minor strength because we think this is not the main

reason why Zara is prominent in fast-fashion industry.

c. Distribution StrategyIn the distribution system, Zara control most of the supply chain and distribution

of its products from the headquarters. Zara has their main manufacturing place in

three different contingents. 50% of the products are produced in Spain, 26% in the

rest of Europe, and the rest 24% percent is outsourced in Asia and Africa. Then the

products were transferred to Zaras distribution centers located in Spain to be

exported to Zaras stores around the world. We can see that their distribution strategy


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is vertically integrated. This requires a high concentration and control form the

headquarters in Spain, and that is exactly what Inditex does. Since the distribution

strategy is integrated, combined with their high technology, the products can be

distributed globally in just a short amount of time. This is the uniqueness of Zara.

They are able to adapt to the latest trend in limited time, using the Hybrid

Communication system, then produce those latest trend with available materials to cut

production time and cost, and after that the products are immediately transferred to all

the stores.

We found out that this is strategy has become their strength. An effective

distribution, therefore, has a higher weight of 0.12. In our opinion Zara deserves 4

rating for this factor since this is their specialty.

d. Store ImageZara is a trendy yet exclusive fashion store. This is the image of Zara from around

the world. A unique concept of fast fashion might become a trendsetter in

international fashion industry. A good store image also drives people to consider Zara

when they want to purchase fashion items. In addition, their excellent customer in-

store services result a loyal behavior from consumers. In the industry with a high level

of competition, consumer loyalty is crucial; therefore we give a high weight of 0.12

and rank of 4 because this strength is a strong foundation for the company which is

highly acknowledged by Zara.

e. Fast Changing CollectionThis factor is one the specialties and uniqueness of Zara. Every 2 weeks Zara

published brand new fashion items. This strategy exists to stimulate and refresh

consumers curiosity about Zaras products. This is also the strategy to strengthen the

image of Zara as the designer teams always work to find out what the new designs

should be. The aim is to be the trendsetter of fashion business. However, in the

apparel industry, it is easy to copy the style of designs. Therefore, a rating of 0.09 is

given for this strategy. In terms of their response towards the factor, we give Zara 4

rating since they put high concern on this matter through their business model.

f. Responsive Employees


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Employees presence is important inside the store to control, rearrange items, and

also to give information to the customers. Therefore Zara also concerns about

Employees responsiveness, especially because they claim to have direct

communication as their prominent marketing strategy. Customer control and

satisfaction sometimes depend on the service and Zara want to optimize those

satisfactions in order to get the customers loyalty. On the other hand, sometimes

consumers do not really care about the customer service. Sometimes they care only

about the product and price. Consequently, a weight of 0.03 is given for this strength,

as it is not as important as the other strengths. In term of Zaras effectiveness in

responding to this factor, a rank 3 out of 4 is adequate.

g. Brand ImageWe set the brand image as the highest weight of 0.15. We do think that this is the

back bone of every player in apparel industry; again, considering the amount of

competition in this industry. One of the proofs would be the fact where consumers

still buy the product from certain brand even though many claim it uses bad fabrics, or

the price is sometimes too high, and so on. Eventually, they would still come back

because of the image that they will get when they purchase the product. In other

words, this symbolic brand benefits do exist and they are important.

The brand of Zara is famous for their exclusivity and trendy product. Zara would

never have a not up to date image as they always publish new items in every 2

weeks. The strong brand image is admitted around the world. This is what helps Zara

to keep improving and reach the sustainability. Therefore, we give a full score of 4 in

term of their response towards this factor.

WEAKNESSES

a. Limited StocksEven though Zara has a fast fashion concept, which is publishing new items in

every 2 weeks, but some of the items are limited. So for some items, they might not

be available in every store. Even though this is actually intentional, but for consumers,

this can be included as a weakness as some customers will not be satisfied if they did

not get the items that they want when they want it and where they want it . Customers


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dissatisfaction quite have an effect for Zara, therefore rank 2 out of 4 is given with

weight of 8% considering the fact that this strategy of Zara might actually be risky.

b. PriceIn its country of origin, Zara is categorized as a low-end product. However, Zara

is included in a high-end product in Indonesia and in many other countries, 1 item of

long sleeve shirt can be priced at 600,000 Rupiah. This is one of the weaknesses for

Zara as the customer will think twice to purchase if price is a big consideration for

them. This problem occurs mostly in developing countries, where the GDP per capita

is still relatively low. Even though the middle class segment is growing, but not all of

them are used to spend hundreds of thousand rupiah just to get a T-shirt. Therefore,

we rank a low rate of 1 out of four with larger weight of 12%.

c. Brand image closely tagged to competitorsAs mentioned earlier, the problem in apparel industry is that it is very easy to copy

each others designs. This weakness is one of the toughest to deal with. Beside Zara,

there are a lot of other brands that reach the international market that also build an

exclusive image for them self. Therefore sometimes public cannot differentiate

product from Zara and their competitors. In other words, it is going to be easy for

them to switch from one brand to another. Moreover, this will affect peoples

judgment that all the brands that in the same level as Zara is actually the same or

similar in term of types and products, or in other words, no clear differentiation

between those brands. As a player in this industry, Zara needs to obtain consumer

loyalty; therefore, we rank this weakness as their major weakness with rating 1 out of

4. However, the weight of this factor is not that high since in apparel industry, despite

the existence of problems in the designs differentiation, a brand can develop a strategy

to build consumers loyalty, just like what Inditex is trying so hard to do to its brands,

including Zara.

d. Lack of MarketingZara is lack of marketing such as promotion and advertisement. In Indonesia it is

very rare to see Zara logo and advertisement outside the store and in public area. In

fact, Zara in different countries also does not have that much of advertisement. They

only depend on the strong brand image that they already have. This can be a tough


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weakness if the competitors keep on increasing their marketing strategy, especially in

emerging countries.

From all the strengths and weaknesses we come out with the result of 2.35. This is an average

result from a perfect score of 4. So we can conclude that their effectiveness in utilizing their

strengths to cover the weaknesses is satisfactory enough.

4.3 Financial Analysis

LIQUIDITY RATIO

Current ratio defined as how much power does the current asset can cover current

liabilities. The result shows that both in 2011 and 2012 the current ratio is above 1,

which is good for the company as their asset have more power to cover the liabilities

from their assets.

Quick ratio basically has the same indication like current ratio. But quick ratio only

looks from the companys quick asset. So inventory is not included in the formula.

The result shows that the quick asset of the company still could cover the liabilities

that they have.

LEVERAGE RATIO

4.4

This ratio is to find out how much from the total asset that financed by the total debt.The higher the result will cause a higher financial risk. A healthy company should

2012 2011

Quick Ratio 1.4589 1.4366

2012 2011

Current Ratio 1.5180 1.5104

2012 2011

Debt To Total

Asset

0.3420 0.3197


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have a low debt to total asset ratio because they need a more flexible finances. Debt

financing could lower the degree of flexibility. Zara in both 2012 and 2011 had a low

result on this ratio, which means only a small amount of the total asset that financed

by the debts. A slight decreasing trend also shows a positive progress for their assets.

2012 2011

Debt To Total

Equity

0.5198 0.0469

As like the debt to total asset, this ratio defines how much equity that financed from

total debt. The result shows below 1 which is a good result. The equity was not

mainly financed by debt. But, in this case, Zara had a quite significant increasing

trend from 2011 to 2012. The increasing result is not good because it means they have

a bigger proportion of debt that finances the equity.

This ratio is much the same like debt to total equity. The different is that this ratio

only analyze from the long- term debt side. So how much equity that financed from

the long- term debt. The result shows a good sign. The long- term debt had a small

amount of proportion in financing the equity. A decreasing value of the result is also

an improvement for the company.

Times interest earned indicates the earning that is available to meet the interest

payments. A lower times interest earned will result in a less earnings available to meet

the interest payments and the company will be more vulnerable to increase the interest

rate. Zara has a significant increasing trend which is good for the company as they are

more powerful in term of the interest payments.

2012 2011

Long Term Debt

To Equity

0.1089 0.1074

2012 2011

Times interestearned 220.5988 68.1513


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ACTIVITY RATIO

2012 2011

Inventory

Turnover

24.6203 N/A (5612216/0)

Inventory turnover defines how fast the business can liquidate their inventory. The

higher result shows a good sign of the inventory circulation. Unfortunately we cannot

define the inventory turnover for 2011 as we have an insufficient data. But, for the

year of 2012 itself Zara has a quite good performance on their inventory turnover. 24

is quite a high result for inventory turnover.

2012 2011

Total Asset

Turnover

1.2371 1.2585

Total Asset turnover measures Companys effectiveness in generating asset to sales.

So, the higher the value will show a higher effectiveness of the Company in managing

their assets. Zara had a slight decrease on the trend which actually is not a good

performance by the company.

As like total asset turnover, fixed asset turnover also measure the effectiveness of the

Company in managing their asset. But this time is only for their fix asset. The greater

the value means a high effectiveness of the Company in generating their fixed asset to

sales. From only the fixed asset, eventually Zara has a positive trend. The value is also

higher than comparing to the total asset turnover. So Zara is effective and keep on

improving in managing their fixed asset.

2012 2011

Fixed Asset

Turnover

2.5727 2.4978


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PROFITABILITY RATIO

Gross profit margin has a vital role in indicating the financial health. It shows the

power that the company has to pay its operating and other expenses and build for the

future. It was a stable gross profit margin for Zara in 2011 and 2012, which is good

because gross profit margin should be stable and not too much fluctuation.

This ratio measures the Companys operating efficiency. The higher result shows a

higher efficiency of the company. Zara had a slight positive trend for their operating

profit margin. It means Zara had an improvement in managing their operation. Zara

also had bigger revenue leftover to pay their variable cost of production.

Net profit margin measureshow much out of every dollar of sales a company actually

keeps in earnings. A higher profit margin indicates a more profitable company which

has a good control on their costs. There is not much difference from 2011 and 2012

for Zara. So we could say that there is no improvement for Zara on their costs control.

2012 2011

Gross ProfitMargin

0.5976 0.5930

2012 2011

Operating

Profit Margin

0.1955 0.1828

2012 2011

Net Profit

margin

0.1484 0.1410

2012 2011

Return on Total

Asset

0.1836 0.1775


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This ratio basically measures the Companys effectiveness in generating their assets

into earnings. The higher the value, the better for the company as they are more

effective in managing their assets. Zara does not have a significant improvement from

2011 and 2012.

Return on stockholders equity indicates the amount of net income generates to the

stockholders equity. The higher value shows a bigger amount of percentage from thenet income to the equity. So a high return on stockholders equity will attract

investors to invest to the company. Zara had a slight increasing trend for this ratio but

it is not significant enough to attract the investors.

Earnings per share (EPS) is a portion of companys profit that allocated to each share

of the outstanding stock. This ratio will also attract investors attention, as they will

hold the shares. Zara had quite of an improvement her. They have 0.5 bigger portions

in 2012 comparing to 2011. The higher the earnings per share the better it is for the

investors.

T

he P/E Ratio is a comparison and valuation ratio of the companys current share price

compared to the price- share earnings. A higher price earnings ratio could define a

better performance of the company. Zara had a quite negative trend on their price-

earnings ratio, which means a decreasing performance and investors less expectation

on the earnings growth.

2012 2011

Return on

Stockholders

Equity

0.2791 0.2609

2012 2011

Earnings per share 3.7981 3.2888

2012 2011

Price Earnings Ratio 30.0410 30.4414


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GROWTH RATIO

Based on the financial statement, Zara had a 16% growth of sales. This could be

affected by an improvement on the effectiveness of managing their assets and

inventories. 16% is quite a large number of growths in one year.

Net Income had a growth of 22%. This is even bigger than the sales growth. So, it

shows that Zara not only improve in managing their assets and debt, but Zara is also

good in managing their expenses so that the net income was boosted up.

Zara also has an increase of 13.47% in earning per share growth. With an increase

of net income, Zara allocates more from their earning to the outstanding shares.


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Chapter 5

STRATEGIES IN ACTION

5.1 The Strategies

A. Integration StrategiesZara applies the Forward Integration. Since Inditex demands a high integration

between the headquarters and all branches across the globe, therefore Inditex controls

its retailers and distributors all around the world in order to standardize the overall

business performance. In addition, Zara also performs some horizontal integration

through its acquisition of Massimo Dutti from the Massimo Dutti group and the

acquisition of Stradivarius.

B. Intensive StrategiesAs an aggressive expander in global market; hence, Zara practices the Market

Development strategy in which they are entering new market with Asian-developing

countries being their first targets. Countries include China, India, and Indonesia. That

is why nowadays, almost in every new shopping malls in Jakarta, you can find Zara

store in it. Currently Zara is targeting the Asian market, hoping it will generate much

profit from this promising market.

Not only that it applies the Market Development, Zara also applies the Market

Penetration strategy, especially in European and American markets. Their techniques

of doing this strategy are by improving its online store and increase customer service

in all retail stores.

C. Diversification StrategiesTo complete its product lines, also as a form of their differentiation, Zara sells

accessories to complement their main product which is apparel. This kind of strategyis called the related diversification. Further, Zara also has the unrelated form of

diversification which is the Zara Home. Zara Home is a retail store which specializes

in home fashion and decoration. Zara Home, similar to Zara, emphasizes exclusivity

in all f its products and it is also relatively more expensive than its competitors. Zara

Home is available in 55 countries including Indonesia. However, in Indonesia we can

only find Zara Home store in Plaza Indonesia, Jakarta, Indonesia.


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D. Defensive StrategiesZara has no defensive strategy because the company is in good condition, not in

any kind of jeopardy. Therefore, it does not need any defensive strategy at the

moment.

5.2 Michael Porters Five Generic StrategiesAccording to Porter, strategies allow organizations to gain competitive advantage

from three different bases: cost leadership, differentiation, and focus. Porter called these

strategies the Generic Strategies. The following is the framework of Porters Five

Generic Strategies and the position of Zara in this classification.

SIZE OF

MARKET

GENERIC STRATEGIES

Cost Leadership Differentiation Focus

Large Type 1

Type 2

Type 3

Small Type 3 Type 4

Type 5

Zara Homes first store in Indonesia, located in Plaza Indonesia on 2nd

Floor


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Zara is categorized as the Type 3 because it is aimed to the industry-wide, in which

the size of the market is large. Moreover, Zara also has some strong differentiations that

make them the leader in the industry. Differentiations such as the concept of fast-fashion

(which was pioneered by Inditex), that is supported by its excellent and integrated supply

and value chain.


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Chapter 6

STRATEGY ANALYSIS AND CHOICE

6.1 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

Recalling the previous explanation about Zaras External and Internal Analysis, we

can now develop the four types of strategies: SO (strengths-opportunities) strategies, WO

(weaknesses-opportunities) strategies, ST (strengths-threats) strategies, and WT

(weaknesses-threats). Remember that there is no one best set of matches among these

strategies.

Strengths Weaknesses

Global Outreach Limited Stocks

Strategic Location Price

Distribution Strategy Brand image closely tagged

to competitors

Store Image Lack of Marketing

Fast Changing collection

Responsive Employees

Brand Image

Opportunities SO Strategies WO StrategiesIncreasing middle class in

Asia

Open new stores in

developing countries in Asia

(S1, O1)

Charge products at

competitive price in Asian

countries standards (W2,

O1)

Opportunity to build

distribution center in

developing countries to lower

costs

Build distribution centers in

Asia to lower distribution

costs for Asian countries (S3,

O2)

Produce a signature

collection (W3, O3)

Cooperation with new

designers

Be the trendsetter (S5, O3) Enhance the current brand

image and companys image

(W4, O4, O5)Rising environmental issues Promote the companys

vision to be an eco-friendly

company (S7, O4)

International Recognition

Threats ST Strategies WT Strategies

Fierce Competition Expand in new market and

be the first player in the

market (S1, S2, T1)

Increase spending for

marketing campaign (W4,

T1)

Lawsuit related to

sweatshops

Produce the new trends with

higher turnover (S5, T3)

Enhance ZARAs

differentiation through its

unique designs (W3, T4)


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Possible imitations of goods Increase the brand equity

through better service (S6,

S7, T4)

Dilution of Brand Equity

The SO strategies include aggressive strategies of the company to take advantage of

the existing opportunities matched with their strengths. Many companies pursue the other

three strategies first in order to be able to apply the SO strategies. As for Zara, they are

already in the position which enables them to apply those SO strategies given their

current weaknesses and threats. Currently Zara has already opened new stores in Asia,

they are also transforming into the trend-setter instead of trend-follower through its major

cooperation with many designers. In addition, Zara has promoted their eco-friendlycampaign through the companys vision and mission that is applied all the day down to

the retail stores. For example, Zara sells t-shirts that are made from organic cotton which

considered as environmental friendly. Unfortunately, they currently do not have any

intention to open a new distribution center in Asian country just yet. However, they

already have their purchasing office in Hong Kong and they are maximizing the use of

this office to boost sales in Asian region. They have also invested a large amount of

money in advertising to make them a much stronger competitor.

6.2 The Strategic Position and Action Evaluation (SPACE) Matrix

Financial Position (FP) Ratings

Increase in turnover 6

Increase in Net Profit after Tax 5

Decrease in Leverage 3

Total 14

Industry Position Ratings

Market growth, especially in developing countries 4

Fashion Industry itself is a sustainable industry 3

Very competitive 4

Total 11


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Stability Position Ratings

Inadequate infrastructure and IT in developing countries (especially

India and Indonesia)

-4

Counterfeiting in developing countries -2

Possible increase in labor costs -2

Total -8Competitive Position Ratings

Increasing threats from new competitors such as Uniqlo and H&M -3

Zara provides unique concept -2

Zara has the largest market share -2

Total -7

For Financial Position and Industry Position: +1 (worst), +6 (best) For Stability Position and Competitive Position: -1 (best), -6 (worst) Average:

SP : -2.67 IP : 3.67 CP : -2.33 FP : 4.67

Therefore, we get the x-axis = -2.33 + 3.67 = 1.34

the y-axis = -2.67 + 4.67 = 2

The following is the SPACE Matrix picture:

Since the curve is upward sloping placed at upper-right of the quadrant, we can

conclude that Zara can pursue the Aggressive strategies, by means the company is in an

excellent position to use its internal strengths to: (1) take advantage of external

opportunities, (2) overcome internal weaknesses, (3) avoid external threats. Therefore,

market penetration, market development, product development, backward integration,

AGGRESSIVE STRATEGY:

Backward, forward horizontalintegration

Market penetration Market development Product development Diversification (related or

unrelated)


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forward integration, horizontal integration, related and unrelated diversification, or a

combination strategy all can be feasible, depending on the specific circumstances that

face the firm. That is exactly what Zara is doing now, as we recall our previous analysis

on the Strategies in Action (Chapter 5).

6.3 The Boston Consulting Group (BCG) Matrix

The BCG Matrix portrays differences among divisions in terms of relative market

share position and industry growth rate. The Question Marks have a low relative market

share position, yet they compete in a high-growth industry. Companies in this group must

decide whether to strengthen them by pursuing an intensive strategy, or sell them. The

Stars represent the organizations best long-run opportunities for growth and profitability.

They have high market share and high industry growth rate. The Cash Cows have high

market share but compete in a low-growth industry. As for the Dogs, they have a

relatively low market share and compete in a slow-or-no-growth industry.

The following is the position of Zara and several other Inditexs brands in terms of

BCG Matrix:

STARS (High Market Share, High MarketGrowth)

Question Marks (Low Market Share, HighMarket Growth)

Cash Cows (High Market Share, Low Market

Growth)

Dogs (Low Market Share, Low Market

Growth)

Zara is placed as Stars because it has high market share and compete in an industry

with a high growth whereas the other Inditexs brands such as Stradivarius, Pull&Bear,

and Bershka are placed at the Question Marks since they have lower market share

compared to Zara. Based on the companys annual report presentation, from Inditexs


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overall income in 2012, exactly 66.1% comes from Zara, while Stradivarius, Pull&Bear

and Bershka contributed 6%, 6.8%, and 9.3% respectively.

Based on the theory, companies positioned at Stars should consider the forward,

backward, horizontal integration strategies, market penetration, market development, and

product development strategies. Zara as a leading brand should therefore receive

substantial investment to maintain or strengthen its dominant position. As a result, not

only that it is expanding aggressively across the globe, Inditex as the owner of Zara has

also made several investments specific to Zara in order to remain its position, those

investments include: additional investment for advertising, IT improvements for better

customer service, and hiring new designer teams to strive for becoming a trend-setter.

6.4 The Internal-External (IE) Matrix

The IE Matrix positions an organizations various divisions in a nine-cell display, in

which both EFE and IFE is again used to determine the organizations position. The

strategic implications from this matrix will differ with those from the BCG Matrix.

The IE Matrix for Inditexsbrands is as follows:

THE EFE

TOTAL

WEIGHTED

SCORES

THE IFE TOTAL WEIGHTED SCORES

Strong 3.04.0 Average 2.02.99 Weak 1.01.99

High

3.04.0

I II III

Medium

2.02.99

IV V VI

Low

1.01.99VII VIII IX


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The result of the IE Matrix shows that Zara is positioned as the Category II whereas

Bershka, Pull & Bear, and Stradivarius are at the Category V. Zara is considered as

Category because the EFE score was 3.45 (High) while its IFE score was 2.35 (Average).

Consequently, the strategy that Zara should pursue is the Grow and Bui ld Strategy.

Meanwhile for the other 3 brands we assume that they have same level of IFE because

they come from the same company with similar strategies in doing expansion. However,

the three brands may have lower level of EFE compared to Zara since based on the

number of stores available globally, especially in Asian countries, the other three brands

are lagging way behind Zara. In other words, the response of these three brands to the

growing market of Asian countries like China, India and Indonesia is low compared to

Zara. Therefore, they should pursue the Hold and Maintain Strategies.

Grow and Build strategies include the intensive strategies like market penetration,

market development, and product development, or integrative strategies such as backward

integration, forward integration, and horizontal integration. As for the Hold and Maintain

strategy, it includes the market penetration and product development strategy. In other

words, Bershka, Pull & Bear, and Stradivarius should either consider creating a whole

different concept of product or increasing the level of Branding and Marketing to boost

sales.

6.5 The Grand Strategy Matrix

This matrix will determine the companys position based on two evaluative

dimensions: competitive position and market growth. Since Zara has a very strong

competitive position and it also has a rapid market growth of 16%, consequently, we can

conclude that Zara is positioned in the 1stQuadrant of the matrix (Quadrant I).


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Among the suggested strategies of Quadrant I companies, specifically for Zara,

Inditex has used the market development, market penetration, forward integration, and

related diversification. In general however, Inditex has done twice of horizontal

integrations in the form of acquisition of two brands: Massimo Dutti and Stradivarius.

Market development effort for Zara includes opening new and larger stores in Asian

countries such as China, India, and Indonesia with stronger visual merchandising. They

also increase their product visibility in all the stores across the globe. Market penetration

efforts include enhancing its online-sales expansion in Europe, America, Australia and

South Africa. Moreover, they also enhance the in-store experience to increase the

consumers loyalty.

Weak Competitive

Position

Strong

Competitive

Position

Slow Market Growth

QUADRANT I:

1. Market development2. Market penetration3. Product development4. Forward integration5. Backward integration6. Horizontal integration7. Related diversification

Rapid Market Growth


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As for the forward integration, Inditex has been famous for its vertical integration in

which it takes the control over distributors and retailers. All policies regarding every

business activities from the headquarters in Spain all the way down to the retail stores,

wherever it is located, all must be approved by the headquarters first. The distribution is

centralized to Inditexs 4 distribution centers which are located in 4 different cities in

Spain: Madrid, Len, Tordera, and Barcelona. Even though the products aremanufactured in many different countries, every single product must be exported back to

Spain to be then distributed to all Zara stores around the world.

Distribution Map of Inditexs products, including Zara

The opening of Zaras first store in China Zara first launched its online store in US on September 2011


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The last strategy is the related diversification. As one of the major player in fast-fashion

industry, Zara has to be able to differentiate its products and increasing the brand equity with

all of its capabilities. Zara does not only sell apparel, but they also sell accessories to

complement the apparel. The accessories are produced with the same quality standard as the

apparel and it is available in all Zara stores worldwide.

6.6 The Quantitative Strategic Planning Matrix (QSPM)

The technique is to rank strategies to achieve the prioritized list, based on the relative

attractiveness of feasible alternative actions. This matrix will objectively indicate which

alternative strategies are best. Here we will use previous analysis from the EFE Matrix,

IFE Matrix, CPM Matrix, SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and

the Grand Strategy Matrix.

Based on these matrices, we derived the most prominent strategies for Zara which are

achievable and have strong positive impact to Inditex as the owner of Zara. There are 3

strategies that we propose: (1) Expansion in Asian-Emerging Countries, (2) Build

Distribution Centers in Asian Countries, and (3) Increase Marketing Spending. Moreover,

these strategies are for the long-term.

Zara accessories in store and online


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QSPMExpansion in

Asian-

Developing

Countries

Build Distribution

Center in Asian-

Developing

Countries

Increase

Marketing

Spending

Key Factors Weight AS TAS AS TAS AS TAS

KEY EXTERNAL FACTORSOpportunities

Increasing middle class in Asia 0.1 4 0.4 4 0.4 3 0.3

Opportunity to build distributioncenter developing countries tolower cost 0.05 3 0.15 4 0.2

Cooperation with new designers0.1 3 0.3 2 0.2

Rising Environmental issues 0.05 2 0.1

International Recognition 0.2 4 0.8 4 0.8

Threats

Fierce competition 0.2 3 0.6 2 0.4 4 0.8

Lawsuit related to sweatshop 0.05 1 0.05

Possible imitation of goods 0.05 1 0.05

Dilution of brand equity 0.2 2 0.4 3 0.6

Total 1

KEY INTERNAL FACTORS

Strengths

Global outreach 0.08 4 0.32 4 0.32 4 0.32Strategic locations 0.08 4 0.32 3 0.24 3 0.24

Distribution strategy 0.12 4 0.48 4 0.48

Store image 0.12 4 0.48 3 0.36

Fast changing collection 0.09 3 0.27 3 0.27 2 0.18

Responsive employees 0.03 2 0.06

Brand image 0.15 4 0.6 4 0.6

Weaknesses 0

Limited Stock 0.08 2 0.16 2 0.16

Price 0.12 3 0.36 3 0.36

Brand image tagged to competitors0.08 2 0.16 4 0.32

Lack of marketing 0.05 2 0.1 4 0.2

Total 1 6.16 3.03 4.72

Based on the QSPM Matrix above, we conclude that the most prioritized strategy will

be the Expansion in Asian-Developing Countr iessince it has the highest ending score.

The countries include China, India, and Indonesia. Inditex is actually doing this strategy

right at this very moment for Zara.


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Chapter 7

IMPLEMENTING STRATEGIES: MARKETING, FINANCE/ACCOUNTING, R&D,

AND MIS ISSUES

7.1 Marketing

As the world is now becoming digital, many marketers initiate the digital

marketing campaign. Many companies now engage actively to promote their products

on social media like Facebook, Twitter, YouTube, or Instagram. Not wanting to be a

laggard, Zara also created its own Facebook page, Twitter account, YouTube, and

also Instagram accounts. More than 16 million people like Zaras FB page and more

than 300 hundred people followed Zara on Twitter, thousands of people alsosubscribed to Zaras channel on YouTube. Unfortunately, it is not enough. Despite its

availability on social media, Zara is not utilizing using these social media to do

advertisements; therefore, these accounts are not really productive or useful for the

company.

The 4Ps of Zara:

1. Product:Inditex describes Zara as the brand for the latest fashion for women,men, and children. Product lines include: apparel, footwear and accessories.

Inditex also claims that Zara is not a luxury-brand.

2. Price: Zara is originally positioned as an affordable brand, however, as itexpands to developing countries where the GDP/capita is lower from its

country-of-origins, Zara in developing countries then shifts its position to thelower-end.

Zaras accounts on social media


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3. Place: Zara is now available in 86 countries with total 1,770 storesworldwide. The store is located in prime locations of the area with high

concentration of visitors. In distributing its products, Zara practices the

constant flow of updated data that mitigates the so-called bullwhip effectthe

tendency of supply chains to amplify small disturbances. A small change in

retail orders, for example, can result in wide fluctuations of factory orders

after it's transmitted through wholesalers and distributors. In an industry that

traditionally allows retailers to change a maximum of 20 percent of their

orders once the season has started, Zara lets them adjust 40 to 50 percent. In

this way, Zara avoids costly overproduction and the subsequent sales and

discounting prevalent in the industry (Keller, 2012).

4. Promotion:In the competitive clothing industry, Zara has successfully built aworldwide famous brand by a unique management system of design,

production and supply chains. The fast fashion concept and operation allow

Zara to always provide the most fashionable clothes to their customers and the

always renewing collections definitely help build a brand loyalty. This results

a remarkable growth globally with only limited investment on advertisements,

or even none. Inditex on its company report states that its business modelincludes no advertisement when entering a new market to avoid the main fixed

costs of international expansion. Moreover, even in its home country, Zara

does not rely on traditional tradition. Instead, they rely on direct

communication with consumers.

Retention-based Segmentation:

The customers of Zara can be classified into 3 following segments:

1. Fashion Chaser: people who are fashion trend followers and value fashionover exclusivity. They prefer well-known brands and price is of lower priority

to them. They are also the most loyal customers of Zara.

2. Opinion Seeker: people who rely heavily on mass media and people aroundthem in their purchase decision, including close friends, family, or the shop

assistant.


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3. Value Buyer: the type of customers that are more price-conscious. Theycompare prices and qualities between brands before finally decide which gives

them the most value.

Product Positioning

Since Zara is available across the globe, the positioning of Zara becomes different

depending on the GDP/capita in certain countries. For countries with medium to high

GDP/capita, Zara is considered as low-price product. On the other hand, for countries

with medium to lower GDP/capita (mainly in Asian countries), Zara is considered as a

high-price products. As for the fashion/couture, Zara is considered high level of

fashion/couture regardless the geographic area.

Product Positioning of Zara in developed countries (left) vs. developing countries (right)


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7.2 Finance

Source: inditex.com

The graph above shows the increase of Net Income of Inditex group as a whole. It

indicates a positive trend year by year in the last 5 years. Based on this date, we can also

calculate the estimated future benefit as follows:

Future benefits = 5 x current annual profit

= 5 x 2.4 billion euro = 12 billion euro.

Therefore, Inditex is projected to have 12 billion euro worth of benefits.

7.3 Research and Development (R&D)

As a leading in fast-fashion industry that promises the most up to date collection to its

customers, Zara must continuously produce set of apparel that the customers currently

demands, set of apparel customers will demand in near future, and also set of apparel that

customers will not expect to like. Moreover, since they will produce in limited stocks for

the sake of exclusivity, each product must be able to meet its owner to avoid stock piling.

In consequence, Zara with its teams of designers actively attend the latest fashion shows,

asking feedbacks from customers about the designs in order to portray or project the

proposed designs for the next collection.

2.4

1.9

1.7

1.3 1.3

2012 2011 2010 2009 2008

Net Income (in billions of Euros)

Net Income


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Furthermore, Zara designers are trained to limit the number of changes made by

lowering the number of samples required, minimizing cost and turnover time. Its demand

based production or Just-in-time (JIT) production reduces the amount of inventory

available, lowering Zaras storage cost. Zara's outstanding lead time is unbeatable in the

industry at the moment. In addition, Zara eliminated the traditional design process, where

design and development overrides fabric procurement. In Zara, the design teams work

with the available fabric, allowing for faster fashion, also minimizes costs.

Another aspect regarding Zaras R&D will be about its environmental-friendly

campaign. As stated on its mission, Zara aims to become an eco-friendly company that

contributes to the sustainable development of the society. Zara is very serious in

achieving this mission. Their concrete effort including building plants and distribution

centers powered by natural gas (thermal energy) to supply hot water, low-pressure steam,

and cooling that can optimize the building operations by improving energy performance

and also reducing carbon-dioxide emissions.

Further, the company has developed a Strategic Environmental Plans 2011 2015

which can be summarized as the following:

Environmental Management System certified as ISO 14001 compliance in 25of INDITEXs premises: Inditexsmain building, chain headquarters, logistics

(distribution) centers and own manufacturing plants. Sole multinational in the

textile field with all centers certified

Documents

ZARA Final Paper