ZARA Final Report

Title of the Report: Zara Case Study Report

Name: SeJun Lee

Executive Summary

Zara is one of the largest international fashion companies in the world, and it belongs to

Inditex, one of the worlds largest distribution groups. This study reviews Zara`s external

environment and analyses its internal organisation to make recommendations for improving

its core competencies against competitors such as H&M and GAP.

This study first reviews the Zara enterprise in terms of PEEST environmental factors, Porters

Five Forces and the fast fashion industry life cycle (ILC). The liberalisation of European

Union import quotas has had a positive political impact on the fast fashion retail industry.

However, rapid style changes generate waste. In addition, recent financial crises have made

customers more sensitive to price and tending to buy lower priced goods. However, young

people and new Asian customers are more attracted to fashionable clothes. Also, new

technology is quickly adopted to survive in a fast-moving market.

Using Porters competitive analysis of five forces, the threats of new entrants and substitution

are low, and customers and suppliers bargaining power are moderate. However, the

intensity of competitive rivalry is quite high because similar fashion firms are competing.

Fast fashion has a shorter life cycle for products than most industries. This spurs both

creativity and product innovation but demands more efficiency and advanced technology to

reduce waste and avoid distribution delays.

The most important core competencies for Zara are its flexible manufacturing, efficient

distribution structure, low level of inventory and the principles of its employees. Its financial

results as the flagship within the Inditex group have been strong for a decade and look

sustainable for the immediate years ahead.

Based on the analyses and prior studies of Zara, several recommendations are offered for the

future. If Zara reduces its centralised approach, it can tactically invade a new shop in the U.S.

with a diversification strategy, establishing distribution centres near the main markets. It can

also expand in the newly emerging Asian market, which is becoming increasingly aware of

trendy, fashionable Western clothing. In its main European market, Zara should consider

selling lower priced clothes and reducing unnecessary operations. It needs to employ a

defending market share strategy with stabilisation during the recession. Internally, Zara

should separate its portion of the Inditex international operations and upgrade its point-of-sale

system for better control of inventories and business information. Finally, a shift is needed to

focus more on customer service and growth from existing customers based on their

preferences and needs.

Contents Introduction ........................................................................................................... 1

1. Competitive Forces and Strategic Issues ........................................................ 2

1.1 PEEST Analysis ....................................................................................... 2

1.2 Porters Five Forces Analysis .................................................................. 3

1.3 Industry Life Cycle ................................................................................... 5

2. Internal Environment ...................................................................................... 6

2.1 Resource Capabilities ............................................................................... 6

2.2 Value Chain Analysis ............................................................................. 10

2.3 Other Appraisals ..................................................................................... 12

3. Other Stakeholders and Ethical Management .............................................. 13

3.1 External Stakeholders and CSR ............................................................. 13

3.2 Ethical Management Practices ............................................................... 14

4. Findings and Recommendations ................................................................... 16

Conclusion .......................................................................................................... 20

References ........................................................................................................... 21

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Introduction

Established in 1975, Zara is one of the most prestigious and famous Spanish fashion retail

brands; it is headquartered in Areixo, Spain, and managed under the Inditex group, whose

brands include Massimo Dutti, Bershka, Uterque and Pull and Bear. Zara started its

international operations in 1980 (Wilcox, 2005). The companys stores are famous for their

fashionable womens and mens apparel, including lower garments, upper garments, various

fashionable shoes and cosmetics. In addition, the brand is also popular as Zara Kids and Zara

Home.

The concept of specialty retailer of private label apparel (SPA) as a clothing retail strategy

has spread dramatically worldwide over the last ten years. As SPAs, clothing companies

make their own brand products and then directly distribute them to the market.

This report will take the form of an independent strategic review. Section 1 will review the

competitive forces and strategic issues with PEEST, Five Forces and ILC analyses. PEEST

evaluates political, environment, economic, social and technological factors in a global

context. Zara has been previously analysed with Porters competitive threats in the UK. The

fast fashion ILC is an industry-specific version of a product life cycle.

Section 2 will first examine the resource capabilities and financial results of the internal

environment. Zara has a unique business model in terms of its value chain and has achieved

higher revenue every year. A value chain analysis will briefly describe the processes and

supporting infrastructure. In addition, other appraisals will address the leadership and

corporate culture, decision making, power and politics; Zara has positive leadership and a

record of sound decision making.

Section 3 discusses other stakeholders, corporate social responsibility (CSR) and ethical

management practices. The company endeavours to improve its CSR and follows nine

business ethics guidelines for global trading. These points are extremely important for

sustainable growth because they will influence expansion of the Zara brand.

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Section 4 presents the findings of the analyses and recommendations for sustainable business.

These recommendations include extending into the U.S. and Asian markets, improving

customer service and extending centralised distribution with suitable strategies such as

market penetration and corporate level strategies.

1. Competitive Forces and Strategic Issues

1.1 PEEST Analysis

Political

Political stability and fundamental political factors of managing countries may influence the

fashion retail industry. However, Holmqui (2003) pointed out that the liberalisation of import

quotas has had a positive impact on the fashion retail industry in the euro zone. Creating

several social relationships and providing aid in poor areas in different developing countries

has given Zara and other fashion firms a positive reputation in the international political field.

Environment

Many governments regulate the environment. However, the fast fashion industry presents a

special problem because companies change clothing lines quickly, generating significant

amounts of waste (Arieff, 2010).

Economic

Arieff (2010) has claimed that the gross domestic product (GDP) per capita, income and

disposable income of people in the UK continues to be affected by the global recession and

financial debt. Therefore, many people are sensitive to price and they tend to buy low priced

goods (Bonacich, 2011). In particular, middle-class people are avoiding expensive products.

Moreover, international diversification might be a risk factor for the fashion retail industry

due to changes in peoples socio-cultural backgrounds (Bonacich, 2011). European fashion

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firms can benefit in the U.S. because of the value of the dollar, which weakened against the

euro after the global financial recession in 2008 (Arieff, 2010).

Social

The social factors in European counties have a significant influence on the fashion retail

industry (Howe, 2003). Moreover, young people tend to buy new, fashionable clothes like

Cheap & Chic, and this is the main reason for the fashion retail industrys success. However,

older European people and North Americans are not as attracted to fashion trends. In fact,

Kluyver (2010) pointed out that the emerging market for European fashion firms is the Asian

market, including China, Korea, Japan and Singapore.

Technology

In terms of globalisation, almost all companies attempt to capitalise on the advantages of

advanced technology (Doyle, 2012). This allows them to conduct online shipping, maintain

an effective supply chain and inventory system, distribute raw materials rapidly and distribute

end products quickly (Bonacich, 2011). Thus, fashion retailers must focus on the

implementation of advanced technology. Many companies already use advanced technology

in their business practices to survive in a fast-moving market (Bhagwt, 2011).

1.2 Porters Five Forces Analysis

Threat of new entrants

Mohring (2009) pointed out that it is quite difficult for new players to enter the fashion

industry and succeed in such a competitive and saturated market as the UK. Some companies

have already obtained a significant market share and have a good brand image for their

unique goods and services (Doyle, 2012). Thus, it is difficult for new companies to gain a

market share and a target audience. Existing fashion firms have the advantage of being prior

movers with large capital investments in the market (Bonacich, 2011). These facts show that

the threat from new entrants is low.

Threat of substitution

Baudelaire (2010) claimed that many fashion companies have applied a niche marketing

strategy. These firms have introduced diverse, fashionable and in-vogue clothes at affordable

and reasonable prices (Doyle, 2012). In addition, the target clients of the SPA retail strategy,

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young people, are very fashion conscious, but they often cannot buy designer clothes because

they are not affordable. Therefore, the threat of substitution may be low in terms of the

fashion retail industry.

Bargaining power of customers

The fashion retail industry has considerable potential (Doyle, 2012). However, it is gradually

and slowly becoming saturated and hyper competitive. Moreover, Moore (2009) claimed that

clients can gather information about new, fashionable clothes by using media like the internet

and TV. This can influence brand performance. Consumers always look for low prices and

better quality (Bonacich, 2011), and fashion industry retailers strive to fulfil the requirements

of consumers (Tuttle, 2011). Therefore, the threat of buyers` bargaining power is moderate.

Bargaining power of suppliers

Mullins and Komisar (2009) suggested that fashion companies are almost the only customers

of their vendors and suppliers. Therefore, suppliers depend heavily on these companies. For

example, Watts (2012) noted that Zara obtains about 50% of its raw materials and resources

from companies of the Inditex group. Therefore, the SPA strategys dependence on external

suppliers is not considerable. These factors indicate that the industry has low bargaining

power with its suppliers.

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Intensity of competitive rivalry

Vatia (2008) pointed out that the fashion industry retail market is extremely competitive.

Several leading competitors in the industry present a threat to others. For example, the target

group of three companies (Zara, GAP and H&M) are almost the same (Tuttle, 2011). The

implementation of new business strategies by each competitor has created a major challenge

for other companies (Watts, 2012). Therefore, the threat of industry rivalry is likely to be

quite high.

1.3 Industry Life Cycle

The industry life cycle (ILC) for products in retail fast fashion differs from that of other

industries (Ozman, 2011). The frequent and rapid introduction of fashionable clothes, an

efficient supply chain and a strong brand image have taken Zaras products from the

introductory phase to the late growth phase in a short time (Ozman, 2011). The extraordinary

innovation intensity of goods and services, together with an aggressive pricing strategy, has

kept the brand at a high growth level over the long term. For example, almost all of Zaras

products complete their life cycle within one year (Ozman, 2011). The ILC essentially deals

with innovation and creativity in service and products. Economic slowdowns and changing

trends will influence the life cycle of the industry (Bhardwaj and Fairhurst, 2010).

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2. Internal Environment

2.1 Resource Capabilities

Zara is deployed within the flexible and integrated Inditex business model (Inditex, 2012).

Customer Driven

Zara offers a convincing mix of up-to-date styles and value at reasonable prices.

It has a unique creation policy for Inditex:

o 36,000 fresh designs per year; about one-fourth go into creation.

o Fresh items arrive in stores 2-6 times per week.

It relies on straight communication very little traditional advertising:

o Every day in-store feedback allows constant adjustment of collections.

o Phone discussions between shop managers and market experts ensure that the

styles are desirable.

Attractive shops are established in key locations.

Distribution and Logistics

Central distribution is conducted from one major location.

Shops internationally receive delivery twice a week.

Orders go to shops within 1-2 days.

Source: Inditex (2012)

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The most important Zara (Inditex) internal core competencies are:

Flexible manufacturing structure

Efficient distribution structure

Low levels of store inventory (due to the fast supply chain)

Ethical principles and values of employees

Financial Results

At the end of 2006, Zara had achieved net sales of about 5,352 million euros. In addition, 990

Zara outlets have been able to earn 76.2% of the total Inditex revenue of 8,196 million euros.

The capital expenditure split of Zara was 80% on new store openings, 10% on refurbishing

and 10% on logistics in 2001.


Zara has attained high operational efficiency (Scott, Lundgren, and Thompson, 2011). Reis

and Farole (2012) pointed out that Zara leads the retail fashion industry in terms of gross

margins. This is attributed to great quality, supply chain management and the ability to

control costs. Zara is the Inditex flagship concept, occupying two-thirds of its store retail

space and annual net sales.

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Inditex FY2012 Net Sales by Concept (million euros):


Inditex performance in FY2012:

Employees: 120,314

Stores: 6,009 in 86 markets

Retail space: 3,161,448 sm

Sales: 15.946 bn

EBIT: 3.177 bn

Zara (retail apparel including Zara Kids) performance in FY2012:

Segment: latest fashions for women, men and children

Stores: 1,925 (32% of Inditex)

Retail space: 2,009,717 sm (64% of Inditex)

Sales: 10.541 bn (66% of Inditex)

EBIT: 2.233 bn (72% of Inditex)

Note: Does not include Zara Home (home accessories).

Compared to its competitors like GAP and H&M, and under the parent Inditex group, Zara

has been able to achieve several competitive advantages in the global apparel market. Its

SPA business model has made Zara the leading fashion retail chain in Europe, with 66% of

its store sales in that area. Hitt, Ireland and Hoskisson (2012) suggested that its strategic

business model helped Zara achieve success even during the recession of 2008.

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Inditex FY2012 Store Sales by Geographic Area


Source: Inditex (2012) Growth

Zaras business model reduces many fixed costs related to worldwide expansion:

Central inventory location

No local distribution centres per market

No advertisement when starting a fresh marketplace

Lean head workplace per marketplace servicing all arrangements

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Rapid growth in online sales

2.2 Value Chain Analysis

Fernie (2004) claimed that the company has developed a unique supply chain management

process over the last twenty years. Zara has a vertically integrated supply chain within Inditex.

The business model seeks permanent innovation and low-priced products with just-in-time

(JIT) processes. Information about the Inditex supply chain is listed below:

The materials team imports raw materials (silk and hemp) from China.

The design team is made up about 200 people, split among three groups for each

of the three clothing lines: women, men and children. Designers work next to

market specialists and procurement and production planners making portfolios

and samples. Designers even visit shopping streets, nightclubs and bars in search

of new, trendy styles.

The test team ensures that, before clothes are produced, they are tested as sample

clothes with customers in a test shop. Moreover, the team uses computer software

for testing and customized handheld computers support the connection with retail

stores.

Zara manufactures about 50% of its products in its own network of Spanish

factories, with the other half procured from 400 outside suppliers in Europe and

Asia. Production teams produce clothes within 3-18 days (average 7-8 days).

The distribution network maintains 25,000 short-term inventories. They send

clothes twice a week to every store.

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The Zara stores are closely linked to the company headquarters (Sull, 2010). Dassler and

Philips (2007) pointed out that all the Zara outlets are digitally linked with the major central

location in Spain. The company employees gather input from customers and share this daily

with headquarters. Normal inflows of various information and sales data from all the stores

support different internal groups in understanding current fashion trends.

The Zara designers have come up with new, fashionable styles based on hot spot trends and

customer input (Tidd and Bessants, 2011). Zara employs a wide range of skilled and

innovative designers from the retail market (conjoint analysis), so that it can update stock

constantly. Dexterity and the merging of international sourcing policy have allowed Zara to

obtain competitive advantages and a high growth rate (Sull, 2010).

Zaras operating strategy is based on responding promptly to market trends and stock

minimisation. This process has been improved by using data and information collection (Tidd

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and Bessants, 2011). Diverse goods are produced by quick response (QR) and the remainder

is imported from low-cost manufacturing countries such as Sri Lanka, India and Bangladesh.

Prahalad and Ramaswamy (2004) pointed out that Zara can use a broad supplier base that

offers different fashion fabrics at low prices. After Zara obtains the resources, its local

factories work on the final printing and packing. In addition, Granger (2010) claimed that

factories maintain the quality of the final product.

Ray (2010) stated that the Zara manufacturing system is quite similar to its competitors

manufacturing processes. The key points of Zaras success include operational efficiency and

unique idea generation (Ray, 2010). The operation of Zara improves cost efficiency through

economies of scale, which are managed in-house.

Design-led procurement prevents stationary inventories, and this makes Zara responsive to

market demands. Cline (2012) pointed out that the payment systems for the completed

garments have minimised overall operation costs. The final garments are allocated to each

Zara shop. Wholesale houses send finished clothes twice weekly to the shops, and all the

allocating activities are completed within 48 hours. Therefore, Zara can reduce its lead time

versus its competitors (Cline, 2012). Tzu (2000) claimed that this effective value chain

linkage has reduced the likelihood of supply chain failure.

2.3 Other Appraisals

Leadership and Corporate Culture

Amancio Ortega, who established Inditex, still owns 60% of Zara`s shares. He effectively

transmits the company values to workers in the company. These values include freedom,

responsibility, speed, perfectionism, flexibility and respect for others (Davidson, 2009).

These values have created a flexible corporate culture and autonomy in Zara. Therefore,

Zaras organisation also allows working horizontally, with liberal communication and a

relaxed, rather than hierarchical environment (Locke and Romis, 2007). In countries where

the chain has stores, managers work within their teams. This kind of leadership and corporate

culture ensures that the company continues to make customers happy, resulting in increased

sales (Locke and Romis, 2007).

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Decision Making

Zara has established centrally located shops with decentralised functional groups. It manages

decimalised analytical decision making in its business (Bhagwt, 2011). For making instant

decisions, Zara hired and trained young designers. The centrally located design teams begin

shop-to-shop transfers of final products. Each commercial design team includes two product

managers and two designers because they can be dedicated to specific sections in all stores

(Bhagwt, 2011).

Power and politics

Jobber (2012) suggested that although Zara has a positive reputation with its customers, the

company has failed to adequately care for its loyal employees. In performance appraisals,

coercive management power led to some Zara employees leaving the organisation. Berger

(2006) claimed that some upper-class managers ordered subordinates about in the interests of

improving Zaras service for its sometimes strange customers. This led to reduced motivation

among ZARA employees and Jobber (2012) has suggested that low employee motivation will

pose a huge problem for Zara in the near future.

3. Other Stakeholders and Ethical Management

3.1 External Stakeholders and CSR

Loyal consumers are important stakeholders in a company. In addition, they are individual

members of society (Laughland and Bansal, 2011). Zara wants to support society and the

environment through its business model. This reflects the corporate social responsibility

(CSR) policy of the Inditex group. As part of the Inditex group, Zara started Sustainable

Inditex 2011-2015, a programme in which it encourages an eco-friendly strategy (Inditex,

2011). This is a change from the Strategic Environmental Plan to the New Green Plan.

Zara conserves energy so as to operate its shops in an eco-efficient manner. Selim (2013)

pointed out that this management strategy proposes the recycling of furniture and decorations.

The recycling of security tags and broken hangers already occurs, as these are collected in the

shop and recycled into plastic items.

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The paper bags and biodegradable plastic bags used in shops are a positive example of Zaras

CSR performance. The company decomposes its plastic bags through a biological process to

protect the environment and avoid pollution. People can examine the d2w logo on Zaras

plastic bags and see that they are biodegradable.

As an extension of its commitment to use recyclable materials and paper, Zara uses the

PEFP/FSC mark on its fashion catalogues. It also encourages the use of organic cotton in its

manufacturing processes. Johansen (2007) pointed out that 100% organic cotton clothes in

Zara stores can be easily identified by a distinctive label. However, Greenpeace (2012) has

claimed that Zara`s clothes contain hazardous chemicals and that some of these chemicals

negatively influence hormones in the human body.

Excluding skins from livestock, Zara does not produce clothes using animal skin such as

leather and fur. It also exhorts the use of biodegradable footwear and uses biodiesel fuel in

transport. Sheffi (2012) pointed out that Zara`s fleet transports more than 200 million items

of clothing every year. By using 5% biodiesel fuel, this reduces emissions of CO2 by more

than 500 tonnes.

3.2 Ethical Management Practices

As part of Inditex, Zara entered into an agreement with the International Labour Organisation

(ILO) and the United Nations and agreed to principles and policies of the Organisation for

Economic Co-operation and Development (OECD) to improve the economic and social well-

being of people. Zara now follows the business ethics guidelines of these organisations

(Inditex, 2007, 2012; Tungate, 2008; Hume, 2011; Gudz, 2013), as discussed below.

First, Zara does not use forced labour. It cannot mandate outsourcing to companies and

subcontracting factories. However, according to BBC News (2008), Zara was forced to close

the Dhaka factory after workers said they had suffered harsh care in Bangladesh. In addition,

Scancomark (2012) pointed out that twenty-five Zara employees testified about terror and

rigorous abuse in Sweden.

Second, Inditex (with Zara) and other outsourcing and subcontracting companies do not hire

child labour. To ensure that children are not hired, Inditex has a protocol to monitor and

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observe its sub-companies. Nevertheless, Dumas (2011) pointed out that Zara has employed

15 labourers who are 14-year-old girls in Sao Paulo.

Third, there is no discrimination. Inditex (with Zara) and other outsourcing and

subcontracting companies do not discriminate in terms of race, employment, compensation,

contract, retirement, training or promotion.

Fourth, Zara respects freedom of association and collective bargaining. Inditex (with Zara)

and other outsourcing and subcontracting company employees can be assured of free

association and collective bargaining. Zara follows local laws when negotiating with

associations. Inditex also creates a channel to negotiate with its associations.

Fifth, Zara does not condone harsh or inhumane treatment. Inditex (with Zara) and other

outsourcing and subcontracting companies respect employers and employees and protect their

dignity and rights. Zara never tolerates power plays or politics in its shops or other working

areas. If power or politics enters, Inditex will impose a penalty. However, Moore (2011)

pointed out that Zara harshly treated Bolivians who produced Zara`s products in Sao Paulo.

Sixth, Zara provides safe and hygienic working conditions. Inditex (with Zara) and other

outsourcing and subcontracting companies provide safe and healthy working areas for their

employers and employees. Therefore, workers can easily access ventilation, hygiene, fire

prevention, safety devices and drinking [potable] water. However, Dudley (2013) pointed

out that fire killed seven Bangladeshis in brutal circumstances at a Zara factory which had no

safety equipment.

Seventh, Zara must pay wages on time. Inditex (with Zara) and other outsourcing and

subcontracting companies confirm and provide at least the minimum wage to their workers.

In addition, Zara also provides other basic requirements for its workers families, excluding

payments.

Eighth, Zara does not demand extremely excessive working hours. Inditex (with Zara) and

other outsourcing and subcontracting companies do not demand work over the legal number

of hours. Employers and employees must get at least one day off per week and they cannot

work more than twelve hours a day. However, in Sao Paulo, Zara ordered employees to work

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up to 16 hours per day for Brazil`s legal minimum wage of about $340 a month (Moore,

2011).

Ninth, Zara recognises environmental awareness. Inditex (with Zara) and other outsourcing

and subcontracting companies protect the environment and follow local and international

laws and regulations. However, Greenpeace has still insisted that Zara uses chemical

materials (Greenpeace, 2012).

4. Findings and Recommendations

Zara has the potential for sustainable growth, thanks to its business model and methods such

as fast fashion, QR and JIT production and inventory monitoring (Pahl and Mohring, 2009).

In addition, its strategic operation helps to overcome the challenges within the industry.

Schiller (2006) pointed out that Zara has the chance to create famous brand value in Eastern

Europe. Zaras distribution system is centralised in Arteixo, Spain (Chopra, 2009). Therefore,

the company can assist the systems and new shops that are closest to the main centre (Pahl and

Mohring, 2009). Thus, Zara must continue to own the country flagships and other stores, while

joint-venturing or franchising, since it faces low financial risk and limited entry barriers.

Diversification strategy

Zaras business system and model are its significant competitive advantage in fast fashion

(Inditex, 2012). Fast fashion has advantages and disadvantages. An advantage is that Zara can

immediately communicate fashionable designs and unique value to customers. However,

disadvantages include limited quality and many feedback errors (London Business School,

2008). Consequently, Zara had disappointing results in North America because the people

there are not as sensitive to new, trendy, fashionable clothes (Render, 2009). In addition, The

Economist (2012) pointed out that the sizes of Zara clothes do not fit in America. Zara needs

to raise North Americans awareness of local, trendy styles by performing some

extraordinary promotional marketing (Inditex, 2012). However, Zara may lose its

competitive advantages when the firm attempts to extend into America because it will

automatically face problems such as shipping costs and tariff costs (Porter, 2008).

If Zara reduces its centralised approach, this problem can be solved (Berman, 2010). Zara

should tactically invade a new shop in the U.S. with a diversification strategy. This means

that Zara would establish distribution centres that are the same size as the Arteixo model in

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the lower taxation countries near the main markets. Moreover, Zara should consider opening

more shops in North America (Inditex, 2012). These would facilitate access in the intense

fashion business world and reduce shipping time. Moreover, such actions would decrease the

cost of operations, such as resource management costs, and logistics and supply chain costs.

In addition, manufacturing costs will decrease as resource imports are reduced (Berman,

2010). Zara can also study trendy styles of North America, and then produce clothes

appropriate for Americans. Optimally, the continuous improvement model will improve the

JIT process system and reduce negative feedback (Tamer, 2009).

Market penetration strategy and collaboration strategy

The company identifies its Achilles heel as the newly emerging markets (LBS, 2008). There

is significant potential for fast fashion retail in the Asian market, which is becoming

increasingly aware of trendy, fashionable Western clothing. Potential markets include Korea,

China and Japan (Inditex, 2012). Tiits, Kattel and Kalvet (2006) pointed out that since Asia is

a potential market, industry competition has increased. Zaras diversification and market

development strategies would not be guaranteed to work in the Asian markets because of

other factors (Buchler 2011). First, other Asian fashion retail businesses compete with each

other. This means that the competitive force of rivalry is extremely high. Moreover, in Asian

countries, people do not have as much disposable income and per capita income as in

European countries; thus, Asian people are more sensitive to spending money (Buchler, 2011).

Therefore, Zara needs a market penetration strategy and collaboration strategy (mergers and

acquisitions) with Asian firms. Zara should also advertise its clothes. The company should

emphasise that Zara is from a European country because Asians often adopt the Western

fashion culture, which could provide Zara with greater market penetration potential in Asian

countries (Kluyver, 2010). This would reduce the perceived risk in Asia. These strategies will

provide many benefits, such as increasing selling and buying power, reducing barriers to

entry and enhancing stakeholder expectations (Christodoulou and Pater, 2012).

Defending market share strategy with caution strategy

Zara should maintain sustainable growth and capitalise on its industry opportunities in

European countries. Consumers change their behaviour regularly in the apparel industry, but

they also want to buy a lot of fashionable clothes. This is an important point: the globalisation

of leading companies significantly influences the changing business environment and

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consumer behaviour such as cross shopping (Pakroo, 2012). Zara appears to be intimidated by

competitors in the industry such as GAP and H&M. In addition, amid the financial crises and

global recession, people are more sensitive to spending and they want to save money.

Therefore, when disposable income and per capita income were reduced in this period,

people wanted to buy products at reasonable prices (Bonacich, 2011). In addition, it is

necessary for Zara to consider lower priced clothes by reducing unnecessary operations. It

needs to employ a defending market share strategy with a caution strategy during the

recession. Zara should defend from threat of rivals and economic slowdown (Hood and Vahine,

2012). The company should use a position defence model that exploits positive brand

power against other companies (Hood and Vahine, 2012). This strategy includes CSR for

building a positive image and a learning experience curve for reducing cost. In addition, a

concurrent engineering model that improves product development speed would help to

sustain growth and defend against rivals (Karakaya and Yannopoulos, 2010). Caution strategy

also will yield insight into and provide better information for the future direction of global

recession (Christodoulou and Pater, 2012).

Separation strategy

Its differentiation strategy and lower cost leadership have increased the core competency of

Zara (Tarun, 2007). However, a few problems still influence its sustainable growth because

the company has partial responsibility for a percentage of the international sales of Inditex

(Inditex, 2012). Zara has passed on wide-ranging international profits to the Inditex group. If

Inditex were to fail, Zara would have to reformulate its business and corporate strategies.

Therefore, Zara should use a balanced scorecard to efficiently separate operations with

Inditex. This system would improve the balance of the organisation in the finance, customer,

process and learning and growth areas (Kaplan and Norton, 2004).

New technology

Schermerhorn (2011) argued that Zara`s competitors, such as GAP and H&M, have already

upgraded their specific information systems. Thus, it is important for Zara to upgrade its

systems because doing so would yield positive results, such as more efficient management of

high demand and the automation of distribution centres. Committees must review the current

hardware, software and automated process to upgrade this technological control.

Tinsley and Ormsby (2010) claimed that Zara needs software for internal operations. For

example, Zara needs to upgrade its DOS-based point-of-sale (POS) system to the Intuit HP

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retail system. The Intuit HP retail system, with MerchantOS, is convenient for both store

managers and customers in terms of controlling inventories and providing business insights,

as it is adaptive, reliable, efficient and flexible (Bhagwt, 2011). Zara has maintained its

position as a leading online retailer with its unique business model and use of technology. To

upgrade its main POS system, Zara should select a current operating system. Keynes (2011)

pointed out that Zara needs to continue to upgrade its information systems to add special

value to the business.

Customer-focused growth strategies

Zara still focuses on the volume of sales rather than customer service. For example, in Korea,

Zara does not offer customer services. If people lose buttons, Zara does not care (Hansen,

2012). The company needs to improve its customer service to better compete in the

competitive Asian market. In Asian culture, customer service is extremely important. For

example, Homepuls (Tesco) did not accommodate the Korean cultural attitude towards

service. Many people went to Homepuls initially, but they did not like the companys attitude,

which does not reflect concern for customer service (Coyner, 2010). Therefore, Zara needs to

incorporate customer-focused growth strategies. Growth in profits and more frequent sales

begin with core aspects of the business, such as service and customers (Liabotis, 2007).

Moreover, this strategy creates high-impact value propositions for new customers. This helps

to gain fresh insights into customers preferences and needs (Liabotis, 2007). If Zara focuses

on current customer service, the firm could improve profits. SERVQUAL or SERVPERF are

suitable models that analyse service quality and can be used to improve Zaras service system

(Carrillat, Jaramillo, and Mulki, 2009).

20

Conclusion

Zara has shown significant earnings growth every year, and new Zara shops continue to open

everywhere. It is evident that Zara is enjoying considerable success in the industry by using

effective retailing strategies, such as fast fashion, QR and innovation.

Most retail fashion industry players forecast future customer preferences for fashion. In

contrast, Zara holds a few design collections for the year. It makes instant fashion choices

which allow for JIT production of clothes. Therefore, Zara has high stock turnover. These

practices, among others, result in Zara being a leader in the fashion industry.

However, Zara still needs to overcome certain problems, such as strong competitors and the

current economic and financial crises. It continues to minimise its operational risks, but it

needs to predict macro- and microeconomic changes. If Zara operates its unique business

model without other serious problems, the company can continue to be a leader in the retail

fashion market for a long time to come.

21

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Documents

ZARA Final Report