Business strategy of Zara - Case Study Example

Global Strategy Executive Summary The study has given an elaborated view about the long term and short term strategies of Zara, a Spanish retailing organisation. The report has provided a detailed view about the internal and external environment to understand the best practices and drawbacks of the organisation. The internal environment of the organisation has been evaluated with the help of resource based VRIN framework to analyse their capabilities to gain competitive advantages in the current market. This analysis also has assisted in understanding the strength and weaknesses of the organisation. The external analysis of the organisation has been done mainly on the basis of Porter’s five forces framework. With the help of these data, the study has further described the current strategies of the organisation as well as recommended new strategies to improve their global market positioning. This report has also provided an overview of the current sustainability and ethical practices of the organisation and has suggested few recommendations to eliminate the loopholes. Table of Contents Table of Contents 3 1. Introduction 4 2. Corporate strategy 4 2.1 Competitive advantages of strategies 4 2.2 Uniqueness of strategies 5 2.3 Level of Strategy 5 3. Business strategy of Zara 6 3.1 Internal Analysis 6 3.1.1 Physical resources: 6 3.1.2 Human Resources: 7 3.1.3 Organisational resources: 7 3.2 External Analysis 8 3.2.1 Barrier to the new entrants: 8 3.2.2Threats of substitute: 8 3.2.3 Bargaining power of buyers: 9 3.2.4 Bargaining power of suppliers: 9 3.2.5 Rivalry of competitors: 9 4. CSR/Sustainability Strategy 9 4.1 Sustainability practices 9 4.2 Ethical practices 10 4.3 Recommendations 10 5. Evaluation of Strategy 10 5.1 Current strategies of Zara 10 5.2 SWOT analysis: 11 5.2.1 Strengths 11 5.2.2 Weaknesses 11 5.2.3 Opportunities: 12 5.2.4 Threats: 12 6. Conclusion 12 7. Recommendation 13 1. Introduction The study is based on the strategic analysis of Zara, a well-known multinational retailing organisation. Zara is a Spanish retail brand which deals in fashion cloths and accessories. This organisation was founded by Rosalía Mera and Amancio Ortega in the year of 1975. Headquarter of the retail chain is situated in Arteixo, Galicia. They possess more than 2000 stores across 86 countries worldwide (The Strategist’s Choice, 2014). It is one of the leading selling brands of the biggest apparel retailer INDITEX which also owns brands like Massimo Dutti, Uterqüe, Stradivarius and Pull and bear (Lopez and Fan, 2009). Besides its popularity as the largest clothing retailer, it is also renowned for its quick and innovative product designing and delivery facility. It has been claimed that the organisation only requires one to two weeks to develop a new product and make it available in their stores worldwide (Lopez and Fan, 2009). The report has been initiated with a discussion of the corporate strategies of the organisation. An in-depth study has been conducted about the internal, external and corporate social responsibility (CSR) strategies to analyze the current market position of the organisation. The analysis of the business strategies has further provided assistance to evaluate new business strategy and recommendation to improve their current competitive position. 2. Corporate strategy The corporate strategy of Zara can be defined by their long and medium-term goals. The study of the vision and mission statement can provide a strong understanding of the overall corporate strategies of the organisation. The long-term strategic goal of the organisation is to secure the leading position of the retail business market by fulfilling the desires of their potential consumers. The organisation is committed towards providing innovative designs made of quality materials within affordable price ranges. The mission of the organisation is to provide positive contribution towards the sustainable development of the environment and society through their innovative business model (Viswanadham, No Date). 2.1 Competitive advantages of strategies Different strategic approaches help the organisation to achieve competitive position in the global retail industry. These approaches are- Customer centric apparel and accessories designing strategy: The organisation has adopted a strategy to directly ask the consumers about their preferences in cloth and accessories designs. The sales associates of the organisation use personal digital assistance (PDA) devices to collect the feedbacks of consumers about new clothing design ideas. The devices help them to quickly transmit the design ideas to their research and development departments. The design teams of the organisation are famous to deliver the new design to the market within a span of two weeks only (Viswanadham, No Date.). Using advanced technology: The organisation is using updated technology in terms of their cost control, inventory management and product tracking. Their PDA devices assist them to easily collect the details about sold out items, non-selling items, popular colours preferred by consumers and stores with maximum selling rates (Viswanadham, No Date). Proper control on the manufacturing procedure: The facility of fabric production of the organisation is situated in the central location of Spain. This assists the organisation to save time and money in their fabric manufacturing procedure. The manufacturing department schedule the shipments of product after every two weeks to keep their store stock updated with new fashions (Viswanadham, No Date). 2.2 Uniqueness of strategies The different features of Zara which make the business unique: The brilliant brand name of the organisation is one of the unique features which strengthen the market position of the organisation in different countries. The short and sharp approach of the brand name assisted the organisation to attract consumers from different geographical locations. All the stores of Zara display unique interior designs which plays a vital role to actualize their strategy to provide exceptional shopping experience to the customers. Another unique approach of the organisation is their fast response towards the new trends in the city. The organisation assures their consumers to find all the latest designs and styles in their stores. The stores of Zara provide wide ranges of designer products to fulfil different consumer tastes (Vitzthum, 2001). 2.3 Level of Strategy There are mainly two levels of strategies such as corporate level and business level (SBU). Corporate level of strategy assist organisation to add values to their different business units by determining the overall opportunities of the organisation to meet the expectation of stakeholders. This helps the organisation to fulfil the expectation of the stakeholders. Business level strategy mainly focuses on their responsiveness towards the competition in the market. This level of strategy assists organisation to gain the competitive advantages of the market by analysing the strength and weaknesses of other companies (Wit and Meyer, 2014). The business operations of Zara mainly follow the corporate level strategy. The organisation is continuously analysing different scopes of their business development. The global strategy of the organisation is focused on fulfilling the desire of their stakeholders by customising their different business units (The Strategist’s Choice, 2014). 3. Business strategy of Zara 3.1 Internal Analysis The internal business environment of Zara has been analysed by the help of Barney’s VRIN model. The resource based view of VRIN model helps the organisation to understand their competitive advantages (Blackv and Boal, 1994). The resources of Zara have been divided into physical, organisational and human resources. The resources of the organisation need to be valuable, rare, inimitable and non-substitutable to gain the competitive advantages in the global market (Wit and Meyer, 2014). 3.1.1 Physical resources: Prime location: The strategic approach Zara assists them to set all their stores in the prime locations of different cities. In different locations of Europe and USA, crowds are mainly located in the downtown and shopping streets. Zara has its presence in all these locations to attract maximum number of customers (Ghemawat and Nueno, 2006). Attractive displays: Zara mainly believes in their display facilities in their physical stores rather than any digital advertising. Creative and attractive window display is one of their successful market strategies. This strategy helps them to create a strong first impression to their consumers (Ghemawat and Nueno, 2006). Trendy and exclusive designs: As one of the leading retailer in the market, Zara is well-known for their trendy and exclusive clothing collections. Zara had provided near about 36,000 exclusive designs only in 2012 (Ghemawat and Nueno, 2006). Advanced IT systems: All the stores of the organisation use the advanced IT systems to understand the requirements and preferences of the customers. This technology assists them to gauge the demand of consumers and delivering the same within a short span of time (Ghemawat and Nueno, 2006). 3.1.2 Human Resources: Qualified designers: The organisation possesses a huge number of qualifies designers who assist the management to efficiently deliver exclusive designs to the consumers. The designers are provided with rigorous training to cope up with the latest and upcoming trends of cloths and accessories in the global market (Ghemawat and Nueno, 2006). Well-trained employees: The employees of the organisation are well-trained to understand the requirements of different consumers. The employees of the organisation are attentive, professional and hard-working (Ghemawat and Nueno, 2006). 3.1.3 Organisational resources: Value chain: The value chain of the organisation is totally different from the competitors. Their value chain makes them able to introduce new design to the market within a short lead time (Ghemawat and Nueno, 2006). Production strategy: The organisation follows a unique production strategy. Instead of designing the product first, the designers prefer to examine the fabrics and textile available for the designing. This assists them to select the right kind of materials to design a certain product. This strategy results in less financial and time consumption (Ghemawat and Nueno, 2006). Market strategy: Their market strategy to focus on the desires of customers enables them to secure their competitive position in the global retail market. Their consumer-centric marketing strategy helps them to gain customer loyalty (Ghemawat and Nueno, 2006). Resources Valuable Rare Inimitable Non- substitutable Competitive advantage Prime location Yes Yes No Yes Temporary competitive advantage Attractive displays Yes Yes No No Competitive parity Exclusive design Yes Yes Yes Yes Sustainable competitive advantage IT system Yes Yes No No Competitive parity Qualified designers Yes Yes No Yes Temporary competitive advantage Well-trained employees Yes Yes No No Competitive parity Value-Chain Yes Yes Yes Yes Sustainable competitive advantage Production strategy Yes Yes No No Competitive parity Marketing strategy Yes Yes Yes No Temporary competitive advantage 3.2 External Analysis 3.2.1 Barrier to the new entrants: The fashion retail industry is already consisting of a number of major players. Any new organisation need to spend a huge amount of capital to secure a strong position in this competitive market. Any new concept store requires minimum 6 months to a year to introduce new designs to the consumers. On the other hand Zara only requires 2 weeks for the same. Therefore, the barriers to the new business entities to enter in the market are very high (Završnik, 2007). 3.2.2Threats of substitute: The tendency of buyers to switch to any substitutes is very high due to the presence of a huge number of competitors. Zara has gained the loyalty of different potential customers due to their innovative marketing and production strategy. On the other hand, the market is continuously updating with a number of innovative and affordable substitutes which attracting a large number of customers. So, the threat of substitute in the present market is moderate (Završnik, 2007). 3.2.3 Bargaining power of buyers: The bargaining tendency of consumers is moderately high due to the presence of a wide range of varieties in quality and price. The organisation has attracted a huge number of consumers in the market of US and UK but they are still unable to attract desired number customers in the developing such as India, Indonesia and China. The availability of affordable products is providing bargaining power to the consumers of these locations (Dutta, 2002). 3.2.4 Bargaining power of suppliers: Availability of low priced fabric and chances of importing low cost raw materials from foreign countries have suppressed the bargaining power of the suppliers. There are a number of small organisations which provides contract based stitching and production facilities which minimize the requirement of the suppliers. Therefore, it can be said that the suppliers of the current market possess very low bargaining power (Dutta, 2002). 3.2.5 Rivalry of competitors: The competition within the potential competitors in fashion retailing industry is very high. The different competitors such as Mango, Uniqlo and H&M are offering different lucrative discounts and offers to the consumers. The innovative and customer centric pricing policy of different organisation is increasing the competition in the current market (Dutta, 2002). 4. CSR/Sustainability Strategy 4.1 Sustainability practices The business model of Zara provides various supports to the society as well as the environment. These supports reflect on the corporate social responsibility policy of the organisation. The organisation supports eco-friendly practices through “Strategic Environmental Plan” and “New Green Plan” (Joy, Sherry, Venkatesh, Wang and Chan, 2012). The different operations of Zara strictly follow the energy conservation policy. The management of Zara has adopted various recycling programs to re-use their broken security tag, hangers and furniture (Joy, Sherry, Venkatesh, Wang and Chan, 2012). All of the stores of the organisation promote the usage of paper bags and biodegradable plastic bags (Joy, Sherry, Venkatesh, Wang and Chan, 2012). The organisation encourages the usage of organic cottons in their manufacturing processes. They also avoid the usage of animal products in their manufacturing procedures (Joy, Sherry, Venkatesh, Wang and Chan, 2012). On the other hand, different environmental friendly organisations has examined that the products of Zara contains some dangerous chemicals which can adversely affect the hormones of human body. 4.2 Ethical practices The organisation strictly follows their agreement with International Labour Organisation (ILO). This agreement assists the organisation to improve the social standard and economical condition of their employees. Their business ethics guidelines explained that the organisation is absolutely against the usage of forced labour. On the other hand, different manufacturing hubs of Zara in Dhaka and Sweden have demonstrated rude and cruel behaviour with the employees. Few locations of the organisation have also recorded the use of child labour in their manufacturing process (Joy, Sherry, Venkatesh, Wang and Chan, 2012). The organisation is focused on providing safe and hygienic work place for their employees. They are also known for the timely payment of worker wages (Joy, Sherry, Venkatesh, Wang and Chan, 2012). 4.3 Recommendations The organisation needs to introduce new production strategies to eliminate the usage of chemicals which adversely affect the human body. They need to come up with new procedure of manufacturing to promote more customer friendly products. The management need to standardise their manufacturing procedure across the globe to eliminate the discomfort of their employees. They also need to restructure their rules and regulations in terms of management and labour relationships. The organisation needs to restructure their corporate ethics guidelines to eliminate the usage of child labour. They need to create a new department in collaboration with ILO to monitor all their international operations to identify and remove the negative practices. 5. Evaluation of Strategy 5.1 Current strategies of Zara The management of Zara follows three different business strategies such as integration strategy, diversification strategy and intensive strategy (Lopez and Fan, 2009). Integration strategy: The organisation follows the forward integration strategy. The parent company, Inditex, prefers to control the distribution and retail procedure of all the subordinate businesses across the world by standardizing the overall business performance of the organisation. Zara also follows the horizontal integration strategy through the acquisition of Massimo Dutti retail group (Lopez and Fan, 2009). Intensive strategy: Zara is aggressively expanding their global market. The current expansion strategy of the organisation is to enter in the Asian retail market. They are also applying the market penetration strategy in the European and US market to attract more customers towards the brand (Lopez and Fan, 2009). Diversification strategy: The organisation is following related diversification strategy by developing and selling accessories which complement their apparel business segment (Wit and Meyer, 2014). Zara also follows the unrelated form of diversification by providing home decoration accessories under the name of Zara Home (Lopez and Fan, 2009). 5.2 SWOT analysis: The analysis of internal factors provides assistance to optimize the strength of the organisation. It also helps in understand whether the organisation is capable to play down their weaknesses. 5.2.1 Strengths • The exclusive marketing strategy, production strategy and advanced technology have assisted the organisation to strengthen their global presence. • Their prime location strategy assists them to attract maximum number of consumers. • Their attractive display procedure provides a unique store image towards the consumers. • Quick changing collection influence the organisation to attract new consumers towards the brand • The responsive employees and qualified designers assist the organisation to gain customer loyalty (Vitzthum, 2001). 5.2.2 Weaknesses • The prices of Zara products are still very high for the consumers of those countries which have lower GDP per capita. • Though the organisation provides wide varieties of fashion options, their stock limits are unable to satisfy a wide range of consumers (Tokatli, 2007). The exclusive technology and effective marketing strategy is assisting the organisation to overcome their stock related problems. The employees are focused to fulfil the requirement of consumers as soon as possible. The analysis of the external environment of the organisation assists the management to understand the current opportunities and threats of the market. 5.2.3 Opportunities: Increase in the disposable income of the different Asian countries has enhanced the business opportunities of the organisation. The organisation also has the opportunity to build manufacturing and distribution hub in the developing countries to reduce their cost. Their international brand recognition provides them the opportunity to easily attract new customers in the global market. Their globalization strategy can assist them to recruit fresh talent from different part of the globe to enhance the competencies of the designer team (Dutta, 2002). 5.2.4 Threats: Though the organisation has eliminated al number of threats through their diversified global market strategies, few obstacles are still available which the organisation needs to take care of. These threats are- Increase in the fierce competition due to the availability of affordable products by different competitive brands such as Forever 21, H&M and Uniqlo. The organisation is fighting against Sweatshop lawsuit which is causing a certain amount of expenses to the authority. The organisation is working hard to eliminate the Sweatshop practice from all its business location. This commitment has neutralized the intensity of this threat. There is always some risk of product imitation by other competitive brands. The availability of those products in lower prices can reduce their sales growth in the market (Tokatli, 2007). 6. Conclusion The study of the corporate strategy, internal and external factors of the organisation has demonstrated different strength and opportunities of the organisation which has assisted the organisation to improve their global competitive position. The exclusive market strategy, visibility in the prime locations and innovative manufacturing procedures help them to attract a wide range of customers as well as to gain consumer loyalty. Their capability to deliver newly designed products within a short lead time assists them to create a unique position in the market (Dutta, 2002). On the contrary, the organisation also has some weaknesses in their strategies which are creating threats for their global business model. Their premium pricing strategy is hampering the business venture in the developing market. The limited opportunity of product line diversification is also creating threat of market saturation (Tokatli, 2007). 7. Recommendation The analysis of the internal strength and weaknesses as well as the external opportunities and threats has provided assistance to recommend few new strategies to the organisation which will help the organisation to strengthen their current market position. The recommendations include- The top management of the organisation need to come up with new strategies to establish new stores in different parts of developing countries of Asia. They should invest in building new manufacturing and distribution hubs in the different parts of Asia to reduce the future operating cost of the organisation. The organisation needs to restructure their pricing policy in the Asian countries to match their income pattern. The organisation needs to expand their business in new, unexplored market to avoid the possibility of market saturation. They need to diversify their product line by introducing fashion different fashion accessories such as bags, shoes and eye wears. They need to increase their spending for different marketing campaigns such as TV and news paper advertising. Reference List Black, J. A. and Boal, K. B., 1994. Strategic resources: Traits, configurations and paths to sustainable competitive advantage. Strategic management journal, 15(S2), pp. 131-148. Dutta, D., 2002. Retail @ the speed of fashion. [pdf] Third Eyesight. Available at [Accessed 3 February 2015]. Ghemawat, P. and Nueno, J. L., 2006. Zara: fast fashion. Massachusetts: Harvard Business School. Joy, A., Sherry, J. F., Venkatesh, A., Wang, J. and Chan, R. 2012. Fast fashion, sustainability, and the ethical appeal of luxury brands. Fashion Theory: The Journal of Dress, Body & Culture, 16(3), pp. 273-296. Lopez, C. and Fan, 2009. Internationalisation of the Spanish fashion brand Zara. 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