Growth Strategy for Zara - Case Study Example

Zara, the premier venture of Industria de Diseño Textil SA (Inditex) launched its first successful store in A Coruña, Spain in 1975 and has its headquarters in the same city. Zara contributes more than half of the total revenue of Inditex group and has grown rapidly in its line of business ever since it went on an expansion spree. Zara now is the world’s second-largest clothing retailer and has expanded to more than 72 countries with outlets that are strategically positioned to attract customers automatically rather than spending huge amounts on advertising.

The company has created a niche in the global retail industry through its aggressive and carefully planned out a business model. The unique points of their business model that have helped them grow in a relatively short time are primarily two folds. One, their turnaround time is as aggressive as it can be; wherein, Zara believes in staying with the trend and comes up with an entirely new chain of clothing styles within two weeks of time. They have always maintained and encouraged employees to come with clothes that are trendy and can attract customers for a certain amount of duration before going in for a complete revamp as soon as the trend is out of fashion.

Secondly, its Just-In time inventory system, where it believes in having just the required amount of clothing stock. This not only helps them keep the cost low but also comes up with an entirely new style of clothing inspired by customers’ feedback in a rather quick time. The company spends almost a negligible amount in advertising as the Zara management has always maintained that what’s important is to give the customers what they want rather than forcing them to buy what you have. This principle has been the backbone of Zara's retails and has been the major point of success.

Before launching their business in any new region, the management does careful planning about the outlet positioning. Zara stores invariably are situated in main commercial areas and usually attract shoppers with their attractive and trendy display of stylish clothes. At the point of billing, customer service staff take extensive feedback from customers to identify the needs and the expectations of customers, this information is strictly followed while deciding on newer products. Surveys and customer feedback also allow Zara management to keep the prices competitive and within the range that the customers are happy to pay for and yet ensure profits for the company.

The large-scale volume of business also allows Zara to deal with low-profit margins. Zara went global within 13 years of its launch with its first overseas store in Oporto (Portugal) in 1988 and is now present in more than 70 countries with more than 1450 stores across the globe. Unlike its competitors that include Arcadia Group, The Gap Inc., and Vivarte, Zara comes up with more than 11,000 designs every year and only 60% of them have a long shelf life, whereas 40% of the designs have a shelf life as small as 4 weeks.

Looking at the growing competition in the domestic market, Zara can look for growth in the future by a two-step strategy. First, their extensive experience in Europe can be exploited by further penetrating the European rather lucrative fashion destinations, like Sweden, Italy, etc. Secondly, the Asian market has a lot of growth potential with competition not s stringent and huge fashion orientation of customers. For this, Zara needs to explore the Asian market through extensive research because of basic market differences, like cultural, geographic, legal, and political structure from the market that it already exists in.

In order to make the entry smooth, it can look for business tie-ups with local brands, which would help keep the initial cost low and deal with other stringent barriers (Ghemawat, 2001). Expanding to the Asian market would also help Zara in streamlining its profit margins, especially during times of economic crisis. As observed, the Asian market was relatively unaffected by the recent global recession that affected most of the businesses. The flexible business strategy of Zara would be helpful in ensuring expansion to other markets and sustaining a competitive edge while maintaining the profit margin and market shares in favor of all the stakeholders.