Zara Strategy Analysis - Essay Example

?Zara Strategy Analysis This paper seeks to analyze the Zara strategic position at the end of the Zara case study. Zara Company stands at Northern Spain in a poor, shipbuilding town of La Coruna. Zara is a company in the fashion industry that specializes in game changing clothing. The chain offers a diverse clothing lines for women, men, and children, legions in latest designs. It operates through “The Cube” under the command of the giant Inditex Corporation. The corporation has been on the rise since 1996 recording massive sales ahead of its competitors like Gap. Thus, the firm became the world’s largest fashion retailer in 2008 with its eight brands. However, the corporation’s growth rate attributes to the success in Zara sales, which amounted to two-thirds of the corporation sales. Zara is venturing in fast expansions all over the world with new markets in over 68 countries in the globe. It is the most innovative and devastating fashion retailer in the world with immense profits though its products are relatively cheap. The chain relies on latest blend of technology to devise its market strategy. The chain has unleashed a strategy that shuns advertising, does not run sales, and keeps its huge investments of production at home. In a field where almost all firms outsource their manufacturing processes to low-cost countries, the Zara Company seems to negate all the fashion industry rules thus remaining vertically integrated in the market. However to analyze the success of Zara strategy in the market, we will need to consider various factors in relation to technological advancements. The analysis will consider the internal and external perspectives and use strategic models and theories in drawing a conclusive decision. The analysis will focus on critical issues that would guarantee long-term success. The analysis will also look into the sustainability of the strategy, its feasibility, and acceptability in the fashion industry. The analysis will seek to know if the strategy will provide a sustainable competitive advantage, if it is applicable with respect to customers, suppliers, and competitors. The analysis will also look into the strategy’s acceptability to the stakeholders and the risks involved. Additionally, the paper will summarise the key findings from the analysis and make informed recommendations in an effort to maintain the growing success of the company. The paper will use the SWOT analysis to summarise the analysis and reach a defined conclusion. The paper will apply the Igor Ansoff Matrix models, seven s analysis, and pestle, in the analysis. Igor Ansoff Matrix model (Ansoff, 1988, n.p) Existing markets New Markets Existing New In using this model, I will try to show the market penetration of Zara products in the existing markets. I will also highlight the market development of Zara products in new territories in both new and existing markets. Additionally, the model will note diversification of Zara products in new markets using the existing capabilities. The model will henceforth highlight Zara product development in both new and existing markets using the existing capabilities. External analysis PESTLE (Johnson et al, 2009, n.p) PESTLE Summary Zara Company is subject to political stability and attitudes to competition. This rises from its major establishment and dominance in one country. In case of political instability and change of attitude in competition, Zara market advantage will crush. Factors of global recession and economic growth will equally affect the company since it has stores in many countries. Changes in lifestyle and social mobility will jeopardize the company sales since it concentrates mostly on two stores located in the same country. Changes in technology will significantly affect the company since its operations rely on technology and machines. Competition, employment laws and difference in laws between nations has a great significance in the mode of competition, recruitment of staff, and the running of the company in various nations it plans to invest. The company uses effective and only adequate technology in its operations. Zara’s IT expenditure is less than one-fourth of the average IT expenditure of the entire fashion industry. Zara gets the right mix of hardware, software, data used or created by the system, the procedures used, and the people who interact with the system to implement a nearly perfect information system rollout. The company uses software in scheduling staff based on each store’s forecasted sales volume in different locations. Additionally, the cube directs displays using software to mimic some of the chain’s most exclusive locations throughout the world. The cube places a new window display every two weeks and the new store layout goes to the managers at each location. Zara aims at using technology at the most significant point where an impact and returns for any technological investment are real. It focuses on the return-on-investment of any technological investment, evaluates applicability, risks and opportunities involved in its use and the state of the technology before applying one. As a result, the company have saved a lot of money from unnecessary use of technology that transfers to its profitability. Additionally, the use of technology has saved many staff person-hours that transfer to service rendered to customers as they buy. This boosts sales turnover and creates a goodwill for the company from the customer service accorded, thus initiating a competitive advantage of its competitors. Since As such, the policy is applicable and sustainable. Indeed, it is also acceptable to all stakeholders as it is effective to the staff, beneficial to the customers and suppliers. However, with the rise of advanced technologies, a constant review of the information is necessary to accord more effectiveness at lower costs. Additionally, the giant company’s stores are in La Coruna and Zaragoza both of which are in Spain. Their location is very convenient and accessible from the distribution centre. The company has a tread of ironing clothes in advance, pack them and fix security and price tags. This saves a lot of time in entering data in inventories, moving products within the shelves. This gives an opportunity to offer customer service thus boosting sales. Trucks serve overnight destinations while locations outside Spain feature chartered cargo flights. In fact, chartered planes can now transit Zara products with return legs outside Spain. The company use machines to transport products from the factories to the respective stores. This ensures that products are conveniently available in the shelves. As a result, the two stores sell about 2.5 million items a week, in the neighbourhood of time not exceeding 72 hours. The company uses Inventory optimization models to determine adequate stocks, quantity and sizes to ship to all company stores. As much as this model is beneficial to the company, it has far-reaching disadvantages. It subjects the company to potential financial vulnerabilities as the dollar fluctuates to the Euro. Additionally, when transportation costs rise, it becomes more expensive to make the twice-a week deliveries. Hence, though the model is applicable, it is not sustainable. Internal Analysis Zara Company advocates for limited production runs. This allows the firm to reduce the risk of making a mistake that the company rarely makes in production with a failure rate of 1 percent, compared with the industry average of 10 percent. It also allows the firm to cultivate the exclusivity of its offerings. Indeed, unlike its competitors who encourage customers to buy products on point and at full price, the Zara customers are always of new arrivals and understand that the products are on offer for a very short time and should thus buy them when they are available. This is because the company only produces only what the customer need and removes the old products to create space for new ones. This strategy encourages customers to visit the store in search of the new arrivals and persuade them to buy as fast as possible. As a result, Zara enjoys many visitations compared to it competitors and does not necessary have to advertise its products since the shoppers come voluntarily in search of new products. The idea is very effective as it minimises loses from overproduced products that soon run out of fashion. These products sell at a clearing price leading to loses. Hence, the idea to produce a few in frequent times is in place as it avoids loses, calls for more visitation, quick buying, and less advertising. The idea is applicable and equally acceptable among the stakeholders of the company as it relatively promotes competitive advantage. However, it is not sustainable, as the product availability in other companies and high demand of such products, will limit company sales. The management of Zara shuns advertising of its wide of range of products either in the media or in catwalk fashion shows. The firm’s founder equally refers to advertising as a “pointless distraction.” Indeed, while other fashion retailers spend an average of 3.5% of revenue in promoting their products, Inditex spends only 0.3% in promotions. For a fact, not all adverts bring forth the required returns. For example, when Gap company performance was on a downward tread its decision to continue advertising its products in the national television did not pay off. Actually, the Gap store sales continued to fall in 18 of 24 months. Hence, the decision not to advertise Zara products maybe of significance since there is no guarantee on returns from any advert. The strategy is applicable and is acceptable to the stakeholders as it creates a competitive advantage over its competitors. This is because Zara minimises its expenses on marketing, as the advertisement costs are not present. However, although the no-advertisement policy has been effective in the past, it might not be applicable in the end as more competitors flood the market. The production policy of the company is to keeps its huge investments at home. Hence, most of its production takes place in La Coruna. Robots cut and dye the fabric robots in the 23 highly automated factories in La Coruna. Moreover, the company makes about 40 percent of its own fabric and purchases most of its dyes from its own subsidiary. The entire production operations take place at the Zara distribution centre. This idea is highly beneficial to the company. First, the un-dyed cloth from the company or its subsidiary can address any fashion changes within the season. The company also uses experienced local cooperatives to stitch the cut and dyed materials together. This guarantees low cost, efficiency and perfection in production. Additionally, the company rarely hires foreign manufacturers to produce staple items with longer shelf lives. This is significant in ensuring professionalism and benefit of high quality products. Because of this vertical integration from the local manufacturing, the company is able to supply the stores with targeted designs in real time. Actually, while it takes a rival company months or weeks to place target product in the store, Zara uses relatively shorter time. In the real sense, it takes an average of 15 days for Zara to place a target product in the shelves and about 10 days for smaller tweaks like modified sweaters. It is arguably true that fashion changes within a very short time and companies should respond to the new changes in real time. However, the process of responding to the fashion change might take longer depending on contract manufacturers, production time, transportation, and packaging issues. As a result, a company with foreign production investments may find itself responding to changes in fashion when they are already overdue. Zara is in a position to avoid late arrivals and thus has a competitive advantage over its rivals who produce or seek products from foreign countries. Indeed, the company responds through just-in-time manufacturing, competitor-crushing combination, finely tuned logistics, and technology-orchestrated coordination of suppliers. Zara designs its products according to customer demands. In seeking to know the customer demands, the staff uses personal digital assistants (PDAs) to gather customer input, use the CSI in the forensics of trend-spotting, engage the customers in asking them what they would prefer, and evaluating unsuccessful sales. This data then goes to “The Cube” in La Coruna, where a team of 300 young designers make 30,000 items a year. Top ensure consistent and improvement in production the design team accepts feedback and shares credit on successful designs. In addition, the management guarantees bonuses on successful products. This model is applicable and sustainable. It ensures the production of marketable products and thus giving the company a competitive advantage. All stakeholders appreciate the model. More significantly, the company has an environmental strategy that advocates for use of biodiesel and other renewable energy systems. SWOT Analysis Internal factors External factors Strengths Weaknesses Opportunities Has a wide market Well established Mainly established in one country Threats Dominates the market Financially stable Flexible production Wide market (Johnson et al, 2009, n.p) SWOT summary The Company has a wide market in Spain where it dominates sales and produces large quantity of products compared to other competitors. It is also well- established with 23 factories, huge sales, and profits turnover. These give the company a higher edge in the fashion industry. However the company’s main establishment is in Spain hence it cannot compete fairly in most of the other countries where its competitors have huge investments. Zara dominates the fashion industry with its products and enjoys of financial stability thus, it can withstand economic downturns or advancements by its competitors in the fashion world. The company has a flexible production base and immense number of customers that promotes its ability to withstand internal and external challenges. Addressing Future Challenges For the future strategy of the company, I would recommend the company to consider diversifying its production to other countries. This will enable the company to deal with the fluctuating value of the dollar. Additionally, the company will also manage to reduce the transport costs it accrues in delivering products to the distinct stores. With other companies already adopting this manufacturing procedure, Zara will eventually lose competitive advantage if it does not diversify production. Since the company is growing in other countries, it should consider reviewing its technology use to suit the operations demand and equally advance its production from limited run to unlimited run. The policy of removing stocks from the shelves within such a short time is not beneficial. This is because it denies many customers who visit the stores after two weeks a chance to see and buy the product. The company should consider extending this grace period to at least a month. The company should also reconsider its decision to shun advertising because in the long run and with the growing fashion industry, advertising plays a very significant role in marketing. However, the process of collecting information relating to customers’ needs should remain, production in line with customer’s needs enhanced, and use of experienced and professional personnel in productions maintained. Conclusion The Zara strategy includes the production of goods according to the customer’s needs and tastes. The company achieves this through an effective compilation of data relating to customer needs from CSI, PDAs, direct conversations with customers, customer feedbacks on used products and evaluation of unsuccessful sales. The strategy also entails the production of limited runs that reflect customer needs, sell quickly, and replaced within a short time. The strategy equally involves the in house production of Zara products at the local level. The company achieves this by using its 23 factories in La Coruna and its subsidiary companies, robots, 300 designers, and machines to produce the required products at home. The strategy involves the use of effective and adequate technology in scheduling staff and other operations. Indeed, the company uses very little resources in technology at the most significant points thus creating a positive impact. The strategy advocates for a non-advertising policy on its products. As such, the company spends less on promotions yet customers frequent the stores voluntarily due to the goodwill of the company, fashionable products, and high quality of Zara products. Additionally, the strategy adopts a twice-weekly delivery of Zara products to its local and international stores. In conclusion, the strategy promotes environmental conservation with the use of biodiesel and renewable energy sources. Works Cited Ansoff, H 1988, Corporate Strategy, Penguin, Chapter6. Johnson, G et al 2009, Exploring Corporate Strategy Pearson Education Limited Read More