How Zara and Primark Compete in the Fashion Retailing Marketplace - Case Study Example

A Report on Critical Assessment of How Zara and Primark Compete In the Fashion Retailing Marketplace Table of Contents Introduction 2 Comparison of Zara and Primark’s Business Models 2 The Impact of Different Competitive Objectives on Managerial Decisions Concerning Product and Operation Features of both Zara and Primark Companies 4 Trade-Off Analysis among the Operations Performance Objectives 5 Recommendations on How Operations Manager Could Overcome Competitive Priorities Trade-Off 6 References 8 Introduction The need for fashion brands to adapt rapidly with changes in consumer habits in the fashion industry has led to the development of fast fashion retail models. Leading fashion brands such as Zara and Primark have continued to dominate the market due to their dynamic business models that have integrated emergent trends in the fashion market. This present essay seeks to assess critically how Zara and Primark compete in the fashion – retailing marketplace. Assessment of the two businesses will be focused on their business models in terms of design, planning, and execution of their strategic management. An examination of the key differences between the two business models applied by retail stores will be provided. Consequently, an in depth discussion on how the identified business models influence the operations of the business will follow. Finally, an analysis of the trade – off between the various operations performance objectives that are likely to be undertaken by the two firms will be identified. Comparison of Zara and Primark’s Business Models Zara has emerged as the most profitable brand of Inditex SA, a clothing retail group based in Spain. The success of Zara as a brand is strongly underpinned by its classical philosophy on utmost creativity, quality products, and fashion consciousness. With heightened focus on global expansion, Zara developed a business model that integrated leaner production system, just-in-time production, and creation of scarcity. According to Badía (2009), Zara’s business model focuses on three factors, concept, capabilities, and value driven. The central concept of Zara is to employ production mechanism and marketing strategies that facilitate rapid adaptability to changes in fashion trends in the market. As a result, major operations of Zara are principally driven by consumer demands as opposed to supply. This is highly supported by the firm’s highly responsive supply chain that promptly delivers trending fashions and new products. According to Inditex (2014), Zara delivers new products to all its 1763 global stores twice each week. In addition, Zara’s inventory last 6 days compared to H&M’s which lasts for 52 days. Unlike Primark and other fashion retail stores, Zara maintains the control of its production processes which are majorly in- house. Badía (2009) noted that over 80 % of its production in Europe is in-house. There only exist strategic partnerships with companies that are closely located to the firm’s headquarter. In comparison to Primark, Zara further offers larger choice of style to its consumers. The brand designs over 12,000 styles per year in comparison to retail average of 3000 annually. However, Zara maintains a high fashion appeal for its vast style through artificial creation of scarcity. Product scarcity is achieved through quantity limitation for each style being manufactured. Contrary to Zara, Primark has adapted a business model that is based on high sales volume and lower retail margins. In that regard, Primark highly outsources major of its processes and operations in order to reduce production costs and increase product differentiation (Primark, 2014). Majority of Primark’s business partners are sourced from developing countries where there exists cheap and ready labour. Consequently, Primark brands have largely been associated with value consciousness as opposed to Zara’s brand that emphasizes labels and brand status. Therefore, brands by Primark tend to offer consumers value for their money in comparison to goods by Zara. Primark’s value for money is facilitated by existence of economies of scale due to bulk purchasing, sourcing of products from over 600 suppliers and the lean production model. Due to Primark’s intricate relationship with suppliers, its business models emphasizes on ethical sourcing which is highly limited in the context of Zara operations. Additionally, Primark’s business market segment is based on teenagers and young adult division while Zara’s market segmentation is focused on male and female differentiation. Extensive business model differences of the two fashion retail groups have eventually led to creation of varied market niche for the two firms. The Impact of Different Competitive Objectives on Managerial Decisions Concerning Product and Operation Features of both Zara and Primark Companies At this point, a key question emerges concerning the business models of Zara and Primark. To what extent do the competitive objectives of these two companies influence the decisions that determine the characteristics and features of products offered to consumers? By implicitly embracing just in time model of production, Zara has been consequentially forced to implement profound changes in its production and operations management to reduce inventory period. One of the fundamental concepts has been limitation of product quantity. Similarly, Zara’s adaption of just-in-time and lean productions systems that are aimed at attaining highly responsive mechanism has forced the company to operate production at a lower level than the projected sales. Therefore, the management of Zara has been forced to maintain under supply status in order to ensure continuous flow of stock. However, the occurrence undersupply has firmly established the concept of product scarcity. The concept of competitive objectivity has further led to precarious situation where management decisions have been obscured with predominant focus on single product feature. In the case of Primark, heightened focus on the value for money has led to the overhaul of trending products. Similarly, Zara’s competitive strategy to maintain product scarcity has necessitated optimisation of sales by increasing the prices. Thus, high pricing by Zara stores has become a focal characteristic of their products. In addition, the business model of Zara implies that major decisions on the features of their product will be pegged on the trending fashion. This implies that product features analysis by the management will not entirely depend on organizational assessment but on the external factors that include trending fashion and market reaction. Varied competitive objectives between the two companies directly influence their dominating operations and product management. The ultimate functions of the product are solely dependent on the features of products that are based on core objectives of the business models. An emergent fundamental issue concerning the difference in the business model lies in the divergent emphasis on production and product significance by the two companies. An examination of Zara and Primark’s cases indicate that managerial decision by Zara will continue to emphasis improvement of product features hence continual design and manufacture of trending products. In the contrary, decisions by Primark will tend to focus on the production stages in order to maintain high sale volume through extensive sourcing. Central to this scenario is the likelihood of increased partnership and outsourcing as the company expands globally. Trade-Off Analysis among the Operations Performance Objectives The ultimate downside of adapting specific business model is exhibited by the trade off that companies have to effect. According to Pahl and Mohring (2008), there exist operation performance objectives for each organization in any competitive market. Thereof, Cheng and Choi (2010) noted that organizations are more likely to trade off one or more of the following objectives. These include cost, quality, speed, flexibility and dependability. Cheng and Choi (2010) further wrote that improvement on one or more of the principle manufacturing capabilities are bound to take place at the expense of other capabilities. An examination of the operational performance objectives of Zara indicated concentrated efforts aimed at achieving high product quality and fast delivery of new products. Consequently, this has led to a trade off for quality, speed, and flexibility on the expense of other operational performance objectives. Zara’s just-in-time business model has led to adaption of lean production system hence significant reduction in production wastage. Similarly, Zara’s just-in-time and lean production model have been attributed to the company’s flexibility. Zara brands are highly responsive to consumer demands and dominating fashion trends. By achieving a responsive period of two weeks for the design and production of a new brand, Zara has become an epitome of flexibility in the fashion industry. However, the attainment of these positive performance objectives occurs at the expense of other objectives such as cost in the case of Zara brands. As company whose brands have been strongly been associated with the value for money, Primark’s competitive priority trade off seems to be too obvious. As opposed to concentrating on fashion and trends, Primark’s business model has been centred around high sales volume hence heightened focus on lower pricing of their products. The company has traded off cost for both speed and flexibility. Having a market position of low cost products, Primark has hugely outsourced majority of its operations to business partners hence the challenge of an extensive supply chain. This has resulted to limitation of the company’s response to fashion trends in comparison to Zara’s shorter reaction timeframe. In addition, operational flexibility of Primark’s is highly hampered by the large number of suppliers from different geographical location and the resulting longer inventory timeframe. Highlighted competitive trade-off between the two companies demonstrates the complex matrix of operation performance objectives in the fashion industry. Recommendations on How Operations Manager Could Overcome Competitive Priorities Trade-Off The trade off between competitive priorities present operation managers with daunting tasks. For an effective operations performance, managers are expected to delicately balance between the enhancement of competitive priorities and deliberation on the manufacturing capabilities to trade off. According to Fisher and Raman (2010), managers could be able to overcome tradeoffs by raising the fulcrum point by either fixing one of the competitive priorities at the balance point. Therefore, in the case of cost reduction and increased speed, operation managers could set quality or dependability as the fulcrum between cost and speed as competitive priorities. ↑ Quality/dependability According to Fisher and Raman (2010), to overcome the trade off, the sand cone model could be employed by managers. The model identifies an elaborate hierarchy within the competitive priorities. Based on this hierarchy, sand cone model provides that managers first concentrate on enhancing product quality by allocating sufficient resources and supervision. With enhanced quality, the attention should be shifted to improving the production system dependability followed by improvement of production flexibility or reaction speed. Finally, with all other competitive priorities enhanced, the operation manger should now focus on mending cost efficiency. However, Fisher and Raman (2010) noted that this mechanism could only be effective in the short-term framework. References Badía, E. (2009). Zara and her sisters the story of the worlds largest clothing retailer. Basingstoke, Palgrave Macmillan. Cheng, T. C. E., & Choi, T.-M. (2010). Innovative quick response programs in logistics and supply chain management. Berlin, Springer. Fisher, M. L., & Raman, A. (2010). The new science of retailing: how analytics are transforming the supply chain and improving performance. Retrieved from: http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk &AN=674965.Accessed on [06.07.2014] Inditex (2014). Sustainable business model - inditex.com. [online] Available at: http://www.inditex.com/en/our_group/business_model [Accessed 5 Jul. 2014]. Pahl, N., and Mohring, W. (2008). Successful business models in the fashion retail industry: strategic audit of H&M compared to ZARA. Norderstedt, Germany, GRIN Verlag. Primark (2014). Primark Our Ethics. [online] Available at: https://www.primark.com/en/our-ethics [Accessed 5 Jul. 2014]. Read More