Zara - Fast Fashion from Savvy Systems - Essay Example

Zara: Fast Fashion from Savvy Systems 0 Introduction and Key Issues Described as the most innovative and devastating retailer in the world (CNN,2001), Zara, the Spanish clothing company, breaks all rules of the apparel industry through its low-cost approach (Heyden, 2007). It believes in just-in-time production and is able to respond to the changes in customer demand at the shortest possible time-frame in the industry. However, economic downturn has threatened sales, which has been a cause of worry for the investors (Rohwedder & Johnson, 2008). Competition in international apparel industry has become rampant after the removal of quota in the sector. Thus businesses today operate in real-time in the global market place and they have to leverage comparative advantage (Ferdows, Lewis & Machuca, 2004). Thus, tapping into the foreign markets and the process of market entry, in addition to the innovative practices and technology can give a firm comparative advantage. Zara needs to ascertain the strategy for the way forward. 2.0 Present Vision, Mission and Corporate Objectives The organization has a customer-focused vision since the beginning and this continues to be the defining feature. Their challenge is to live up to customer expectations. The group philosophy can be summed up as “good designs and good quality at affordable prices” (Business Week, 2004). They have total control over the fashion process right from designing to manufacturing and distribution. The company aims to differentiate itself because of its fast fashion approach but intense competition has diluted this advantage. 3.0 Situational Analysis To alter the strategy an organization needs to evaluate its position compared to its competitors. This requires a review of its internal and external business environment. The external environment is being evaluated based on the PESTILE and the industry analysis is based on Porter’s Five Forces. 3.1 Environmental Analysis PESTILE Political The Political condition of the nations were Zara enters is fairly stable and its mode of entry depends upon the local/regional situation. Accession of Spain into the EU benefitted Spain as the export policies were revised and tariff deregulation took place (Bonnin, 2002). Economic The clothing and apparel industry contributes to the economy of Spain and several small manufacturers have emerged in the sector that can supply clothing at low cost (Bonnin, 2002). This helps in providing employment thereby positively impacting the nation’s economy. Social Zara has to educate the market and influence consumers’ shopping habits (Lopez & Fan, 2003). The country-of-origin usually adds positive value to the product but Zara has not been able to take this advantage in Spain. Technological Zara continues to rely on human intelligence, on information gathered from their store managers through the PDAs to facilitate informal exchanges (Ferdows, Lewis & Machua, 2005) but this is an obsolete version of Ms-Dos (Diaz, 2005). They have not invested in data analytics software or in POS data which can reduce the workload of the store managers. Innovation Zara is adopting technology to facilitate the store managers to display and order merchandise faster. They are also adding cargo routes for shipping goods (Rohwedder & Johnson, 2008). Legal Zara uses a different entry mode for each country depending upon the legal regulations prevalent in that market. For instance, in countries such as Cyprus and Poland it entered through franchising but in stable markets such as Germany and Japan they entered through joint ventures (Ghemawat & Nueno, 2003). In China they did not enter as a luxury brand but caters to the casual-wear segment (Fong, 2006). They use prime locations and take care in presenting their store fronts but they have very limited stores in almost all countries against their competitors who have expanded presence. Environmental Zara has eco-friendly stores and produce less waste. They have reduced energy consumption by twenty percent. They support organic farming and hold in-house awareness campaigns. They also contribute towards reduction of CO2 emissions by using 5% bio-fuels for its vehicles that transport its clothing to the stores (Zara, 2010). 3.2 Industry Analysis Porter’s Competitive Forces Threat of new entrants Threat from new entrants in foreign markets is high especially after the deregulation and lifting of quota in the sector. Threat of substitutes Spain carries a weak image in the fashion and apparel sector and many are unaware of the origin of Zara being from Spain (Lopez & Fan, 2003). Italy has a high image in the fashion and clothing industry. Thus buyer switching costs would be minimal. Because of the low image of Spain in clothing, Zara has to emphasize that they are made in Europe and particularly France because if they claim to be “made in Spain” they would never be able to sell in South America (Ghemawat & Nueno, 2003). Moreover, they cater to the high end customers while its competitors cater to the middle-segment. Even in Mexico they cater to the upper middle class. Bargaining power of the buyers The bargaining power of the buyers or the consumers is high because the competitors are able to import at low costs as the rate of dollar has depreciated (Tagliabue, 2003). The importers/competitors are able to offer goods at much cheaper rates thereby enhancing the bargaining power of the buyers. Zara delivers its overseas consignments by air which makes it expensive for the end consumers. Bargaining power of the suppliers The bargaining power of the suppliers at Zara is low because most of its production is in-house. Gap and H&M, on the other hand are dependent in their suppliers for their production. Sourcing from low-wage countries reduces the cost of production and the end price for the consumers but the lead time increases (Diaz, 2005). This way the competitors also distance themselves from the consumer market as they cannot incorporate the latest trends and demands. Competitive rivalry Gap and H&M are its greatest rivals but they follow similar patterns – their designs and sales are in-house but they have outsourced their manufacturing. Competitors take nine months to change their product line while Zara takes just two to three weeks (CNN, 2001). As a result they have limitations and cannot access the market as fast as Zara can. Gap has its own strengths because it is less tied to fashion and its prices are less aggressive (Wharton, 2003). Zara does not follow a standardized approach in all it markets. It appoints people in advance and gathers information on the trends and the local culture; they evaluate what would work in every environment before they deliver the merchandise. Competitors rely on IT for their production and designing whereas Zara follows a hybrid model and relies on human intelligence assisted by IT (Diaz, 2005). Store managers have to manually assess their inventory which is a slow procedure and can also result in errors. 3.3 Competitor Analysis H&M has 2200 stores all over the world and also provides internet shopping, in addition to catalogue sales in Sweden, Norway, Finland, the Netherlands, Germany and Austria. They have 700 independent suppliers and who have several sub-contractors due to which they could achieve a turnover of 12 billion Euros in 2010 (Huiru, 2011). Their vision is to strengthen consumer offering at the best price and exceed customer expectations, which is also the mission of Zara. Zara has 1557 stores all over the world, as of 2011 and the sales for the entire group – Inditex – has been just 6.2 billion Euros (Don Quijote, 2012). Amid fears of declining High Street sales, Zara now offers online shopping in France, Spain, UK, Italy and Portugal (Caesar, 2010). Gap has its online stores before Zara and H&M. China is the cornerstone of Gap’s global growth strategy while Zara targets only the casual-wear segment in China (Asia-Tech News, 2011). Zara claims to have the shortest turnaround time and offers its consumers the latest fashion clothing even if it means sending designers to a Madonna concert. However, with this sort of strategy they cannot expect to achieve profits. This is merely a psychological war with the competition aimed at hurting their morale (Foreign Policy, 2008). 4.0 Recommendations The situation analysis suggests that Zara has been making slow progress as it believes in the fast fashion concept. They have fixed target market and continue to invest in the sense and respond technology. As a result their growth has been slow compared to their main competitors – GAP and H&M. Zara enters foreign markets through joint ventures or through franchising because of lack of knowledge of the foreign markets but H&M and GAP have expanded exponentially as they have more stores in foreign nations compared to Zara. They mainly enter through joint ventures with local partners. Zara definitely needs to revise two of its strategies – invest in technology and expand through collaborations. They need to revise their strategy of in-house production as it impacts the growth of the company. The logistics need revision so that they can better service their stores overseas. Their cost of distribution is high as they feed their stores through four distribution centres. They also have a comparative disadvantage because of their Spanish image which does not carry well with the fashion consumers. Besides, they also need to cater to all segments in all countries and not restrict to one segment in one country. To cope with the competitive pressures these changes in strategy have become essential for survival. References Bonnin, A.R. 2002. The Fashion Industry in Galicia: Understanding the ‘Zara’ Phenomenon. Business Week. 2004. Spains world-beating business model. Retrieved January 5, 2012 from http://www.businessweek.com/adsections/2004/pdf/0423_inditex.pdf Caesar, J. 2010. Zara launches online retail store. Retrieved January 5, 2012 from http://www.bbc.co.uk/news/business-11155437 CNN. 2001. Zara, a Spanish success story. Retrieved January 5, 2012 from http://edition.cnn.com/BUSINESS/programs/yourbusiness/stories2001/zara/ Diaz, F.C. 2005. An Integrative Framework for Architecting Supply Chains. Retrieved January 5, 2012 from http://sdm.mit.edu/docs/cela_diaz_thesis.pdf Don Quijote. 2012. Zara: The Largest Spanish Clothes Company. Retrieved January 5, 2012 from http://www.donquijote.org/culture/spain/fashion/zara.asp Ferdows, K., Lewis, M.A. & Machuca, J.D. 2004. Rapid-fire fulfilment. Harvard Business Review. Retrieved January 5, 2012 from http://www.unescap.org/ttdw/Publications/TFS_pubs/pub_2377/ftz_ch6.pdf Fong, M. 2006. Zara Joins a Fashion Parade As China Opens to Retailers, The Wall Street Journal, Retrieved January 5, 2012 from http://online.wsj.com/article/SB114038784361278113.html?mod=article-outset-box Foreign Policy. 2008. Fashion Forward. Foriegn Policy, Nov/Dec 2008, no. 169, p28 Ghemawat, P. & Nueno, J.L. 2003. ZARA: Fast Fashion. HBS Case 9-703-497 Heyden, L. 2007. Business Model Innovation - M&S vs. Zara. INSEAD. Retrieved January 5, 2012 from http://faculty.stut.edu.tw/~yehcc/EMBA_NCKU_DATA/(5.1)%20Process%20Innovation%20-ZARA(980425)(S)(New).pdf Huiru, D. 2011. THE IMPORTANCE OF STRATEGIC MANAGEMENT: A case study of H&M. Lopez, C. & Fan, Y. 2003. INTERNATIONALISATION OF SPANISH FASHION BRAND ZARA. Retrieved January 5, 2012 from http://bura.brunel.ac.uk/bitstream/2438/2003/4/Zara.pdf Rohwedder, C. & Johnson, K. 2008. Pace-Setting Zara Seeks More Speed To Fight Its Rising Cheap-Chic Rivals. Retrieved January 5, 2012 from http://online.wsj.com/article/SB120345929019578183.html Tagliabue, J. 2003. A Rival to Gap That Operates Like Dell. Retrieved January 5, 2012 from http://query.nytimes.com/gst/fullpage.html?res=9E0CE4D71F31F933A05756C0A9659C8B63&sec=&spon=&pagewanted=3 Wharton. 2003. Fashion Chain Zara Reclaims the Glory of Spain. Retrieved January 5, 2012 from http://www.wharton.universia.net/index.cfm?fa=viewArticle&id=565&language=english&specialId Zara. 2010. ENVIRONMENTAL POLICY. Retrieved January 5, 2012 from http://www.zara.com/webapp/wcs/stores/servlet/category/ic/en/zara-I2011/18001/Animal+welfare Read More