Zara Case
Name: SeJun Lee
Executive Summary
Zara is one of the largest international fashion companies belonging to Inditex, one of the
world‟s largest distribution groups. This study analyses Zara`s external and internal
environments and public perception to make recommendations for improving performance
against competitors such as H&M and GAP.
First, Zara is assessed in terms of PESTEL global environmental factors, Porter‟s Five Forces
and the industry life cycle (ILC) fast fashion. Liberalisation of European Union import quotas
has had a positive political impact on the fast fashion industry. However, recent financial
crises have made customers more sensitive to price and tending to buy lower priced goods.
Young people and new Asian customers are more attracted to fashionable clothes. In the UK,
threats from of new entrants and substitution are low, and customers‟ and suppliers‟
bargaining power are moderate. However, the intensity of competitive rivalry is quite high
because similar fashion firms are competing aggressively. Fast fashion has a shorter life cycle
for products than most industries in the UK. This spurs both creativity and product innovation
but demands more efficiency and advanced technology to reduce waste and avoid distribution
delays.
Second, Zara incorporates a flexible and customer driven business model and fast fashion
value chain. Its internal core competencies are flexible manufacturing, efficient distribution,
low inventory levels and ethical behaviour. Financial results as the flagship within the Inditex
group have been strong for a decade and look sustainable for the immediate years ahead. Zara
has demonstrated positive leadership and a record of sound decision making.
Third, its public perception has been positively influenced by its CSR policies and practices.
Zara also follows the OECD business ethical guidelines; public relations crises have been few.
Fourth, several recommendations are offered. By reducing its centralised approach, it can
tactically penetrate in the U.S. and establish distribution centres near main markets. It should
expand in the emerging Asian market for trendy, fashionable Western clothing. In Europe,
Zara should sell lower priced clothes and reduce unnecessary operations. It should employ a
“defending market share” strategy, separate Inditex international operations and upgrade its
point-of-sale system information. Finally, it should shift focus toward customer service and
growth from existing customers based on their preferences and needs.
Contents
Introduction ........................................................................................................................... - 1 1.
2.
3.
4.
External Environment .................................................................................................... - 2 1.1
PESTEL Analysis ................................................................................................... - 2 -
1.2
Porter‟s Five Forces Analysis ................................................................................ - 3 -
1.3
Industry Life Cycle................................................................................................. - 5 -
Internal Environment ..................................................................................................... - 5 2.1
Resource Capabilities ............................................................................................. - 5 -
2.2
Value Chain Analysis ............................................................................................. - 9 -
2.3
Other Appraisals ................................................................................................... - 11 -
Public Perception ......................................................................................................... - 12 3.1
External Stakeholders and CSR ........................................................................... - 12 -
3.2
Ethical Management Practices ............................................................................. - 13 -
Strategic Analysis ........................................................................................................ - 14 -
Conclusions ......................................................................................................................... - 19 References ........................................................................................................................... - 20 -
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Introduction
Established in 1975, Zara is one of the most prestigious and famous Spanish fast fashion
retail brands; it is headquartered in Areixo, and managed under the Inditex group. The
company stores are famous for their fashionable women‟s and men‟s apparel, including lower
garments, upper garments, various fashionable shoes and cosmetics.
The concept of specialty retailer of private label apparel (SPA) as a clothing retail strategy
has spread dramatically worldwide over the last ten years.
This report takes the form of an independent strategic review. Section 1 assesses the external
environment, competitive forces and strategic issues in fast fashion with PESTEL, Five
Forces and ILC analyses. Section 2 examines the resource capabilities and financial results of
the internal environment. A value chain analysis will briefly describe the processes and
supporting infrastructure. Other appraisals will address the leadership and corporate culture,
decision making, power and politics. Section 3 discusses the public perceptions of other
stakeholders, corporate social responsibility (CSR) and ethical management practices.
Section 4 provides a strategic analysis and recommendations for sustainable business. Finally,
it offers summary conclusions about the company and its future prospects.
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1.
External Environment
1.1
PESTEL Analysis
Political
Political stability and fundamental political factors of managing countries may influence the
fashion retail industry. However, Holmqui (2003) pointed out that the liberalisation of import
quotas has had a positive impact on the fashion retail industry in the euro zone. Creating
several social relationships and providing aid in poor areas in different developing countries
has given Zara and other fashion firms a positive reputation in the international political field
(Joy and Sherry, 2012).
Economic
Arieff (2010) has claimed that the gross domestic product (GDP) per capita, income and
disposable income of people continues to be affected by the global recession and financial
debt. Therefore, many people are sensitive to price and they tend to buy low priced goods
(Bonacich, 2011). In particular, middle-class people are avoiding expensive products.
European fashion firms can benefit in the U.S. because of the value of the dollar, which
weakened against the euro after the global financial recession in 2008 (Arieff, 2010).
Social
The social factors in European counties have a significant influence on the fashion retail
industry (Howe, 2003). Moreover, young people tend to buy new, fashionable clothes like
Cheap & Chic, and this is the main reason for the fashion retail industry‟s success (Bonacich,
2011). However, older European people and North Americans are not as attracted to fashion
trends (Render, 2009). In fact, Kluyver (2010) pointed out that the emerging market for
European fashion firms is the Asian market, including China, Korea, Japan and Singapore.
However, international diversification might be a risk factor for the fashion retail industry
due to changes in people‟s socio-cultural backgrounds (Bonacich, 2011).
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Technological
In terms of globalisation, almost all companies attempt to capitalise on the advantages of
advanced technology (Doyle, 2012). This allows them to conduct online shipping, maintain
an effective supply chain and inventory system, distribute raw materials rapidly and distribute
end products quickly (Bonacich, 2011). Thus, fashion retailers must focus on the
implementation of advanced technology. Many companies already use advanced technology
in their business practices to survive in a fast-moving market (Bhagwt, 2011).
Environmental and Legal
Many governments regulate the environment. However, the fast fashion industry presents a
special problem because companies change clothing lines quickly, generating significant
amounts of waste (Arieff, 2010).
1.2
Porter’s Five Forces Analysis
Threat of new entrants
Mohring (2009) pointed out that it is quite difficult for new players to enter the fashion
industry and succeed in such a competitive and saturated market as the UK. Some companies
have already obtained a significant market share and have a good brand image for their
unique goods and services (Doyle, 2012). Thus, it is difficult for new companies to gain a
market share and a target audience. Existing fashion firms have the advantage of being prior
movers with large capital investments in the market (Bonacich, 2011). These facts show that
the threat from new entrants is low.
Threat of substitution
Baudelaire (2010) claimed that many fashion companies have applied a niche marketing
strategy. These firms have introduced diverse, fashionable and in-vogue clothes at affordable
and reasonable prices (Doyle, 2012). Food and clothes do not have other substitutions (Doyle,
2012). This means that other substitutions have difficulty to substitute its clothes. Therefore,
the threat of substitution may be low in terms of the fashion retail industry.
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Bargaining power of customers
Moore (2009) claimed that clients can gather information about new, fashionable clothes by
using media like the internet and TV. Consumers always look for low prices and better
quality (Bonacich, 2011), and fashion industry retailers strive to fulfil the requirements of
consumers (Tuttle, 2011). Therefore, the threat of buyers` bargaining power is moderate.
Bargaining power of suppliers
Mullins and Komisar (2009) suggested that fashion companies are almost the only customers
of their vendors and suppliers. For example, Watts (2012) noted that Zara obtains about 50%
of its raw materials and resources from companies of the Inditex group. This means that the
SPA strategy‟s dependence on external suppliers is not considerable. In addition, raw
materials are widely offered from developing countries, including India, Vietnam and China
(Watts 2012). These factors indicate that the industry has low bargaining power with its
suppliers.
Intensity of competitive rivalry
Vatia (2008) pointed out that the fashion industry retail market is extremely competitive.
Several leading competitors in the industry present a threat to others. For example, the target
group of three companies (Zara, GAP and H&M) are almost the same (Tuttle, 2011). The
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implementation of new business strategies by each competitor has created a major challenge
for other companies (Watts, 2012). Therefore, the threat of industry rivalry is likely to be
quite high.
1.3
Industry Life Cycle
The industry life cycle (ILC) for products in retail fast fashion differs from that of other
industries (Ozman, 2011). The extraordinary innovation intensity of goods and services,
together with an aggressive pricing strategy, has kept the brand at a high growth level over
the long term (Ozman, 2011). The ILC essentially deals with innovation and creativity in
service and products. Economic slowdowns and changing trends will influence the life cycle
of the industry (Bhardwaj and Fairhurst, 2010).
2.
Internal Environment
2.1
Resource Capabilities
Zara is deployed within the flexible and vertical integration business model (Deschamps, 2012;
Inditex, 2012). It combined a customer driven approach with a centralized distribution and a
rapid logistics strategy. The graphic below depicts the Inditex business model concept.
Source: Inditex (2012)
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Customer Driven


Zara offers a convincing mix of up-to-date styles and value at reasonable prices.
It has a unique creation policy for Inditex:
o 36,000 fresh designs per year; approximately one-fourth go into creation.

o Fresh items arrive in stores 2-6 times per week.
It relies on straight communication – a few traditional advertising:
o In-store feedback allows continuous adjustment of gatherings.
o Phone discussions between shop managers and market experts ensure that the

styles are desirable.
Attractive shops are established in key locations.
Distribution and Logistics



Central distribution is conducted from one major location.
Shops internationally receive delivery twice a week.
Orders go to shops within 1-2 days.
The most important Zara (Inditex) internal core competencies enable the business model
(Cline, 2012):


Flexible manufacturing structure

Low levels of store inventory (due to the fast supply chain)

Efficient distribution structure
Ethical principles and values of employees
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Financial Results
At the end of 2006, Zara had achieved net sales of about 5,352 million euros. In addition, 990
Zara outlets have been able to earn 76.2% of the total Inditex revenue of 8,196 million euros.
The capital expenditure split of Zara was 80% on new store openings, 10% on refurbishing
and 10% on logistics (Inditex, 2012).
Source: Inditex (2007)
Zara has attained high operational efficiency (Scott, Lundgren, and Thompson, 2011). Reis
and Farole (2012) pointed out that Zara leads the retail fashion industry in terms of gross
margins. This is attributed to great quality, supply chain management and the ability to
control costs. Zara is the Inditex flagship concept, occupying two-thirds of its store retail
space and annual net sales.
Inditex FY2012 Net Sales by Concept (million euros):
Source: Inditex (2012)
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Inditex performance in FY2012:


Employees:
120,314

Stores:
6,009 in 86 markets

Retail space: 3,161,448 sm

Sales:
€15.946 bn
EBIT:
€3.177 bn
Zara (retail apparel including Zara Kids) performance in FY2012:

Segment:
latest fashions for women, men and children

Stores:
1,925

Sales:
€10.541 bn
(66% of Inditex)
EBIT:
€2.233 bn
(72% of Inditex)


(32% of Inditex)
Retail space: 2,009,717 sm (64% of Inditex)
Note: Does not include Zara Home (home accessories).
Compared to its competitors like GAP and H&M, and under the parent Inditex group, Zara
has been able to achieve several competitive advantages in the global apparel market (Inditex,
2012). Its SPA business model has made Zara the leading fashion retail chain in Europe, with
66% of its store sales in that area (Inditex, 2012). Hitt, Ireland and Hoskisson (2012) suggested
that its strategic business model helped Zara achieve success even during the recession of
2008.
Inditex FY2012 Store Sales by Geographic Area
Source: Inditex (2012)
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Source: Inditex (2012) Growth
2.2
Value Chain Analysis
Zara has a unique business model in terms of its value chain and has achieved higher revenue
every year. Fernie (2004) claimed that the company has developed a unique supply chain
management process over the last twenty years.
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The Zara stores are closely linked to the company headquarters (Sull, 2010). Dassler and
Philips (2007) pointed out that all the Zara outlets are digitally linked with the major central
location in Spain. The company employees gather input from customers and share this daily
with headquarters.
The Zara designers have come up with new, fashionable styles based on “hot spot” trends and
customer input (Tidd and Bessants, 2011). Zara employs a wide range of skilled and
innovative designers from the retail market (conjoint analysis), so that it can update stock
constantly. Dexterity and the merging of international sourcing policy have allowed Zara to
obtain competitive advantages and a high growth rate (Sull, 2010).
Zara‟s operating strategy is based on responding promptly to market trends and stock
minimisation. This process has been improved by using data and information collection (Tidd
and Bessants, 2011). Diverse goods are produced by quick response and the remainder is
imported from low-cost manufacturing countries such as Sri Lanka, India and Bangladesh.
Prahalad and Ramaswamy (2004) pointed out that Zara can use a broad supplier base that
offers different fashion fabrics at low prices. After Zara obtains the resources, its local
factories work on the final printing and packing. In addition, Granger (2010) claimed that
factories maintain the quality of the final product.
Ray (2010) stated that the Zara manufacturing system is quite similar to its competitors‟
manufacturing processes. The key points of Zara‟s success include operational efficiency and
unique idea generation (Ray, 2010). The operation of Zara improves cost efficiency through
economies of scale, which are managed in-house.
Design-led procurement prevents stationary inventories, and this makes Zara responsive to
market demands (Caro and Gallien, 2010). Cline (2012) pointed out that the payment systems
for the completed garments have minimised overall operation costs.
Wholesale houses send finished clothes twice weekly to the shops, and all the allocating
activities are completed within 48 hours (Mihm, 2010). Therefore, Zara can reduce its lead
time versus its competitors (Cline, 2012). Tzu (2000) claimed that this effective value chain
linkage has reduced the likelihood of supply chain failure.
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2.3
Other Appraisals
Leadership and Corporate Culture
Amancio Ortega, who established Inditex, still owns 60% of Zara`s shares. He effectively
transmits the company values to workers in the company. These values include freedom,
responsibility, speed, perfectionism, flexibility and respect for others (Davidson, 2009).
These values have created a flexible corporate culture and autonomy in Zara. Therefore,
Zara‟s organisation also allows working horizontally, with liberal communication and a
relaxed, rather than hierarchical environment (Locke and Romis, 2007). In countries where
the chain has stores, managers work within their teams. This kind of leadership and corporate
culture ensures that the company continues to make customers happy, resulting in increased
sales (Locke and Romis, 2007).
Decision Making
Zara does not have chief information officer. Zara has established centrally located shops
with decentralised functional groups, called the commercials (Caro and Gallien 2009). It
manages decimalised analytical decision making in its business (Bhagwt, 2011). For making
instant decisions, Zara hired and trained young designers. The centrally located design teams
begin shop-to-shop transfers of final products. Each commercial design team includes two
product managers and two designers because they can be dedicated to specific sections in all
stores (Bhagwt, 2011).
Power and politics
Jobber (2012) suggested that although Zara has a positive reputation with its customers, the
company has failed to adequately care for its loyal employees. In performance appraisals,
coercive management power led to some Zara employees leaving the organisation. Berger
(2006) claimed that some upper-class managers ordered subordinates about in the interests of
improving Zara‟s service for its sometimes strange customers. This led to reduced motivation
among ZARA employees and Jobber (2012) has suggested that low employee motivation will
pose a huge problem for Zara in the near future.
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3.
Public Perception
The company endeavours to improve its corporate image and corporate social responsibility
(CSR) actions and follows nine business ethics guidelines for global trading. These points are
extremely important for sustainable growth because they will influence expansion of the Zara
brand. Public relations crises have been relatively few; two recent ones are noted below.
Greenpeace (2012) claimed that Zara‟s clothes contain hazardous chemicals and that some of
these chemicals negatively influence hormones in the human body. Greenpeace still displays
these banner statements:
It also encourages the use of organic cotton in its manufacturing processes. Johansen (2007)
pointed out that 100% organic cotton clothes in Zara stores can be easily identified by a
distinctive label. However, quickly responding to Greenpeace‟s Detox campaign within a
week, Zara promised to eradicate all releases of hazardous chemicals throughout its entire
supply chain and products by 2020 (Greenpeace, 2012), following adverse public pressure.
Dudley (2013) pointed out worker safety; clothing sold by Inditex (Zara) was reported found
in a Bangladeshi factory that caught fire, killing at least seven people. The following day,
Inditex suspended links with Spanish supplier Wonnover and its Bangladeshi sub-contractor
Centex as a precautionary measure. Other earlier public relations crises are mentioned in the
subsection on ethical management practices.
3.1
External Stakeholders and CSR
Loyal consumers are important stakeholders in a company. In addition, they are individual
members of society (Laughland and Bansal, 2011). This reflects the corporate social
responsibility (CSR) policy of the Inditex group. As part of the Inditex group, Zara started
Sustainable Inditex 2011-2015, a programme in which it encourages an eco-friendly strategy
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(Inditex, 2011). This is a change from the „Strategic Environmental Plan‟ to the „New Green
Plan‟.
Zara conserves energy so as to operate its shops in an eco-efficient manner. Selim (2013)
pointed out that this management strategy proposes the recycling of furniture and decorations.
The recycling of security tags and broken hangers already occurs, as these are collected in the
shop and recycled into plastic items.
The company decomposes its plastic bags through a biological process to protect the
environment and avoid pollution. People can examine the „d2w‟ logo on Zara‟s plastic bags
and see that they are biodegradable.
As an extension of its commitment to use recyclable materials and paper, Zara uses the
PEFP/FSC mark on its fashion catalogues.
Excluding skins from livestock, Zara does not produce clothes using animal skin such as
leather and fur. It also exhorts the use of biodegradable footwear and uses biodiesel fuel in
transport. Sheffi (2012) pointed out that Zara`s fleet transports more than 200 million items
of clothing every year. By using 5% biodiesel fuel, this reduces emissions of CO2 by more
than 500 tonnes.
3.2
Ethical Management Practices
As part of Inditex, Zara entered into an agreement with the International Labour Organisation
(ILO) and the United Nations and agreed to principles and policies of the Organisation for
Economic Co-operation and Development (OECD) to improve the economic and social wellbeing of people. Zara now follows the business ethics guidelines of these organisations
(Inditex, 2007, 2012), as discussed below.
Zara does not use forced labour. It cannot mandate outsourcing to companies and
subcontracting factories. However, according to BBC News (2008), Zara was forced to close
the Dhaka factory after workers said they had suffered harsh care in Bangladesh. In addition,
Scancomark (2012) pointed out that twenty-five Zara employees testified about terror and
rigorous abuse in Sweden.
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Inditex (with Zara) and other outsourcing and subcontracting companies do not hire child
labour. To ensure that children are not hired, Inditex has a protocol to monitor and observe its
sub-companies. Nevertheless, Dumas (2011) pointed out that Zara has employed 15 labourers
who are 14-year-old girls in Sao Paulo.
Zara does not condone harsh or inhumane treatment. Inditex (with Zara) and other
outsourcing and subcontracting companies respect employers and employees and protect their
dignity and rights. Zara never tolerates power plays or politics in its shops or other working
areas. If power or politics enters, Inditex will impose a penalty. However, Moore (2011)
pointed out that Zara harshly treated Bolivians who produced Zara`s products in Sao Paulo.
Zara does not demand extremely excessive working hours. Inditex (with Zara) and other
outsourcing and subcontracting companies do not demand work over the legal number of
hours. Employers and employees must get at least one day off per week and they cannot work
more than twelve hours a day. However, in Sao Paulo, Zara ordered employees to work up to
16 hours per day for Brazil`s legal minimum wage of about $340 a month (Moore, 2011).
4.
Strategic Analysis
Business level strategy
Zara has the prospective for sustainable growth, thanks to its business model and methods
such as fast fashion, QR and JIT production and inventory monitoring (Pahl and Mohring,
2009). In addition, these strategic operations help to overcome the challenges within the
industry (Porter 1985). Schiller (2006) pointed out that Zara has the chance to create famous
brand value in Eastern Europe. Zara‟s business system and model are its significant
competitive advantage of cost leadership in fast fashion (Tarun, 2007; Inditex, 2012).
The business model reduces many fixed costs related to worldwide expansion (Farole, 2012):


Central inventory location

No advertisement when starting a fresh marketplace

Rapid growth in online sales (IT)

No local distribution centres per market

Lean head workplace per marketplace servicing all arrangements
The materials team imports cheaply raw materials (silk and hemp) from China.
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
The distribution network maintains 25,000 short-term inventories. They send clothes
twice a week to every store.
Corporate level strategies
Zara`s corporate level strategies is similar to that of Inditex Group. Zara‟s distribution system
is centralised in Arteixo, Spain (Chopra, 2009). Therefore, the company can assist the
systems and new shops that are closest to the main centre (Pahl and Mohring, 2009). Vertical
integration is organisation of Zara (Inditex, 2012). This integration makes output that Zara
grow rapidly (Cline, 2012).
Product development
The design team is made up about 200 people, split among three groups for each of the three
clothing lines: women, men and children. Designers work next to market experts and
procurement and production organisers making portfolios and samples. Designers even visit
shopping streets, nightclubs and bars in search of new, trendy styles (market orientation
strategy) (Cline, 2012).
The test team ensures that, before clothes are produced, they are tested as sample clothes with
customers in a test shop. Moreover, the team uses computer software for testing and
customised handheld computers support the connection with retail stores (Inditex, 2012).
Zara manufactures about 50% of its products in its own network of Spanish factories, with
the other half procured from 400 outside suppliers in Europe and Asia. Production teams
produce clothes within 3-18 days (average 7-8 days) (Hansen, 2012).
Market development
In 2012, Zara was able to open 1,751 shops in 78 countries. The firm have extended its shop
steadily. Especially, Zara introduce its clothes to potential Asian market by opening up shop
on high street in new Asian countries (Hansen, 2012).
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Suggest strategies with evaluation and implementation techniques/modes
Business level strategy
Fast fashion has advantages and disadvantages. An advantage is that Zara can immediately
communicate fashionable designs and unique value to customers. However, disadvantages
include limited quality and many feedback errors (London Business School, 2008).
Consequently, Zara had disappointing results in North America because the people there are
not as sensitive to new, trendy, fashionable clothes (Render, 2009; Inditex, 2012). In addition,
The Economist (2012) pointed out that the sizes of Zara clothes do not fit in America. Zara
needs to raise North Americans‟ awareness of local, trendy styles by performing some
extraordinary promotional marketing (Inditex, 2012).
However, Zara may lose its cost
leadership when the firm attempts to extend into America (Cline, 2012) because it will
automatically face problems such as shipping costs and tariff costs (Porter, 2008).
If Zara reduces its centralised approach, this problem can be solved (Berman, 2010). Zara
should tactically invade a new shop in the U.S. with a total quality management. This means
that Zara would establish distribution centres that are the same size as the Arteixo model in
the lower taxation countries near the main markets. Moreover, Zara should consider opening
more shops in North America (Inditex, 2012). These would facilitate access in the intense
fashion business world and reduce shipping time. Moreover, such actions would decrease the
cost of operations, such as resource management costs, and logistics and supply chain costs.
In addition, manufacturing costs will decrease as resource imports are reduced (Berman,
2010). Zara can also study trendy styles of North America, and then produce clothes
appropriate for Americans. Optimally, the continuous improvement model will improve the
JIT process system and reduce negative feedback (Tamer, 2009).
Zara has maintained its position as a leading online retailer with its unique business model
and use of technology (Inditex, 2012). Schermerhorn (2011) argued that Zara`s competitors,
such as GAP and H&M, have already upgraded their specific information systems such as
Windows Embedded POSReady 7 (WEPOS; Windows Embedded for Point of Service) and
cloud computing. Thus, it is important for Zara to upgrade its systems because doing so
would yield positive results, such as more efficient management of high demand and the
automation of distribution centres. Committees must review the current hardware, software
and automated process to upgrade this technological control (Schermerhorn 2011). Tinsley
and Ormsby (2010) claimed that Zara needs software for internal operations. For example,
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Zara needs to upgrade its all DOS-based point-of-sale (POS) service to Windows Embedded
(POSReady) 8 Industry. The Intuit HP retail system, with WE8, is convenient for both store
managers and customers in terms of controlling inventories and providing business insights,
as it is adaptive, reliable, efficient and flexible (Microsoft, 2012). To upgrade its main POS
system, Zara should select a current operating system. Keynes (2011) pointed out that Zara
needs to continue to upgrade its information systems to add special value to the business.
Corporate level strategies
Zara should continue to own the country flagships and to follow strategic contingency theory
and resource based view, while joint-venturing or franchising, since it faces low financial risk
and limited entry barriers.
The company identifies its Achilles‟ heel as the newly emerging markets (LBS, 2008). There
is significant potential for fast fashion retail in the Asian market, which is becoming
increasingly aware of trendy, fashionable Western clothing (Buchler 2011). Inditex (2012)
pointed out that since Asia is a potential market includes Korea, China and Japan, industry
competition has increased. Zara‟s diversification and market penetration strategies would not
be guaranteed to work in the Asian markets because of other factors (Buchler 2011). First,
other Asian fashion retail businesses compete with each other. This means that the
competitive force of rivalry is extremely high. Moreover, in Asian countries, people do not
have as much disposable income and per capita income as in European countries; thus, Asian
people are more sensitive to spending money (Buchler, 2011).
Zara needs a mix strategy (market development strategy and market penetration strategy) and
collaboration strategy (joint ventures) with Asian firms in Asian market. Zara should also
advertise its clothes (Inditex, 2012). The company should emphasise that Zara is from a
European country because Asians often adopt the western fashion culture (Image building
modelling), which could provide Zara with greater market development potential in Asian
countries (Kluyver, 2010). This would reduce the perceived risk in Asia (Kluyver, 2010).
These strategies will provide many benefits, such as increasing selling and buying power,
reducing barriers to entry and enhancing stakeholder expectations (John and Lee 1995).
Zara still focuses on the volume of sales rather than customer service in Asian market
(Hansen, 2012). For example, in Korea, Zara does not offer customer services. If people lose
buttons, Zara does not care (Hansen, 2012). The company needs to improve its customer
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service to better compete in the competitive Asian market (Buchler, 2011). Zara needs to
incorporate customer-focused growth strategies. Growth in profits and more frequent sales
begin with core aspects of the business, such as service and customers (Liabotis, 2007).
Moreover, this strategy creates high-impact value propositions for new customers. This helps
to gain fresh insights into customers‟ preferences and needs (Liabotis, 2007). If Zara focuses
on current customer service, the firm could improve profits (Buchler, 2011). SERVQUAL (or
simplified version: RATER) or SERVPERF are suitable models that analyse service quality
and can be used to improve service system (Carrillat, Jaramillo, and Mulki, 2009).
Zara should maintain sustainable growth and capitalise on its industry opportunities in
European countries. Consumers change their behaviour regularly in the apparel industry, but
they also want to buy a lot of fashionable clothes (Bonacich, 2011). This is an important point:
the globalisation of leading companies significantly influences the changing business
environment and consumer behaviour such as cross shopping (Pakroo, 2012). Zara appears to
be intimidated by competitors in the industry such as GAP and H&M. In addition, amid the
financial crises and global recession, people are more sensitive to spending and they want to
save money (Buchler 2011). Therefore, when disposable income and per capita income were
reduced in this period, people wanted to buy products at reasonable prices (Bonacich, 2011).
In addition, it is necessary for Zara to consider lower priced clothes by reducing unnecessary
operations.
It needs to employ a defending market share strategy with a caution strategy during the
recession in European market. Zara should defend from threat of rivals and economic
slowdown (Hood and Vahine, 2012). The company should use a position defence model that
exploits positive brand power against other companies (Hood and Vahine, 2012). This strategy
includes CSR for building a positive image and a learning experience curve for reducing cost
(Hood and Vahine, 2012). In addition, a concurrent engineering model that improves product
development speed would help to sustain growth and defend against rivals (Karakaya and
Yannopoulos, 2010). Caution strategy also will yield insight into and provide better
information for the future direction of global recession (Christodoulou and Pater, 2012).
A few problems still influence its sustainable growth because the company has partial
responsibility for a percentage of the international sales of Inditex (Inditex, 2012). Zara has
passed on wide-ranging international profits to the Inditex group. If Inditex were to fail, Zara
would have to reformulate its business and corporate strategies (Cline, 2012). Zara should use
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a balanced scorecard to efficiently separate operations with Inditex. This system would
improve the balance of the organisation in the finance, customer, process and learning and
growth areas (Kaplan and Norton, 2004).
Conclusions
Zara has shown significant earnings growth every year, and new Zara shops continue to open
everywhere. It is evident that Zara is enjoying considerable success in the industry by using
effective retailing strategies, such as fast fashion, QR and innovation.
Most retail fashion industry players forecast future customer preferences for fashion. In
contrast, Zara holds a few design collections for the year. It makes “instant fashion” choices
which allow for JIT production of clothes. Therefore, Zara has high stock turnover. These
practices, among others, result in Zara being a leader in the fashion industry.
However, Zara still needs to overcome certain problems, such as strong competitors and the
current economic and financial crises. It continues to minimise its operational risks, but it
needs to predict macro- and microeconomic changes. If Zara operates its unique business
model without other serious problems, the company can continue to be a leader in the retail
fashion market for a long time to come.
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