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Title of the Report: Zara Case Study Report

Name: SeJun Lee

Executive Summary
Zara is one of the largest international fashion companies in the world, and it belongs to
Inditex, one of the world s largest distribution groups. This study reviews Zara`s external
environment and analyses its internal organisation to make recommendations for improving
its core competencies against competitors such as H&M and GAP.

This study first reviews the Zara enterprise in terms of PEEST environmental factors,
Porter s Five Forces and the fast fashion industry life cycle (ILC). The liberalisation of
European Union import quotas has had a positive political impact on the fast fashion retail
industry. However, rapid style changes generate waste. In addition, recent financial crises
have made customers more sensitive to price and tending to buy lower priced goods.
However, young people and new Asian customers are more attracted to fashionable clothes.
Also, new technology is quickly adopted to survive in a fast-moving market.

Using Porter s competitive analysis of five forces, the threats 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. Fast fashion has a shorter life cycle for products than most industries. This spurs
both creativity and product innovation but demands more efficiency and advanced technology
to reduce waste and avoid distribution delays.

The most important core competencies for Zara are its flexible manufacturing, efficient
distribution structure, low level of inventory and the principles of its employees. Its financial
results as the flagship within the Inditex group have been strong for a decade and look
sustainable for the immediate years ahead.

Based on the analyses and prior studies of Zara, several recommendations are offered for the
future. If Zara reduces its centralised approach, it can tactically invade a new shop in the U.S.
with a diversification strategy, establishing distribution centres near the main markets. It can
also expand in the newly emerging Asian market, which is becoming increasingly aware of
trendy, fashionable Western clothing. In its main European market, Zara should consider
selling lower priced clothes and reducing unnecessary operations. It needs to employ a
defending market share strategy with stabilisation during the recession. Internally, Zara

should separate its portion of the Inditex international operations and upgrade its point-of-sale
system for better control of inventories and business information. Finally, a shift is needed to
focus more on customer service and growth from existing customers based on their
preferences and needs.

Contents
Introduction...........................................................................................................1
1. Competitive Forces and Strategic Issues........................................................2
1.1

PEEST Analysis.......................................................................................2

1.2

Porters Five Forces Analysis..................................................................3

1.3

Industry Life Cycle..................................................................................5

2. Internal Environment......................................................................................6
2.1

Resource Capabilities...............................................................................6

2.2

Value Chain Analysis.............................................................................10

2.3

Other Appraisals.....................................................................................12

3. Other Stakeholders and Ethical Management..............................................13


3.1

External Stakeholders and CSR.............................................................13

3.2

Ethical Management Practices...............................................................14

4. Findings and Recommendations...................................................................16


Conclusion..........................................................................................................20
References...........................................................................................................21

Introduction
Established in 1975, Zara is one of the most prestigious and famous Spanish fashion retail
brands; it is headquartered in Areixo, Spain, and managed under the Inditex group, whose
brands include Massimo Dutti, Bershka, Uterque and Pull and Bear. Zara started its
international operations in 1980 (Wilcox, 2005). The company s stores are famous for their
fashionable women s and men s apparel, including lower garments, upper garments,
various fashionable shoes and cosmetics. In addition, the brand is also popular as Zara Kids
and Zara Home.

The concept of specialty retailer of private label apparel (SPA) as a clothing retail strategy
has spread dramatically worldwide over the last ten years. As SPAs, clothing companies make
their own brand products and then directly distribute them to the market.

This report will take the form of an independent strategic review. Section 1 will review the
competitive forces and strategic issues with PEEST, Five Forces and ILC analyses. PEEST
evaluates political, environment, economic, social and technological factors in a global
context. Zara has been previously analysed with Porter s competitive threats in the UK. The
fast fashion ILC is an industry-specific version of a product life cycle.

Section 2 will first examine the resource capabilities and financial results of the internal
environment. Zara has a unique business model in terms of its value chain and has achieved
higher revenue every year. A value chain analysis will briefly describe the processes and
supporting infrastructure. In addition, other appraisals will address the leadership and
corporate culture, decision making, power and politics; Zara has positive leadership and a
record of sound decision making.

Section 3 discusses other stakeholders, corporate social responsibility (CSR) and ethical
management practices. The company endeavours to improve its CSR 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.
1

Section 4 presents the findings of the analyses and recommendations for sustainable business.
These recommendations include extending into the U.S. and Asian markets, improving
customer service and extending centralised distribution with suitable strategies such as
market penetration and corporate level strategies.

1.

Competitive Forces and Strategic Issues

1.1

PEEST 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.

Environment
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).

Economic
Arieff (2010) has claimed that the gross domestic product (GDP) per capita, income and
disposable income of people in the UK 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.

Moreover, international diversification might be a risk factor for the fashion retail industry
due to changes in people s socio-cultural backgrounds (Bonacich, 2011). 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. However,
older European people and North Americans are not as attracted to fashion trends. In fact,
Kluyver (2010) pointed out that the emerging market for European fashion firms is the Asian
market, including China, Korea, Japan and Singapore.

Technology
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).
1.2

Porters 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). In addition, the target clients of the SPA retail strategy,

young people, are very fashion conscious, but they often cannot buy designer clothes because
they are not affordable. Therefore, the threat of substitution may be low in terms of the
fashion retail industry.

Bargaining power of customers


The fashion retail industry has considerable potential (Doyle, 2012). However, it is gradually
and slowly becoming saturated and hyper competitive. Moreover, Moore (2009) claimed that
clients can gather information about new, fashionable clothes by using media like the internet
and TV. This can influence brand performance. 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. Therefore, suppliers depend heavily on these companies. For
example, Watts (2012) noted that Zara obtains about 50% of its raw materials and resources
from companies of the Inditex group. Therefore, the SPA strategy s dependence on external

suppliers is not considerable. 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
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 frequent and rapid introduction of fashionable clothes, an
efficient supply chain and a strong brand image have taken Zara s products from the
introductory phase to the late growth phase in a short time (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. For example, almost all of Zara s
products complete their life cycle within one year (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 integrated Inditex business model (Inditex, 2012).

Source: Inditex (2012)

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:
36,000 fresh designs per year; about one-fourth go into creation.
Fresh items arrive in stores 2-6 times per week.
It relies on straight communication very little traditional advertising:
Every day in-store feedback allows constant adjustment of collections.
Phone discussions between shop managers and market experts ensure t styles are desirable.
Attractive shops are established in key locations.
hat the

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 are:

Flexible manufacturing structure

Efficient distribution structure

Low levels of store inventory (due to the fast supply chain)

Ethical principles and values of employees

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 in 2001.

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)


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: Stores: Retail
latest
space:
fashions
Sales:
for women, men and children

EBIT:
1,925
(32% of Inditex)

2,009,717
sm
(64% of Inditex)

10.541 bn (66% of Inditex)

2.233 bn (72% 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. Its
SPA business model has made Zara the leading fashion retail chain in Europe, with 66% of
its store sales in that area. 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)

Source: Inditex (2012) Growth

Zara s business model reduces many fixed costs related to worldwide expansion:

Central inventory location

No local distribution centres per market

No advertisement when starting a fresh marketplace

Lean head workplace per marketplace servicing all arrangements

2.2

Rapid growth in online sales

Value Chain Analysis

Fernie (2004) claimed that the company has developed a unique supply chain management
process over the last twenty years. Zara has a vertically integrated supply chain within Inditex.
The business model seeks permanent innovation and low-priced products with just-in-time
(JIT) processes. Information about the Inditex supply chain is listed below:

The materials team imports raw materials (silk and hemp) from China.

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 specialists and procurement and production planners making portfolios
and samples. Designers even visit shopping streets, nightclubs and bars in search
of new, trendy styles.

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 customized handheld computers support the connection with retail
stores.

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).

The distribution network maintains 25,000 short-term inventories. They send


clothes twice a week to every store.

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. Normal inflows of various information and sales data from all the stores
support different internal groups in understanding current fashion trends.

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 (QR) 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. Cline (2012) pointed out that the payment systems for the completed
garments have minimised overall operation costs. The final garments are allocated to each
Zara shop. Wholesale houses send finished clothes twice weekly to the shops, and all the
allocating activities are completed within 48 hours. 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.

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 has established centrally located shops with decentralised functional groups. 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.

3.

Other Stakeholders and Ethical Management

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). Zara wants to support society and the
environment through its business model. 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 (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 paper bags and biodegradable plastic bags used in shops are a positive example of
Zara s CSR performance. 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. 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, Greenpeace (2012) has
claimed that Zara`s clothes contain hazardous chemicals and that some of these chemicals
negatively influence hormones in the human body.

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; Tungate, 2008; Hume, 2011; Gudz, 2013), as discussed below.

First, 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.

Second, 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.

Third, there is no discrimination. Inditex (with Zara) and other outsourcing and
subcontracting companies do not discriminate in terms of race, employment, compensation,
contract, retirement, training or promotion.

Fourth, Zara respects freedom of association and collective bargaining. Inditex (with Zara)
and other outsourcing and subcontracting company employees can be assured of free
association and collective bargaining. Zara follows local laws when negotiating with
associations. Inditex also creates a channel to negotiate with its associations.

Fifth, 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.

Sixth, Zara provides safe and hygienic working conditions. Inditex (with Zara) and other
outsourcing and subcontracting companies provide safe and healthy working areas for their
employers and employees. Therefore, workers can easily access ventilation, hygiene, fire
prevention, safety devices and drinking [potable] water. However, Dudley (2013) pointed
out that fire killed seven Bangladeshis in brutal circumstances at a Zara factory which had no
safety equipment.

Seventh, Zara must pay wages on time. Inditex (with Zara) and other outsourcing and
subcontracting companies confirm and provide at least the minimum wage to their workers.
In addition, Zara also provides other basic requirements for its workers families, excluding
payments.

Eighth, 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).

Ninth, Zara recognises environmental awareness. Inditex (with Zara) and other outsourcing
and subcontracting companies protect the environment and follow local and international
laws and regulations. However, Greenpeace has still insisted that Zara uses chemical
materials (Greenpeace, 2012).

4.

Findings and Recommendations

Zara has the potential 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, its strategic operation helps to overcome the challenges within the industry.
Schiller (2006) pointed out that Zara has the chance to create famous brand value in Eastern
Europe. 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). Thus, Zara must continue to own the country flagships and
other stores, while joint-venturing or franchising, since it faces low financial risk and limited
entry barriers.

Diversification strategy
Zara s business system and model are its significant competitive advantage in fast fashion
(Inditex, 2012). 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). 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
extraordinary promotional marketing (Inditex, 2012). However, Zara may lose

some
its

competitive advantages when the firm attempts to extend into America 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 diversification strategy. 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).

Market penetration strategy and collaboration strategy


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. Potential markets include Korea,
China and Japan (Inditex, 2012). Tiits, Kattel and Kalvet (2006) pointed out that since Asia is
a potential market, industry competition has increased. Zara s diversification and market
development 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).
Therefore, Zara needs a market penetration strategy and collaboration strategy (mergers and
acquisitions) with Asian firms. Zara should also advertise its clothes. The company should
emphasise that Zara is from a European country because Asians often adopt the Western
fashion culture, which could provide Zara with greater market penetration potential in Asian
countries (Kluyver, 2010). This would reduce the perceived risk in Asia. These strategies will
provide many benefits, such as increasing selling and buying power, reducing barriers to
entry and enhancing stakeholder expectations (Christodoulou and Pater, 2012).

Defending market share strategy with caution strategy


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. 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.
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. 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. 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).

Separation strategy
Its differentiation strategy and lower cost leadership have increased the core competency of
Zara (Tarun, 2007). However, 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.
Therefore, Zara should use 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).

New technology
Schermerhorn (2011) argued that Zara`s competitors, such as GAP and H&M, have already
upgraded their specific information systems. 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.
Tinsley and Ormsby (2010) claimed that Zara needs software for internal operations. For

example, Zara needs to upgrade its DOS-based point-of-sale (POS) system to the Intuit HP

retail system. The Intuit HP retail system, with MerchantOS, 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 (Bhagwt, 2011). Zara has maintained its
position as a leading online retailer with its unique business model and use of technology. 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.

Customer-focused growth strategies


Zara still focuses on the volume of sales rather than customer service. 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 service to better compete in the
competitive Asian market. In Asian culture, customer service is extremely important. For
example, Homepuls (Tesco) did not accommodate the Korean cultural attitude towards
service. Many people went to Homepuls initially, but they did not like the company s
attitude, which does not reflect concern for customer service (Coyner, 2010). Therefore, 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. SERVQUAL or SERVPERF are
suitable models that analyse service quality and can be used to improve Zara s service
system (Carrillat, Jaramillo, and Mulki, 2009).

Conclusion
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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