Zara

As for the B2C buying behaviour, many perspectives are included. Firstly, take a look at the cultural factors. Buyers of ZARA are influenced by culture, subculture and social factors. ZARA collects information about its customers via staff members, by different observations and also directly from the buyers. Since ZARA is a centralized brand it focuses on the global trends, though it has decided to move towards geocentric orientation and started to adopt local solutions, too.

It is also seen that the income factor is one of the biggest determinants as the brand has relatively high prices. However, it provides value to customers; still not every social class could afford it. Secondly, as far as the social factors are mentioned, buyers can be influenced by their memberships, their activities in different groups, relationships as well as their role and status. For instance, working in a business related area can influence customers to buy formal ZARA clothes as well as being part of a sport club can make them buy sporty clothes.

While the brand has a lot of segments, it also provides items for sport activities. The role and status is a huge influencing factor. It provides elegant, formal clothes and for this reason ZARA clothes can be bought for showing the already gained position in the society. Among personal factors, the occupation is considered to be the most important since blue collar workers are not even motivated to buy ZARA products.

That is the reason why it does not targets other members of the society. Lastly, the psychological factors are the main determinants. The ZARA brand is valuable, it understands the latest fashion trends and also follows the customer’s wants. Therefore, their prices are relatively high as mentioned before. We can claim that clothes obviously belong to our basic needs, but this quality brand is more like in relation to the esteem part if Maslow’s pyramid is considered.

We have been given an assignment, where we have been divided into groups. In our group we have analyzed two companies, namely Zara and H&M. These two companies are both very big companies within clothing. The fashion business is very tough, and we will explain to you what we believe the two companies does well in this hard business, and why this is good. We have been giving time to solve the assignment in some of our classes with Gitte and Peter, the rest we have made at home. After we have analyzed the two companies we will compare their 4 P’s and their value chain, likewise we also will make a five forces analysis.

Z A R A * Company profile – Zara Zara is a very big clothing chain from Spain. The chain was founded in 1975 by Mr. Ortega, and it now has more than 1. 000 stores in approximately 63 countries – so it is a very big chain. However Zara has its biggest market in Spain, where they have 364 stores in total. They sell fashion clothes of a fairly good quality to reasonable prices – this also means that they have a broad target group, which we believe to be from kids to adults younger than 50, both men and women.Over the years Zara has expanded their product line heavily, so now they also sell accessories, cosmetics, furniture and perfumes.

They have made a whole new store called Zara Home where they are selling furniture’s; we will however focus on their clothing. The founder of Zara is naturally very wealthy, in fact he is the richest man in Spain, and the second richest within the business of fashion. Also Zara’s stores are very big, most of them are between 800 and 1. 000 square meters – which makes room for a lot of fashion clothing.Inditex, the mother company of Zara has many stores under them, but it is worth mentioning that Zara stands for 77 % of Inditex’ overall sales, which is very impressive, and their plan for the future is to continue expanding and growing bigger and bigger. Zara clothing is sold worldwide, and not long ago the first store opened on Stroget in Copenhagen. * Generic strategies Generic strategies is a marketing tool invented by Michael Porter.

It is very popular and many companies use it. The generic strategy tells about the product(s) and its target group(s). Beneath you will see the generic strategies model. Low cost| Unique product / high cost| Broad target group| Overall cost leadership| Differentiation| Narrow target group| Niche – Cost focus| Niche – Differentiation focus| As seen above we believe that Zara uses the overall cost leadership strategy. Zara’s target group is very broad but their prices are also fairly low, this is why they use the overall cost leadership strategy. To a certain extend you could also say that Zara uses the differentiation strategy. This is because they have very beautiful products which are a bit more expensive than their closest competitors.

But also because they have so many different products – they have everything from clothes to furniture’s. But mainly we are certain that they use the overall cost leadership strategy. * Growth strategies Ansoffs growth strategy is a well known toll within marketing. The strategy is used by marketers who have objectives for growth, and Ansoffs matrix offers different strategic choices to achieve the goals. The model is shown below this text: | Old product| New product| Old target group| Market penetration| Product development| New target group| Market development| Diversification|We believe that Zara uses two growth strategies, and we will know explain why. The two strategies that Zara in our opinion uses is, market penetration and product development. If we have focus on their clothing line we believe that they have penetrated the market very much, naturally because they use the same products, clothing, and also because they aim for their existing target group.

If your growth strategy is market penetration it would be obvious choice to promote your products, but that is not what Zara is doing.They are relaying on good store locations and loyal customers who will talk in nice words about Zara to their friends and family. As mentioned we also believe that Zara uses another strategy, namely product development. We base this on the fact that they have expanded their product line. Now they don’t just sell clothing, now customers also have the opportunity to buy accessories, cosmetics and furniture in Zara stores. Even though Zara is introducing new products, they still relay on their existing target group. Inditex has expanded very heavily, and to put this in perspective we have some facts that show this.

In 1995 they had 500 stores worldwide, and in 2004, nine years later they had 2. 250 stores. * PEST analysis The PEST analysis is a marketing tool in the macro environment who tells about the political, environmental, socio- cultural and technological forces that may have an influence on your company. These are uncontrollable forces which we do not have any influence on. Also, it is vital that a company considers its situation before beginning the marketing process. Political factors: Zara has stores in a lot of countries; therefore it is hard to get a good view over the political factors.But if we focus on some countries we know it is easier.

In Denmark we don’t see any political obstacles for Zara – we have a stable political environment, and the only thing we see as a “threat” for Zara is new tax-laws, that could influence our buying possibilities, but on the other hand it could also go the other way around. One important global thing that could affect Zara could be new laws regarding the cheap “work power” in the east. New laws regarding this area could end up raising their costs. Economic factors: We are right now in the middle of a global financial crisis, and many fear that we will have a recession.This will of course influence Zara. If the recession comes, customers of Zara will have less money to spend on their products then they used to. This can be very crucial for Zara, because we might fear that their customers will tend to buy products from their greatest competitor, namely H&M.

Hennes & Mauritz products are a bit cheaper then Zara’s, and therefore we fear for Zara that they would lose customers during a recession. Socio- cultural factors: Some people are against the fact that big companies use cheap production in foreign countries, but in this situation Zara has an advantage over its competitors.They produce 80 % of their clothes in Europe which is a lot more than their closest competitors. This subject we will also talk about in the SWOT analysis. Teenagers are also spending a lot of money on clothes, and they often do this without influence from their parents. This creates “a golden group” for Zara who are willing to buy a lot of fashion clothes, so they can look nice. Technological factors: When we are in the clothing business technological factors does not have a very big influence compared to other businesses.

But there are things that are relevant for Zara. Because of all the technology we have today, Zara also has new opportunities to get in touch with their customers. The internet is in this case a brilliant example. Zara can promote on the internet, and they also have a homepage where you can learn more about them, and check their products. * The value chain A value chain is a chain of different activities which aims at creating value for the end user, and leaving the company with a positive margin. The activities culminate in the total value delivered by an organization.The value chain is divided into primary and support activities.

UpstreamDownstream Research & Development| Inbound logistics| Production (outsourcing)| Outbound logistics| Sales and marketing| Service (After market)| It’s very important for Zara to create as much value in the value chain as possible, because there is a tough competition within the market for relatively cheap, but still good quality clothes. Zara creates value in production. –Their production takes place in some of the countries with a low salary, which minimizes the production cost.But they also produce their products in Spain and Portugal, which we believe many customers will like. In outbound logistics we also believe that Zara creates a lot of value. This is the place where the products are sent to the stores – and at this point Zara creates very good and vital value. We know that Zara are very fast at getting their products sent out to the stores, likewise they also can call them back very easily compared to their competitors, and this of course creates value for Zara.

In the sales and marketing Zara does not gain much value.They don’t advertise for their products, and we believe that this would be a good idea, especially in the countries where Zara still needs to get its big “break trough”, instead Zara depends on good store location. We believe that they should give advertising a chance. * SWOT analysis A SWOT analysis is another strategic method within marketing. It is used to evaluate a company’s, strengths, weaknesses, opportunities and threats. Strength and weaknesses are internal factors, while opportunities and threats are external factors. We will start out with the strengths.

One of their great strengths is their fast production.When their clothes are designed for the first time, it can be bought in their stores around the world only 2-5 weeks later. This means that they have a very fast production and if something goes wrong or doesn’t sell they can easily call the product back. At the same time they will also have new clothes with a great variety in the stores every second week. The fast production also gives a good control of your stock, which means that they “only” have 15-20 % unsold inventory each year and a good profit margin. In H&M, Zara’s worst competitor, it takes 6-8 months before their designs are in the shops – therefore it is a great strength.Location of Zara stores is also one of their strengths.

They are placed where a lot of people walk by, and therefore a lot of people see the store, and they will go in, and eventually end up buying something. Because of their production, they also have a good reputation among their customers. Most of Zara’s production takes plane in Spain and Portugal. This is a good thing because many people don’t like the thought of underpaid workers. When you buy products from Zara you have a lot of different things to choose of, which is also a strength – and the products you buy are of a high quality and a reasonable price.A weakness for Zara we definitely mean to be their homepage. It is very confusing, and it is not easy to browse around.

When we looked at it, we were actually very disappointed, and we even got a little bit “frustrated” – because it is so confusing. We also think that despite their good quality and prices they are a bit unknown among the young generation in Scandinavia. Before this assignment we didn’t know too much about Zara. We believe that H&M is more known then Zara in Scandinavia, and this is due to Zara’s lack of advertising.Right now we have a global financial crisis, which influences the customers buying possibilities. This also affects Zara’s customers, and they will think more carefully over the things they choose to buy. If the financial situation became more positive and we were facing a boom, Zara’s customers would have more money to spend on their products – therefore a boom is a possibility for Zara.

Of course Zara has their competitors as a threat, especially H&M and Gap. The business which they operate in is very competitive – therefore it is vital to “be on the marks” at all times. Zara also has some production in Asia. Therefore new political laws about salaries and “working hours” is a threat for Zara, which could end up making their production more expensive. * Price / quality grid The price/quality grid is a tool you can use to analyze a product and the company’s strategy with the given product. First it is worth mentioning that a product is anything that can be offered to a market for purchase or use, which might satisfy a want or need. A product consists of three levels, namely the core benefit, the tangible product and the augmented product.

Beneath we have shown the model and we will explain which strategy we believe Zara uses. High price| Low price| High quality| Premium strategy| Good value strategy| Low quality| Overcharging strategy| Economy strategy| In our opinion Zara uses the good value strategy. This is of course because they have a high quality, but also a fairly low price. When buying clothes from Zara the customer at least get the same quality as if buying from Armani, but buying clothes from Zara also gives you a low price. This tells us that the customer gets more then he pays for, when talking about the actual product. Others would say that the brand and status other products give them is more important.But when using a good value strategy, the company will get a lot of satisfied customers.

It is worth mentioning that Hennes & Mauritz in our opinion uses the same strategy, namely the good value strategy. Hennes & Mauritz * Company profile Hennes and Mauritz is a very big company, it was founded in Sweden, 1947. They started selling clothes to women and at that time their stores was called Hennes. –Later, in 1968, they founded a store that started selling clothes to men, and this store was called Mauritz, and Mauritz also started selling accessories.Later they changed the name to Hennes & Mauritz (H&M), which is the store we know today, who sells their products to both men and women. Since H&M was founded they have expanded heavily, and today you can find them in 24 different countries, with more than 1. 345 retailers worldwide.

Hennes & Mauritz has their biggest market in Scandinavia; likewise their target group is very broad. –They sell clothes to small children but also to adults, both men and woman. * Generic strategies Porter’s generic strategies were made in the 1980’s, and since then it has been a very popular marketing tool.Today it is still very used among companies worldwide. | Low cost| Unique product| Broad target group| Overall cost leadership| Differentiation| Narrow target group| Niche – Cost focus| Niche – Differentiation focus| The generic strategy is used to find the company’s competitive advantage, so they will know what to focus on while they are maintaining their core competitive advantages. –H&M has a very broad target group, and their products are also at a relatively low price. Therefore they use the strategy which is called overall cost leadership.

They can sell their products at a low price because they produce them in countries such as China and other Asian countries. H&M has used this strategy with great success. * Growth strategies Ansoffs growth strategies were first published in 1957. Today it is still used by many marketers who have objectives for growth. This model offers different choices of how to achieve your goals. | Old product| New product| Old target group| Market penetration| Product development| New target group| Market development| Diversification| H&M operates uses the market penetration strategy, obviously.They have their existing products, mainly their clothes, which they sell to their existing target groups.

They have a good brand within clothing which they are trying to make stronger and stronger. You could say that they over the years also have used market development. Because in the beginning they only sold clothes to women, but know they also sell clothes to men. This is why their strategy for many years has been market penetration. * PEST analysis Before a company begins its marketing process it would be wise to consider its environment. This can be done with a PEST analysis.Political forces: In Denmark we don’t believe that the political forces play any role, but in their production countries it can affect them.

New laws about salary and working hours can make production more expensive, which won’t be good for H&M. Economic forces: Not long ago we had a boom period in Denmark, therefore people had “more” money to spend on clothing for example. But now we are slightly heading towards a recession. But actually we don’t mean this has any negative influence on Hennes & Mauritz. People will still have the money to buy their products because they are cheap compared to others.So maybe they will even experience to get more customers, if the population does not feel that they so much money to spend on clothes. Socio- cultural forces: The trends are very important for H&M.

We believe that many girls like having clothing from H&M. This we believe to be their biggest target group also. They have lots of different products which can be bought at a good price, and they feel comfortable wearing clothes from H&M. Therefore it is important that H&M keeps them self updated on new trends. A more negative factor could be the fact that some people are against cheap production in foreign countries.This will hurt their image among some people, because they have so much production in the east. Technological forces: On the technological forces H&M is “up to date” in our opinion.

They have cheap production, partly because of good technology. Also they have a very good homepage where you can see their collection, and also shop online. Furthermore you have the opportunity to read about the company and get the newsletter via their homepage. * The value chain UpstreamDownstream Research & Development| Inbound logistics| Production (outsourcing)| Outbound logistics| Sales and marketing| Service (After market)|Above we have shown the value chain. Earlier we have mentioned the purpose therefore we will now start with the analysis. When we look at their production we know that many of their products are produced in China. This makes production cheap and therefore also the products that are sold to the end users.

This creates value for H&M. Also they have 700 independent suppliers, primarily in Asia and Europe. Hennes & Mauritz only produce 30 percent of their own clothes, the other clothing they get from firms such as L. O. G. G. , which they have a permanent contract with.

This way they don’t spend too much money at their own production, while having lots of independent suppliers. And due to all the suppliers they will naturally get a good price, because they order a huge amount each time, but also because the suppliers would like to have their products in H&M stores. H&M has a “top of mind status” when we think of cheap and fashionable clothing. And this is very valuable. Not many company’s has achieved to make the same brand and position as H&M, therefore they gain great value in sales and marketing.Many big designers has designed clothes for H&M such as Stella McCarthy and now also Madonna wants to design clothes for them. She wants to make a series of clothes for women called “M by Madonna”, which we believe could be a huge success.

If Madonna designs clothe for H&M it will be good promotion and great value. * SWOT analysis Strengths| Weaknesses| Good repetition Loyal customers Good quality Reasonable prices| Slow production Some think of H&M as discount label Recall of products| Opportunities| Threats|Economy (recession, to a certain extant) Growth in the Asian retail sector| Rising salaries for the workersNew political laws regarding productionCompetitors – intense competition| The purpose of a SWOT analysis we have already mentioned. We believe that their strongest strength is their quality and brand compared to their prices. In H&M you get something in return of your money. But as we see it they also have one very big weakness, especially compared to their strongest competitor, Zara. H&M has a very slow production compared to Zara and it takes up to 8 months before the new designs are available in the stores.If something goes wrong it won’t be easy for them to call the products back, so at this point they have to improve.

Regarding the economy we believe that they are well prepared for both a boom and a recession. If we experience a boom people will buy even more clothes then they usually do, and if we experience a recession they will maybe get some new customers. The biggest threat we believe to be new laws regarding their production, this would give them extra costs. Comparison * The 4 P’s The marketing mix, also known as the 4 P’s, is probably the most famous marketing term.The marketing mix is very simple, and it tells us something about the product, place, price and promotion. We can also say that the marketing mix is the company’s offer to its potential customers. We will start out with the most important P – the product.

Product: As we know both Zara and H&M primarily sells clothing. Their products are very similar; they both sell fashionable clothes, so at this point we don’t see any big differences. But Zara has expanded their product line. They have made new stores where it is possible for their customers to buy furnitures, so at this point we see a difference.Also Zara offers cosmetics to their customers. Price: At the price there is a little difference, but again these two companies are very similar. H&M is a little bit cheaper then Zara and this is a result of their cheap production.

Zara is also fairly cheap, but H&M, their closest competitor is a bit cheaper. Place: We believe that we roughly can divide their markets into two in Europe. Zara has their biggest market in the Southern Europe, while we believe that H&M has their biggest market in Northern Europe and Scandinavia.This is also naturally because of the firms “birthplaces”. Furthermore they both operate worldwide in hard competition with each other. They sell their products worldwide, and they both have good locations – especially Zara. Promotion: Zara is against promotion, so they do not advertise for themselves, instead they rely on good store locations and a good repetition among their customers.

The case is different for H&M, they advertise for their products, so that they can create attention upon their products. The 4 P’s have been a very good way at comparing these two companies.Overall we can conclude that they look alike each other a lot, and they are in a very hard competition against each other. They both have strong sides which they will use, both they also have weak sides which they can improve. But one thing is certain – the competition is very tough. * Porters 5 forces Five Forces Analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products.

Five forces analysis looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry. Analysis for Zara and H&M There will always be a thread of new comers on the market. In many cases these companies will not become a big threat, because there on the clothing market is such big competition, that they will be ousted within a relatively short period of time. The Power of buyers is if big buyers like Magasin choose how much they want from a certain company like e. . Bruuns Bazar. Then Magasin sets the standard, they can do this because of their good reputation, and because many costumers do their shopping in this mall every day.

Therefore they got a big buying power. The threat of Substitute Products will always be there, for example the walkman was substituted be the MP3 player, and the horse-wagon was substituted by the car. There will always be a development, and companies must be sure to be updated at all times.Therefore it’s extremely important to use a big sum of money in the Research and Development Department because that’s the companies “future”. The suppliers also have a certain power. –They are the ones providing the company with the raw-materials, so that they can produce the products. * The value chain In the value chain we believe that Zara and H&M gains value at different places.

Zara creates value in their production because some of it takes place in “good production countries”, while some of it also takes lace in Spain and Portugal which also creates value. But at this point they are similar, because also H&M creates value in the production chain. Most of their production takes place in foreign countries, and this makes their products cheap which will give them more customers. The place where there is a big difference is in the inbound logistics where Zara creates a lot of value, and H&M does not. As we have mentioned earlier Zara can send their new designs quickly to their stores, and also call them back again.H&M can also do this, naturally, but for them it takes much longer time. But then Hennes & Mauritz are good at creating value in Sales & Marketing, where Zara is not so good in our opinion.

H&M has huge stars like Madonna who wants to design clothes for them, this is very good promotion and it also creates a lot of attention. Zara, on the other hand doesn’t even promote their products – they are depending on good store locations as mentioned.[ 1 ]. http://www. marketingteacher. com/Lessons/lesson_fivefoces. htm

Executive Summary

Zara is an international fashion retailer which has gained considerable acclaim, being one of the leaders of the high-street fashion industry, and regularly producing new products for the market, at a rate that is quicker than its competitors can achieve, due to the strong supply chain in place. Despite this, the organisation is facing continual challenges, both in terms of consumer demand and costs; therefore, a detailed strategic analysis needs to be undertaken, to look at broader forces that are upon the industry and identifying ways in which the company can then use its own strengths and opportunity to establish an even stronger position within the high street fashion industry. By focusing on what it does best, namely using an efficient supply chain, this will enable it to beat its competitors to the market and to produce new products, on a regular basis, thus allowing the company to gain a competitive advantage in the war which is emerging among these high-street brands.

Introduction

The purpose of this report is to undertake a strategic review of Zara, based on the current position within the company. Over the years, Zara has become one of the largest and best known retail brands, on a global scale. Originating in Spain, back in 1963, the company has since become internationally recognised, with more than 2000 stores worldwide.

In order to create a presence within the fashion industry, Zara has managed to create a high level of differentiation and is seen as being a unique organisation which is able to provide customers with products that competitors cannot readily imitate. This has been achieved with full recognition of the external environment and competitive pressures being faced by organisations of this nature, something that is particularly relevant during the difficult economic times, when consumers have less disposable income available in order to purchase fashion clothing items.

One of the key ways in which Zara has achieved a competitive advantage in the market is to bring the lead-time of new products down from approximately six months to just two months, which means customers are able to obtain the very best fashion designs at high street prices. This also works to the advantage of the company as it is able to continuously turn over new products and this places a sense of urgency on customers to purchase items, immediately, when they see them, for fear that they will not be available next week. This is reflected in the fact that the global average of visits per year per customer is 17 in Zara, as opposed to a general average of three, across other similar organisations (Bigelow, 1980).

This report will go on to analyse the external and internal environment within which the organisation operates, before going on to look at crises that have been faced by the company, and to produce a strategic analysis of the company, drawing on all of the above information. The report will also include suggestions for future strategy.

Analysis of the External Environment

Looking specifically at the way in which Zara has managed itself into such a strong position within the industry, it is helpful to identify the external environment within which the company operates. This information can then be used alongside the internal narratives to create the appropriate business strategy for the organisation, going forward. In order to do this, the PESTEL analysis will be used, which looks at the Political, Economic, Social, Technological, Environmental and Legal factors, as well as looking at Porter’s Five Forces (Carter, 1999).

PESTLE Analysis

Politically, there has been a general opening of the market, with textiles now being readily available and not subject to quotas. This has made the market, in general, much more competitive and has encouraged all organisations within the industry to look towards reducing costs and attracting a broader customer base. This deregulation of the textile industry, from a quota point of view, has encouraged greater price competition which has, to a large extent, permeated through the large organisations such as Zara, which are able to enjoy economies of scale, when it comes to large-scale production (Lopez and Fan, 2009).

Furthermore, there has been the legal removal of import quotas, which has enabled the Spanish retailer to gain greater access to international markets and can therefore generate more sales and enjoy even greater economies of scale (Acur and Bititci 2004).

Economically, there are huge impacts on the fashion industry, as the world is currently facing a global recession and, as such, consumers are facing difficult choices in terms of how they spend their disposable income. In this context, consumers are reducing the amount of expenditure on items such as clothing and, in particular, fashion items, thus putting pressure on retailers to provide cutting edge fashion at a budget price, something which Zara has become particularly good at and is using this to gain success during difficult economic times.

There is no denying that when it comes to fashion and choices regarding fashion purchases, social factors play a huge role. Typically, individuals will prefer specific clothes that have a distinct image, when choosing fashion items. Having a strong brand identity that is widely recognised has enabled Zara to retain social popularity; therefore, while looking at economic drivers, it is also important to ensure that social acceptance of the brand is high and that the brand is seen as a desirable option (De Toni and Tonchia 2003).

Improvements in technology have also had an impact on the fashion industry, particularly during the difficult economic times where consumers are looking for the latest technologies for design. Furthermore, and of particular relevance to Zara, is the use of new technologies, in order to produce a more efficient supply chain and to ensure that products can be in the high street, at a much quicker rate than where technology is not being fully embraced.

Given the higher level of competition that is now being experienced within the fashion industry and when combined with greater legal protection, particularly where the protection of intellectual property is concerned, the individual designers are becoming very protective of their own ideas from the threat that the competition will seek to copy. Zara has overcome this threat by reducing the time frame within its supply chain. This means that it will always have a first mover advantage, where there are two or more designers looking to create a similar product. Any additional legal requirements, in terms of intellectual property protection, will not only be beneficial to the original design protection but may have the opposite effect and may limit opportunities for new product developments, as imitation and development is often an inherent part of fashion design.

Finally, environmental factors are also relevant to anyone looking towards transporting textiles across the globe and the amount of energy that is likely to be consumed in doing so. This new approach to fast fashion also creates environmental concerns as cheap items are often viewed as disposable by the consumer and simply thrown away, rather than recycled or treated in an environmentally friendly manner. This places an additional burden on companies such as Zara which are looking towards making themselves more environmentally friendly, while still retaining the basic position within the market.

Porter’s Five Forces

Another approach to identifying the external factors which are relevant to the development of Zara is that of Porter’s Five Forces, which argues that there are five forces all acting together to create a particular environment within a particular industry or market. The fashion industry in its entirety is highly competitive, with extensive sales, on an international basis, thus making Porter’s Five Forces particularly relevant to the analysis, when identifying how companies such as Zara can set themselves apart and what types of forces the company can use to achieve a differentiation (Porter, 1979).

Firstly, when looking at the threat of entry, it can be seen that there are relatively no entry barriers for those looking to enter the industry. However, although it is not necessary, at a low level, to invest large amounts of capital, the issue of economies of scale is playing an increasingly important role, with consumers constantly demanding cheaper prices. This makes it hard for the smaller new entrant to compete, from a price point of view, but still allows them to offer unique designs, which may then give them access to a market that which would otherwise be closed. Substitution across the whole industry is extremely high, as individual consumers can choose alternative providers for their fashion needs. When looking at taking the mass-market competitive approach, substitution may simply be down to price issues, whereas designer boutiques may be able to offer a different type of product, which again will offer a competitive substitution for the consumer (Moran and Riesenberger 1994).

Linked to this point of substitution is the large power that buyers have within this industry. Customers now have wide access to a broad range of retailers, with internet purchases extending this even further. The recent price war has also increased availability of fashion items to the general public and this allows buyers to have a huge influence on the market, by selecting new products, on a regular basis. Buyers demand continuous change, particularly within the fashion industry; therefore, it is necessary to continuously provide new and innovative fashions, on an on-going basis. Failure to do so is likely to result in customers turning away from a particular brand, until they renew their product ranges.

At the other end of the scale is the fact that the power of the suppliers within the fashion industry is low, with many organisations outsourcing their production to developing countries, in order to keep costs at a critically low level. Organisations such as Zara have a substantial opportunity, when it comes to changing suppliers, and this enables the company to drive down costs. Although this offers opportunities for reducing costs, it can also potentially create difficulties where there are concerns over the ethical behaviours of these third party providers.

Drawing on the four forces above, it can be argued that, finally, there is a large amount of competitive rivalry within the industry (the fifth and final force). This suggests that the competitive rivalry is increasing rapidly within an organisation such as Zara need to look towards establishing themselves with a competitive advantage during these difficult times, with particular reference to the fact that the buyers have a large amount of power, yet costs are critical to the situation, as there are economic pressures on the industry, as a whole, in the wake of the global international crisis.

Internal Analysis of Zara

Having identified the key issues which are impacting on the external fashion industry, the next step is to consider how these issues are impacting on the internal operations of the company. In order to do this, a SWOT (strengths, weaknesses, opportunities and threats) analysis will be undertaken, before going on to look at the value chain and the resource based view which has emerged within the company (Porter, 1980).

SWOT Analysis

One of the key strengths that Zara has as an organisation is its highly developed supply chain, which enables it to get new products to the market, at a very rapid rate. It also has a large international presence, with more than 2000 stores across the globe, allowing it to build a very strongly recognised brand. Furthermore, it has been identified that the ability to bring new products to the market, on a regular basis, encourages greater consumer acceptance and willingness to purchase cutting-edge fashion design. Therefore, this reduced timeframe for bringing new designs onto the market is a real strength of the organisation and keeps the ideas fresh in its stores, to such an extent that consumers will be regularly revisiting and restocking their fashion items.

However, there are weaknesses associated with the internal operations of the company. Having established itself as a large international fashion company, Zara is now required to produce a large amount of products, on a regular basis, which has somewhat removed the opportunities for producing new and innovative design, at the top end of the market. Zara has become recognised as a high-street fashion brand; therefore, any items which are believed to be at the luxury end of the pricing range are unlikely to be accepted by the customer base. Moreover, with increasing competition emerging throughout the industry, buyers are looking for cheaper prices, continuously, and any attempt at raising the price is simply unlikely to retain the favour of the existing customer base. As a result, the organisation has to produce a relatively large number of products, in order to enjoy economies of scale and therefore it simply cannot produce bespoke or unique items which would allow for a higher price tag (Kumar and Linguri, 2005).

Opportunities are continuously presenting themselves within the fashion industry. Consumers require regular updates, particularly at the high street end of fashion, where items are perceived to be somewhat disposable, in order to keep up with the latest trends. This means that an organisation such as Zara can retain a large customer base, by continuously improving its range and developing new products, on an ongoing basis. As noted in the case study, customers will tend to visit Zara stores considerably more frequently than competitor stores, due to the fact that new products are continuously being launched. This is a strong strategy and needs to be developed, as it offers substantial opportunities to gather greater customer support, on a regular basis (Mittal, 1988).

There are two particular threats being faced by organisations within the fashion industry, most notably from other large competitors that are able to reduce prices, such as Primark and H&M, as well as from unique fashion houses that are able to charge a higher price for producing new and bespoke products, at the high end of fashion. The other threats are the larger organisations and those that are able to reduce their prices below those which Zara can achieve.

Resource Based View and Value Chain

Applying this in the context of the resource based view and the value chain, which Zara has established, it can be seen that the main reasons for this are its supply chain and ability to bring new products to market, on a regular basis, with the product then being made available, on an international basis, at a very rapid rate. Zara not only has access to product designers that enable it to produce desirable high-street fashion, at low prices, but it also has a strong supply chain in place which enables it to bring new products to the shop floor, within a time frame which is four months quicker than its competitors can achieve.

Analysis of PR Crises

Environmental Concerns

Although Zara has managed to retain itself is a well recognised, well-respected brand within the fashion industry, it has also suffered from PR difficulties, over the years. The most notable of these was the Expose undertaken by Greenpeace, which listed Zara as being one of the worst companies, in terms of the level of toxins which were found within their clothes. Concerns were also raised that the efficient supply chain which it had established was having a dramatically negative impact on the environment.

As a result of this report, the organisation has had to review its supply chain and look at methods of reducing the amount of toxins that are seen to be contained in its clothes. Manufacturing processes will also need to be reviewed, in order to gain the support of those who were lost, when this expose happened.

Human Rights’ Concerns

Another area of growing concern within the fashion industry, with Zara not escaping media attention in this respect, was that of human rights’ concerns, such as the new staff sweatshops in developing countries used to produce products at a cheaper rate than would be possible within the more developed regions. Back in August 2011 a television programme in Brazil accused the organisation of using sweatshops in order to produce its products through outsourced services. Following this statement, Zara acted quickly to mitigate the damage that had been done in the public face, by stating that it viewed the use of sweatshops by its outsourced suppliers as being entirely unacceptable and put in place a variety of different procedures, to ensure that production was monitored much more carefully. Zara also works with various different government agencies, in order to ensure that this is happening.

Further difficulties emerged, in early 2012, when a journalist published a report looking at the treatment of shop staff, across the company, and found several instances of abuse. Again, Zara acted quickly to put in place an internal investigation and stated that abuse of this nature would not be tolerated. Although the company seems to be working with unions, in order to improve the position, the report clearly had an impact on the way in which the company was viewed, with concerns now being shown over the treatment of staff, as well as the treatment of individuals in developing countries who are producing the products, in the first place (Balchin 1994).

It is, however, noted that other organisations operating in a similar way to Zara have also suffered similar problems, with Primark being the main example of concerns over conditions for suppliers and the workers in the developing countries.

Strategic Analysis

Pulling together both the external and internal factors impacting on Zara as an organisation, it is then possible to establish a strategic plan for the future, in order to ensure the ongoing success of this substantial fashion retailer.

Corporate Strategy

The overall strategy for the company, referred to as the corporate strategy, looks at the general approach which the company should take, before going on to consider, in more detail, the business level strategy that can be used to achieve ongoing success (Doherty, 2004).

The corporate level strategies which Zara needs to focus on are doing what it does best, and where it has achieved the greatest efficiency, in recent years. One of the key reasons that Zara has managed to achieve this success is down to its efficient supply chain, which is critical to the current demands of the fashion industry at to meet consumers demand regular updates of products and new and innovative fashion, on a regular basis. Zara has managed to ensure that it has a first mover advantage by being able to bring the product to the market, within two months, and this unique selling point needs to be exploited further, if consumers are going to be prepared to pay slightly more, in order to gain access to new products before others (Coyne and Sujit Balakrishnan 1996).

It is suggested that Zara needs to retain a cost base element, in terms of strategy, as it has gained a large amount of support from high street customers who are looking for fast fashion, at a disposable level. By maintaining this price position, the company can then encourage consumers to renew their fashion products, regularly, thus offering continuous revenue for the company.

Business Level

Looking more specifically at the business level strategy, it is suggested that certain product lines need to be focused on, in order to keep the look within the high street stores fresh, as well as looking towards new opportunities for improving the supply chain, particularly given the recent PR crisis associated with its supply chain choices. It has been identified that one of the major advantages and strengths of the company is the fact that it can achieve a very rapid link to the market. Whilst it is currently the case that Zara has an unrivalled supply chain, it should not be accepted as the forever position and continuous efforts need to be made to improve the supply chain and to form alliances with appropriate third parties. Technology plays a huge role in this, and therefore having a strategic business unit which is entirely focused on technology and the use of technologies to create internal efficiencies, needs to be one of the primary business level strategies (Murphy, 1990).

A greater focus also needs to be placed on the team that is responsible for producing the designs which will ultimately make it onto the high street. Zara has achieved a position within the market that encourages individuals to look towards the brand as a means of gaining cutting-edge fashion, at a low cost, and the design of these products is therefore critical, if this position is to be maintained. Continuous evolution within this area is a necessary part of retaining the position and also looking towards cutting costs, by altering product designs to take into account the cost of production (Finch 2004).

Future Strategies

Several future strategies are now suggested for Zara, moving forwards. Economic pressures are likely to remain substantial, across the whole industry. Therefore, cost reduction needs to be critical and continuous, without potentially putting the company in a position where it may face questioning in relation to the ethics of third party suppliers, particularly when it looks towards outsourcing into the developing regions. Several other competitors within the market have suffered negative press, due to the use of suppliers associated with unethical practices. This presents Zara with a real opportunity to set itself apart from other low-cost retailers, by developing a specific ethical strategy that will enable it to retain a relatively low cost, but also allow it to sell itself as an ethical producer (Okumus 2003).

The company, therefore, needs to look towards other opportunities, for example, by changing the design of the product to reduce production costs, or looking at creating efficiencies in the supply chain, by transporting goods to a central warehouse that can then reduce the cots of transportation, overall.

A substantial focus needs to be placed on the design team and ensuring that it is continuously developing new products which are able to be produced at a relatively low cost. This will enable the company to retain its position for supplying fast fashion within the high street and continuing to attract customers into the store, on a regular basis.

Implementation and Evaluation

Throughout the implementation of the business strategies, it is necessary to continuously evaluate whether or not certain avenues of activities are successful and whether alterations are necessary, in order to establish greater efficiencies. For example, the supply chain needs to be monitored, on an ongoing basis, in order to identify any losses, either in time or money, so that these can then be reduced or even removed (Grundy, 1993).

The decision in relation to which products to design and produce is very much customer driven; therefore, it is suggested that customer reviews are obtained, on a regular basis, so that, where the customer is not being provided with a product that they choose, or are unmotivated to revisit the store, these instances are captured and dealt with, in the future.

Finally, evaluation needs to look at the ethical issues which Zara is now tackling, in order to set itself apart from other low-cost fashion producers, with regular reviews and reports being undertaken, not only to ensure that ethical practices are being followed, but also to allow the public to see that Zara is taking its ethical responsibilities seriously (Johnson & Scholes, 2002).

Conclusions

Zara is in a particularly strong position within the fashion market, having established itself as a brand name that produces cutting-edge fashion ahead of its rivals, and at a low-cost. Despite this, it is important that the organisation recognises the forces that are impacting on the external market and uses its own internal strengths to ensure that it retains a competitive advantage, thus enabling it to maintain its position within the market, as one of the brand leaders. A particular emphasis should be placed on the strengths within the supply chain, as this enables the organisation to bring products to the market, at a particularly rapid rate. Furthermore, cost pressures are also being placed on the organisation, which requires the design team to become more efficient when creating designs that can be turned into garments, at the lowest possible cost, without sacrificing ethical standings.

Simply put, it is argued that Zara needs to continue to do what it is doing, currently; however, it needs to do it better, with greater emphasis being placed on ethical behaviour, meeting customer demands for new and innovative fashion, while at the same time retaining low-costs, across every aspect of its operation.

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