ZARA final report

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.

http://www.inditex.com/

http://blog.naver.com/dltpwns85/220257721846

Contents

Introduction ........................................................................................................................... - 1 -

1. External Environment .................................................................................................... - 2 -

1.1 PESTEL Analysis ................................................................................................... - 2 -

1.2 Porter‟s Five Forces Analysis ................................................................................ - 3 -

1.3 Industry Life Cycle................................................................................................. - 5 -

2. Internal Environment ..................................................................................................... - 5 -

2.1 Resource Capabilities ............................................................................................. - 5 -

2.2 Value Chain Analysis ............................................................................................. - 9 -

2.3 Other Appraisals ................................................................................................... - 11 -

3. Public Perception ......................................................................................................... - 12 -

3.1 External Stakeholders and CSR ........................................................................... - 12 -

3.2 Ethical Management Practices ............................................................................. - 13 -

4. 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

Efficient distribution structure

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

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).


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):



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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 (32% of Inditex)

Retail space: 2,009,717 sm (64% of Inditex)

Sales: €10.541 bn (66% of Inditex)

EBIT: €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 (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



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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 well-

being 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 local distribution centres per market

No advertisement when starting a fresh marketplace

Lean head workplace per marketplace servicing all arrangements

Rapid growth in online sales (IT)

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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