Zara Business Strategy Analysis Report

This report provides an analysis of Zara's business strategy, including external and internal analysis, opportunities and threats, industry analysis, strengths and weaknesses, and core competencies. It also evaluates the current strategies implemented by the company using the SAF model.

Running Head: Business Strategy
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Business Strategy
Report
Student Name
3/8/2019

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Executive Summary
Zara is a well-renowned brand in clothing fashion industry, all across the world and doing very
well in all areas by satisfying demand of the customer speedily using its large outlets and trendy
collection that is their product differentiation. Success of Zara is mainly depends on their
strategic decision and ability to take risk in this changing environment. The formulation of
strategies require proper analysis so this report consists of an environmental analysis that is
conducted on company’s operating environment which includes its value chain, production
system, designing, marketing, stock handling and infrastructure of company. The analysis gives
the competitive analysis of Zara, as well as their weaknesses, opportunities and threats in
current market. The project highlights current strategy used by Zara which is analyzed or
examined with help of SAF model of analyzing business strategies.

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Table of Contents
Introduction.................................................................................................................................................3
External Analysis..........................................................................................................................................3
Opportunities and Threats.......................................................................................................................4
Industry Analysis......................................................................................................................................4
Internal Analysis..........................................................................................................................................6
Strengths and Weaknesses......................................................................................................................6
Core Competencies.................................................................................................................................7
Strategy Evaluation......................................................................................................................................8
Conclusion.................................................................................................................................................10
References.................................................................................................................................................11

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Introduction
Zara is a fashion brand that offers high range of clothing for men, women and young adults in
the fashion industry. It is a popular fashion designing and manufacturing company started by
Mr. Amancio Ortega in Spain under the umbrella of Inditex Group. Zara has 2000 plus outlets in
72 countries and expanded globally in different parts which shows great potential and success
factors of the company (Forbes, 2018). All outlets are designed in a manner that gives a special
atmosphere to the customers for buying fashion which supports the main objective of the
company that is to continually offer a product that satisfied the needs of customers, at the right
time, with the latest fashion trend in the industry (Joy, et al., 2015). Zara is a market leader in
the apparel industry just because of its uniqueness in design of clothes and understanding the
preference of the customers in fashion market trends. The main strategy of Zara is based on
concept of delivering varieties of good quality clothes to its outlet in small quantity for limited
period of time on affordable prices, which attract customers to purchase the latest designs that
are in trend and in next week updated there outlets with another trendy fashion (Caro &
Albeniz, 2016). All these strategic decision require proper analyses of the company strengths
and weaknesses and the opportunities and threats that are prevailing in the industry. Each
business has its internal and external environment that helps the company to formulate
strategy and plans for the future.
This study helps in knowing the Zara business environment which consists of external analysis
of the company and includes identifying opportunities and threats in market and also getting
insight of the industry attractiveness through five forces model. The study also focus on internal
analysis of the Zara, that include company’s strengths and weaknesses, competitive advantage
and core competencies with help of VRIO framework. The report also provides the current
strategies implemented by the company and using a model of the Suitability, Acceptability and
Feasibility (SAF) for each strategy evaluation.
External Analysis
All businesses have to operate in this changing environment and to face many challenges
related to the external forces that impact the success of the business. It is necessary before
formulating business strategy to analyze the external environment and identify opportunities
and threats in market as well as finding industry attractiveness. (Hammoudeh, 2015).
To make strategic decisions and for evaluating the strategies it is necessary to understand the
environment of the Zara. Hence, external analysis of Zara is discussed below.

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Opportunities and Threats
Zara is a leading brand that has global market penetration and covering all major continents in
the world. There are more numbers of opportunities available for Zara by expanding its
footprint in other countries, majorly in Asia and Africa. In Asia, Zara have more outlets in China
and Japan compare to India, Singapore and UAE, there is an opportunity to expand its
operation in Indian market. The developing country like India is doing well and people over
there have potential to buy good quality branded products at reasonable price (United, 2018).
Zara can expand more in this market by tying up with local manufacturers.
They can also spread its presence in US market where number of others brands are giving tough
competition to Zara. Distribution network in US need to be stronger as they have 52 Zara
outlets compare to 453 in Spain, 167 in China and more number in other countries. They
captured Europe but there is a need to expand in the US market because of country large
population and growing customer base and also for competing with other brands to sustain in
the fashion industry for longer run. Another opportunity for Zara is to expand in E-commerce
sector in countries where they do not have online stores and invest more revenue in online
marketing in this digital era for giving exposure to their products in front of customers
(Bloomberg, 2018).
The biggest threat for Zara is there competition from Sweden, H&M, C&A and GAP that are
based locally or globally in the market and are major player in the industry. Another fact is that
Zara is Europe based company and has large number of outlet in this region that contribute
greater revenue for the company but due to its expansion in other countries the brand became
more expensive as euro is stronger than dollar that makes brand expensive in other countries
compare to Europe market and this can affect the revenues of company in longer run.
Cannibalization is also a threat faced by Zara in Spain that reduces sales because the outlets are
located closer to each other of same products of different brands managed by Inditex.
Industry Analysis
Porter five force analyses help to determine the attractiveness of industry and competition from
external source (Roy, 2009). The forces that need to be analyzed for Zara are discussed below.
Industry Rivalry
Zara is facing a tough competition in this industry as there are more numbers of sellers in the
market such as H&M, URBN, GAP any many more. The level of competition makes it difficult for
companies to survive in the market in profitable manner for long run. The main point of focus is
that due to fierce competition growth of the industry become low and customers get advantage

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of choice due to many brands within the market. The companies who have resources and ability
to respond to the changing needs of the customers are able to survive in this industry.
Threat of New Entrants
Entry and exit in this industry is quite easy and the threat of new entrants is always presence in
the market but Zara have huge market penetration all over the world which gives an advantage
to the company and make it a barrier for new entrants. However, manufacturing sector in
clothing industry has high barriers of entry because it requires huge investment to start in the
market.
Threat of Substitute
Substitute of each product is available in market nowadays; customers have wide choices to
make selection so Zara has H&M as a biggest substitute in fashion industry in term of quality
and affordability these brands become close substitute of each other but H&M has strong
marketing sense which helps this brand to take advantage over Zara. Hence, the threat of
substitute to Zara is considered as moderate as only H&M can compete and bring same quality
products as Zara in the market.
Bargaining Power of Suppliers
In this industry, suppliers do not have much bargaining power because there are too many
options available for the company to switch over another supplier in the market. Moreover, the
suppliers are very much dependent on the apparel industry for their working which insists them
to accept the prices offered by the brand in the market. Zara make a licensed contract with
their suppliers before working on any project and state their requirement in that contract
which leave no chances for variation in designs which lessen the hold of suppliers in the market.
Bargaining Power of Customers
Customers are king of the market and thy have power to choose amongst the best in market.
Zara invest a very little amount of its budget on advertising and mainly rely on mouth to mouth
advertising strategy. It focus mainly on their research and development to launch the different
product range according to need and wants of the customers and make it possible to put latest
collection in the market in 15 days. The consumer behavior in this industry is quite
unpredictable as customers are free to buy products of many available brands. Zara offers
quality product at reasonable prices to the customers with latest fashion statements, due to
that loyal customer of Zara waits for its new collection which make them excited and increases
the sale of Zara. To protect the interest of its customer company has to focus on their quality

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and affordable prices to remain in the market so the power of consumer in this industry is said
to be moderate.
Figure: 1 Porter’s five forces on Zara Source: (Kasi, 2017)
Internal Analysis
Conducting an internal analysis is become important to know the organization strengths and
weaknesses which can be work upon and used to compete in the market. The analysis provides
necessary or useful information on competitive strengths and advantages of the company
which make it different from others and can be the reason of its growth in the business
(Hanson, et al., 2017). The information of Zara analysis is given below.
Strengths and Weaknesses
Zara provides quality products and focuses on becoming market leader by offering affordable
price of its brand to customers. The efficiency in its production is a biggest strength for the
company. Zara produces or supplies latest designs quickly compare to its competitors with
respond to customers demand in the market that makes Zara’s to maintain its supply and
demand relation in the industry and leads them to success of the company. They focus on
Rivalry
Amongst
Firms
(High)
Threat of
Substitute
(Moderate)
Bargaining
power of
customers
( Moderate)
Threat of
New
Entrants
(High)
Bargaining
power of
suppliers
(Low)

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needs of the customer and accordingly customize their products in merely short time and come
up with the latest collection in market within two weeks because of their strong distribution
channel and it also manages to avoid middle man which reduces their cost to some extent
(Forbes, 2018).
Zara has their own in-house production and they do not outsource its product to others for
manufacturing that make them able to continually change its collection in respond to the
trends in fashion industry. The huge designer team of Zara are able to design clothes as they
plan, out of that most of the designers are from well-renowned fashion school which gives an
advantage to the company to offer best designs to the customers and a strong IT solution for
decentralized decision making make it possible to implement all the plans as discussed on time.
There are some problems or weaknesses in Zara, Firstly they have only one manufacturing and
distribution center in Spain if any technical problem occurs in distribution network then it affect
the entire network arrangement and disturb the whole supply chain of the company. Another
problem is that Zara spends very little amount on marketing or advertising and relies only on
goodwill or word of mouth publicity so that people shop at their outlets while comparing to its
competitors they invest huge amount in marketing of their product which somehow become
the weakness of Zara in future.
Core Competencies
Zara is performing very well globally in this industry in this changing business environment. This
tremendous growth or performance of the company reveals the use of its core competencies
which are identified with the help of VRIO model. This model analysis the Value, Rarity,
Imitability and Organization of the business and overall aim of this internal analysis is to know
the core competencies and competitive advantage of Zara.
Value
Zara has resources and potential to gain larger market share, the most valuable resource for the
company is its Vertical Integration. Zara manages all its functions itself such as designing,
warehousing, distribution and logistics which make them more flexible and faster than
competitors in apparel industry (Marah, 2016). Vertical integration of activities helps the
company to reduce operating costs which directly add on its profit.
Rarity
Through proper analysis it can be examined that most of the competitors of Zara outsource
their production and focus on distribution and retailing but Zara do things differently and use
capital intensive techniques in production which is rarely used by any other in the market. It

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can be observed from the fact that they deliver 11,000 different items because of their rare
resources.
Imitability
Copying or imitate everything is possible in current market scenario and most of the brands do
that but Zara business model is difficult to copy or might be not copied for long run. It take a
long time for competitors to imitate their vertical integration model with that strong supply
chain network and even it is more difficult for competitor to create the same organization
culture that Zara has for working. So Zara core competencies are costly to imitable by others.
Organization
Zara has strong base financially, through its annual report it can be observed that their share
prices are increasing and sale of the company is also boosting its profit. They efficiently manage
their operations at low cost compare to other companies in the industry and their organization
structure and IT system give an advantage over others. All resources of the company including
physical resources, human resources and organizational resources all these are valuable out of
that some of Zara resources are rare and costly to imitate such as its outlet location, exclusive
and trendy designs, trained designers, production strategy and value chain.
The core competencies that are identified with help of VRIO analysis are its vertical
systematization of production process, recreation of fashion, store location and utilization and
company’s IT system, all these are the key factor or make Zara different from its competitors.
Strategy Evaluation
Business strategy is necessary to work in market and for growth of the business, formulating
business strategies sometimes look difficult and then selecting a right one. Before
implementing the strategy it can be assessed by using Suitability, acceptability and feasibility
(SAF) model. It is a great model to evaluate the different strategies and choosing best from
them. The current strategy of Zara is discussed and evaluated with help of this model whether
the strategy is suitable at present and accepted by the customers for longer time and to know
will it benefits the company or not.
Currently, Zara is focusing on new technology innovation for making its presence in online
shopping by tying up with tech firms and acquiring talent from start-ups (Reuters, 2018). As in
the era of online shopping platforms most of the companies facing challenges like decreasing
sales in outlets so they are ready to open their online shopping site to compete with the biggest
players in the industry.

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Suitability of Strategy
Zara is facing a tough competition from younger online fashion retailers like Boohoo.com and
Misguided. They are moving out fashion at very higher speeds and take only one week from
design to point of sale, updating their sites with hundreds of latest new items.
For keeping its edge in market, Zara is focusing on new technology which is the need of current
situation and should be implemented. This strategy is suitable as it bring presence of Zara in
online business and help Zara to adapt the changing phase of apparel retail industry where
others sites like amazon are taking advantage of online platform .
Acceptability of Strategy
Success of the strategy is mainly depending on how the change is accepted in the company by
employees and also by customers. To go online is necessary nowadays for accepting the change
in customer behavior they start buying online so this strategy will prove to be beneficial for
increasing the customer base of Zara and also in satisfying the wants or changing behavior of
customers.
Feasibility of Strategy
Zara is putting efforts on integrating online sales with its bricks and mortar network by focusing
on developing large and attractive stores where customers can try on items or clothes to buy
them later online. The strategy to go online by using new technology is feasible and worth time
investing because new online players are changing the game in this industry, only way to
compete with these players is to capture online business also with physical outlets.
Zara is investing in technology advancement like introducing robots to work in stock inventory
for improving stock handling, creating devices that quickly identify the volume of clothing in
boxes, location intelligence for tracking the stock in logistics, ultrasound technology used to
track footfall in Zara stores and virtual assistant to help customers. It is feasible to invest in all
these activities and spread its operation also in online business, which surely will provide
profitable in long run and increase market share of Zara (Rodriguez, 2019).
Currently Zara is opting or planning to start its online sites to compete with online fashion
retailer. With the help of SAF model we can say that this strategy is good and suitable according
to the present scenario and accepted by all the customers as it is the era of online shopping
where most of the people buy clothes online so strategy is acceptable by the customers. Online
business will prove to be feasible and worth time investing as it will give higher return and more
reach to customers of Zara so it can be concluded that investing in technological advancement
is a good decision by the company.

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Conclusion
Zara is an international fashion brand which has captured large market share because of its
quality products at affordable prices. Zara has potential and resources to compete in the
market with competitors and be the leader in clothing fashion industry. The reason of that
strong organization is their well taken strategic decisions. Strategic decision making and
implementing them on time are activities that require many efforts but for Zara, it is strength to
take decisions quickly and implement it as per demand of the customers in market and deliver
their collection before competitors. Despite this, the company is facing some challenges
because of its low investment in advertisement and one distribution channel; they need to
focus on these two areas to sustain in the competition for longer time. With the help of
external and internal analysis of the company it is identified that there are many opportunities
in front of Zara in fashion industry that is to expand its operations in countries where chances
of growth is more with using its core competencies that are strong supply chain, updated stock,
outlet location and its production system.
In order to maintain growth rate and excellence of the company, Zara requires some new
strategies or has to take some strategic decision to accelerate growth cycle of the company.
Zara itself is a result of strategic thought and currently working on making the company
presence in online business, it is a new strategy of Zara to compete with the giant online
fashion retail players. The strategic decision taken by the management is suitable or needed at
current situation and accepted by customers which will prove to be feasible or worth investing
in future for growth of the organization. It can be concluded that the strong foundation of Zara
and its unique business model help the organization to continually deliver quality products to
customers and quick strategic decision benefits the company in using opportunities that are
present in market with respect to the strength of Zara.

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References
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Available at: https://www.digitalcommerce360.com/2018/09/05/zara-plans-to-go-global-with-
ecommerce/
[Accessed 9 March 2019].
Caro, F. & Albeniz, V. M., 2016. Fast Fashion: Business Model overview and research
opportunities. Retail Supply Chain Management, Volume 223, pp. 237-264.
Forbes, 2018. Why Zara succeeds: It focuseson pulling people in, not pushing product out.
[Online]
Available at: https://www.forbes.com/sites/pamdanziger/2018/04/23/zaras-difference-pull-
people-in-not-push-product-out/#1ed7d8c323cb
[Accessed 9 March 2019].
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Available at: https://www.forbes.com/companies/zara/#1c58ea417487
[Accessed 9 March 2019].
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competition. Germany: GRIN Publishing.
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to-win-again/#7490b93c1256
[Accessed 9 March 2019].

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Reuters, 2018. Zara looks to technology to keep up with faster fashion. [Online]
Available at: https://retail.economictimes.com/news/apparel-fashion/apparel/zara-looks-to-
technology-to-keep-up-with-faster-fashion/64618993
[Accessed 8 March 2019].
Rodriguez, A. G., 2019. Zara, Brandalley and superdry, the brands killing it online in the UK.
[Online]
Available at: https://fashionunited.uk/news/business/zara-brandalley-and-superdry-the-
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[Accessed 9 March 2019].
Roy, D., 2009. Strategic Foresight and Porter's Five Forces. Germany: GRIN Publishing.
Tokatli, N., 2008. Global Sourcing: insights from the global clothing industry-the case of Zara, a
fast fashion retailer. Journal of Economic Geography, 8(1), pp. 21-38.
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[Accessed 9 March 2019].