Zara Case Study: Business Model, PESTEL Analysis, Porter's Five-Force Analysis, Value Chain and 7s

This report is a study of Zara’s business model. It discusses the Pestle and Porters analysis of the Zara along with that VIRO analysis of the company is used to show the core competencies of Zara.

Running Head: ZARA 0
CASE STUDY OF ZARA
Business Model
System04122
3/4/2019

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Contents
Introduction.................................................................................................................................................2
External environment analysis of Zara through PESTEL analysis...........................................................2
Opportunities of Zara..............................................................................................................................3
Threats of Zara........................................................................................................................................4
Porter’s five-force analysis......................................................................................................................5
Value chain and 7s of Zara......................................................................................................................6
7s of Zara.................................................................................................................................................7
Strengths and weakness of Zara...............................................................................................................9
The strategy implemented by Zara recently...........................................................................................10
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12

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Introduction
This report is a study of Zara’s business model. Zara is part of Inditex Company; it is a fashion-
based organization. Zara is one of the fastest growing company, some of it main competitions are
H&M and Benetton, Zara has some unique strategies, which gives it a competitive edge over the
other companies. This report discusses the Pestle and Porters analysis of the Zara along with that
VIRO analysis of the company is used to show the core competencies of Zara. The essay has also
discussed the recent strategy of the company using the SAFe model.
External environment analysis of Zara through PESTEL analysis
Political: this is one of the mutual factors that impact any business. Every government and the
nation have different ways of seeing business, (Williams, 2011). Political environment of any
country is something which highly impacts the business conditions. Political issues results into
major disruption of the market and affects the economy of the country as well, and can also have
an impact on the supply chain of the company. Zara has overcome this issue by reducing its
supply chain operations to the home country and also to the other neighboring nations, also by
this; it is able to reduced its threat of political disruption (Wen, Choi and Chug, 2018).
Economic: Economic activity is another thing that has a major impact on the business. Zara has
a good strategy which is, affordable pricing with good quality. Incase if the people start cost
cutting, people will switch from the luxury brand but they will not leave brands such as Zara.
The affordable pricing strategy is something, which helps in reducing the threat of low economic
activity. Due to the increase in dollar price, the situation for most of the business is not so good,
due to a stronger dollar; there is fall in profits from the markets outside U.S. This is affecting the
sales of Zara as well. This thing can also increase the labor cost and production cost of the
business.
Social: another thing, which affects the external environment of a business, is the society, it is
important for the business to work according to the social responsibility and the social trends.
Various researches have also proved that culture and society are important part of any business.
Zara focuses on this factor of the business, as it does not enter any new market without doing the
necessary research, Zara researches the new market and its culture before launching the new

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products in the market. Zara does not believe in experimenting it sells fashion that can be
accepted by the local people (Verlinden and Markey, 2016).
Technology: this is one such factor, which is changing things globally and it also makes things
happen at a fast rate whether it is related to supply chain or marketing, there is no business,
which has not been impacted by this factor. Zara is mindful in utilizing technology as its profit,
dues to good utilization of technology; Zara is able to respond to customer demand quickly along
with good coordination of logistics and supply chain activities. Zara has also used the RFID
system that has improved the entire inventory of Zara (Akpala, 2009).
Environmental: environment protection has become an important part for a business,
sustainability was started as a trend but now it is one of the most important parts for all the
business on a global level. Zara, like the other companies has also invested in sustainability, the
parent company of Zara has promised to make all the Zara stores eco- friendly by 2020 because
of which. Zara stores will consume less energy and water, this brand is also committed to
eliminating all kind of wastes from its supply chain. Apart from this, ZARA and Inditex have
invested in sustainable technology to prepare cloths from organic material.
Legal: it is already known that law is everywhere; there is no business that can remain unaffected
by the legal factors. Zara has always focused on its ethics and sustainability across its supply
chain and business. There are a number of laws that a business’s needs to follow. Apart from this
ZARA is also focused on creating an ethical brand image.
Opportunities of Zara
Online E- commerce: Zara can make use of the online buying trend and make its cloth available
online and not only in the stores, this will give a hike in there sales.
Backing up the flagship designs: Most of the brands have some of the designs, which are their
flagship designs, but this thing is lacking in Zara and therefore Zara should also keep some
designs, which should be sold from Zara store only. This will bring high demand for the design
and will increase Zara’s brand identity (Baker, 2014).
Market expansion: New markets can give Zara a profitable potential. Therefore, Zara needs to
keep a check on the new emerging market. Zara should focus on the market where the spending

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power of customer is rising and where people are able to spend on the semi-precious brands like
Zara. Such brand expansions can help Zara to build a brand image in various segments of the
market (Witcher and Vinh, 2010).
AI for better customer experience: Zara has always provided a good customer care experience,
but it can improve its customer care experience by investing in AI, virtual reality and the other
technologies, for a brand it imported to be customer oriented as it would give great benefit to the
company.
Growing market potential in the market: Zara is an existing brand currently and the brand is also
becoming popular day by day, and hence Zara needs to grow its market potential in the existing
market (Caro and SADR, 2019).
Threats of Zara
Competitive threat: nowadays the competitive threat in the fashion industry is growing day by
day as a result of which there is a lot of pressure on Zara, although Zara has a good supply chain
and brand image in the market, it is still facing competition from several brands. One of the main
competitions of Zara is H&M (Gosh, 2017).
Regulatory threats: There is a high growth in the legal and political regulations of the business
industries nowadays. Government and legal agencies are regulating business and fashion
agencies too around the world. Therefore, there is a large set of rules and regulations related to
fashion industry too, like labor, quality and others. The laws are different in every market and
nation and thus it can become a hinder to fast growth of the company.
Rising cost of raw material: the cost of raw material is increasing in the market, although Zara
has managed its supply chain well, however the rising cost of labor and raw material can
increase the operational cost as well and this can leave a negative impact on the profit and
revenue of Zara.
Porter’s five-force analysis
Competition in the industry
The biggest competitors of Zara are Benetton and H&M. Zara is one of the most fashionable and
reasonable brand and hence it beats the sales of Benetton, but H&M being the same as Zara,

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gives it a major competition, supply chain model of Zara is very responsive. Other brand takes a
lot of time to adapt the new trends but Zara adapts the changes in trends quickly and launches its
new products every 2 weeks. (Pansan and Blankon, 2011).
Potential of new entrants in the industry
With the fast growth of fashion industry and the rise in fiscal crisis, customers nowadays look for
economical goods. Zara is a brand that solves this problem by providing high quality products at
reasonable prices. Nevertheless, due to increase in euro rates, the selling price of Zara will also
increase for the customers and this may lead to Zara losing its economic advantage against its
competitors (Usoro, 2010; Wilding, 2011). Apart from this Zara is a brand that has earned its
reputation in the market, that will still help it attract more customers , because Zara does not
define a particular style, it appeals to a larger audience where trends change within a week
(Samson, 2012; shukre, 2013). Power of suppliers
During the time of globalization, the market starts growing more and this leads to low power of
suppliers due to low wage boundaries like china. Many supplies from the supplier’s reduce their
power as they become strongly depended on the industry for their operations. Zara is a brand that
provides its suppliers with licensed contracts, which leave them with no choice for the variation
in design and reduces their grip in the market. The bargaining power of supplier is very high and
strong. The cost of switching to another supplier is very high, and that is the reason that brands
try to maintain a positive relations with one supplier who has a good knowledge and know the
standards of the safety and quality of the company. Therefore, the power of supplier is
moderately high.
Power of customers
Zara is a brand that spends around 0- 0.3% of its budget on advertising. The advertising of Zara
depends on word of mouth; it invests highly in the R&D department in order to know the needs
and wants of the customers. It is quiet unpredictable to determine the consumerism of the
company, as the customers are free to buy whatever fancies them.
Threat of substitute

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H&M is one of the major competitors of Zara in terms of both quality and price, however Zara
does not spends a lot on its advertising and this might give Zara the advantage of economic
crisis, and H&M does not have its supply chain as effective as the Inditex (D’heur, 2015).
Value chain and 7s of Zara
DESIGN: Zara has a live collection that adapts to the customer taste by tracking events of the
market and also by fashion trends and customer preferences. Zara has 300 designers who design
more than 1100 items more as compared to its rivals
OPERATIONS: Zara’s suppliers and headquarters are linked together in order to have supply
coordination also in order to make Zara’s projection possible, another thing is postponement of
designs in order to update the new designs in the market quickly during the season. Zara has a
good pull strategy in order to satisfy the changing customer demands.
Production: All the fashion sensitive products of Zara are produced internally. Zara own all of
its factories near the headquarters of Zara in Spain, all the factories of Zara are atomized and
focus on capital investment parts of production process, apart from this Zara has a just in time
system.
VALUE CHAIN
DESIGN
LOGISTICS
MARKETING
OPERATIONS STORE
OPERATION
PRODUCTION
FIRM
INFRASTRUSTUR
E

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Logistic: logistics of Zara is equipped with mobile tracking systems, they have a fast handling of
garments also every store of Zara has weekly delivery
Marketing: Zara has a minimized market spending which is less the 1% as compared to its rivals
with 3-4%
Store operation: the main message of Zara store is to represent its face to the world and that is
the reason that the interior designers visit every store in every three weeks to make sure, if the
store is able to convey the targeted message. The store team as well focuses on adapting the
changes according to the latest trends and customer taste
FIRM INFRASTUCTURE: the firm supports the idea of freshness and creates a sense of
exclusiveness, which makes the ambience of the store and promotes positive word of mouth.
7s of Zara
Structure: the department of Zara has no barriers of coordination and communication. Every
employee and department in Zara can get access to the data freely and this helps in maintaining
shared
value
structure
systems
style
staff
skills
strategy

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the speed of coordination thus making the operational efficiency of Zara on a highest level. The
structure of Zara is very transparent and quick
Staff: Zara states that it has fundamental values such as teamwork, diversity, humility and
commitment and they commitment and they believe that there is always room for improvement
and every employee or staff is the key success of the company.
Style: the management style of Zara is highly consumer focused, Zara always try to understand
exactly what the consumer’s want, and then they try to transform this into their product
offerings. Zara totally depends on their store managers to know the customer’s demands. Zara’s
leadership and management style have a very transformational approach.
Strategy of Zara: Zara is obsessed with its customers, and fro the starting it has focused the
brand's culture on its customer’s right from the very beginning. All the Zara’s strategy are focus
on its customers, it plans and adapts very quickly to the changes
Skill of Zara: The growth and development of employees working at Zara is one of the main
priorities. To have emphasis and commitment the company uses internal promotions and training
to maintain creativity and development as well as building professional skills.
System of Zara: Zara is by far the biggest, gainful and most internationalized design retail chain.
Zara's success depends on a business framework that relies upon vertical incorporation, in-house
creation, one brought distribution center and low publicizing cost
Strengths and weakness of Zara
New designs: it is one of the most important advantages of Zara, because of its designing
abilities. It has an overabundance of designers, who have a good knowledge and understanding
of the brand and the needs of customers. Zara has trendy clothes with a good quality (Nunnally
and Bernstein, 2010). Zara’s clothes come in a lot of variety including office wear, party wear,
for kids, women and men. Zara is also known for its different and trendy accessories (Danny,
2012; Mathews and Levy, 2017).
Brand value – Forbes has ranked Zara on 53rd number and Zara’s brand value is ranked at 10.7
billion dollars. There are many positive points that help Zara to have excellent brand equity. Due
to the excellent performance and good quality of products, Zara’s brand value has increase over

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the years. Apart from this, the brand has never had controversies and it has a good customer
service. All these things have resulted in good brand value of the company (Helms and Nixon,
2010).
Superb supply chain – Other brands take around 6 weeks or more to get its stock to the stores,
but Zara is well known for getting its products/ designs from start to the stores within 2 weeks.
Hence, this makes Zara the trendiest store with all the latest fashion products according to a
study; Zara designs 450 million items every year on an average. This thing attracts the
consumers to visit the store repeatedly to check out the latest designs.
Design advantage – Zara launches around 1000 new designs every year, because of which if a
customer wants to visit the store they will have to visit every month to check what is new at the
store. Zara has a very strong design advantage; the customers keep buying Zara designs. Some of
the customers are even dedicate to keeps their complete wardrobe to Zara clothing. All of Zara’s
designs are elegant yet trendy, and is loved by the customers.
Low cost and higher profits – Zara does not invest in it advertising as it has design advantage and
Zara completely Relies on it brand image to attract customer to the stores. This is the reason
behind Zara having low costs of operations. Zara spends most its profit on its integration and
supply chain and not on advertising. Zara spends most of the earnings on the backward
integration and on supply chain rather than spending it on Advertising (Eric, 2012).
The strategy implemented by Zara recently
A recent strategy embraced by Zara is brand differentiation technique. This technique centers on
the separation over cost leadership. Zara's competitive advantage makes utilization of the
elements of the product differentiation, which can be even seen in the products offered to the
general society. For example, the designer group of Zara has opportunity enough to produce
designs, which are unequivocally related to the present style patterns. The store supervisors have
obligation to pick which items to sell and go about as design practical people. It has a job in
upgrading the income of offers consistently. Extra, Zara is making extension by the foundation
of stores than simply open advancement and commercial. The components, which translate the
organization’s uniqueness, are its decision to advance accuracy over quickness. The item

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inventories give another importance to the clothing shortage and pushing clients towards picking
Zara over others
Suitability: The differentiation strategy is reasonable for Zara as it satisfies the in fashionable
request of the clients. The differentiation in the generation is made based on the taste and
inclinations of the clients. The clients now days look at the properties of the items than looking at
the costs. Zara separates itself regarding the items by concentrating on the plan and quality. The
standard endeavors of the organization, for example, overseeing supply and esteem chains,
planning, adjusting and organizing suitably to increase the value of the items at the most minimal
conceivable costs suit the necessities of the clients (Griffin, 2010). The organization likewise
makes accessible items at various costs to suit and satisfy the necessities of the distinctive
fragments. The items run from low to medium to high.
Feasibility: The differentiation technique is sufficiently reasonable. This system has even made
the organization stand up in the focused business. The persuasive and value hypothesis is
additionally utilized in the organization to pass judgment on the appropriateness of the separation
hypothesis. Zara centers on the conveyance framework by diminishing the conveyance
framework. It additionally centers on the advancement and bundling of the items. The apparatus
connected for the separation procedure is overseeing supply and esteem chain frameworks
alongside the changing and working productively. The separation methodology is likewise
attainable from the point of view of the fashioners as they are allowed to configuration pieces of
clothing. The organization does not meddle and the originators are prepared all the time. They
pursue the most recent patterns going on in the retail business. The architects are offered with the
free workplace (Gutierrez, Boukrami and Lumsden, 2015).
Acceptability: a substantial fragment of its individuals acknowledges the separation system of
Zara; Individuals like to have one of kind items on regular basis. They search for brands like
Zara to satisfy such interest. The clients do acknowledge the one of kind patterns given by the
organization. People generally acknowledge the separation in general because of the uniqueness.
It fulfills trendy need of the clients the organization even offers a restricted release of the items
to keep up uniqueness among the huge fragment of the general population.

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Conclusion
In this report, the business model of Zara is discussed. Firstly, the external environment of the
organization is discussed by using the Pestle analysis, through which the organization is analysed
based on political, economic, social, technological and legal factors. This report also discusses
porter’s analysis of Zara along with its strengths and weakness. After this, the VRIO analysis of
Zara is used to know core competencies of Zara. At last, the strategy evaluation is made by using
SAFe tests. Zara has focused a lot on it supply chain strategy and this this is one of those thing,
which has given high advantage to the company

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