Strategy Development for Zara: A Case Study

Zara's strategy of positioning is focused on penetration of the market through intensive growth. To achieve this, the company should encourage customers to purchase more by offering additional coupons and benefits, improvise strategies for market development by identifying potential users in existing markets, and focus on expanding operations in Asian countries. The SFA framework indicates that the 'SO' option is the most suitable strategy for Zara, which involves creating new and innovative products for the Hong Kong market. Implementing this strategy requires conducting market research to determine customer preferences and taste, marketing products and brands using modern tools and techniques, and exploring franchise opportunities in other countries. To maximize profitability, Zara should focus on developing its brand image by offering high-quality products at affordable prices, create presence in more countries, and explore new markets.

Running Head: MANAGING STRATEGY
business study
Case Report - Full Strategic Appraisal of a real company (Zara)

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Contents
Introduction.................................................................................................................................................2
Company background..................................................................................................................................2
Part I: External Analysis...............................................................................................................................3
PESTEL analysis...................................................................................................................................3
Porter’s five forces of completion model..............................................................................................5
Threats and opportunities.....................................................................................................................6
Part II: Internal analysis...............................................................................................................................7
Value chain model.................................................................................................................................7
Core competencies.................................................................................................................................9
VRIO framework.................................................................................................................................10
Strengths and weaknesses...................................................................................................................11
Part III: Company’s corporate and business strategy.................................................................................12
Strategy clock model by Bowman......................................................................................................12
Part IV: Challenges and issues...................................................................................................................13
Part V: Strategic options for growth..........................................................................................................15
Generic strategic options.....................................................................................................................15
Ansoff matrix...................................................................................................................................15
SFA framework...............................................................................................................................16
Implementation....................................................................................................................................17
Part VI: recommendations and conclusion................................................................................................18
REFERENCES..............................................................................................................................................19

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Introduction
In this report, we will be discussing the strategic appraisal of the real company i.e. Zara. Further,
the report will be discussing the operations and the activities of the company, and then the
external analysis will be discussed through the PESTEL analysis and Porter's five forces analysis
and the threats and the opportunities will be determined in relation to the company. Further, the
internal analysis will be done by using the value chain model, and the VRIO framework and
weakness and the strengths of the company will be determined accordingly. Further, the strategy
of the business will be analyzed by using the strategy clock model. Then, the issues and the
challenges will be identified along with the strategic options for the growth by using Ansoff
matrix and the SFA framework.
Company background
Zara is the retailer of accessories and the Spanish clothing that are mainly relied on in Galicia.
Further, the company operates in around 2160 locations. The company was established in 1975
by A. Ortega. Also, the company operates across the globe, and it is one of the largest division,
and it offers to clothe for women, children and men's fashion along with the segment of
accessories. Furthermore, the company is utilizing the strategy of differentiation to offer the
unique and innovative style of the services and the products to the targeted audience. The
company’s success in relied on offering the high and great quality of innovative and the unique
products and the services to the targeted segment by using the strategy of differentiation.
Moreover, the company had initiated its foreign growth and the expansion in the year 1990 when
the index took place in various countries (Bhardwaj.V and Fairhurst. A. 2010). The vision of the
company is that it is committed to satisfying the expectations of the customers. The operations

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and the activities are being changed continuously in order to improve the customer’s experience.
The products are made up of high quality and are also offered at affordable prices. The mission
statement of the company is that they aim in order to contribute to the sustainable creation of the
society along with the environment.
Part I: External Analysis
PESTEL analysis
The PESTEL analysis will help in understanding that what is actually happening in the external
environment and how it impacts the functioning and the operations of the country and also how
the external environment is contributing to the company i.e. Zara in order to grow.
 Political factors-
 Zara is retailing from the Hong Kong and it further occupies one center of distribution in
the country i.e. Europe and the support of the politics are being evaluated accordingly in
a critical way (Doyle.M. 2012).
 The economic and the safe circumstances in the Europe would help the Zara in order to
expand and grow the business.
 Economic factors-
 Not barrelling with the dollars and provide more preference to the safe currency as
compared to the dollars.
 The predictable and the stable market of the country i.e. Hong Kong.
 Social factors-
 Operates in an individual country.

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 The country i.e. Hong Kong has the great contributions in the artistic and the designing
domain.
 The social environment is calm and composes and further attracts the tourist on a great
scale.
 Technological factors
 The company i.e. Zara has undergone many improvements in accordance to the
technology.
 Innovation and the creativity in the sales further point the atmosphere and the process of
production.
 Growth and expansion in the form of opening the stores which are environmentally
friendly by using the new and innovative technology (Rachet, B., 2014).
 Environmental factors
 It has been observed that the more emphasis is being placed on the activities which are
environmental friendly in order to ensure that the environment doesn't get impacted due
to the harmful emission of the gasses.
 Legal factors
 The rules and the regulations of the Hong Kong government promote and supports the
development of the industry in the country.
 The generic productive and the supportive rules are offered by the country’s logistics in
order to promote the safe transactions of the business.

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Porter’s five forces of completion model
 Threats of substitutes (high to moderate)-
Initially, the company faced the high threat of the substitute products also it had a high
competition from various other companies, for example, H&M, Armani, GAP, etc. Moreover,
due to the internalization, the company has achieved substantial loyalty of the customers in
comparison to the competitors. Further, the threat was being minimized by reducing the frame of
time in the supply chain. Now, the company is facing a moderate threat as the clothing and styles
are being copied and offered at low prices.
 Threats of the new entrants (High to low)-
Initially, it was being observed that there was the great probability for the entrants along with the
reduced number of the brands and due to the emergence of the fashion, the entrant’s threat is
being reduced. Further, the procedure of distribution, marketing and the cost of production have
further made it challenging for the small organization in order to attain the sustainable
competitive edge for a longer period of time.
 Bargaining power of the buyers (low to moderate)-
Because of the restricted market in the country, the customers were not able to have broad access
to the particular brand, and the power of bargaining of the buyers was restricted because the Zara
was not having enough competition in the country (Christodoulou.I.P and Pater, Z 2012).
Further, due to the internationalization and the marketing through online of the Zara, the
consumers are given broad access to many ranges and further resulted in a war of price enabling
the customers to have a great impact on the market.

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 Bargaining power of the suppliers (high to low)-
The company Zara has attained the great opportunity after the internationalization that
encouraged the company in order to reduce the cost. Earlier, when the company was operating
domestically, the parameter was high from the end of the company.
 Rivalry among industry (moderate to high)-
Zara was known as the leading company of fashion in the Hong Kong and didn’t face great
rivalry or the competition in that particular region. As the company has come up with various
stores in many parts of the world, the company is facing great competition and the industry
rivalry.
Threats and opportunities
It is being observed that the company has presence in only 32 countries and there are more
opportunities in order to grow and expand the operations and the activities of the company by
entering other countries as well also the countries would help the company to maximize the share
in the market. Further, the company has an opportunity in order to enter the different segments of
the market which are not being explored yet by the Zara. The marketing through online and the
e-commerce are achieving importance in the market that might be tapped by the Zara to further
generate great revenues in a given time frame (E. Dobbs, M., 2014). Also, there are threats to the
Zara like the high-end merchandisers of the fashion that offer a great quality of services and the
products at an affordable price that impacts Zara's share in the market. The downturn of the
economy is the other threat to this particularly targeted segment.

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Part II: Internal analysis
Value chain model
The value chain model of the company i.e. Zara includes:
Primary activities:
 Inbound logistics i.e. the raw materials-
 The sourcing occurs from the Hong Kong and the China for maximizing the fabric
quality.
 Utilizing the vertical integration the company receives the finished, dyed and the
patterned fabrics through the 100 percent owned subsidiary of inditex in a single week
and further promotes the system of just in time production (Inditex. 2007).
 Operations (goods/components)
 The company has the great relationship with the suppliers which minimized the contract’s
commitment.
 The Zara has advanced telecommunication system to further connect with the locations of
supply, production and the sales through the headquarters (Caro, F. and Gallien, J., 2010).
 Outbound logistics
 Approximately 80 percent of the products are delivered through trucks and approximately
20 percent through the air.
 The goods are delivered in accordance with the time zone of the particular country.
 Marketing and sales
 Distinct positioning strategy in the international market by the imposition of the high and
great prices.

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 The target audience of the company is women among the ages 19 to 35.
 Customer service
 Change in the fashion trend encouraged in targeting numerous customers.
 The company's assistant of sales has to wear the Zara Cloths.
Secondary activities:
 Research and development
 Just in time manufacturing or the production system.
 With the tracking system in the stores, the orders in great number are being placed.
 Human resource management
 Appropriate timings were offered to the employees in order to barrel the machines easily.
 The managers were offered fixed wages or the salary along with the compensation
relying on the performance.
 Infrastructure of the firm
 Communication system across many functions.
 Operates 268 stores in 32 countries.
 Procurement
 The products are being delivered from the distribution center to the various stores two
times a week.

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Core competencies
It is being observed that the activity of the company i.e. Zara completes the need of the criteria
that is the vertical integration and the synergy that the company receives through the effective
and the efficient strategy. Furthermore, the vertical integration encourages the company to
produce innovative and the new designs in the period of the time frame and at the affordable
price in comparison to the competitors like H&M has the narrow integration in comparison to the
Zara. Also, it is observed that vertical integration is the innovative and the unique feature that
Zara uses in accordance to the production and the sales. Moreover, the vertical integration of the
company incorporates the process from purchasing the raw materials to the sales process, and it
requires great capital to create the same architecture for the rivals (Ghemawat, P., Nueno, J.L.
and Dailey, M., 2003). Further, it consumes time, and the training is needed for the employees in
order to create the high value. The process allowed Zara to increase the inventory turnover and
accept the transformations in the fashion trends more quickly in comparison to the competitors.

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The vertical integration of the company is referred to the competence that encourages the Zara in
order to outperform in the clothing industry (Fernie, J, 2004).
VRIO framework
 Value-
Zara is utilizing the vertical integration that combined with the great resources. Further, the Zara
itself manages the activities of the supply chain rather than depending on the third person or the
party. The process of designing and the producing takes only 15 days which is a great speed in
the industry of clothing (Pesic, M.A., Milic, V.J. and Stankovic, J., 2013). Further, Zara has
attained the competitive edge in comparison to the rivals like H&M and Uniqlo as Zara is much
faster and flexible in comparison to the competitors.
 Rarity-
Zara is having employees from 400 different nationalities along with the designers in order to
satisfy the requirements and the expectations of the customers according to the change in time
and the fashion. The clothing of Zara is being copied from the different occasions of the fashion
like a catwalk, exhibitions, etc. and this is making the brand popular across the globe.
 Imitability-
Zara uses the vertical integration model of business which makes difficult for the rivals to copy
the fashionable products. Further, the model cannot be attained in a short time, and it requires
great effort and time. The maximized cost of supply can be attained by integration outweighing
the benefits. Also, it is difficult to imitate the capabilities and the resources of the Zara.

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 Organizational-
The company is being organized in order to exploit the potential of the capabilities and the
resources. Further, the comprehensive and the appropriate system of communication helps
people in order to be engaged with the process of the company. The managers of the store work
with the manager of the human resource and the advertising further contributes to the great
success of an autonomy degree in the process of decision making.
Strengths and weaknesses
The strength of the Zara includes numerous stores across the globe, and it has the great
contribution in the Hong Kong market of retailers which further contributes to the country's
gross domestic product. The Zara is having the positive image of the brand along with the great
value across the globe. Moreover, the Zara has the effective process of the supply chain along the
production in vertical integration that offers the competitive edge to the Zara. Further, the Zara
offers the option of purchases through online with the help of the platform of social media along
with the website of the company and offers a broad range of the products to the targeted
audience. Also, it offers unique and innovative products which are trendy according to the
preferences and the tastes of the customers at the affordable prices. The Zara does not include the
values of the society in which they are operating, and it greatly affects the volume of the sales.
The Zara has done limited advertisement and the marketing of the products and the brands in
comparison to other companies.

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Part III: Company’s corporate and business strategy
Strategy clock model by Bowman
 The low value of addition and the low cost: The Zara has the basement strategy of the
bargain and attempts to offer the products at the affordable prices as compared to the
competitors.
 Low cost: The Company uses the cost reduction strategy to become successful and
achieve a competitive advantage.
 Hybrid: The Company includes differentiation of product with the low cost to influence
the customers.
 Differentiation: It helps the Zara to provide the customers a high level of additional
value along with the strong awareness of the brand.

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 Focused differentiation: It encourages the Zara to place the products at the greatest level
and attain maximum profits along with the sustainability.
 Risky higher margins: The Company doesn’t provide the products at the higher cost
without offering some additional value.
 The monopoly of the pricing: The Company doesn't use the monopoly of the pricing,
and it attempts to maintain the policy of low pricing (Cachon, G.P., and Swinney, R.,
2011).
 Loss of the share in the market: The Company didn't face the loss of the share in the
market as it includes the strategy of low cost in comparison to the competitors for the
similar products.
Part IV: Challenges and issues
 Political issues-
It is being observed that the political factors affect the growth of the business and the interface of
the government affects the Zara through the direct restriction on the products and the taxes. The
Zara operates in various countries, and it is essential that political issues and the factors are being
considered and should be aware of the regulations of the government, system of trade and the
export and import regulations.
 Social issues-
It is essential for the Zara in order to determine the spending behavior of the customers along
with the changes in the trends of fashion in the industry of clothing, and it requires great research
of the market and the fund’s investment. Also, it is essential for the Zara to include the socio-

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cultural aspects. For example, some people need ethnic look in the cloths of Zara but, it is not
there in stores of the Zara.
 Economic issues-
The Zara requires to include various factors of the economy like the rate of inflation, interest,
and the rate of exchange to determine the exporting and the importing commodities. The targeted
audience of the Zara is the people of middle and the high class, and it is essential to determine
the present condition of the economy to further determine the affordability of the customers.
 Centralized system of distribution-
The Zara has an effective system of distribution, and it is the great challenge for the Zara in order
to control all the stores across the globe. The company requires maximizing the stores of
distribution in the market to improve the channel of distribution.
 Changes in the behavior of customers-
The Zara requires determining the transformation in the preferences and the taste of the customer
to offer products according to the requirements and the expectations of the customers. The
company is the retail brand of fashion that requires consumer's behavior of purchasing inclusion
to create the successful plan of the business (Cortez et al., 2014).
 Managerial issues-
The company is facing various issues in relation to the bullying, harassment, and leadership of
the front line employees. The managers are badly behaving with the employees at the workplace,
and they are forced to do the overtime.

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Part V: Strategic options for growth
Generic strategic options
Ansoff matrix
Present products New products
Present
markets
Penetration of market
 The company has own production house
and the capability of producing new and
innovative lines of the products.
 The strategy of growth has successful
workers for the Zara.
 High presence through online.
Development of product
 Generates great lining
and styles.
 Quick creation because
of the own production
house.
New
markets
Development of market
 Developing more stores in order to attract
more customers.
 The requirement for developing a new
center of distribution.
Diversification
 Section for kids.

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From the analysis of Ansoff, it can be stated that there is the requirement to expand the activities
and the operations of the company in the Asia in order to have a great level of supply from other
countries and further exploring the great opportunities. Further, the strategy of positioning is
being followed by the Zara is the penetration of market. On the basis of the strategy of the
intensive growth, it further penetrates the market effectively and efficiently. The company should
encourage the customers in order to purchase more and this can be performed by offering
additional coupons and the benefits which will encourage the customers in order to make the
purchases to a great extent. Moreover, Zara should improvise the strategies for the development
of the market by unfolding the group of potential users in the present areas of sale. Also, it is
being observed that the company should focus on the countries of Asia through expanding the
functions and the operations. Therefore, this will help the company to enhance the revenues and
the sales to the best possible extent in order to attain the sustainability for the longer period of
time and the strong share in the market.
SFA framework
CRITERIA SO option of
strategy
ST option of
strategy
WO option of
strategy
WT option of
strategy
Suitability 4 3 2 3
Feasibility 5 4 3 4
Acceptability 4 4 4 3
Total 13 11 9 10

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It is being observed that the framework of SFA is created on the scale of grading in which 5 is
used as more deviating and 1 is used as the less deviating through the requirement of the SFA.
Furthermore, the SO is used as the most suitable strategy for the Zara as it is having the high
score in the framework. By looking at the matrix of Ansoff, it can be stated that in the category
of penetration of market, new and innovative products are being created in the market and further
the emphasis is being placed on the market in Hong Kong to ensure the expansion and growth
that falls in the SO.
Implementation
The options of the strategy can be used in the Zara to offer growth of the market and the
development in a given time frame. Further, the company can enter to the new segment of the
market by entering the present market with innovative products for example, the complementary
products which needs great capital along with the designers that encourage in attracting targeted
audience by offering the products of the great quality and it allow the company to grow by
maximizing the profitability and attaining the sustainable competitive edge. Moreover, the
company also have an opportunity in order to enter the territory that has not been used to
maximize the share in the market. The company requires conducting the research of the market
while entering the market to determine the preference and the taste of the customers that will
further help in offering products to the customers accordingly (Gallaugher, J. M. 2008). The
company requires marketing the products and the brands in order to make people aware of the
products and the services which are being offered by the company modern tools and techniques
of marketing to further generate more revenues. The country i.e. Hong Kong will help the
company to offer franchise which will further help the company to maximize the revenues in
other countries which are not being explored yet. Therefore, the strategy of SO will be in line to

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offer stylish and trendy cloths to the targeted audience of the company i.e. Zara. Moreover, it is
being observed that the company i.e. Zara requires both tangible and the intangible resources and
the combination of such sources will help in attaining the objectives of the company to a great
extent and it will help in order to grow to a great extent in future. Also, the company should
consider all these factors in order to create presence in more countries and maximize the
profitability to a great extent.

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Part VI: recommendations and conclusion
From the analysis which is given above, it can be stated that the Zara has a strong image of the
brand in the internal market by offering innovative and the trendy products along with the high
quality at the affordable prices by satisfying the expectations and the requirements of the
customers. The external and the internal environment offers many opportunities to the Zara to
generate profitability within a given time frame. It is being observed that the company i.e. Zara
should focus on the strategy of penetration along with the development of the market. Further,
this will help in improving the shopping experience of the customers to a great extent. Also, the
company has the great opportunities in order to explore the various markets of the other
countries in order to expand the business and maximize the profitability in a best way possible.
Due to the expansion in the market of Asia, the company will essentially enhance the capacity of
revenues and the earnings in relation to the competitors like H&M. Moreover, it is being
recommended that the Zara should create the products by including the ethnic and the socio-
cultural background of the targeted country in order to attract more customers. Also, the
company has to focus on the strategy of marketing in order to ensure that more and more people
become aware about the products and the services which are being offered by the company in
order to make the customers satisfied at the affordable prices. Further, this will help the company
to maximize the sales and also bring the opportunities in order to grow in future. It can be stated
that the company i.e. Zara performs effectively and efficiently in the targeted market and further
win the confidence of numerous customers in order to grow to the best possible extent.

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REFERENCES
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Cachon, G.P. and Swinney, R., 2011. The value of fast fashion: Quick response, enhanced
design, and strategic consumer behavior. Management Science, 57(4), pp.778-795.
Caro, F. and Gallien, J., 2010. Inventory management of a fast-fashion retail
network. Operations Research, 58(2), pp.257-273.
Christodoulou.I.P and Pater, Z 2012. Strategic and Organisational perspective. New York:
McGraw-Hill
Cortez, M.A., Tu, N.T., Van Anh, D., Ng, B.Z. and Vegafria, E., 2014. Fast fashion quadrangle:
An analysis. Academy of Marketing Studies Journal, 18(1), p.1.
Doyle.M. 2012. Informational externalities, strategic delay, and optimal investment subsidies.
IDEAS. 43 (3), 941-966.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), pp.32-45.
Fernie, J, 2004, Logistics and Retail Management: Insights Into Current Practice and Trends
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Gallaugher, J. M. 2008. Zara case: Fast fashion from savvy systems. Online publication, 4(09),
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Ghemawat, P., Nueno, J.L. and Dailey, M., 2003. ZARA: Fast fashion (Vol. 1). Boston, MA:
Harvard Business School.

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Inditex. 2007. Code of Conduct for Manufacturers and Suppliers Inditex Group. Inditex report. 1
(1), 1~8.
Pesic, M.A., Milic, V.J. and Stankovic, J., 2013. Application of VRIO framework for analyzing
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