Zara's Business Model and Competitive Advantage

This assignment provides a detailed analysis of Zara's successful business model within the fashion retail industry. It examines their strategies, including fast production cycles, customer-focused designs, and effective supply chain management. The document highlights Zara's competitive advantages and explores potential opportunities for future diversification and growth while emphasizing the importance of continuous innovation to maintain its leading position in the market.

Running Head: Strategic Management 1
Strategic Audit of Zara

Strategic Management 2
Contents
Part A...............................................................................................................................................3
Introduction......................................................................................................................................3
External analysis..............................................................................................................................3
Industry and competitive environment........................................................................................3
Porter’s five forces...................................................................................................................3
Threats......................................................................................................................................4
Opportunities............................................................................................................................5
Internal analysis...............................................................................................................................5
Strengths.......................................................................................................................................5
Weakness.....................................................................................................................................5
Part B...............................................................................................................................................6
Summary of SWOT.........................................................................................................................6
Strategy evaluation..........................................................................................................................6
Strategic issues.................................................................................................................................8
Recommendations............................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

Strategic Management 3
Part A
Introduction
Effective strategies are important for the growth and success of a company while it is
going to operate in the new market. This report focuses on the strategic evaluation of the famous
fashion retail company Zara. The report analyzes the environmental impact on the business
operations of Zara. For this manner, report focuses on the internal and external analysis of the
company in its operating market. Zara is considered as the big global fashion company in all
over the world. The company was founded in 1975 by Amancio Ortega Gaona. The company is
famous for manufacturing fashionable fabric products that suit the trends of the customers. Main
objective of the company is to provide best quality of clothing products with proper supply chain
management. Zara produces and launches around 10,000 new designs yearly. This report focuses
on the strategies adopted by the company in the operating market. Report also elaborates the
strategic issues faced by the company and provides effective recommendations to deal with those
issues (Pearson, 2011).
External analysis
Industry and competitive environment
It is well known that Zara is operating in almost every country of the world and now it is
trying to expand the business in those areas where it does not have its presence. For this manner,
it is important to analyze impact of the market environment in which the company is operating.
By the internal and external analysis, Zara would be able to identify the threats and opportunities
in the market.
Porter’s five forces
Threats of new entry-
 Difficult to gather workforce,
 Uniqueness and profitability in the industry,
 Easy to enter in the industry,
 Need sufficient time to prepare
Competitive Rivalry-

Strategic Management 4
 Many fashion companies,
 Mango, the Gap and H&M, and
 Large sums of advertisements to gain market share
Bargaining power of buyers-
 Power of the customers is moderate,
 Customers are free to buy the clothing products,
 Loyal customers wait for every fashion frenzy, and
 Customers are active due to limited stock availability
Braining power of suppliers-
 Low supplier power,
 Suppliers are dependent on the fashion companies, and
 Suppliers have licensed contracts
Threats of substitute-
 Major threat of substitute,
 H&M competing in terms of quality and affordability, and
 Effective supply chain management creating big threat
Threats
For the company Zara, there are three main competitors of the company which are the
cause of biggest threat. Those companies are Mango, H&M and the Gap. Almost every retailer in
the industry can be the big threat for company because of the wide range of merchandise
catagories. The Gap is considered as the big competitor of Zara because it has same product as at
the affordable price and trendy styles. Along with this, company has its presence in all over the
world. Further, H&M (Hennes and Mauritz) is one of the big competitors of Zara in retail
industry (Moore & Pareek, 2010). The company is very attentive while entering in the global
markets and enters in one country at a time. On the other hand, Zara enters many countries at a
time. Another threat for Zara is that H&M is providing trendy clothes based on the taste and
preferences of the consumers in the international market. Next, Mango is the famous for its
supply chain management and excellent business model. Being a Spanish company, company
has many stores in various countries for achieving high level of success. Similar as Zara, Mango
has all the stores at the prime positions (Easey, 2009).

Strategic Management 5
Opportunities
For Zara, there are various opportunities in the fashion retail industry. Zara can take
advantage of the online shopping trends and make the clothing products available on the other e-
commerce stores to improve the sales. Further, company has some designs which are flagship
designs for its stores. This is lacking in Zara so, there should be some designs which should be
sold from the Zara store. This strategy would bring great demands for the brand clothes. Along
with this, Zara has opportunity of market expansion for the profit of the business. So, there is the
need to keep a constant eye on the emerging markets where people can spend on the brand like
Zara and can wear stylish clothes. For Zara, there are huge opportunities for the company in
various global markets in which the company can explore (Gallaughar, 2008). Company can also
enter into various segments and has opportunity to expand in those areas where company does
not have its presence. Now, the market of online platforms and e-retail is booming and gaining
importance so, Zara can have opportunity to advertise its products on the online and e-retailing
platforms. Along with this, Zara has wide range of clothing products for various age groups with
the kids’ collection also. Company has created all the clothing products with the good material
with the innovative and fashionable designs (McLoughlin & Aaker, 2010).
Internal analysis
Strengths
The biggest strength of Zara is that it is the most powerful and renowned fashion
company. Company has strong brand image in the Spanish market also. Zara has low cost and
excellent supply chain management and most of the products processing of Zara are integrated
vertically. Company follows ‘just in time’ process by which it is able to deliver the most
fashionable collection on time as compared to other companies. Along with this, company has
various clothing products for all the age groups including kids’ products. The clothing products
of Zara are created with the good material and most innovative and fashionable designs.
Weakness
Despite of much strength, there are some weaknesses in the business operations of Zara
which impact on growth of the company. One of the weaknesses of Zara is that company has
generalized collection of the products and that is the reason, customers shift towards the
competitors of Zara. Further, there is the lack of advertising which is the weakness of Zara. By

Strategic Management 6
the advertising, company can attract more customers in the operating market. Along with this,
there is the low safety stock in the company Zara. If the particular design is hit with the
customers, then the design will not reach to its potential as there is no buffer or safety stock for
those particular products.
Part B
Summary of SWOT
From the above discussion of the SWOT analysis, it is observed that Zara has strong
image in every part of the world. The company has effective supply chain management process
and ‘just in time’ process so that the products can be delivered to the customers on time. The
strong part of Zara is that company has clothing products for all the age groups. The clothing
products are made by the good material that suits the fashion trends of the customers. Zara has
capability to recreate fashion with new dimensions. In terms of weaknesses, it is observed that
Zara is providing limited services as it is generalized collection of the products. So, the company
is losing its customers gradually. Further, there is the lack of advertisements by Zara to attract
the customers. In case of opportunities, Zara has opportunities to expand its business in those
areas where it does not have its presence. Along with this, company has opportunity to advertise
its products on the online platforms and e-retail sites. In case of threats, Zara is facing strong
competition from various retail companies i.e. Mango, The Gap and H&M. In terms of supply
chain management and business model, Zara has to deal with the competitors. The competitors
have wide range of merchandise catagories which create major threat for Zara in its business
operations (Gilligan & Wilson, 2009).
Strategy evaluation
Cost leadership-
In the business process of Zara, the company has adopted cost leadership strategy in
order to minimize the cost and maintain the trend of fashion at the same time. By its designing
process, the company is able to maintain particular trend of fashion in all over the world.
Company is doing effective business due to its cost leadership strategy. This strategy of the

Strategic Management 7
company is based on the small quantity of the production in each category of design. With the
help of defined process, Zara is effectively able to determine the specific designs which are
needed to be produced in the large volume. Along with this, company can cut the production
process of any identified design at any time (Hill, 2009).
Single business strategy-
The business strategy of Zara depends upon the production of the clothing products. it is
observed that 95% revenue of Zara is generated from the clothing products and accessories.
Along with this, in the business model, company is continuously focusing on producing other
fashion accessories rather than producing clothing items (De Charnatony, McDonald, & Wallace,
2011). For instance, it is observed that Zara is also involved in home furnishing with the brand
name of Zara home. So, it is contributing 2.3% of total revenue to the company. Based on this
condition, it can be said that Zara can focus on more areas along with the clothing manufacturing
business (Deogratias, & Harorimana, 2009).
Business model innovation-
It is well known that innovation is an important part to develop the corporate strategy for
the business effectively. Companies operating in the retail industry need to include three
important elements in the business model i.e. governance, format and activities. A well
maintained business model by the company is helpful in developing effective strategic options
for the innovations and business expansion. Zara has effectively maintained above mentioned
factors in its business strategies. To achieve success and growth within the transformational
market, Zara has adopted an effective business model (Mihm, 2010).
Transformational strategy-
Zara is highly focused on achieving efficiency at the local and global level by its
innovative strategies. By the manufacturing of trending manufacturing clothes, company has
maintained its strong presence in the global market. Based on the analysis of internal business
operations of the company, company is able to have more flexibility to design and move the
products from the production house to the stores effectively. The internal business process
provides advantage to the company by the vertical integration of business strategy. Company has

Strategic Management 8
adopted transformational strategy as it is helpful to the company to respond to the local changes
in terms of needs and preferences of the customers. Along with this, company directly forwards
the important feedbacks of the customers to the design team by the application of its
transformational strategy. Along with this, Zara is operating in various countries which reveal its
unique cultural implications. Company understands the difference quality structure and
governance at the global level for conducting effective strategic analysis to enter in the new
markets (Charles & Gareth, 2012).
Strategic issues
Marketing strategies issues-
It is well known that the business world is adopting the platform of digital marketing for
the effective marketing and business operations. Similarly, Zara has achieved popularity by
adopting the digital marketing strategies. But, the company has to deal with some strategic issues
while operating the business in the fashion retail industry. The strategic issues are now becoming
serious issues for the company. Based on the analysis of internal strategies of the company, it is
identified that most of the stores of the company is located in Europe that can be the cause of
disruption in the region. So, the strategic issues in Zara can arise while the company is going to
develop marketing tactics for the effective business operations (Hitt, Ireland & Hoskisson, 2009).
Pricing issues-
Further, it is observed that competitors in the fashion retail industry are focusing on
reducing the lead-time in business. The buying decision of the customers for the particular
products depends upon their personal taste and preferences. For this manner, Zara has adopted
various marketing strategies to attract the customers and company has not advertised the
implemented marketing strategies by the traditional media and platforms. So, there is one of the
major issues in the marketing strategies of Zara i.e. pricing policy. To compete with the
competitors in terms of pricing policy, the company set high prices for its clothing products. to
deal with pricing strategies of the competitors, Zara has implemented competitive pricing
strategy in the business (Hitt, Ireland, & Hoskisson, 2009). So, because of high prices of clothing
products, company is losing its customers as customers want quality products with the low

Strategic Management 9
prices. Because of economic uncertainty, customers in the European countries may not be able to
afford the prices of Zara.
Inventory issues-
Further, it should also be noted that the fashion industry is very dynamic in all over the
world so companies are changing their marketing strategy on the regular basis. In this situation,
entry of new companies in the industry can be a big issue for Zara. For dealing with issue,
company has to implement diversification marketing strategy in its products (Romano, 2009). It
is well known that 95% of total revenue of Zara is generated from the clothing products. In the
retail store, company cannot keep the raw material and inventory for the long period of time as it
can create various issues for the company (Ray, 2010). The products sell by the company are
seasonal so, company has to be very careful about the inventory held for the production. So,
sometimes Zara has to bear losses because maintenance cost is very high in the business. Along
with this, company hires the labor on the contract basis which also sometimes creates issue for
the business as the company has to hire the labor again and again. Although, on the contract
basis company is able to get cheap labor but, it is not an easy task for the company and it leads
higher cost also (Cowe, 2011).
Recommendations
Based on above analysis of strategic issues faced by Zara, it is observed that company
needs an effective strategy to stay competitive at the global level. There are some
recommendations for Zara to deal with the identified strategic issues in the business.
Recommendations for the company are as follows:
 To deal with above discussed strategic issues, Zara should apply cost leadership strategy
in its business operations. By the cost leadership strategy, company would be to reduce
the prices of the clothing products. Along with this, company would be able to act as the
low cost producers in the fashion industry.
 The company should sell its products at the average industry price to achieve higher
profit over the competitors in the operating market. Company can also sell the products
below the average industry price to improve market share at the global level (Armstrong
& Kotler, 2010).

Strategic Management 10
 Further, in the situation of price war, Zara should maintain some profitability to leave the
competition behind.
Conclusion
The report provides a clear understanding on the strategies adopted by the famous retail
company Zara. From the overall discussion, it is observed that Zara has potential to achieve
sustainable growth due to its capability and competitive advantage in the fashion industry. The
company has maintained its strong image by the unique business model. Zara has various
opportunities in the market for the diversification of its products. It is also observed that the basic
concept of Zara is to keep the design and production process for meeting the needs of the
customers. It is recommended to the company that company should continue innovate and re-
invent itself to stay competitive in the fashion industry. In present time, various companies are
viewing Zara as the new standard of the fashion retail industry.

Strategic Management 11
References
Armstrong, G. & Kotler, P., (2010). Principles of marketing. (13th). Pearson Education, Upper
Saddle River
Charles, & Gareth, J., (2012). Strategic Management: An Integrated Approach. Cengage
Learning. Pg 94- 109
Cowe, (2011). Sources of Competitive Advantage. (3rd). Essex, Pearson Education Ltd
De Charnatony, L., McDonald, M., & Wallace, E., (2011). Creating powerful brands. (4th).
Butterworth-Heinemann
Deogratias, & Harorimana, (2009). Cultural Implications of Knowledge Sharing, Management
and Transfer: Identifying Competitive Advantage: Identifying Competitive Advantage.
IGI Global. Pg 144
Easey, M., (2009). Fashion marketing. Third edition. Blackwell Publishing
Gallaughar, (2008). Zara case: Fast Fashion from Savvy Systems. Retrieved on 16th October
2017from http://www.flatworldknowledge.com/node/440129#web-621509
Gilligan C., & Wilson R. M. S., (2009). Strategic Marketing Planning. (2nd). Elsevier, Oxford
Hill, (2009). Global Business Today. New York: McGraw Hill Irwin
Hitt, A.M., Ireland, R.D., & Hoskisson, R.E., (2009). Strategic management: competitiveness
and globalization: concepts & cases. (8th). Canada: Cengage Learning Inc.
http://www.uniquebusinessstrategies.co.uk/pdfs/case%20studies/zarathespeedingbullet.pdf
McLoughlin, D., & Aaker, D. A., (2010). Strategic Market Management: Global Perspectives.
(1st). John Wiley and Sons Ltd
Mihm, (2010). Fast Fashion in a Flat World: Global Sourcing Strategies. International Business
& Economics Research Journal. 9 (6). pp 55-63.
Moore, K., & Pareek, N., (2010). Marketing: The Basics. (2nd). Routledge
Pearson, A. (2011). the Story of Zara - The Speeding Bullet. Retrieved on 16th October 2017 from
Ray, (2010). Supply Chain Management for Retailing. IND: Tata McGraw-Hill Education

Strategic Management 12
Romano, (2009). How can fluid dynamics help supply chain management? International Journal
of Production Economics. 118. 467
1.