Enhancing Zara's Profitability through Strategic Competencies

Zara Company has a unique positioning strategy that focuses on high-end fashion products outside of Spain. The company sources its raw materials from Hong Kong and China, which increases its profitability. Zara's growth strategy involves expanding its market globally, with the company being highly demanded in European countries. However, the company faces issues such as social-cultural factors needing to be considered when operating globally, lack of ethnic touch in clothing for target audiences like Indian customers, and limited marketing activities. On the other hand, Zara has a strong brand identity and high profitability, which enables it to retain its social reputation and attract customers. The company is also committed to sustainability and eco-friendliness, using green technology to develop products made from organic materials.

Zara Company
Case Report

Table of Contents
Introduction......................................................................................................................................2
Company background......................................................................................................................2
Part: 1 External Analysis.................................................................................................................2
Pestel Analysis.............................................................................................................................2
Porter’s five forces model............................................................................................................3
Opportunity and Threats..............................................................................................................4
Part: 2 internal analyses...................................................................................................................4
Value chain model.......................................................................................................................4
Primary activity........................................................................................................................4
Secondary activity....................................................................................................................5
VRIO framework.........................................................................................................................5
Strength and Weakness................................................................................................................5
Part: 3 Corporate and business strategy...........................................................................................6
Generic strategic model...............................................................................................................6
Generic strategy of Zara...........................................................................................................6
Part: 4 Issues and Challenges..........................................................................................................7
Part: 5 Strategic Options..................................................................................................................7
Generic strategic options..............................................................................................................7
TOWS matrix...............................................................................................................................8
SFA Framework...........................................................................................................................8
Implementation of strategic options.............................................................................................9
Part: 6 Recommendations and Conclusions..................................................................................10

Introduction
The strategic appraisal report is developed on Zara which comprises if background information
of the company, internal and external analysis which will be done through using SWOT and
pestle analysis, value chain model, porters five forces model, and VRIO framework that enable
to analyze the overall position of the company. The business strategy of Zara Company has been
analyzed through using the generic strategic model in order to determine opportunity and threats.
The strategic options for Zara are determined through using TOWS and SFA matrix. strategic
options.
Company background
Zara is the accessories and clothing of Spain, and it comes under the retail industry that is
situated in Arteixo, Galicia. The company was founded in the year 1975 by the founder Rosalia
Mera and Amancio Ortega. Zara is one of the main brands of Inditex group, and it is one of the
largest apparel brand. There are various brands which are owned by fashion groups such as Zara
home, Pull, and Bear, Massimo Dutti, Oysho, Bershka, Utergue, and Stradivarius. The company
provides clothing in various segments such as men's clothing, women's clothing, and children's.
The annual revenues of the company in the year 2016 are the US $15.9 Billion, and the company
has two thousand one hundred and sixty-nine stores across worldwide. The differentiation
strategy is used by the company for developing innovative products and services to the
consumers globally. The company has been succeeded due to providing advanced quality of
clothing and accessories with unique styles to its consumers. The company has started its
expansion in the early 1990s when inditex entered in 29 countries.

The mission statement of a company explains that the Zara is continuously working towards the
improvement of quality and value of products and services to satisfy its target customers. The
vision statement of the company mentioned that Zara wants to create a niche market for their
brand in the global competitive market in order to obtain the market leadership by providing high
quality, unique products, empowered employees, world-class system, professional standards and
highly ethical.
Part: 1 External Analysis
The opportunities and threats of the company is determined through conducting porters five
forces model and pestle analysis which help the company to grow and earned high revenue
within the particular time framework.
Pestel Analysis
Pestel analysis of the company is discussed below:
1. Political factors
The financial regulations of the company are common political factors which impact on
the business performance.
2. Economic factors
The company has a high share within the global industry that enable to increase the gross
domestic of the country but the company has faced an economic crisis at the time of
recession which impacts on the profitability of the company.
3. Social factors

The social factors are also considered by the company at the time of developing products
for the target audience as social factors play a significant role at the time of choosing
fashionable clothes.
4. Legal factors
The company is considering regulations, ethics, and sustainability throughout its supply
chain and various laws need to be complying with the company. Inditex has applied
program in the company that guarantees living wages for the labor force of the company.
5. Environmental factors
Sustainability has been considered as the important factor which needs to be considered
by the global company. The company has also invested in sustainability and parent
company has also pledged to develop eco-friendly products by 2020. (Rachet et al.,
2014).
5. Technological factors
The company has partnered with Toyota in the year 2014 in order to apply just in time
and clean facilities in the manufacturing operations of the company which helps to obtain
the competitive advantage by Zara through improving its operations.
Porter’s five forces model
Following is the five forces model of Zara:
1. Threat of new entrants
The company lies under fashion industry which is highly fluid due to which entry and
exit are free, so the threat of new entrants is high. The entry can be done by new entrants

easily through supplying innovative goods and services at affordable prices which enable
to attract large customer segments.
2. Bargaining power of suppliers
There is low bargaining power of suppliers due to the presence of large number of
suppliers who provide raw material to the company and the company has stringent
contact with suppliers.
3. Bargaining power of buyers
The mindset of the target audience has been changed with the business model of the
company by providing limited products with quick replenishment of products. It shows
that the bargaining power of buyers is medium (E. Dobbs et al., 2014).
4. Threat of existing competitors
There are major existing competitors in the global market, namely, United Colors of
Benetton, Mango, and H&M who are targeting similar target audience with the high
quality of products and services, so there is a high threat of existing competitors.
5. Threat of substitutes
The target audience of the company is always looking for high quality at a low price due
to which threat of substitutes is high.
Opportunity and threats
There are various global markets which have not yet been explored by the company such as
Hong Kong market which enables to grow its market share through entering into the new market.
(Jackson et al., 2003).

The Zara Company has different type of threats for example high-end fashion merchandisers
who are providing a similar type of products at lower prices which impact on the sales volume of
the organization.
Part: 2 internal analyses
Value chain model
Primary activity
1. Inbound logistics
One-half of fabric in un-dye din form in order to provide high flexibility to the company.
2. Operations
The advanced telecommunication system is used by the company in order to connect its
operations in an effective manner. Approximately 85% goods are internally
manufactured, and factories are highly automated with specialization in garment type.
3. Outbound logistics
Seventy-five percent of products are shipped through trucks and twenty-five by air.
Shipped goods are stored in other countries at early morning and shipped to the Europe at
the same time as per the time zone of a country.
4. Sales and marketing
The marketing activities are focused by the company at the end of the season in order to
clear its stock, and target audiences are women from age group 18-34 years.
5. Customer service

Zara has provided excellent customer service which is shown from high revenue of the
company and sales assistance required for Zara clothing, and it shows the social
background of the company (Shabani et al., 2013).
Secondary activity
6. Research and development
The inventory system is managed through using just in time manufacturing system. The
automated tracking system is used by the company for ordering sufficient amount and
distribution center is developed for economies of scale.
7. Human resource management
The company is conducting training and development programs so that the employees
can use machines with just in time technique.
8. Infrastructure of firm
The vertical integration is used minimize the bullwhip effect, and it is the largest and
internationalized of index chain.
9. Procurement
The products are shipped from central distribution center directly to the respective stores
twice a week, and inputs are outsourced at Far East markets.
VRIO framework
It is used to predict the core competencies of the company. Zara is using vertical integration and
synergy which enable which enable to achieve its activities through a strategic move (Pesic et al.,
2013). Vertical integration cannot be a copy by other competitors as it requires a huge amount of
capital.

Strength and Weakness
The Company operates in 88 countries with more than 1500 stores globally which are one of the
major strength of the company as it has large Spanish retail market share which directly
contributes towards the GDP of the country. (Pelkmans et al., 2015).
Zara does not consider about social values of operating countries due to which its products are
not completely acceptable and its major weakness of the company.
Part: 3 Corporate and business strategy
Generic strategic model
. Following are the three strategies in the context of Zara Company:
1. Stability strategy
The operations of the company is ensured by the team of creative designers who are
working to provides stylish clothing to the consumers in a systematic as well as stabilized
manner. (Rothaermel et al., 2016).
2. Growth strategy
The company has adopted growth strategy for its expansion into various regions which
enable to improve its market share within the specific period of time.
3. Renewal strategy
The company has applied turnaround strategy in order to improve its market share
through employed highly skilled designers, well-structured supply chain, and effective
strategic plan in order to provide a competitive advantage to Zara Company.

Generic strategy of Zara
The generic strategy framework of the company comprises of three strategies, namely, cost
minimization, market focus, and product differentiation. Cost leadership strategy is used by the
company in orders to economies of scale through producing a large number of products and
services. The stores of the company are located in Europe, Italy, Spain, and Greece, and it has a
narrow market (Cortez et al., 2014).
Part: 4 Issues and challenges
Issues and challenges faced by Zara Company are explained below:
1. Economic issues
The company is targeting two classes, namely, top middle class and middle-class people, so
economic condition needs to be considered by the company at the time of producing products
and services as customer's affordability has the major impact on the sales volume of the
company.
2. Political issues
Imposition of tax impacts on the sales volume of Zara is another political issue. Zara has
also paid fine due to providing poor working conditions to the workers in Brazil (Makgala et
al., 2015).
3. Social issues
The company needs to determine spending habits of customers and change in trend within
fashion industry through conducting market research and investment of the huge amount of
funds. (Makgala et al., 2017).
4. Change in customer behavior

The Company operates in retail fashion brand due to which the company requires
information related to customer buying behavior in order to develop a successful business
plan.
5. Centralized distribution system
The company operates in 88 countries with more than 6500 stores, so it is difficult to control
its effective distribution system which is considered as one of the important challenge for
Zara.
Part: 5 Strategic options
Generic strategic options
The Ansoff matrix has described various strategic options which can be used by Zara in order to
grow its brand internationally (Darroch et al., 2014).

1. Market penetration strategy
The company is using market penetration strategy in order to develop new products for the target
audience that enables to earn large revenue within the time framework. The company can
encourage existing customers in order to buy more which helps to generate high profitability for
Zara. According to the kotler, success of the company is majorly depend on the wide network
across the globe which enable to generate high revenue by covering wide range of target
audience. The company is using effective vertical integration which provide flexibility to the
supply chain of the company and it also provide competitive advantage to the company which
enable to stand out among the international competitors such as Mango, H &M, and others within
the fashion industry. The company develops new line within three weeks whereas industry
average provide in nine months which provide competitive advantage to the company.
2. Product development strategy
The product development strategy is implemented by Zara which enable to attract fashion
conscious customers through providing highly fashionable clothes within the specific period of
time. The company has developed new products within six weeks and also ensures that the
products are continuously available for the target audience which enables to gain competencies to
the company. The company is considering about the price consciousness of the consumers so it is
developing products which are worthy for the target audience.
3. Market development
The company provides approximately 40,000 fashions every year and it is working constantly in
order to fulfill the needs and demands of the target audience but only 10000 or 20000 are put to
the production. The company has hig skilled designers which provide highly fashioned clothes to
the target audience.
4. Diversification strategy
The company can diversify its business through determining new opportunities into the existing
product line which enable to produce high profitability as per the budget within the time

framework. The company can tap into information technology which enables to attract new target
audience. For example if the company has select prototype for the production then colors and
design can be refined through using computer aided design system which can be transmit to the
cutting machine in the factory. It enables to maximize the profitability of the company by 20
percent and it also avoids overproduction by using just in time technique.
From the above Ansoff matrix analysis it can be stated that the diversified strategy is suitable for
the company as the company has already used market penetration, product development, and
market development strategy. Diversified strategy helps to enter into the market through tapping
new areas which enable to attract new target audience that helps to increase the profit margin of
Zara.
TOWS matrix
TOWS matrix represents the mixture of strength, weakness, opportunity, and threats which
enable to develop various strategic options that can be used by the company for increasing the
profitability of Zara through applying strategic options.

SFA framework
CRITERIA SO strategic
option
ST strategic
option
WO strategic
option
WT strategic
option
Suitability 7 5 3 4
Feasibility 5 3 4 5
Acceptability 3 4 3 3
Total 15 12 10 12
The SFA matrix shows suitability, feasibility, and acceptability of various strategic options
which are developed from TOWS matrix and the rating scale is 5 in that five is given to the most
deviating and one is given to the least deviating from the requirements of SFA. The highest score
is acquired by SO, therefore, it is considered as the appropriate strategy for the company. The
Ansoff matrix has shown that the new market needs to be developed in order to increase its
market size. It is shown that the innovative technologies and product development are already
applied by the company in order to develop innovative products and services for the global
customers.
Under the category of market penetration, new products and introduced to the market and the
main emphasis is given to the UK market as growth is ensured in the particular region that falls
in line with SO strategic option (Song et al., 2017).
Implementation of strategic options
The strategic options which have been discussed above that should need to be adopted by Zara
that enable to grow the market share of the company.

Zara Company can provide new products into existing market in the new segment such as
complementary goods which can be provided to the existing customers as well as the new
audience which enable to attract large number of customers that helps to grow its business within
the particular time framework. The development of complementary goods requires huge capital
and capable designers who are able to develop highly designed products to the target audience.
The company can also enter into new territories which help to increase its market share through
exploring new areas. The company needs to conduct market research in order to enter into a new
market through determining the taste and preference of new target audience which enable
developed clothing and accessories according to the market demand. The company should
conduct different type of marketing activities for example TV advertisement on local as well
international, availability of online stores, and other marketing activities which help to develop a
brand image in the eyes of the customers that directly increase the sales volume of the company
within a specific time framework.
Zara needs to enter into Hong Kong market which is not yet explored by the company and the
needs to provide franchise in order to increase its market share. The SO strategy helps to provide
innovative products and services in the Chinese market through conducting market research
providing customized products as per the needs and demands of the customers.
Part: 6 Recommendations and conclusions
It can be concluded from the internal and external analysis that the company has developed its
strong brand image in the eyes of the target audience through providing a high quality of unique
products to the target audience globally. The internal and external analysis helps to determine
opportunities and threats in order to increase its market share and growth within a particular time

framework. It is recommended to develop its products by taking into account the cultural and
ethical background of the country in order to increase its products acceptance among the target
audience.
The external analysis is done through using pestel analysis which shows that the political,
economic, legal, technical, and environmental factors of the company are satisfaction but the
social factors are not up to the mark as the company does not consider about the social factors in
developing products and services for example In India people wants ethnic touch in foreign
clothing but the company provide similar products to them which restricts some audience to
purchase products and services from Zara. The company has improved its inventory management
process through streamlined RFID in order to increase its counting of inventory. It helps to
improve the supply chain of the company. The model is used to shape the organization through
determining the five forces of the company which helps to develop core competencies to Zara
that enable generate high profitability to the company.
The internal analysis shows company sources its raw material from Hong Kong and China that
helps to increase the total profitability of the company. The company spends limited amount of
money on marketing activities, but it maximizes its window displays. The positioning strategy of
Zara is different as it charges high amount outside the Spain. Store manager provides training to
the store manager in order to improve sales volume. Incentive, as well as fixed salary, is given to
the managers in order to maximize the profitability.
The strategic model has comprised of three main strategies, namely, growth, stability, and
renewal. The designers of the company are ensuring the quality of products in order to core
competencies to the company that directly increase the profit margin of the company globally.

The company has well-planned growth strategy which helps to grow its market globally
successfully, and Zara Company is highly demanded in the European countries. It provide stylish
clothing and accessories in three segments, namely, women’s, men’s, and children’s in order to
increase the profit margin of the company.
Issues faced by Zara include Social-cultural factors need to be considered by the company as it
operates globally. Innovative techniques must be used by the company in order to develop a
unique style of clothing for the target audience. For example, customers in India want ethnic
touch in foreign clothes, but Zara does not provide ethnic touch in their clothing which is a lack
in Zara stores due to which. Zara needs to improve its distribution channel through developing
more distribution stores in Zara. According to the research study, Zara Company has less
experience as compared to its global competitors within the same industry.
The innovative products are providing by Zara, and it has a highly structured supply chain which
provides core competencies to Zara. The company conducts limited marketing activities such as
advertisement as compared to another brand which impacts on market share, but the company
has high brand switching also which is also a weakness of the company. Change in customer
taste and preference is one of the major threat which impacts on the profit margin of the
company, and another threat for Zara is economic downtown. The company operates in clothing
and accessories so there are various other market segments that can be explored by the business
in order to attain high profits. E-commerce can be tapped by Zara in order to generate high
revenues. The company has the strong brand identity in the global market which enables to retain
social reputation, and high profitability of the company shows that the company has high social
acceptance among the target audience due to which it is considered as desirable options. The
company is also committed towards the elimination of hazardous waste from supply chain

management. The business is using sustainable technology for the development of eco-friendly
products by using organic material. Inditex has called it green to wear technology.

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