Zara Company Case Report: Strategic Analysis and Recommendations

This strategic appraisal report delves into the Zara company, offering a detailed analysis of its background, internal and external environments, and strategic options. It utilizes frameworks such as SWOT, PESTEL, Porter's Five Forces, the Value Chain model, and VRIO to evaluate Zara's position. The report explores Zara's business strategy through a generic strategic model, identifies opportunities and threats, and determines strategic options using TOWS and SFA matrices. Furthermore, it addresses key issues and challenges faced by the company and concludes with strategic recommendations. The report examines the company's market penetration and product development strategies using the Ansoff matrix. This analysis covers Zara's competitive advantages, market presence, and its approach to the fashion industry, providing insights into its growth and operational strategies.

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