Zara Case Study: External, Internal Analysis, and Strategy Evaluation

This case study analyzes Zara, a fast-fashion retailer, examining its external and internal environments. It begins with a PESTLE analysis to identify political, economic, social, technological, environmental, and legal factors affecting Zara. Porter's Five Forces are applied to assess industry attractiveness and competitive dynamics. The internal analysis uses SWOT to evaluate strengths, weaknesses, opportunities, and threats. Core competencies are identified through VRIO analysis, focusing on valuable, rare, inimitable, and organizationally exploited resources. The study also evaluates a recent company strategy using SAFe criteria. The report concludes with a summary of findings and references.

Case 3: Zara

Table of Contents
INTRODUCTION...........................................................................................................................3
1. Evaluation of external analysis to identify a set of Opportunities and Threats and assess
industry attractiveness. ..........................................................................................................3
2. Analyse the resources and key competences of the organisation and identify core
competences...........................................................................................................................6
3. One strategy that the company implemented recently and evaluate it using SAFe criteria.10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
The present report is on Zara, which is a Spanish fast fashion retailer company in
Arteixo, Galicia. The company was incorporated on 24 May, 1974 by the founder Amancio
Ortega and Rosalia Mera. Zara is the main brand of their parent organisation Inditex group,
which is the world's largest apparel retailer company. The company offers the latest fashion
brands of high quality with affordable prices (Goworek and et. al., 2012) . Zara started their
business from a very small store, and in the present time it is reached as the world's largest
retailer company. The success of ZARA has increased the goodwill of their founder Amancio
Ortega, as the 4th richest man in the world. This report will mainly emphasizes on the internal
and external factors of Zara, by doing its SWOT analysis. The present report also include the
Five forces of ZARA and the business strategy which ZARA had implemented currently , and an
evaluation is to be done using SAFe criteria.
1. Evaluation of external analysis to identify a set of Opportunities and Threats and assess
industry attractiveness.
External analysis is being explained by the PESTLE analysis of ZARA
PESTEL analysis is used to identify the external drivers of changes in business
environment. The chosen organisation is having approx 1700 physical and online stores which
offers products for men, girls, women and children in all over the world. Therefore, it should
make an effective plan of action to retain its existing position, and to make these plans
successful, the company should consider the key changes and their effect in the business
environment. This effect can be measure by doing PESTEL analysis of the orgnisation, which is
outlined below:
Forces Description
The sale of the firm products has been increased by globalization and
free trade agreements across Europe and other parts of the world. By
this it is evaluated that no barriers will appear in European states.

Political Environment Along with this, boundaries on quantity and quality of imported or
exported have been isolated and a consistent custom tariff rate has
been made valid, and by this the member countries in EU are the
biggest export market for textiles and clothing which has boosted its
sales. Also, policies can be made to increases its inter-state offerings
without paying extra tariff. In addition with this the competition in
the market is very high, and the chosen organisation is having very
strong market position but to sustain its business for long term, it has
to decrease its cost per unit due to increased in production. Later on,
it should focus on gaining its sales in big marketplace (Laitala, 2014)
.
Economic Environment Being an international company, the organisation has to run their
business according to economical conditions of each country. The
economic environment of Spain has grown fast and shown the
positive results in the sale of firm in all over the world. This has been
possible by high degree of employment with high quality at lower
costs. On the other hand, BREXIT has affected the exchange rate of
pound which increased the inflation rate and appreciated costs of
living with less disposable income for consumers (ZARA UK's profits
and sales, 2018) . By this the citizens of UK are made to cut their
expenditure on new clothes. This has affected its clothing sales and
profits. The another reason arises is the downturn in the economy
which rose the unemployment level and due to this more customers
have become aware about the price.
Social Environment The social impact on present organisation is the rise in its online
shopping by its features such the outlets are open 24 hours for their
customers to shop all the time, and the reduced logistics costs forced
the firm to spend in different online shops. This has enhanced their
sale by approx 10% . Also, this is having its stores in all over the
world which can fulfil the demand and needs of its customers. This

company can make strategies to maintain strong brand identity in
global market.
Technological
Environment
In today’s time technology is playing the major role in the business
of the chosen enterprise. It had created and executed advanced
technology to provide its buyers an option to select an click on the
product they like, then that product will be added in their whish-list,
by which they can buy that product later on. Also, for example- if a
buyer ordered the product online then they can track their order by
using the technology provided by the firm, by this the customer can
able to know the exact status of their product. In upcoming future,
the administration can use this technology to improve its supply
chain of management to achieve the competitive advantage (Hiller
Connell and et. al., 2012) .
Environmental factors It is the duty of every corporation to prepare and put the procedures
into practice which are having pleasant environmental. UK
Government had enforced the rules and regulations on big companies
like P&G and H&M etc. So for these companies it is mandatory to
obey these laws and follow the principles. The organisation has
launched its collection made from sustainable materials. Also, it has
decided to do savings to make eco-friendly outlets by the year 2020.
Legal Environment Laws are used to secure the products from other companies. The
organisation in the present report has the patent of their products, so
no other organisations can copy their brand design and products, as
because they don’t have the copyright to used it. The firm abide by
intellectual property laws so that its products are marketed under its
brand names and trademarks only.
Industry analysis of ZARA has been done successfully by Porters five forces, which has
been explained below -

1. Bargaining power of buyer's : ZARA is one of the biggest brand in UK, which deals in
manufacturing and retailing of clothing products. But in market of UK, there are several
other brands which use to provide same and better trending products at lower cost, this
leads the customers to get attracted towards other brands, by which the barging power of
customer get increase and lead to reduce in power of organization.
2. Bargaining power of supplier's : Suppliers are the most important factors for an
organization like ZARA, as they require huge amount of raw material so that their
production do not get affected. As they are one of the biggest organization in the world,
therefore, they have long list of suppliers who use to provide raw materials to them.
Having huge source of raw material help them in closing the deals with suppliers at their
conditions, which increase their power and reduce the bargaining power of their
suppliers.
3. Threat of new entrance : As the working level of ZARA is big, and it is not very much
easy for their existing competitors to compete them. In UK it is very tough for new one
get permissions, so that they can make a big production and retailing unit, along with this
they also require huge amount of finance which is one of the most risky factor in
business. Therefore, the threat of new entrance for them is very low.
4. Threat of substitutes : There are ample number of same and better products which are
available in market by different band. In clothing sector it is very much easy for any one
to make same and better products, so that they can get competitive advancement.
Therefore, the threat of substitutes for ZARA is much high (Vu and Medina, 2014) .
5. Competition among existing rivals : There are several brands in market of UK which
give very tough competition to different functionality ZARA. This lead them in
deceasing the rate of growth, therefore they have to face very tough competition in
market. This all leads to tending the competition among existing rivals very tough.
2. Analyse the resources and key competences of the organisation and identify core
competences.
Internal analysis has been done by using SWOT, which is elaborated below -
Strengths – These are those aspects which give competitive advantage to the company over other
company. The strength of ZARA is as follows -

Weaknesses – These are all those aspects which give advantage to the competitors. Some of the
weaknesses of ZARA are mentioned below –
Strengths Weaknesses
Strong Presence – ZARA has expanded its
business in all over the world. Therefore, on
latest count in 2017, it has over 2200 stores
in 93 countries
Lack of advertising – ZARA can have to face
the problem of development due to not using
digital media such as online platform to
advertise its products.
Online selling- Online shopping enabled an
increase by 41% in sales. The average time
take by ZARA to introduce and make it
available in stores is 20 days as compared to
6 months in case of other retailers. By this
ZARA has expanded the growth of business.
Generalised Collection – ZARA is not
having a specific products for anyone, their
stores having everything for everyone. If the
customers seeks for only pants, or only for
party wear dresses, then this focus can be
weakness for ZARA, as this provide only
trendy and daily wears.
Customer Satisfaction -The changes in
design and products are done by taking
feedbacks from the customers which saves in
costs and maximise their satisfaction
(Mierzejewska, 2017) .
Low safety stock – ZARA does have the stock
for the security of products. Low inventory is
kept by ZARA as a strategy so that the
customers would check out the latest items,
but if a specific design is hit with the
customers then it won’t reach its potential
because is no safety stock or buffer for this
design.
VRIO analysis is done to identify the core competences for the organisation.
VRIO stands for value of the resources, rareness of the resources, Imitation Risk and
Organisational Competences. This framework was developed by Jay B Barney to measure
the importance of resources in the organisation. VRIO is an strategic analysed tool which
focus on the resources of the firm. This model is used to build sustainable competitive
advantage. The four elements of VRIO model is explained below –

Figure 1: ZARA's Core Competence Analysis(VRIO)
 Valuable : This element means that the resources required to make the products
are valuable to ZARA or not. According to the case study, the following resources
are valuable to ZARA – Human resources, operations management, marketing
expertise and financial resources (ZHOU and et. al., 2013) . If this is about the
Inditex, it is a combination of these resources. The most valuable resources for
ZARA is vertical integration. The company is not dependent on the other firm for
its resources, they manage all things such as designing, storing, distribution and
logistics, etc. Also, by managing by their own they get flexibility in their work
and doing faster than their rivals. Therefore, this can enhance their business in the
market.
 Rareness : In this, the company measure that the resources which are valuable for
the firm are rare or costly to achieved. If the resources are not are rare or unique,
then the competitors of ZARA and the new entrants will easily access the
resources of ZARA and then attain the competitive advantage by them.

Figure 2: VRIO of ZARA
 Imitation Risk : In today’s time everything is imitable. In the case of inditex, if the rivals
of ZARA try to copy the business model of company, then they can but it is impossible to
create that vertical integration model with that supply chain management, and even it
takes more time to produce the organisational structure of ZARA. Also, it is vast costly
to copy the model of ZARA, which the other firm can’t able to incur. But suppose if this
happens then ZARA can concentrate on the other segments to progress more in the
market, as it is faster in adopting small changes for the enhancement of business (Kim,
2013) .
 Organisational competences : This processes how much the company is able to exploit
the valuable, rare and difficult to imitate resources in the market place. ZARA is
constantly increasing its sales and gaining profits, and the credit for this goes to the
higher authority, along with the employees who were engaged in every process of
Inditex. This is the Strength of ZARA, and here the firm’s policies and procedures
organised to support the exploitation of its valuable, rare and imitate resources.

3. One strategy that the company implemented recently and evaluate it using SAFe criteria.
From the above analysis, all conditions of ZARA has been cleared. So by analysing all these
ZARA has currently introduced and implemented the Market penetration pricing to retain its
position in the market. This will gain competitive advantage by capturing market, by increasing
its market reach. For fixing a suitable price of products and services, company uses pricing
method, because price is important to gain the attention of huge customers as there expectations
is to achieve best quality at cheap cost. ZARA is having many competitors or rivals who offers
the best quality products at low price, this makes ZARA to lose its customers. So, to capture high
market share and to retain its position in the market, ZARA has introduce and implemented the
new products in their outlets or stores and follows market penetration pricing Strategy to target
large number of customers. On the other hand to retain its position, ZARA decided and planned
to give stiff competition to its competitors in UK market as the level of rivalry is rising day by
day. So, to remain competitive, it also plans to use Benchmarking strategy, which is a process
used to evaluate products, services and practices against its toughest rivals or against those, who
are best in the particular industry. ZARA is using this strategy to retain its position and to assess
its competitors such as P&G, H&M, M&S, ASOS etc. products and compare them with its own
products to know the areas in which they have to work more, and increase their sale. This will
improve the overall efficiency of organization, when activities are performed in co-ordination.
Further, this will reduce costs that are incurred in business processes. In nutshell, internal
processes are measured against external standard. This strategy is recently implemented by
ZARA to retain its position in the market and to enhanced its market share. In addition with this,
ZARA is now planning to introduced more strategies or tactics for suppliers and buyers, so that
they can get the products from right supplier at cheap rate and they can gain the attention of more
customers (Shephard and Pookulangara, 2013) . Along with this, it has decided to apply six
sigma to improve its supply chain management so that there is no delay in delivery of the
product.
Opportunities and Threats
Opportunities – These are the areas of potential benefit used by the company for the future
profitability. The chosen organisation also consists of various opportunities, which are as below -

Threats – These are the areas from which the company should be aware and careful about if it
wants to dominate the market (KAPUSTINA and et. al.,2015 ) . Some of the threats of the
present organisation are as follows-
Opportunities Threats
The firm has the opportunity to focus more on
online shopping sites to gain the attention of
huge customers and target them in enhancing
its sales.
The major threat for the firm is due to high
inflation in UK caused by BREXIT has
increased the prices of clothes resulting decline
in sales and profitability.
Also, the business enterprise can open their
outlets in such developed countries which help
them to enhance their productivity and grow
their business in all over the world. The
developed countries are Brazil, Nigeria etc.,
can be used to increase number of retail stores.
The organisation low advertising can also
become a threat for the company has they are
not advertising their unique brand proposition
from the start. The way this maintain its
products by changing the design, they can rope
in a lot of customers if it advertises that the
latest in designs will be selled by the company.
This also has the opportunity of Backing some
flagship designs , this is the most common
behaviour of top brands that they have some
designs which are flagship and unique designs
of their outlets. This is missing in the chosen
firm and therefore, still they have such designs
which should always be sold from its own
store, so this is to bring in great demand for
these designs and building the identity of brand
(Peskin, 2012) .
In today’s time, there is huge competition, in
the similar sense, this is not the only one which
is known for its stylish and fashionable design.
There are many such as H&M and M&S,
which are popular and loved by the customers
for their design. Although this has the
advantage that the other brands are quite costly
than compared to this whereas this enterprise
provides best designs at affordable prices.
However, this competition leads to saturation
in the semi premium segment which indirectly
affecting the margins.
CONCLUSION
From the above mentioned report, it has been concluded that Zara has the potential for being
the world largest clothing retailer company. After assessing its all external and internal factors, it

is observed that ZARA can manage and stay up its growth of the business by its unique and
strong model of the business. Along with this, based on its SWOT analysis and PESTLE
analysis, ZARA will lead the growing market, inspite of the issues an threats it face. The single
and unique supply chain infrastructure of ZARA and efficiency of the business operation give
the company the competitive advantage, which reflects its sales and revenue. Apart from this,
from the industry analysis, it would access the attractiveness of the organisation and by the
VRIO it can identify the core competences for the organisation. At last, the report has been end
up by explaining the recent strategy implemented by ZARA to retain its position in the market
and to compete its competitors to enhance its market share in the apparel industry.

REFERENCES
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ZHOU and et. al., 2013. Comparative Analysis of Supply Chain? for Wuhan Garment
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Kim, B., 2013. Competitive priorities and supply chain strategy in the fashion
industry. Qualitative Market Research: An International Journal. 16(2). pp.214-242.
Shephard, A. and Pookulangara, S., 2013. The slow fashion process: Rethinking strategy for fast
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Online:
ZARA UK's profits and sales. 2018. [Online]. Available through:
<https://www.retailgazette.co.uk/blog/2018/10/zara-profits-sales-surge-uk/>.