Zara Company Strategic Analysis Case Report

This case study provides a comprehensive strategic analysis of Zara, a Spanish clothing and accessories retailer. The report includes an introduction to the company's background, followed by an external analysis using PESTEL and Porter's Five Forces models to identify opportunities and threats. An internal analysis is conducted using the value chain model and VRIO framework to determine strengths and weaknesses. The report also examines Zara's corporate and business strategies, identifies issues and challenges, and proposes strategic options using the TOWS matrix and SFA framework. The study concludes with recommendations for future growth and development, emphasizing the importance of cultural considerations and supply chain flexibility.

ZARA COMPANY
Case Report

Table of Contents
Introduction......................................................................................................................................3
Company background......................................................................................................................3
Part: 1 External analysis..................................................................................................................3
Pestel analysis..............................................................................................................................3
Porter’s five forces model............................................................................................................4
Opportunities and threats.............................................................................................................5
PART: 2 internal analysis................................................................................................................5
Value chain model.......................................................................................................................5
VRIO framework.........................................................................................................................7
Strength and weakness.................................................................................................................7
Part: 3 Corporate and business strategy...........................................................................................8
Generic strategic model...............................................................................................................8
Part: 4 Issues and challenges...........................................................................................................8
Part: 5 Strategic options.................................................................................................................10
Generic strategic options............................................................................................................10
TOWS matrix.............................................................................................................................10
SFA framework..........................................................................................................................11
Implementation of strategic options...........................................................................................12

Part: 6 Recommendations and conclusion.....................................................................................12
References......................................................................................................................................13

Introduction
In this present paper, we will discuss the strategic appraisal of Zara Company. The paper also
describe company background, external analysis through using pestle analysis and porters five
forces model in order to determine the opportunities and threats of the company, internal analysis
is conducted through using value chain model and VRIO framework in order to determine the
strength and weakness of the company, business strategy is analyzed through using generic
strategic model, identification of threats and weakness of the company, and strategic options for
growth through applying TOWS matrix and SFA matrix with the implementation of strategic
options.
Company background
Zara is a Spanish clothing as well as accessories retailer which are mainly based in Arteixo,
Galicia. The company lies in retail industry, and it is present in approximately 2169 locations. It
was founded in the year 1975 by Amancio Ortega. The company operates worldwide, and it is
the largest index division, and it provides clothing for men’s as well as for women’s and children
fashions with accessories segment. The company is using differentiation strategy in order to
provide the unique style of products and services to the target audience. The success of the
company is mainly based on providing the high quality of innovative products and services to the
target audience through using differentiation strategy. The company had started its foreign
expansion in the 1990s when index entered in twenty-nine countries.
The vision statement of Zara states that the company wants to develop niche market of their own
in the competitive market and to attain market leadership through unmatched quality,

empowered employees, unique products, highly ethical, world-class system, and professional
standards. The mission statement of Zara states that the company is consistently improving its
quality and value in order to satisfy its customers.
Part: 1 External analysis
The external analysis is conducted to determine the health of an organization, political
environment, technological, social, economical, and environmental factors which impacts on the
sales volume of the company.
Pestel analysis
The pestle analysis of Zara is explained below:
1. Political factors
There is a highly competitive textile industry which forces to price in order to attract a
large number of the target audience which is a deregulation of textile industry.
Furthermore, import quotes are removed for Spanish retailer which provides access to the
international market that helps to generate high revenue through economies of scale.
2. Economic factors
The company has faced the economic crisis during a recession which impacts on the sales
volume of the company, and the company has the large share in the fashion industry which
directly contributes towards the gross domestic product of the country. The company also
contributes towards the employment generation of the company (Rachet et al., 2014).
3. Social factors

The company has also considered about social factors in developing products and
services for the target audience as social factors play an important role in selecting
fashionable clothes. Zara has a strong brand identity which helps to retain social
popularity, and high sales of the company ensure that the brand has high social
acceptance due to which it is seen as a desirable option.
4. Technical factors
The company uses innovative technology in order to develop unique and highly
fashionable products for the target audience. It helps to fulfill needs and demands of the
consumers through providing innovative products and services.
5. Legal factors
The fashion industry is much concerned about intellectual property, and Zara has
overcome this threat through providing less time framework within its supply chain. It
provides first mover advantage to the company as their design is looked by other
designers then the similar design is copied by them. In addition, legal requirements in
terms of intellectual property protection may limit opportunities as imitation is inherent in
fashion design.
6. Environmental factors
It is concerned with the textile companies which are transporting textile across the world,
and a new approach to the textile industry concerns about the environment at the time of
developing products and services. It creates a burden on the companies to develop eco-
friendly products with the retention of basic position within the same industry.

Porter’s five forces model
It is used to analyze various forces which help to shape their company, and it enables to develop
the competitive strategy which allows standing out among the competitors within the same
industry. The porters five forces model of Zara is analyzed below:
1. The threat of new entrants:
The fashion industry is highly fluid as there are free entry and exit due to which threat of
competitors is high. New entrants can enter the market with innovative products and
services that help to attract a large number of consumers.
2. Bargaining power of buyers:
The consumers are mainly focused on the business model of Zara due to which company
has settled the minds of consumers through offering limited products and services to the
target audience with quick replenishing its products. It shows the bargaining power of
buyers is medium.
3. Bargaining power of suppliers
The company is mainly focusing on producing innovative products with low costs due to
which company has used the combination of differentiation and cost leadership strategy.
The company has very stringent contacted with suppliers due to which bargaining power
of suppliers is low (E. Dobbs et al., 2013).
4. Threats of substitutes
The consumers are always looked for high quality of products and services at reasonable
prices due to which competitors who are providing substitute goods at reasonable prices
has a major threat for the company.
5. Threat of existing competitors

The company operates globally due to which it has international competitors such as
H&M, Mango, United Colors of Benetton, and others that are also providing a high
quality of products to the target audience, so the company has the high threat from
existing competitors.
Opportunities and threats
The company has not explored various global markets such as Hong Kong market which has
high growth and it leads to increase the market share of the company. The company can enter
into various market segments and those areas which have not explored by the company. Online
marketing and e-commerce are gaining importance in the market which can be tapped by the
company in order to generate high revenue within the specific period of time. There are various
threats to the company such as high-end fashion merchandisers which provide a high quality of
products and services at a reasonable price which impacts on the market share of the company.
The Economic downturn is another threat to the target segment. Change in customer taste and
preference which impacts on the profit margin of the company. (Jackson et al., 2003) Fake
limitations can also decline the sales volume of the company.
PART: 2 internal analysis
Value chain model
It is used to analyze the internal environment of the company in order to determine the strength
and weakness which helps to develop an effective strategy for the company. The value chain
model is explained below:

Primary activity:
1. Inbound logistics
The company has sourced its raw material from Hong Kong and china in order to
produce high quality of products at low cost. The company has reserved almost one-half
of fabric un-dyed in order to provide in season updating with high flexibility. The
company has finished fabrics within one week through vertical integration from a
subsidiary of Inditex.
2. Operations
The company has employed advanced telecommunication system in order to connect
headquarter, sales location, production, and supply. The company has outsourced [price
sensitive items and manufacture fashion sensitive items internally. The company has
manufactured approximately 85% items internally, and factories are highly automated
with the garment type specialization. The company has developed long term relationship
with 450 sewing workshops which are specialized through product type, and it has long
term relation with many suppliers.
3. Outbound logistics
Shipped goods are stored in other countries in the morning whereas it was shipped in the
afternoon in Europe. Approximately twenty-five percent are shipped by air, and seventy-
five percent are shipped by trucks.
4. Marketing and sales
The company mainly focused on the marketing activities at the end of the season, and the
target age group is between 18-34 women. The target class is middle to middle, high
income and company spent a small amount of money on marketing with the

maximization of window displays (Mohajeri et al., 2015). The company provides joint
venture and franchise in order to expand its business overseas which helps to acquire high
market share and sourcing ability. The company has different positioning strategy in
order to develop brand image such as high price charging outside Spain.
5. Customer service
The company has a rapid turnover which helps to attract a large number of customers and
sales assistance is required in order to wear Zara clothes that reflect the socioeconomic
background of the store location.
Secondary activities
6. Research and development
The company has developed just-in-time manufacturing system in order to maintain
inventory system. The second distribution center is constructed for economies of scale,
and automated tracking system is used for ordering adequate amount.
7. Human resource management
Training and development are given to the employees in order to use a machine with the
just-in-time system. Sales assistants are trained by the store manager in order to generate
high revenue. Fixed salary and incentive is given to the managers in order to boost sales
volume (Shabani et. al., 2013).
8. Infrastructure of firm
The bullwhip effect is reduced through using vertical integration, and it is the largest as
well as internationalized of index chain. The company has formalized and effective

communication system, and eighteen out of twenty are located around headquarter for
effective control.
9. Procurement
The products are shipped directly to the attractive stores from central distribution center
twice a week and outsourcing its inputs at Far East markets.
VRIO framework
The company has utilized VRIO framework in order to determine core competencies as
compared to other competitors within the same industry. The company has the ability to meet its
activities through using vertical integration and synergy from a strategic move. The company has
developed its new products in the shorter time through using vertical integration which helps to
develop innovative products within the short period of time as compared to other competitors.
The company has major three competitors, namely, H&M, GAP, and Benetton which has the
narrow scope then ZARA as the company outsourced its raw material from china and Hong
Kong. It shows that the company has the unique feature of vertical integration which is
implemented in production and sales of the company. The implementation of vertical integration
required huge capital as it includes all process from purchases to sales due to which other
competitors don’t copy the same process (Pesic et al., 2013). Capital, training and time are
required in order to create value to the brand. Such process allows increasing inventory turnover
and faster adoption of trends than other competitors which provide a competitive advantage to
the company. It shows that the vertical integration is the core competencies of Zara which helps
to provide a competitive advantage to the company that directly contributes towards the sales
volume of the company.

Strength and weakness
The strength of the company includes more than 2000 stores worldwide, and it has the biggest
contribution in the Spanish retailer market that contributes towards the gross domestic product of
the country. The company has a positive brand image and high perceived value globally. The
company has effective supply chain and the manufacturing in vertical integration which provides
the competitive advantage to the company (Pelkmans et al., 2015). The company provides online
purchase from many online platforms other than company website which provides a wide range
of purchasing platform to its target audience. The company provides highly unique products and
extremely trendy to its target audience. The company provides a wide range of products to its
target audience. The company does not consider social values and customer taste as per the
operating countries which impact on the sales volume of the company. The company has
conducted limited marketing and advertisement as compared to other brands. The company has
the limited market share, and it has high brand switching which is another weakens of the
company.
Part: 3 Corporate and business strategy
Generic strategic model
There are three main corporate strategies, namely, stability, growth, and renewal. Three
strategies are explained below:
1. Stability strategy
Zara has a team of dedicated designers which are providing similar kind of products to
the target audience in order to maintain its market share and stability strategy ensures that
the operations of the company are maintained. The designers ensure that high quality of