Applied Corporate Strategy: Zara Business Management Analysis Report

This report provides a comprehensive strategic analysis of Zara's business management. It begins with an introduction to business management and Zara's position as a leading global fashion retailer within the Inditex group. The report then delves into an external analysis using PESTLE and Porter's Five Forces, assessing political, economic, social, technological, legal, and environmental factors, along with competitive dynamics within the industry. An internal analysis follows, examining Zara's resources, core competencies, and competitive advantages, including its innovative management system and fast-fashion approach. The 7S framework is applied to evaluate Zara's organizational structure, systems, style, shared values, skills, and staff. The report concludes by evaluating a recent strategy implemented by the company using the SAFe test, offering insights into Zara's operational effectiveness and its ability to respond to market trends. The report emphasizes Zara's strengths, such as its strong brand image and unique designs, and its ability to quickly adapt to changing market demands.

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Contents
Introduction................................................................................................................................2
External Analysis.......................................................................................................................2
Internal analysis.........................................................................................................................4
The strategy implemented by the company recently..................................................................7
Conclusion..................................................................................................................................8
References................................................................................................................................10

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Introduction
Business management is the activity of managing business operations. It is associated with a
running company like controlling, leading, planning and organizing. This report includes the
business management of Zara. Zara is the largest retailing clothing brand and is a part of the
Inditex group of companies. It is the fastest growing retail company throughout the world.
The company has expanded operations to become one of the leading fashion retailers
globally. Zara has attained a high level of global recognition due to its efforts of fulfilling
demands of a niche market. It is highly associated with current market trends. The mission of
the company is to achieve consistency in the operations by providing products in a timely
manner. Zara operates more than 2000 stores in more than 80 countries. The report comprises
the external analysis of Zara. The external analysis covers Pestle analysis along with Porter’s
five forces. The external analysis is also accompanied by internal analysis. The internal
analysis includes the resources and core competencies of Zara. 7s is used to demonstrate the
core competencies of the organization. The strategy evaluation is also made at the end of the
report. The strategy is evaluated by SAFe test.
External Analysis
The external analysis comprises Pestle and Porter’s five forces
Pestle Analysis
Political factors: The UK is one of the leading countries globally. Political stability is
considered great strength of UK which represents opportunities for Zara to expand functions
(Davies, 2017). The UK is also a popular destination when it comes to making a foreign
direct investment. The corporate tax to be paid by the companies in the UK is 19% which is
quite high and can be a threat for the company to pay on the regular basis (Boyd, 2018).
Economic factors: UK ranks fifth as the largest economy worldwide in terms of GDP. The
country came in trouble when the recession occurred in 2008 but the government took
appropriate steps in order to improve the economy. The recovery was made at a slow speed
which represents fear of recession for Zara. The large population of the country allows even
small companies to be profitable. Zara can make a profit out of it.

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Social factors: The UK has a big and strong consumer market. The populace of the country is
anticipated to stretch 74 million by 2039. 18% of the populace is aged 65 or more whereas
2.4% were aged 85 and more. It puts implication on the labor market along with the health
care system. The cost of living is on the rise along with the education which represents
opportunities for Zara.
Technological factors: the UK has established itself as technologically advanced. The
businesses here are rapidly emerging new technologies to propose best solution for the
customers. The innovative infrastructure compromises unlimited prospects to companies like
Zara to conduct operations in the UK (Caro and Sadr, 2019). Technology sector contributes
majorly to the UK economy so the company is required to make a huge investment which can
even represent a threat to the company.
Legal factors: The legal factors comprise the EU labor law and as per this law, the maximum
length of working is 48 hours in a week. The country even allows those who are likely to
work more than 48 hours. The laws like Employment Act 2002, Employment Right Act 1996
and more work in favor of the employees. Zara can make use of the opportunities in the UK.
Zara can face threat if it goes beyond the laws made by the country.
Environmental factors: The economic activities have influenced the environment and UK has
made substantial efforts in decreasing negative impacts. The economic activities of UK
represent opportunities for Zara. Environmental awareness has been initiated by the
government, locals, charities, and corporations. The country sometimes faces challenging
weather conditions which can be problematic for the company to conduct marketing activities
(Gutierrez, Boukrami and Lumsden, 2015).
Porter’s five forces
Competition in the industry: The major competitors of Zara are H &M, Gap and Benton. Zara
is the most reasonable and fashionable brand and beats the sale of Gap and Benton. H & M
stands on the same platform as Zara. The company has the most responsible supply chain
model. Whereas other retailers spend months for launching the latest collection. The
competitive rivalry is low due to the established image of the brand. The uniqueness of Zara
allows earning a profit without spending large amounts on the advertisement to gain a large
market share.

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The threat of entry: The clothing industry is having low entry hurdles. The entry of the
companies does not necessitate a huge amount of investment and the stores can be established
with the workers having relatively low talents. It is easier for individuals to enter the retail
industry without spending much time in preparing themselves (Izogo, Ogba, and Nwekpa,
2016). The economy of scale in manufacturing has a substantial control on the entrants. It
forces the contestants to accept cost drawback or production on a great scale.
Power of buyers: The buyers have attained more purchasing supremacy than before. The
customers mandate high quality along with the huge variety. There are more common
changes in the choices are obtainable to the customers. The retailers differentiate the products
to satisfy the needs of the customers. It is made possible by ensuring that another sources of
supply are accessible for the customers and the cost of swapping is zero (Ghosh, 2017).
The threat of substitutes: The threat of substitutes is very high in the retail industry. The
threat comes from established apparel retailers, design retailers, and tailor houses. The
fashion industry is mostly unpredictable due to the big trend wanted by competitors.
However, Zara has distinct itself by regular innovations and creative designs. Add on, generic
switch is more anticipated to existent threat by making available products at lesser prices.
Power of suppliers: The power of suppliers in the retail industry is considered low as most of
the fashion merchants outsource production section in order to develop countries. It helps in
lowering the switching costs and the companies are enough in attaining strong bargain power.
The existing brands in the fashion retail appreciate strong enough bargaining power to
accomplish low costs. Zara has added bargaining power due to the vertical integration
business model (Garrigos-Simon and Narangajavana, 2015).
Internal analysis
The resources and competencies which illustrate Zara are the simple features associated with
it. Some other unique features are the product image, quality of the final product and
exclusivity. Zara makes use of the innovative management system and an exclusive and
modifiable decision-making process.
The competitive advantage of Zara is advanced through its capability to assemble data and
responding speedily to the rapid-changing market trends based on the situation cognizance
strategy. The company observes ecological factors and collect ample quantities of data which

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facilitates to a new trend in the market (Williams, 2015). It is quite diverse from the usual
designer push-pull retailing model. Over 50% of products of Zara are launched on the on-
going basis which is more frequent than the typical fashion retailer. The company presents
products on the basis of four seasons. Zara can modifiy turnover inventory promptly due to
the small lead time taken in the supply chain (García-Álvarez, 2015). It can put products into
the retail channels within fifteen days. More assistances of Zara are comprehended in
considering average mark down ratio along with the profit margin. It is observed that the
traditional retailers mark down almost 50% of the products and Zara only marks down 15%
of the products. Zara has even attained a 16% profit margin compared to 7% of outdated
retailers. Inclusively, Zara has deliberately assembled competitive advantage on the situation
consciousness and has formed something efficaciously called “fast fashion retailing”.
7S
The 7s framework comprises both hard and soft elements. The hard elements influences
directly to the organization. On the other side, soft elements are present in the organization
itself in a more abstract way. These are found in the organizational culture. The hard
elements comprised are
Strategy: The strategy of Zara is clear from its mission and vision. The key elements of the
marketing strategy of Zara are store location and store displays.
Structure: Zara is capable of capturing the attention of the customers because of its efficient
and unique business structure. It turns around the efficiency. The organizational structure is a
hierarchical flow of subordination of the functional department. The employees can easily
communicate to the colleagues through the well-organized structure of Zara.

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Systems: There are formal and informal methods of the operation, procedures and
communication flows in the Zara. The company uses latest technologies and has its own
centralized distribution system.
The soft elements contained in the 7s of Zara are:
Style: The style in Zara is all about the management and leadership styles.
Shared values: The standards, values and other forms of ethics within Zara in which key
elements identified are vision, corporate culture and identity. The company make efforts to
create value beyond profits and put people at the centre of decision making. It always strives
to do better.
Skills: The skills concern employees along with the organization. The training is provided to
the employees for learning wide range of the retail skills. The opportunity is also offered by

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Zara for the promotions. The company is enabled with the fast paced and friendly
environment.
Staff: The staff in Zara is all about employees along with their job descriptions and
competencies. The staff in the company is fast responsive and the designers are also
powerful.
The agile supply chain of Zara is the source of its competitive advantage. The agility of the
whole design and supply chain process is dominant to supporting Zara’s core strategy. The
supply chain capabilities allow Zara to produce in small lots. The supply chain is even
deliberated to assist just-in-time capabilities with small production lot and constant
consignments to stores. The supply chain of Zara is capable of reducing wastage caused by
the large lots of designs which do not catch and have to be sold on the huge discounts. It even
enables to maintain low levels of inventory across supply chain and restock it two times a
week.
The distinctive capabilities of Zara targets mass market with the low priced fashionable
products. The company has gained capability of selling stock in the short term. It integrates
production with retailing. Zara makes use more of capital intensive operations in the house.
The labour intensive operations are outsourced to the local subcontractors. The company
respond quickly to the market demands.
Zara has gained core competency in making expansion to the markets worldwide. The
company also perceives customer benefits of the end product. The competency makes
company profitable. The company’s quick response model cannot be easily copied as it can
result in large costs to acquire such systems.
Strengths and weaknesses
The strengths of Zara identified are given below:
Strong brand image: The strong brand image of Zara assists in the ever-growing reputation.
The brand image of the company ensures the forgiveness of the customers in the case of
negative brand image (Wen, Choi and Chung, 2018). Zara is graded number 53 by Forbes as
a brand and cherished at gigantic 10.7 billion dollars. Here are various optimistic points
which led to the outstanding brand equity of Zara. The consistent enactment of Zara over the

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years has given an improvement to the brand. Other than this, the brand remained away from
disputes and tried to stay modest.
Unique designs: Zara has attained popularity in the design abilities. The company has an
excess of designers on panel who comprehend the brand along with the preferences of the
consumers. The clothes of Zara are elegant and of superior quality. The clothes are also made
available in varieties from comfortable to party wears (Mukerjee, 2016). The accessories are
also an integral part of the company. The probable customer loyalty of Zara is also quite
enormous when it is compared to other competitors.
Strong presence: Zara is involved in expanding functions worldwide. The company had 2100
stores in 2015 and it decides to expand further in 2016. The company has to survive in retail
so it is expanding presence across global (Verlinden and Markey, 2016).
The weaknesses of Zara are:
Lack of advertising: The cost is identified as one of the strengths of Zara and advertising as a
weakness. It is because advertising can double the profit and turnover of the company. The
brand is recognized to be a trendy fashion channel and it easily attracts the customers with
advertising.
Low safety stock: Zara has hardly fast moving stock and safety bumper behind it. The low
inventory is maintained at Zara as an approach to appeal to patrons to check out the latest
items. But it can actually end in no safety stock when the particular design hit with the
customers.
Generalized collection: Zara maintains the generalized collection and does not specialize in
anything. It is one of the reasons that customers shift to the brand of competitors. The
competitors are specialized in one specific thing (Valeriani and Vaccari, 2016).
The strategy implemented by the company recently
A recent strategy undertook by Zara is brand differentiation strategy. This strategy focuses on
the differentiation over cost leadership. Zara’s competitive advantages make use of the
elements of product differentiation which can be even observed in the products offered to the
public. For instance, the designer team of Zara has freedom enough to generate designs which
are strongly related to the current fashion trends. It relies completely on the designer’s

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perception about contemporary fashion (Thompson and McLarney, 2017). The store
supervisors have liability to choose which products to sell and act as fashion pragmatists. It
has a role in enhancing the revenue of sales on a constant basis. Add on, Zara is making
expansion by the establishment of stores than just public promotion and advertisement. The
elements which interpret the company’s uniqueness are its choice to promote exactitude over
swiftness. The product inventories give a new significance to the apparel scarcity and pushing
customers towards choosing Zara over others (Dey, Bhattacharya, Ho and Clegg, 2015).
The differentiation strategy is a process which was used By Zara to distinguish the products
from others by making it more appealing to the specific target market. The differentiation
strategy is led by the differences in the quality, price and the functional aspects of the
products. Zara also makes use of this strategy to play with the availability of the products.
The company can decide to produce just a few numbers of the products a few times a year.
The company sells it in specific stores to make it unique. The differentiation is also made on
the basis of price (Piecyk, et al. 2015). Both observed prices and characteristics are almost
related. The differences in prices depend on the specifications which are personified in the
product. The purpose of differentiation represents the uniqueness of the products which is
valued by the customers (D’heur, 2015). It offers a competitive advantage to the company
and benefits to an extent. Zara even makes use of the advertisement for differentiating the
products. The moment customers understand that the product offered by the company is
different from those of the competitors, it develops brand loyalty. Zara offers mainly two
types of product differentiation, horizontal and vertical. The horizontal differentiation is
made on the basis of features but the superiority is not alike. It happens when various
products are traded at the same prices but the customers do not appraise at the same level of
quality. On the other side, vertical differentiation is centred on the characteristics whereas
quality is clear. Here consumers assess products which are sold at the same price and is the
same level of quality (Roberts, 2018).
Suitability: The differentiation strategy is suitable for Zara as it fulfills the fashionable
demand of the customers. The differentiation in the production is made on the basis of the
taste and preferences of the customers. The customers now days look at the attributes of the
products than looking at the prices. Zara differentiates itself in terms of the products by
focusing on the design and quality. The regular efforts of the company such as managing
supply and value chains, designing, modifying and structuring appropriately to add value to
the products at the lowest possible prices suit the requirements of the customers (Gallien, et

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al. 2015). The company also make available products at different prices to suit and fulfill the
needs of the different segments. The products range from low to medium to high.
Feasibility: The differentiation strategy is feasible enough. This strategy has even made the
company stand up in the competitive industry. The motivational and equity theory is also
employed in the company to judge the suitability of the differentiation theory. Zara focuses
on the delivery system by decreasing the delivery system. It also focuses on the promotion
and packaging of the products. The tool applied for the differentiation strategy is managing
supply and value chain systems along with the modifying and operating efficiently. The
differentiation strategy is also feasible from the perspective of the designers as they are free
to design garments. The company does not interfere and the designers are trained on a regular
basis. They follow the latest trends going on in the retail industry. The designers are offered
with the free working environment (Rudawska and Bilinska-Reformat, 2018).
Acceptability: The differentiation strategy of Zara is accepted by a large segment of people.
As people prefer to have unique products on the regular basis. They look for brands like Zara
to fulfill such demand. The customers do accept the unique trends provided by the company.
The differentiation is widely accepted by the public due to the uniqueness. It meets
fashionable demand of the customers (Schultz, 2016). The company even offers a limited
edition of the products to maintain uniqueness among the large segment of the people.
Conclusion
The Pestle analysis is approached appropriately by the company for designing measures
required for the successful business endeavor. The stable political conditions in the UK
market have a role in attaining positive revenues by the company. The tariffs and various
duties determine the prices of the products. The variation in the social trends puts a great
impact on the demand for the products of Zara. The technology has enabled Zara with
innovative platforms. The environmental efforts of the company are identified by the greener
operations and the production of toxin-free goods. Zara is vulnerable to the legal
implications in the UK. Porter’s five forces have been proved as a useful tool in estimating
the level of competition and development. The 7s is the part of the internal analysis of the
company. 7s is used to identify and analyze the resources and core competencies of Zara. The
strengths and weaknesses of the organization are also identified in the report. It is evaluated
that Zara has attained more strengths than weaknesses. Finally, the strategy evaluation is

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made by using SAFe tests. Zara focused more on the differentiation than the cost leadership.
Product differentiation is considered on the basis of the products offered to the public.