Strategic Analysis of Zara: Market, Technology, and Competition

This report provides a comprehensive strategic analysis of Zara, a prominent clothing brand in the fashion industry. It begins with an executive summary and introduction, outlining Zara's history and mission. The report identifies and examines three key strategic influences: market changes, technology, and competition, detailing how these factors impact Zara's operations. It includes an internal analysis using a SWOT analysis to assess Zara's strengths, weaknesses, opportunities, and threats. An external analysis, incorporating PESTLE and Porter's Five Forces, evaluates the broader competitive environment. The report further explores strategic implications using Ansoff's matrix to suggest growth strategies. Finally, it concludes with recommendations based on the analyses conducted.

Running head: STRATEGIC MANAGEMENT 1
Strategic Management

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Executive Summary
The following report is based on one of the most famous clothing brand, Zara. The report has
highlighted the aim of conducting this analysis on Zara in order to identify the current
position of the company, strategies it utilizes to remain competitive in the retail Industry, and
factors that may affect its operations. The report has been introduced by giving a brief about
Zara. In the next part the strategic factors that can affect Zara have been mentioned. The
report has also prepared an internal analysis to understand the internal factors affecting Zara.
An external analysis has also been conducted which includes a SWOT and PESTLE analysis.
The report has also analyse the strategic implications by using an Ansoff’s matrix to suggest
any new strategies help for the growth of the business. The report has been concluded by
giving a brief of the analysis conducted and accordingly recommendations have been
provided.

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Introduction
Zara is one of the clothing brand which has gained tremendous growth and popularity
in the fashion industry from the last three decades (Inditex, 2019). Zara was founded in the
year 1975 by a Spanish businessman, Amancio Ortega Gaona building the Ortega family
comprising of three other famous brands under its name. The success of Zara begin by
offering a wide range of affordable and stylish clothing for men, women and children. Java is
well known for its keen eye for discovering new fashion trends and transforming these trends
from stores to the high street. Currently according to Fast Retailing (2018), Zara is second
largest clothing retail UK market. The company's mission to satisfy the desires of the
customers and continuously innovate the business by providing new designs that are
affordable. The long-term objectives of the company is to contribute to the sustainable
development and environment. Zara has been successful due to its good designs and customer
loyalty making it one of the largest brands in the world.
Aim
The aim of the report is to identify three strategic influences the together impact on
the outcome of Zara. The company has been growing tremendously but there are certain
strategic influences that might impact its operations.
The three strategic influencers are as follows-
Market changes
Technology
Competition
Strategic Factors
Market changes
Zara has been one of the world's largest fashion retail taking maximum share with its
fashionable offerings in the fashion industry. The market changes comprise of many factors
that can impact operations of Zara. One of the most important factors is the emergence of
online-centric market players to beat companies like Zara at their own game. Companies in
UK market like Misguided, and Boohoo on a road to cut down their supply chains in order to

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bring their offerings in less than a week. The fast changing fashion is facilitated by the advent
of digital brand utilising strategy. The use of social media platforms like Instagram and
Facebook has managed companies to grab the attention of fashion hungry customers. As the
concerns for message ecological damage in the fashion industry is growing, the mind-sets of
millennials are also changing impacting the purchasing patterns of customers. This raising
awareness of making products more sustainable may impact Zara in the industry.
Technology
The advent of Technology in the Retail Industry opportunity for the existing
companies and many new companies entering into the market. With the increasing demand
for new products and innovative concepts, the manufacturing of Zara might be into trouble.
There is no denying that Zara is one of the most demanded retailers of the past years but its
brick-and-mortar stores require technological revamping. There are competitors of Zara
stores utilising technology for self-service checkouts allows customers to buy the items
without facing the hassle at the checkout counters. The advanced use of artificial intelligence
in-store can bring a major change in Zara. As Technology plays a vital part in identifying the
current trends and fashion needs of the customers, it becomes important for the company to
keep a track of those and accordingly make changes. The effective utilisation of data, people
and processes can sometimes be difficult to understand on how to use them for the companies
benefit such as inventory management and in-store experience.
Competition
The competition in the retail market has always been high due to several players in
the market serving almost similar type of products. Zara has also been affected by its
competitors and therefore it has lowered its prices of the products to some extent in markets
like India. Zara had been cut down by 10 to 12% to compete with other retailers in the
market. This strategic decision of slashing the prices was majorly taken to compete with its
biggest rival H&M. Zara has also been facing huge competition from the online competitors
as the fashion industry is becoming ultrafast fashion. The agile supply chain of the online
brands has made it difficult for Zara to operate in the fashion industry. The competition is
raised due to the popularity of these online brands and their designs which are first made in
small batches and then more products are introduced to match the ever increasing demand.
One most important factor that can affect is that these online brands can be visually very

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appealing which can rollout the products within a very short period of time according to the
changing demands of customers.
Strategic Management of Zara
Zara has been a pioneer in the clothing manufacturing industry operating in more than
85 different countries which one of the largest loyal customer base. The business model of
the company aims to contribute to the sustainable development of the society and the
environment making Zara a unique retailer in its industry. Zara uses the strategy of building a
Sustainable Society and environmental friendly measures while manufacturing its products.
Zara uses two components as its distinctive strategy. The operations of Zara is vertically
integrated which means it manages the production line, its designs, the shipment, display,
sales, promotion fire feedback by itself and little bit by outsourcing. As opined by
ToughNickel (2018), this kind of vertical integration approach give the company entire
control on how it operates its business. The process of data acquisition and forecasting the
demand helps Zara to provide reliable quality in its products. The vertical integration
approach has allowed seamless communication between different processes in the product
cycle of Zara.
Another strategy followed by the company is its low inventory strategy. Zara has found out
the idea of keeping low inventories in order to create a sense of urgency among customers to
buy the products. This kind of strategy plays psychologically with customers and helps Zara
decrease the number of price reduction events.
Internal Analysis
An internal analysis is defined as an exploration that reflects on competency as well
as cost position of a company. The carrying out of an internal analysis involves measuring
useful information that illustrates about the strengths, weaknesses, opportunities as well as
threats of a company (García-Álvarez, 2015). The internal analysis of Zara will be illustrated
with the help of the SWOT analysis.

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(Source: García-Álvarez, 2015)
Strengths: The major strength of Zara is the unique design that provides the company with
foremost benefits. The company deals with plethora of onboard designers who are talented
enough to comprehend the psyche of the customers. The apparels that are provided by Zara
are elegant with superior quality as well as outstanding design. The company also possess a
globally strong presence with almost 2100 stores in the world. The brand value of Zara has
been ranked at 53 by Forbes with a total value of 10.7 billion dollars (García-Álvarez, 2015).
On the other hand, Zara also has a reputation in introducing almost 1000 innovative designs
globally. The strong design also acts as a major strength for Zara that persuades the
customers to revisit the stores. This helps the company to indulge in low cost and high profit
approach. In other words, due to outstanding physical evidence in stores, Zara does not
require to advertise its commodities.
Weaknesses: The major weakness of Zara is their generalized collection. As a result, the
customers switches to other brands that deals with both daily as well as trendy wear. The lack
of advertisement does not pull adequate customers. Zara also possess low safety stock thus
witnessing rapidly moving stock without any safety buffer behind it. In other words, the
company prefers keeping low inventory as a part of their strategy (Cortez et al., 2014). But if
a particular design is a hit among the customers, it will not reach out its probable destination
due to lack of safety stock.

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Opportunities: The company is likely to initiate opportunities by introducing e-commerce
websites that will help to raise the online trend. The introduction to e-commerce websites will
help to bring in hike in sale. The backing of flagship designs will also help to bring in great
demand for their stores. This will help to eradicate the lack of diverse designs. Market
expansion will also bring about opportunities for Zara thus providing new opportunities for
the company in other countries (Cortez et al., 2014). As a result, the potential profitability of
the company will increase where the clothing brand against saturation will be made sure.
Threats: Low advertising is a major threat for Zara as it leads to threat to the overall customer
base of Zara. On the other hand, competition is also a major threat for Zara as it deals with
well-known competitors such as H&M, Vero Moda as well as Mango. The profitable margins
get affected due to competition that leads to saturation in the semi premium division.
External Analysis
The external analysis will help to examine the competitive environment of the
industry with the help of Pestel analysis.
(Source: Thompson & McLarney, 2017)
Political: The overall profitability of Zara is mostly affected due to the financial regulations
of a country. The supply chain is impacted due to political turmoil that leads to multiple
difficulties for the company (Thompson & McLarney, 2017). As a result, Zara requires to
eradicate this difficulty by limiting the operations related to supply chain. But the company is
always under a threat in a country that deals with political turmoil.

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Economic: A business is influenced by the range of economic activity that prevails in the
country. Due to affordable pricing strategy by Zara, the customers do not switch to other
brands even during declining economic activity (Moutinho & Phillips, 2018).
Socio-cultural: Since social aspects are imperative, Zara always carries out a proper market
research before entering a country. This in turn eases a lot of risks for the company. The
purchasing decision of the individuals is influenced by the social as well as cultural aspects of
a country.
Technology: Zara acts in response to demand of customers rapidly thus coordinating with
logistics activities in a better way. This is mostly due to technological efficiency (Moutinho
& Phillips, 2018).
Environmental: Since the green side of a business has become more decisive, Zara has
increased its investment in sustainability.
Legal: Zara tries to create an ethical brand image thus abiding by the laws that are enforced
by diverse countries. It makes sure that the brand complies with the local laws in the local
markets wherever it operates.
Strategic Implication of the company
The strategic implication of Zara will be evaluated with the help of Ansoff Matrix.

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(Source: Hussain, Khattak, Rizwan & Latif, 2013)
Market penetration strategy: The company is able to introduce innovative items in markets
every week with the help of in-house design team as well as wide distribution network.
Market development strategy: The strategy that is used by Zara involves considering selling
its apparels in new locations in new market (Hussain, Khattak, Rizwan & Latif, 2013). The
parent company of Zara, Inditex possesses rapidly increasing division. This turns its
inventory twice as rapidly as its major competitors.
Product Development Strategy: The company deals with rapid development that starts from
concept to point of sale. This in turn helps Zara to develop innovative designs more rapidly.
Diversification Strategy: Zara aims to seek innovative apparels that involves technological as
well as marketing synergies with existing product line.
Conclusion
It could be concluded that the strong design also acts as a major strength for Zara that
persuades the customers to revisit the stores. Market expansion will also bring about
opportunities for Zara thus providing new opportunities for the company in other countries.

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References
Cortez, M. A., Tu, N. T., Van Anh, D., Ng, B. Z., & Vegafria, E. (2014). Fast fashion
quadrangle: An analysis. Academy of Marketing Studies Journal, 18(1), 1.
Fast Retailing. (2018). Industry Ranking. Retrieved from
https://www.fastretailing.com/eng/ir/direction/position.html
García-Álvarez, M. T. (2015). Analysis of the effects of ICTs in knowledge management and
innovation: The case of Zara Group. Computers in Human Behavior, 51, 994-1002.
Hussain, S., Khattak, J., Rizwan, A., & Latif, M. A. (2013). ANSOFF matrix, environment,
and growth-an interactive triangle. Management and Administrative Sciences Review,
2(2), 196-206.
Inditex. (2019). Bringing attractive and responsible fashion, and improve the quality of
customer service, are Zara's priorities. Retrieved from
https://www.inditex.com/about-us/our-brands/zara
Moutinho, L., & Phillips, P. (2018). Strategic analysis. In Contemporary Issues in Strategic
Management Journal of Commerce and Management Thought, 10(5), 46-79.
Thompson, J., & McLarney, C. (2017). What effects will the strategy changes undertaken by
next Plc have on themselves and their competition in the UK Clothing Retail Market?.
Journal of Commerce and Management Thought, 8(2), 234.
ToughNickel. (2018). Zara's Business Operations and Strategy: How and Why They Work.
Retrieved from https://toughnickel.com/industries/Business-Operations-of-Clothing-
Retailer-Zara