Zara Fashion Case Analysis 5336d

Zara Fashion Case Analysis Question 2 Why might Zara fail? How sustainable would you calibrate its competitive advantages as being relative to the kinds of advantages typically pursued by other apparel retailers? Selected Answer:

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Zara’s plan to expand internationally on one hand and its standardized production line and strategy limited to current geographical base in Europe on the other hand could be a possible threat of failure to Zara. There are visible differences in cultural, social, political conditions across different countries and the difference in tastes, liking, and fashion across regions can also pose a threat of failure to Zara. This vulnerability that faces Zara when it enters international markets can cause Zara to succumb in face of stiff competitors and its alleged “diseconomies of scale”. To enter international markets, Zara needs to deliver its apparels in-time, at competitive prices, customized for local market, and short-lead time. Another threat of failure that lingers Zara is their inability to develop a strong supply chain in the Americas. The U.S apparel market covers 29% of the world’s market. Their current strategy in Europe has given them success and ability to grow. Outside Europe however, Zara lacks the essence of strong internal production and distribution facility, producing in small batches, and delivering in short-lead times in international markets. To add to that, changes in foreign currency market can also be a possible threat. Production costs may increase if Euro becomes stronger against Dollar, leading higher costs of apparels to final consumer. Another threat to Zara is direct competition. H&M, The Gap, Benetton are all looking at international markets to enhance their growth opportunities. H&M comes closest to Zara in of price and fashion sense. It is also commendable to note H&M’s strategy of entering one international market at a time and deg clothes based on international tastes. H&M has also is in the process of building distribution centers in their international locations to save on lead time, transportation costs, and logistics costs. Zara’s centralized logistics model may hinder its movement and growth in international markets. Also, Zara is not sure about which market to enter. This may be a possible barrier for Zara since the markets are diversified, have different tastes and requirements, the industry structure is different, and it may be difficult for Zara to impose its existing structure in foreign countries unless it understands the markets.

Zara’s competitive advantages are highly sustainable and have boosted the company’s success in Europe. Zara’s core competencies mainly revolves around the high turnover rate of products, limited level of stock, highly efficient distribution system, skillful management and employees, innovation, segmentation, all-inclusive target market, quick adaptability to market needs, in-house production, vertical integration, and quick response system. Zara has also maintained low advertising cost than its competitors and the corporate culture allows employees to work in teams is more horizontal than hierarchical. The Divisional Structure that Zara follows allows a lot of information sharing and suggestions to other divisions that might be located away from the stores. Other apparel retailers found it difficult to imitate Zara’s business model as it would need them to change their entire model and make it as close to Zara as possible. Zara chose Quick Response (QR) over being the cost leader and itted to selling clothes that are “to be worn ten times”. Zara’s QR was also not easy to imitate as other company would have to incur large costs to acquire such systems. : Thoughtful observations Question 3 Was Galicia/Spain fertile ground for the emergence of an apparel retailing powerhouse? Selected Answer:

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Galicia was the third poorest of Spain’s regions, had high unemployment rate, poor communications links. Additionally, the inhabitants relied heavily on agriculture and fishing, the Galicians were considered as tailors to aristocrats and was home to thousands of apparel workshops. However, what Galicia lacked was strong local demand for apparel, strong base upstream in textiles, sophisticated local demand, technical institutes and universities to facilitate specialized training. However, Zara took advantage of Galicia’s geographical proximity to Europe, as it lies in the corner of Europe, hence reducing transportation costs, employed labor at cheap rates, and the area has always been well versed with apparels. Even though Galicia has its limitations, the advantages clearly outweigh the drawbacks. Hence it was definitely a fertile place for apparel retailing.

: Good points Question

4 How well does Zara's advantage travel globally? Selected Answer:

Zara has several advantages when it expands its operation in global markets. Firstly, Zara has always promoted its products via its stores and it had its own centralized distribution center which will translate to low advertising and logistics costs when it enters new markets. As opposed to its competitors who would invest heavily on advertising and organize a distribution system. Secondly, apparel retailing was witnessing increasing concentration which would benefit Zara when it entered new markets. Thirdly, there was more homogeneity in fashion which ed Zara's brand of clothing since its target market is consumers receptive to fashion. Moreover Zara has an adequate system of knowing local trends and tastes which it would reflect in its designs. The strategy of opening one store for information gathering in the initial phase of entering new markets is one of it key strengths. Lastly, economies of scale was another advantage for Zara when entering a new market.

: Good insights Question 5 What is the best way to grow the Zara chain? How, specifically, do you see prospects in the Italian market? And, more broadly, what do you think of the strategy of focusing on Europe versus making a major commitment to a second region? Selected Answer:

The best way for Zara to grow would be expand its market operations by following a short term and long term strategy. In the short term Zara should aggressively pursue European markets especially Italy to begin with. However, since all major European markets would have heavy presence of competitors, it would be beneficial for Zara to seek help from an experienced player to set its foot in the market. Hence, Zara can either outsource its retail stores to interested franchisees or to maintain greater control can form t ventures. Zara can continue to own its flagship stores and franchise other stores with the intention of buying them out when they increase their market share. The Italian market is highly lucrative because of several reasons: a) It is an attractive market since Italians are fashion conscious, spend close to 1000 Euros on apparel, Italy is also the largest apparel market, and Italians are frequent shoppers. b) Proximity to its warehouse and distribution facility. This advantage will help Zara operate better and faster than any of its competitors. c) Zara has

experience in Europe and can apply its business model in Italy without undergoing several structural changes. d) Zara can maintain its structure and take advantage of its unique business system in Italy. However, the Italian market will be difficult to enter unless Zara partners with a local business that reflects the market conditions and gives Zara an entry into the market. Also, Zara will need prime locations for its retail stores if it plans to keep the advertising to minimum.

European Market: The European market is lucrative since it is not fully exploited to its potential and there are several markets like Greece, Sweden, and Italy. To add to that there is a low retail chain concept in there markets which makes room for entrants like Zara to get a foothold in the market. Finally, the sale per capita is considerably high in Europe and this would make for an interesting statistics for strategists. : Asian Market: The Asian markets would require Zara to remodel its structure and set new structure in place. This could a potential step if the market potential was known. However, the initial costs will be to high and Zara would have to spend large amounts to get the brand image it advocates. To add to that, there would be tough competition from such markets due to low cost of productions and low price of apparels. This front will be difficult for Zara to combat. North America: The market suffers from retailing overcapacity, the consumers have less fashion forward sense, they demand larger sizes, the operating costs will be higher, and retailers are fighting for market share on prices and discounts. In the long term, the U.S market looks lucrative as Zara would be able to out-compete other companies owing to its commendable financial position, its marketing strategy, its personnel, information systems, market study, and updates itself with latest trends and fashion.

However, Zara must keep a look on the American market and watch its movements closely to find the best time to enter the market. Since the American market is fragmented, Zara must build a strategy to enter major cities one at a time and use the experience obtained and apply to new store openings. To summarize, Zara must look to enter the European markets in the short term and enter the U.S market one city at a time in the long run.

: Thorough analysis