STRATEGIC

MANAGEMENT
ANALYSIS
OF

STRATEGIC
INNOVATION SUBMITTED TO:
MANAGEMENT MR. GHS PRASAD

Submitted by:
Divyansh Raj Verma, Jacqueline Kujur,
Kanika Mathur, Kavinaya K, Krishna Mohan 26.09.2019
 TABLE OF CONTENTS
CHAPTER
CHAPTER NAME PAGE NO.
NO.
I INTRODUCTION
I.1 About Zara 1
I.2 History 1
I.3 Expansion 1
I.4 Products 2
I.5 Evolution of the Zara logo 2
I.6 Vision & Mission 3
I.7 Long Term Objectives 3
I.8 Zara's Business Model 4
I.9 Business Structure 7

II THE ZARA BRAND STRATEGY

II.1 About Zara's Strategies 9
II.2 Zara's Efficient Supply Chain 10
II.3 Procurement Strategy 11
II.4 Manufacturing Approach 11
II.5 Distribution Management 11
II.6 Communication Strategy 12

III EXTERNAL ASSESSMENT

III.1 Michael Porter's 5 Forces 13
III.2 External Factor Evaluation (EFE) Matrix 16
III.3 Competitive Profile Matrix (CPM) 19

IV INTERNAL ASSESSMENT
IV.1 Internal Factor Evaluation (IFE) Matrix 22
IV.2 Financial Analysis 28

V STRATEGIES IN ACTION
V.1 The Strategies 32
V.2 Michael Porter's 5 Generic Strategies 34

VI STRATEGY ANALYSIS & CHOICE

VI.1 SWOT-TOWS 37
VI.2 SPACE Matrix 39
VI.3 BCG Matrix 43
VI.4 Internal-External Matrix (IE) Matrix 46
VI.5 Grand Strategy Matrix 48
VI.6 Quantitative Strategic Planning Matrix (QSPM) 52
 VII MATRIX ANALYSIS 55

VIII ZARA'S FUTURE BRAND & BUSINESS CHALLNGES 56

IX CONCLUSION 58

X REFERENCES 59

TABLE OF FIGURES
FIGURE NO. FIGURE NAME PAGE NO.
1 Zara's Expansion 1
2 Zara's Logo Evolution 2
3 Zara's Business Model 4
4 Zara's Stores 5
5 Zara's Design 5
6 Zara's Logistics 6
7 Porter's 5 Forces 13
8 Porter's Generic Strategies 34
9 SPACE Matrix 40
10 SPACE Matrix of Zara 41
11 BCG Matrix 43
12 Zara's BCG Matrix 44
13 BCG Matrix of Zara Products 44
14 IE Matrix 46
15 IE Matrix of Zara 47
16 Grand Strategy Matrix 48
17 Zara's Position on GSM 50
I. INTRODUCTION
I.1 ABOUT ZARA
Zara is a Spanish brand of clothing founded by the visionary Amancio Ortega Gaona and
Rosalia Mera in Artexio, Galicia. Zara was founded in the year 1975. It is one of the major
selling brands of one of the biggest fashion retailers Inditex. Zara is now available in 86
countries with a total of 1,763 stores worldwide.
Inditex itself is a huge fashion retailer company which owns 8 brands namely Zara, Pull
&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and last but not the least
Uterque. Amancio Ortega is the founder of Inditex, which was established in 1963.
Amancio Ortega adopted a unique business model, which were innovative and flexible.
This made Inditex one of the biggest retailers in the world. In 1975 Inditex established
Zara’s first store in downtown A Coruna, Spain. Zara offers fashionable designs for men,
women, and kids. They also sell accessories to complete their product lines.

I.2 HISTORY:
Ortega initially named the store Zorba after the classic film Zorba the Greek, but after
learning there was a bar with the same name two blocks away, they rearranged the letters
moulded for the sign to "Zara". It is believed the extra "a" came from an additional set of
letters that had been made for the company.
The first store featured low-priced lookalike products of popular, higher-end clothing
fashions. Ortega opened additional stores throughout Spain. During the 1980s, Ortega
changed the design, manufacturing, and distribution process to reduce lead times and
react to new trends in a quicker way, which he called "instant fashions". The
improvements included the use of information technologies and using groups of
designers instead of individuals.

I.3 EXPANSION:
In 1988, the company started its international expansion
through Porto, Portugal. In 1989, it entered the United States,
and then France in 1990. During the 1990s, Zara expanded to
Mexico (1992), Greece, Belgium and Sweden (1993). In the
early 2000s, Zara opened its first stores in Japan and
Singapore (2002), Russia and Malaysia (2003), China,
Morocco, Estonia, Hungary and Romania (2004), the
Philippines, Costa Rica and Indonesia (2005), South Korea
(2008), India (2010), Taiwan and South Africa and Australia
(2011), India (2014). Figure 1: Zara's Expansion

1
I.4 PRODUCTS:
Zara stores have men and women clothing, as well as children clothing (Zara Kids). Zara's
products are supplied based on consumer trends. Its highly responsive supply chain ships
new products to stores twice a week. After products are designed, they take ten to fifteen
days to reach the stores. All of the clothing is processed through the distribution centre
in Spain. New items are inspected, sorted, tagged, and loaded into trucks. In most cases,
the clothing is delivered within 48 hours. Zara produces over 450 million items per year.

Zara introduced the use of RFID technology in its stores in 2014. The RFID chips are located
in the security tags which are removed from clothing when it is purchased and can be
reused. The chip allows the company to quickly take an inventory by detecting radio
signals from the RFID tags. When an item is sold, the stockroom is immediately notified
so that the item can be replaced. An item that is not on the shelf can easily be found with
the RFID tag.
In 2015, Zara was ranked 30 on Interbrand's list of best global brands. In 2019, Zara had
updated the logo.

I.5 EVOLUTION OF THE ZARA LOGO:

Zara’s logo underwent a transformation for the third time. The new logo, which launched
along with their Spring 2019 collection, was designed by Baron & Baron, an agency
founded by Fabien Baron nearly 25 years ago aimed at helping fashion giants improve
their branding.

The new Zara logo deviates slightly in its previous design which was introduced back in
2011. The wordmark (text only) logo still flaunts a serif font style, but the major difference
between the old design and new is that the letters are now much more compressed. The
“Z” and “R” overlap the “A”s, while the first “A” has a joined leg with the “R”. The new
look also invokes its heritage and significance with all-caps, large letter mark logo. And
perhaps, it indicates the brand’s goals to carve out a niche among luxury fashion brands.

The previous logo of Zara

featured a simple and elegant
watermark with the custom
typeface. The font has a Roman-
style with thin serifs. In other
words, the previous logo was
Figure 2: Zara Logo Evolution
overly simple, predictable and

2
generic. The spacing between the letters was more that offered it a compelling visual
appeal.

I.6 VISION & MISSION:

The company’s vision as stated on the website:
“Zara is committed to satisfying the desires of our customers. As a result, we pledge to
continuously innovate our business to improve your experience. We promise to provide
new designs made from quality materials that are affordable”.

Zara states that its mission is that

“Through Zara’s business model, we aim to contribute to the sustainable development
of society and that of the environment with which we interact”.

I.7 LONG TERM OBJECTIVES:

The company states on their website the following as their objectives in the long-term:
1. Save Energy, the Eco-Friendly Store: They are implementing an eco-friendly
management model in their shops in order to reduce energy consumption by 20%,
introducing sustainability and efficiency criteria. This management model sets out
measures to be applied to all processes, including the design of the shop itself, the
lighting, heating and cooling systems and the possibility of recycling furniture and
decoration.

2. Produce Less Waste and Recycle: Zara recycles their hangers and alarms, which are
picked up from their shops and processed into other plastic elements. This is an
example of their waste management policy. Millions of hangers and alarms are
processed each year and both the cardboard and plastic used for packaging are also
recycled.

3. Their Commitment Extends to All Their Staff, Increasing Awareness Among the Team
Members: The Company holds In-company awareness campaigns and specific
multimedia-based training programs to educate their staff in sustainable practices,
such as limiting energy consumption, using sustainable transport and modifying
behavior patterns.

4. Use Ecological Fabrics, Organic Cotton: Zara supports organic farming and makes
some of its garments out of organic cotton (100% cotton, completely free of
pesticides, chemicals and bleach). They have specific labels and are easy to spot in the
shops.

3
5. Use Biodiesel Fuel: Zara’s fleet of lorries, which transport more than 200 million items
of clothing a year, use 5% biodiesel fuel. This allows them to reduce their CO2
emissions by 500 tons.

Zara is aiming to be an environmental-friendly company. It is their top priority at least

until the year 2020.

I.8 ZARA’S BUSINESS MODEL:

“We want to create value through
beautiful, ethical, quality products with a
complete cycle of life. We act precisely
and responsibly in every stage of the
fashion process from design and
sourcing, to manufacturing and quality
control, logistics and sales through stores
and online.”

Customers:
Zara places the customer at the very
center of its business model. Knowing
Figure 3: Zara's Business Model
and delivering exactly what customers
want demands meticulous organization, close attention to detail, and industry-leading
technological innovation in every part of the value chain.

Whether it is designing, manufacturing, or distributing our products, Zara is always

looking at how its operations can improve customer service and the quality of the
customer experience – while honouring the commitments to sustainability that
customers expect from the brand. Listening to feedback, analysing real-time sales data,
making short production runs, and investing in state-of-the art logistics allows the brand
to pinpoint and meet customer needs, refreshing stores with new styles twice a week.

4
Stores:
Zara’s stores and online platforms are the beating
heart of the business, working seamlessly together as
integrated commerce platforms. All Zara stores are
situated in high-profile commercial areas, including
landmark buildings in the most celebrated shopping
streets in the world. The brand invests in creating
beautiful spaces that bring out the best of architectural
form and function, with open lines and warm,
welcoming interiors. Figure 4: Zara Stores

In this integrated model of stores and online, displays

are regularly updated and layouts are meticulously recreated around the world, ensuring
brand continuity no matter the location.

Design:
The design teams of over 700 highly talented
individuals translate the desires of customers into the
fashion in the stores. This demands more than just raw
creativity. It also requires accuracy, attention to detail,
analysis, instinct, insight and simple human empathy –
because designers have to know and understand the
customers inside out. To do so effectively they must
sense changing trends and listen to daily feedback from
the stores and sales teams. Figure 5: Zara's Design

With new styles arriving in stores twice a week, designers must show extraordinary flair
and ingenuity. It usually takes just 3 weeks from drawing board to store.

Sourcing:
Sourcing of products and raw materials follows the most stringent social, environmental,
and health and safety standards.
Zara works with suppliers across 43 different countries to source most of its products –
57% of the factories the brand works with are close to its headquarters in Arteixo (A
Coruña, Spain), mainly in Spain, Portugal, Turkey and Morocco. This is a complex process,
but Zara follow a clear principle: always source responsibly and sustainably.

5
Zara continually seeks to find the most environmentally responsible and sustainable ways
to source raw materials, and to apply cleaner, more efficient means to turn these raw
materials into the garments the customers want.
Products:
By always looking to improve the precision and efficiency of its production model, Zara
offers a huge variety of tough quality fashion articles. 57% of the factories it works with
are in proximity to our headquarters, mainly in Spain, Portugal, Turkey and Morocco. Zara
also has 11 factories in Arteixo, in the north of Spain.

This proximity of operations along with smooth waves and Zara’s own long experience as
a manufacturer –is how it started out in fashion– gives Zara the flexibility to offer its
customers a huge range of items and meet their changing needs. Wherever Zara’s
products are made, they make sure that items are healthy, safe, and created in an
environmentally responsible way.

Logistics:
Zara refreshes its collections in all its stores in the world
twice a week. The stores serve the needs of the
customers, and logistics centers serve the needs of the
stores. Zara refreshes the physical and online store
collections twice a week and can deliver orders to stores
anywhere in the world within 48 hours, and often sooner.

Figure 6: Zara's Logistics

6
I.9 BUSINESS STRUCTURE
When Zara became a huge success in Spain the founders of the brand began expanding
it, in the year 1988 it began its expansion in Portugal and it reached over 2000 stores over
88 countries within 27 years.

Zara is the brand that introduced the world to the concept of fast fashion in literal terms.
Zara made a place for itself in the market with its strategies related to design, production
and distribution. Initially when Zara expanded to the neighboring countries it continued
production in Spain and also started outsourcing the products to neighboring countries
such as Portugal, Morocco, and Turkey, due to this Zara started generating good product
turnover. Zara delivered the products to the store within 2 weeks, this was the best USP
they had. They still follow the rule and have new styles launch in every 2 weeks.

Zara was built with the idea that speed is more important than cost and thus they never
started outsourcing products from Asia, the production in Asia would cost much less than
production in Spain but this would mean the products would take much longer than 2
weeks for delivery. Zara never wanted to compromise its market position and thus have
always produced the clothes in the vicinity to their headquarters where designing and
production can take place in nearby centers. They also developed a distribution center
near to the production center in the city of Arteixo, a small town in Spain.

CENTRALIZED DISTRIBUTION
After the production of clothes, they are sent to a distribution center, regardless of where
they are produced, in distribution centers, the clothes are inspected and sorted. In the
city of Galicia, there is an underground monorail transport system, this used to transport
all the items which are produced in eleven Spanish factories to the distribution center.
This is a faster and easier process and allows Zara to maintain its strategies.

This strategy helps Zara to design and sell 104 seasons worth of clothing in a year which
is exceptionally more than 4 seasons every other fashion retailer sells for. Being able to
sell large amounts of clothes in a short amount of time allows Zara to overcome the
production cost which is more because the clothes are produced in Spain.

Because of the kind of strategy opted by Zara, it deals with the least amount of inventory,
very less risk and promotes frequent buying. With zero advertising, loyal customer base,
quick product turnover, local management and production sites, Zara ranked world’s 58th
most valuable brand in 2017 by Forbes.

7
Zara along with 7 other brands which are running under Inditex group made Amancio
Ortega one of the richest man in the world

ORGANIZATIONAL STRUCTURE
Ortega owns the company and has an office in the headquarters, he directly
communicates with the head merchandiser, designer, and buyers of the corporation. All
the main buildings and people involved in the clotting process are present in the same
city close to each other, this allows an easy and effective communication.

Every store around the world communicates with the headquarters directly, they follow
the trends in the market by keeping the record of each customer information. What is
being tried in store, what people are buying, and what they are not buying? Every data is
collected and send to headquarter t follow up on the trend in the market.

Each store places the order directly to the headquarters, this order is worked upon by
commercial team and in-house designers to send an appropriate amount of clothes
according to the requirement and sales of the store. “Zara’s opposite-information setup
additionally lets in for both specific and tacit information to be exchanged from the
overseas units, lower back through the home office and then again out to the overseas
units”

Zara can have horizontal differentiation, there is an easy flow of communication between
stores, headquarters, merchandiser, and designers, buyers, and logistics department. This
communication helps Zara having in understanding the demand of the market at a
particular geographical region and they supply the correct styles at different locations.

8
II. THE ZARA BRAND STRATEGY
II.1 ABOUT ZARA’S STRATEGIES
In 2017, Zara was ranked 24th on global brand consultancy Interbrand’s list of best global
brands. Its core values are found in four simple terms: beauty, clarity, functionality and
sustainability.

The secret to Zara’s success has largely being driven by its ability to keep up with rapidly
changing fashion trends and showcase it in its collections with very little delay. From the very
beginning, Zara found a significant gap in the market that few clothing brands had effectively
addressed. This was to keep pace with latest fashion trends, but offer clothing collections that
are a combination of high quality and yet, are affordable. The brand keeps a close watch on
how fashion is changing and evolving every day across the world. Based on latest styles and
trends, it creates new designs and puts them into stores in a week or two. In stark
comparison, most other fashion brands would take close to six months to get new designs
and collections into the market.

It is through this strategic ability of introducing new collections based on latest trends in a
rapid manner that enabled Zara to beat other competitors. It quickly became the people’s
favourite brand, especially with those who want to keep up with fashion trends. Founder
Amancio Ortega is famously known for his views on clothes as a perishable commodity.
According to him, people should love to use and wear clothes for a short while and then they
should throw them away, just like yogurt, bread or fish, rather than store them in cupboards.

The media often quotes that the brand produces “freshly baked clothes”, which survive
fashion trends for less than a month or two. Zara concentrates on three areas to effectively
“bake” its fresh fashions:
a. Shorter Lead Times (and more fashionable clothes): Shorter lead times allow Zara to
ensure that its stores stock clothes that customers want at that time (e.g. specific spring/
summer or autumn/ winter collections, recent trend that is catching up, sudden
popularity of an item worn by a celebrity/ socialite/ actor/ actress, latest collection of a
top designer etc.). While many retailers try to forecast what customers might buy months
in the future, Zara moves in step with its customers and offers them what they want to
buy at a given point in time.

b. Lower Quantities (through scarce supply): By reducing the quantity manufactured for a
particular style, Zara not only reduces its exposure to any single product but also creates
artificial scarcity. Similar to the principle that applies to all fashion items (and more
specifically luxury), the lesser the availability, the more desirable an object becomes.

9
 Another benefit of producing lower quantities is that if a style does not generate traction
and suffers from poor sales, there is not a high volume to be disposed of. Zara only has
two time bound sales a year rather than constant markdowns, and it discounts a very
small proportion of its products, approximately half compared to its competitors, which
is a very impressive feat.

c. More Styles: Rather than producing more quantities per style, Zara produces more styles,
roughly 12,000 a year. Even if a style sells out very quickly, there are new styles waiting
to take up the space. This means more choices and higher chance of getting it right with
the consumer.

Zara only allows its designs to remain on the shop floor for three to four weeks. This practice
pushes consumers to keep visiting the brand’s stores because if they were just a week late,
all the clothes of a particular style or trend would be gone and replaced with a new trend. At
the same time, this constant refreshing of the lines and styles carried by its stores also entices
customers to visit its shops more frequently.

II.2 ZARA’S SUPER-EFFICIENT SUPPLY CHAIN

Zara’s highly responsive, vertically integrated supply chain enables the export of garments 24
hours, 365 days of the year, resulting in the shipping of new products to stores twice a week.
After products are designed, they take around 10 to 15 days to reach the stores. All clothing
items are processed through the distribution center in Spain, where new items are inspected,
sorted, tagged, and loaded into trucks. In most cases, clothing items are delivered to stores
within 48 hours. This vertical integration allows Zara to retain control over areas like dyeing
and processing and have fabric-processing capacity available on-demand to provide the
correct fabrics for new styles according to customer preferences. It also eliminates the need
for warehouses and helps reduce the impact of demand fluctuations. Zara produces over 450
million items and launches around 12,000 new designs annually, so the efficiency of the
supply chain is critical to ensure that this constant refreshment of store level collections goes
off smoothly and efficiently.

Here are some of the characteristics of Zara’s supply chain that highlight the reasons behind
its success:

Frequency of customer insights collection: Trend information flows daily into a database at
head office, which is used by designers to create new lines and modify existing ones.

10
Standardization of product information: Zara warehouses have standardised product
information with common definitions, allowing quick and accurate preparation of designs
with clear manufacturing instructions.

Product information and inventory management: By effectively managing thousands of

fabric, trim and design specifications and their physical inventory, Zara is capable of designing
a garment with available stock of required raw materials.

II.3 PROCUREMENT STRATEGY

Around two-thirds of fabrics are undyed and are purchased before designs are finalized so
as to obtain savings through demand aggregation.

II.4 MANUFACTURING APPROACH

Zara uses a “make and buy” approach – it produces the more fashionable and riskier items
(which need testing and piloting) in Spain, and outsources production of more standard
designs with more predictable demand to Morocco, Turkey and Asia to reduce production
cost. The more fashionable and riskier items (which are around half of its merchandise) are
manufactured at a dozen company-owned factories in Spain (Galicia), northern Portugal and
Turkey. Clothes with longer shelf life (i.e. the one with more predictable demand patterns),
such as basic T-shirts, are outsourced to low cost suppliers, mainly in Asia. Even when
manufacturing in Europe, Zara manages to keep its costs down by outsourcing the assembly
workshops and leveraging the informal economy of mothers and grandmothers.

II.5 DISTRIBUTION MANAGEMENT

Zara’s state-of-the-art distribution facility functions with minimal human intervention.
Optical reading devices sort out and distribute more than 60,000 items of clothing an hour.

In addition to these supply chain efficiencies, Zara can also modify existing items in as little
as two weeks. Shortening the product life cycle means greater success in meeting consumer
preferences. If a design does not sell well within a week, it is withdrawn from shops, further
orders are canceled and a new design is pursued. Zara closely monitors changes in customer
preferences towards fashion. It has a range of basic designs that are carried over from year
to year, but some in-vogue, high fashion, inspired by latest trends items can stay on the
shelves for less than four weeks, which encourages Zara fans to make repeat visits. An
average high-street store in Spain expects customers to visit thrice a year, but for Zara, the
expectation is that customers should visit around 17 times in a year.

11
This expectation for such a high frequency of repeat visits is evidence of Zara’s confidence
that it is keeping on top of changing consumer needs and preferences and is helping them
shape their ideas, opinions and taste for fashion. In reality, Zara is also helping in giving birth
to new trends through its stores or even helping in extending the longevity of some seasonal
styles by offering affordable lines.

II.6 ZARA BRAND COMMUNICATION STRATEGY

Zara has used almost a zero advertising and endorsement policy throughout its entire
existence, preferring to invest a percentage of its revenues in opening new stores instead. It
spends a meagre 0.3 per cent of sales on advertising compared to an average of 3.5 per cent
by competitors. The brand’s founder Amancio has never spoken to the media nor has in any
way advertised Zara. This is indeed the mark of a truly successful brand where customers
appreciate and desire the brand, which is over and above product level benefits but strongly
driven by the brand experience.

Instead of advertising, Zara uses its store location and store displays as key elements of its
marketing strategy. By choosing to be in the most prominent locations in a city, Zara ensures
very high customer traffic for its stores. Its window displays, which showcase the most
outstanding pieces in the collection, are also a powerful communication tool designed by a
specialized team. A lot of time and effort is spent designing the window displays to be artistic
and attention grabbing. According to Zara’s philosophy of fast fashion, the window displays
are constantly changed. This strategy goes down to how the employees dress as well – all
Zara employees are required to wear Zara clothes while working in the stores, but these
“uniforms” vary across different Zara stores to reflect socio-economic differences in the
regions they were located. This effectively communicates Zara’s focus on the mass market,
yet another detail that reflects its close attention on the customer.

To tap into the emerging e-commerce trend, Zara launched its online boutique in September
2010. The website was initially available in Spain, the UK, Portugal, Italy, Germany and France,
and was extended to Austria, Ireland, the Netherlands, Belgium and Luxembourg. Over the
next 3 years, the online store became available in the United States, Russia, Canada, Mexico,
Romania, and South Korea. In 2017, Zara’s online store launched in Singapore, Malaysia,
Thailand, Vietnam and India. More recently in March 2018, the brand launched online in
Australia and New Zealand. As at 2017, online sales made up 10% of Zara’s total global sales.

As a fast fashion retailer, Zara is definitely aware of the power of e-commerce and has built
up a successful online presence and high quality customer experience.

12
III. EXTERNAL ASSESSMENT:
III.1 MICHAEL PORTER’S 5 FORCES -
The model identifies and analyzes 5 competitive forces that shape and help companies to
determine their industry’s degree of competitiveness and can be used to analyse the industry
in which Zara operates, in terms of attractiveness through inherent profit potential. The
information analysed using the model can be used by strategic planners for Zara to make
strategic decisions.

Figure 7: Porter's 5 Forces

Barriers to Entry (HIGH):

● The economies of scale are fairly difficult to achieve in the industry in which Zara
operates. This makes it easier for those producing large capacitates to have a cost
advantage. It also makes production costlier for new entrants. This makes the threats
of new entrants a weaker force.
● The capital requirements within the industry are high, therefore, making it difficult for
new entrants to set up businesses as high expenditures need to be incurred. Capital
expenditure is also high because of high Research and Development costs. All of these
factors make the threat of new entrants a weaker force within this industry.

How can Zara tackle the threat of new entrants?

● Zara can take advantage of the economies of scale it has within the industry, fighting
off new entrants through its cost advantage

13
 ● Zara can focus on innovation to differentiate its products from that of new entrants.
It can spend on marketing to build strong brand identification. This will help it retain
its customers rather than losing them to new entrants.

Bargaining Power of Suppliers (LOW):

● The number of suppliers in the industry in which Zara operates is a lot compared to
the buyers. This means that the suppliers have less control over prices and this makes
the bargaining power of suppliers a weak force
● The product that these suppliers provide are fairly standardised, less differentiated
and have low switching costs. This makes it easier for buyers like Zara to switch
suppliers. This makes the bargaining power of suppliers a weaker force

How can Zara tackle the bargaining power of suppliers?

● Zara can purchase raw materials from its suppliers at a low cost. If the costs of
products are not suitable for Zara, it can then switch its suppliers because switching
costs are low.
● It can have multiple suppliers within its supply chain. For example, Zara can have
different suppliers for different geographic locations. This way it can ensure efficiency
within its supply chain.

Substitute Products (MODERATE):

● There are very few substitutes available for the products that are produced in the
industry in which Zara operates. The very few substitutes that are available are also
produced by low profit-earning industries. This means that there is no ceiling on the
maximum profit that firms can earn in the industry in which Zara operates. All of these
factors make the threat of substitute products a weaker force within the industry.
● Copying of styles is quite prevalent in this industry, which can attract the customer
who does not mind lower quality but “similar” looking apparel. The example will be
counterfeiting of Zara products in Indonesia which is currently trending.

How can Zara tackle the problem of Substitute and Counterfeit Products?
● Zara can focus on providing greater quality in its products. As a result, buyers would
choose its products, which provide greater quality at a lower price as compared to
substitute products that provide greater quality but at a higher price
● Zara can focus on differentiating its products. This will ensure that buyers see its
products as unique and do not shift easily to substitute products that do not provide
these unique benefits. It can provide such unique benefits to its customers by better

14
 understanding their needs through market research, and providing what the
customer wants

Bargaining Power of Consumers (MODERATE):

● The number of suppliers in the industry in which Zara operates is a lot more than the
number of firms producing the products. This means that the buyers have a few firms
to choose from, and therefore, do not have much control over prices. This makes the
bargaining power of buyers a weaker force within the industry.
● The product differentiation within the industry is high, which means that the buyers
are not able to find alternative firms producing a particular product. This difficulty in
switching makes the bargaining power of buyers a weaker force within the industry.

How can Zara tackle this?

● Zara can focus on innovation and differentiation to attract more buyers. Product
differentiation and quality of products are important to buyers within the industry,
and Zara can attract a large number of customers by focusing on these.
● Zara needs to build a large customer base, as the bargaining power of buyers is weak.
It can do this through marketing efforts aimed at building brand loyalty.
● Zara can take advantage of its economies of scale to develop a cost advantage and
sell at low prices to low-income buyers of the industry. This way it will be able to
attract a large number of buyers.

Rivalry Among Firms (HIGH):

● The number of competitors in the industry in which Zara operates is very few. Most
of these are also large in size. This means that firms in the industry will not make
moves without being unnoticed. This makes the rivalry among existing firms a weaker
force within the industry.
● The very few competitors have a large market share. This means that these will
engage in competitive actions to gain position and become market leaders. This
makes the rivalry among existing firms a stronger force within the industry.

How can Zara tackle this?

● Zara needs to focus on differentiating its products so that the actions of competitors
will have less effect on its customers that seek its unique products.
● As the industry is growing, Zara can focus on new customers rather than winning the
ones from existing companies.
● Zara can conduct market research to understand the supply-demand situation within
the industry and prevent overproduction.

15
III.2 EXTERNAL FACTOR EVALUATION (EFE) MATRIX
OPPORTUNITIES FOR ZARA:

Table 1: EFE Matrix

1. Increasing Middle Class in Asia weighs as 0.2 with a rating of 3; it is categorized

as highly-rated since it is an important factor. Not only because Asia is a booming
continent in which there are populous countries with growing GDP, but also
because people in Asian countries have the taste which Zara offers for its clothing.
Moreover, people in Asian countries, especially the teenagers and young adults
are usually western oriented. Meaning, they like to follow the trends that the
western culture currently has and adapt those trends in their country. One of
those trends is definitely apparel. Zara’s rating for this factor is 3, which indicates
that the response is above average because Zara is expanding aggressively in these
emerging markets of Asia (India, China, and Indonesia). They are also the first
mover in these countries. Therefore, we conclude that they have a higher
response rate.

2. Rising Environmental Issues weighs a 0.05 with a rating of 4 or superior; Zara is

keen to have a good reputation of being an eco-friendly company and they even
set their mission regarding this issue, but sometimes consumers do not care about
the issue, especially consumers in Asian-emerging markets like India, Indonesia,
and China who only want exclusive and trendy clothes. Thus, this comes as an

16
 opportunity for the brand to build awareness about their objectives and also
responsibility towards the environment.

3. Opportunity to Build Distribution Centers in Developing Countries to Lower Costs

weighs only 0.05 because even though it sounds interesting in order to cut costs
of distributing the finished products, but there are problems that may occur, such
as infrastructure problems in developing countries which might actually hamper
the company’s super-efficient supply and value chain. That is also the reason why
we put Zara’s response as 2 or poor, because they are not interested in this option.

4. New Customers from Online Channel weighs 0.2 with a rating of 3, which indicates
that it is a very important factor and has huge scope for the brand. Over the past
few years, globalization has enabled the company to invest vast sums of money
into the online platform. This investment has opened new sales channel for Zara.
In the next few years the company can leverage this opportunity by knowing its
customer better and serving their needs using big data analytics.

5. New Designers for Better Designs weighs 0.1 with a rating of 3, which indicates
that this is a huge opportunity for the brand. This is very important since they are
based on fast-fashion which they need to change products every 2 weeks.
Therefore, excellent team of designers is crucial in this business. Since Zara just
cooperated with a lot of new designers, consequently their response is
categorized as above average.
One of the common traits of top brands is that they have some designs which are
flagship designs of their stores. This is lacking in Zara and hence, there should be
some designs which should always be sold from a Zara store, bringing in great
demand for these designs and building even more brand identity for the brand.

THREATS FOR ZARA:

1. Increasing Competition and New Entrants weighs 0.2 with a rating of 4, which
indicates that this is an important factor to be considered by the brand. There has
been an increase in competition within the industry putting downward pressure
on prices. This could lead to reduced revenue for Zara if it adjusts to the price
changes, or loss of market share if it doesn’t.
One of the biggest threats because of new and affordable products from different
stores such as H&M and Uniqlo may harm Zara in terms of consumers’ loyalty. The
analysis from Five-Forces also gives us some details about how this fierce
competition can affect Zara. However, somehow, regardless of the amount of

17
 advertising investments Zara made, this brand can still enjoy remarkable growth
across the globe. Allegedly it is the supply chain that makes it the winner.
2. Exchange Rate and Political Uncertainties weighs 0.03 with a rating of 3; The
exchange rate keeps fluctuating and this affects a company like Zara that has sales
internationally, while its suppliers are local. The fluctuating interest rates in the
country do not provide a stable financial and economic environment. Political
uncertainties in the country prove to be a barrier in business, hindering
performance at times and making the business incur unnecessary costs.

3. Increasing Promotions by Competitors weighs 0.05 with a rating of 3; increased

promotions by competitors have been a threat for Zara. On most media, there is
more clutter than ever, and customers are bombarded with multiple messages.
SInce Zara anyway has very limited marketing techniques and strategies, intensive
promotions by competitor brands reduces the effectiveness of promotional
messages by Zara.

4. Possible Imitation of Goods weighs 0.1 with a rating of 4; there is a risk of Zara’s
products being copied, either by their competitor (the designs) or by irresponsible
people that practice counterfeiting. However, since Zara is targeting the middle-
upper class, therefore, it is not much of concern. Moreover, Zara’s consumers are
popularly known as loyal consumers to the brand.

Based on the EFE Matrix result, we see that Zara has a score of 3.3 which indicates a strong
response from Zara towards the opportunities and anticipation of threats.

18
III.3 COMPETITIVE PROFILE MATRIX (CPM):

Table 2: CPM Matrix

1. Target Foreign Market Selection: One of the most important factors in

determining success in this highly competitive industry which forces its players to
have massive expansion strategy, hence the weight given is 15%. Comparing to its
other 2 competitors, Zara has the highest score since they have been in the
international market longer than H&M and Uniqlo. Zara was the first to start
opening new stores in countries outside their country-of-origin’s continent. Zara
expanded outside Europe firstly in 1997 to Israel (Inditex, Timeline, 2013),
followed by H&M which originated in Sweden, first opened their store outside
Europe in 2001, located in New York. Uniqlo was the last because they are a new
player, established in 2005.

2. Enter Marketing Strategy: How the headquarter decides the mode of entering a
new market defines the company’s interest towards the host country, as well as
the company’s capability and strategy to do international expansion. Uniqlo takes
the lead for this aspect, thanks to its advertisement and promotions which are
everywhere. They even outran H&M in Asian countries by expanding rapidly with
strategy of wholly-owned subsidiary which potentially gives more concentrated
strategy compared with Zara and H&M strategies in which both used third-party
to enter Asian markets. For example, Zara in Indonesia is under the management
of PT Mitra Adi Perkasa.

19
3. Timing of Entry: Uniqlo has the highest rating for its timing to entry because of
the booming trend of East Asia in other Asian countries, like Indonesia, which is
currently suffering from Korean Invasion. This perfect timing result a surge of
consumers dying to shop at Uniqlo stores just out of curiosity.

4. Recognition of Brand: Zara takes the lead on this factor due to its powerful brand
equity across the globe, since they do not need much advertisement or promotion
because they are already strong in international markets. Meanwhile, H&M and
Uniqlo are catching up to Zara. That is why the company finally realized the need
to invest more on commercials and they eventually invested more than 600
million euro to improve their commercials and their logistic simultaneously.

5. Customers Knowledge: As the first mover in the international market, Zara wins
again for this factor. The first player usually gets the most advantage compared to
those who lagged. Moreover, customer’s knowledge is also important in order to
attract new consumers. Note that customers can also become a tool for
promotions through the powerful word-of-mouth.

6. Marketing Support in Global Market: Zara has no lead here since after so many
years, the company seemed not to care about this factor, which then ties H&M
and Uniqlo’s full on advertisements and marketing. Not until just recently when
Inditex finally decided to improve their marketing efforts.

7. Location Selection: H&M is behind Zara and Uniqlo, and is lagging behind the
other two in the international market. Zara, on the other hand, is opening more
and more new stores in the current market, in new markets, and almost in every
big malls, shopping streets, downtown city, all strategic locations in every country
around the world. Meanwhile, Uniqlo is trying to catch up by opening more new
stores concentrated in Asian countries like the one which has just been opened in
Indonesia at Lotte Shopping Avenue.

8. Design Collection: In apparel industry, designs are the key. In order to be

successful in this industry, designers must be able to produce designs that
consumers currently like, designs that consumers will like in the future, and
designs that consumers did not expect they would ever like. Impressing the
consumers and be creative is important. Zara and H&M, in this case ties while
Uniqlo is behind. Zara not only sells clothing, accessories and perfumes, but also

20
 furniture bedding, while H&M sells clothing, accessories, home perfume and make
up.

9. Employee: None of the stores takes the lead and are tied with a rating of 2,
because generally all companies evidently put their best service to attract
customers considering the high level of competition. In other words, no company
outperforms the others in this matter. Moreover, in the apparel industry,
employees (especially the office employees) are not much of an effect more than
the product itself, as a result, the weight given is only 5%.

10. Price Policy: Price matters in apparel industry. Moreover, since the rivalry among
firms is high, therefore companies must be able to charge at a competitive price.
In this aspect, H&M and Uniqlo tie on taking the lead for their more affordable
products than Zara’s, especially Asian-developing countries like India, Indonesia,
and China.

11. Sales Promotion: H&M and Uniqlo also tie on taking the lead for promotions and
advertisement compared to Zara. This will relate to the company’s strategy in
marketing, since Zara has been very stingy when it comes to marketing campaigns.

12. Organization and Control Business: In fast-fashion industry, the business control
operation is important. Because the lead time needs to be as low as possible,
therefore there is no room for defects. Zara is in the lead for this aspect, thanks to
their highly-integrated information response, by using PDA to directly inform the
headquarters about what is going on in the store. The report will be daily, or even
hourly.

Based on the result of CPM matrix, we see that Zara is still the winner among its
competitors with 3.11 score. Moreover, it also means that Zara’s performance is above
average.

21
IV. INTERNAL ASSESSMENT:
IV.1 INTERNAL FACTOR EVALUATION (IFE) MATRIX:

Table 3: IFE Matrix

22
STRENGTHS:
1. Global Distribution & Reach: Inditex, as the head company, expands Zara in a large
amount of scale. Currently they have more than 1,700 stores in exactly 86 countries
around the world. This condition is one of a good strength that Zara has because as
an international brand company, especially in the apparel industry, Zara should reach
every part of the world. Therefore, a weight of 0.08 would be adequate for this factor.

The rank given to this strength is 3 out of 4 because this factor is definitely one of
Zara’s strengths, even though it is not their major strength. Therefore, rating 3 (minor
strength) would be sufficient to describe Zara’s condition. In addition, reaching a
global market is a foundation to step for an international brand to dominate the
industry.

2. Strong Brand & Store Image: Over the years Zara has invested in building a strong
brand portfolio. The SWOT analysis of Zara just underlines this fact. This brand
portfolio can be extremely useful if the organization wants to expand into new
product categories. Zara is a brand that has been in the market for years, and people
are aware of it. This makes its brand awareness high. Zara is a trendy yet exclusive
fashion store. This is the image of Zara from around the world. A unique concept of
fast fashion might become a trendsetter in international fashion industry. A good
store image also drives people to consider Zara when they want to purchase fashion
items, this adding value to the brand’s image as well. In addition, their excellent
customer in-store services result a loyal behavior from consumers. In the industry
with a high level of competition, consumer loyalty is crucial; therefore, a weight of
0.04 and rank of 4 is given as this strength is a strong foundation for the company
which is highly acknowledged by Zara.

3. Financial Position – Cost Structure & Return on Capital: Zara’s low-cost structure
helps it produce at a low cost and sell its products at a low price, making it affordable
for its customers. It also has a strong financial position with consecutive profits in the
past 5 years, along with accumulated profit reserves that can be used to finance future
capital expenditures. Zara has a large asset base, which provides it with better
solvency and has been successfully able to generate positive returns on the capital
expenditure it has incurred on various projects in the past.

A weight of 0.02 and a rating of 2 is given to this factor, since this model is prevalent
in most Fast Fashion brands and is not exclusive to Zara.

23
4. Strong Supply Chain & Dealer Community: Zara’s key competitive advantages are the
vertical integration which means that Zara control the entire production process from
design, production to logistics. Through the vertical integration, Zara make it possible
to have a better communication within its different units (headquarters, factories and
stores) and meet the customer’s needs. In Zara’s supply chain management through
vertical integration, Zara makes product available in to the market within 15 days by
collaboration with Zara designers who seek customer needs and fashion trends fast,
producing 60% products through in-house system and ensuring store are stocked with
just what they need. In addition to the fast product, this supply chain model can
prevent possible product errors and delivery delays. And Zara makes 40 percent of its
own fabric and purchases most of its dyes from its own subsidiary.

It has built a culture among distributor & dealers where the dealers not only promote
company’s products but also invest in training the sales team to explain to the
customer how he/she can extract the maximum benefits out of the products. Strategic
partnerships are established by Zara with its suppliers, dealers, retailers and other
stakeholders. This allows it to leverage them if need be in the future.

Thus, a high weight of 0.08 is given with a rank of 3.

5. Automation: Automation of various stages of production has allowed the more

efficient use of resources and reducing costs for Zara. It also allows for consistency in
quality of its products and provides the ability to scale up and scale down production
as per the demand in the market. Zara has a well-established IT system that ensures
efficiency in its internal and external operations.

However, in this fast-changing world, every company is on their toes, upgrading

themselves with every latest technology. Thus, a lower weight of 0.04 and a rank of 1
is given to this factor.

6. Skilled Labour: Zara has invested extensively in the training of its employees that has
resulted in it employing a large number of skilled and motivated employees. Zara has
qualified and accredited professionals working under in its team. Thus, a weight of
0.02 and a rank of 1 is given to this factor.

7. Product Portfolio: Zara has a large product portfolio where it provides products in a
large range of categories. It has a number of unique product offerings that are not
provided by competitors.

24
 The geography and location of Zara provide it with a cost advantage in serving its
customers, when compared to that with the competition. Therefore, it becomes a
fairly important factor for the brand and a weight of 0.02 with a rank of 2 is given to
this factor.

8. Owns Several Intellectual Property Rights (Trademarks & Patents): A high weight of
0.15 is given to this factor since it helps the brand in developing products and
additional features which are exclusive to Zara. These trademarks and patents allow
it exclusivity over its products and competitors cannot copy or reverse engineer them.

9. Quality & Unique Designs (Fast Changing Collection): This factor is one the
specialties and uniqueness of Zara. Twice ever week Zara publishes brand new fashion
items. This strategy exists to stimulate and refresh consumer’s curiosity about Zara’s
products. This is also the strategy to strengthen the image of Zara as the designer
teams always work to find out what the new designs should be. The aim is to be the
trendsetter of fashion business. However, in the apparel industry, it is easy to copy
the style of designs. Therefore, a rating of 0.02 is given for this strategy. In terms of
their response towards the factor, a 4 rating since they put high concern on this
matter through their business model.

WEAKNESSES:
1. Generalized Collection & Limited Stock: Zara does not specialize in anything and has
everything for everyone. One of the reasons that a customer shifts to a competitor is
when the competitor is focused on one thing. It might be shirts, it might be pants, it might
be dresses or party wear or whatever. Such immediate focus is lacking in Zara and it is
good for the day to day wear or trendy wear.
Even though Zara has a fast fashion concept, which is publishing new items in every 2
weeks, but some of the items are limited. So for some items, they might not be available
in every store. Even though this is actually intentional, but for consumers, this can be
included as a weakness as some customers will not be satisfied if they did not get the
items that they want when they want it and where they want it. Customer’s
dissatisfaction quite has an effect for Zara, therefore rank 2 out of 3 is given with weight
of 8% considering the fact that this strategy of Zara might actually be risky.

2. Price: In its country of origin, Zara is categorized as a low-end product. However, Zara is
included in a high-end product in in many developing countries. 1 item of long sleeve shirt
can be priced at over Rs. 4000 whereas its competitors have lower prices. This is one of

25
 the weaknesses for Zara as the customer will think twice to purchase if price is a big
consideration for them. This problem occurs mostly in developing countries, where the
GDP per capita is still relatively low. Even though the middle-class segment is growing,
but not all of them are used to spend hundreds of thousand rupees just to get a T-shirt.
Therefore, we rank a low rate of 2 out of four with larger weight of 1%.

3. Lack of Marketing: While it may lead to a cost advantage and cost is one of the strengths
of Zara, the lack of advertising is a weakness because the brand can double its profit and
its turnover by advertising its collection. It is known to be a trendy fashion outlet and it
can easily pull in more customers with advertising which will generate a lot of positive
word of mouth for the brand. Thus, a weight of 0.01 with a rank of 2 is given to this factor.

4. High Day Sales Inventory: The time it takes for products to be purchased and sold are
higher than the industry average, meaning that Zara builds up on inventory adding
unnecessary costs to the business. Thus, a score of 0.01 with a rank of 1 is allotted.

5. Low Current Ratio & Cash Flow Problems: The current ratio that shows the company’s
ability to meet its short-term financial obligations, is lower than the industry average. This
could mean that the company could have liquidity problems in the future. The company
has low levels of current assets compared to current liabilities, and this can create
liquidity problems for it in operations. There is a lack of proper financial planning at Zara
regarding cash flows, leading to certain circumstances where there isn’t enough cash flow
as required leading to unnecessary unplanned borrowing.
Hence, a score of 0.03 and 0.2 is given respectively.

6. Diversification in Workplace: The workforce at Zara is concentrated with mostly local

workers, and low amounts of workers from other racial backgrounds. Lack of
diversification makes it difficult for employees from different racial background to adjust
at the workplace, leading to loss of talent, thus leading to a score of 0.03.

7. High Employee Turnover Rate: Zara has a higher employee turnover rate compared to
competitors. This means that it has more people leaving the job, and as a result, it is
spending more on training and development as employees keep leaving and joining. The
workload is a high per worker as there are fewer workers than the actual work required.
This puts workers under psychological stress and is likely to be less productive. Worker
morale is low due to company culture and politics that have grown in recent years.
Competition and qualified employees have been leaving the organization in recent years,

26
 which could mean a shortage of good talent for the company in the upcoming years. Thus,
giving it a score of 0.15.

8. Centralized Decision Making: The decision making is highly centralized, and decisions by
teams need to be approved by certain officials. This reduces efficiency in operations by
making them more time consuming. It also leads to reduced innovation. Thus, a high score
of 0.48 has been allotted.

9. Unsystematic Performance Appraisal: The performance appraisal is not in a systematic

manner. People are often not appraised for their performance. This leads to lower work
morale and lack of promotion opportunities for employees, leading to higher attrition,
thus, a score of 0.07 has been given.

27
IV.2 FINANCIAL ANALYSIS:
ZARA Industry
Dividend
Dividend Yield 3.17% 4.96%
Dividend Yield - 5 Year Average 1.47% 6.74%

Efficiency
Revenue to Employee (TTM) 33.21K 33.72K
Net Income per Employee (TTM) 2.81K 3.64K
Receivable Turnover (TTM) 13.73 14.25
Inventory Turnover (TTM) 30.33 22.19
Asset Turnover (TTM) 0.35 0.25

Management Metrics
% Return on Assets 2.93% 1.96%
% Return on Assets - 5 Year Average 1.29% 2.56%
% Return on Investment (TTM) 3.68% 2.09%
% Return on Investment - 5 Year Average 1.61% 2.72%
% Return on Equity (TTM) 3.10% 1.82%
% Return on Equity - 5 Year Average 1.09% 2.64%

DIVIDEND RATIOS:
1. Dividend Yield –
Dividend yield is an easy way to compare the relative attractiveness of various
dividend-paying stocks. It tells an investor the yield he/she can expect by purchasing
a stock. Dividend yield is the relation between a stock’s annual dividend payout and
its current stock price. Depending on how much a stock price moves during the day,
the dividend yield is constantly changing as the price of the stock changes.

With a dividend yield of 3.17%, which is less than that of the industry (4.96%), Zara is
slightly behind the industry average, and does not prove to be the best option for an
investor

2. Revenue to Employee (TTM) –

Revenue per employee is a meaningful analytical tool because it measures how
efficiently a particular firm utilizes its employees. Revenue per employee—calculated

28
 as a company's total revenue divided by its current number of employees—is an
important ratio that roughly measures how much money each employee generates
for the firm. The revenue-per-employee ratio is most useful when comparing it
against that of other companies in the same industry, or looking at historical changes
in a company's own ratio.

Zara’s Revenue per Employee pf 33.21K is very much in line with the industry average
of 33.76K which indicates high efficiency of the employees at Zara.

EFFICIENCY RATIOS:
3. Net Income per Employee (TTM) –
Revenue per employee—calculated as a company's total revenue divided by its
current number of employees—is an important ratio that roughly measures how
much money each employee generates for the firm. The revenue-per-employee ratio
is most useful when comparing it against that of other companies in the same
industry, or looking at historical changes in a company's own ratio.

Zara’s Net Income per Employee 2.81K is less than the industry average of 3.64K, and
it can be said that Zara has lower productivity or a higher level of employees than it
requires.

4. Receivable Turnover (TTM) –

The accounts receivable turnover ratio is an accounting measure used to quantify a
company's effectiveness in collecting its receivables or money owed by clients. The
ratio shows how well a company uses and manages the credit it extends to customers
and how quickly that short-term debt is collected or is paid. The receivables turnover
ratio is also called the accounts receivable turnover ratio.

With a Receivables Turnover of 13.73, as compared to the industry average of 14.25,

which indicates that Zara might not have the best collection procedure, or the most
effective credit policies, as compared to its competitors.

29
5. Inventory Turnover (TTM) –
Inventory turnover is the number of times a company sells and replaces its stock of
goods during a period. Inventory turnover provides insight as to how the company
manages costs and how effective their sales efforts have been.

With an inventory turnover of 30.33 which is much above the industry average of
22.19 proves that Zara is very effectively and efficiently turning its inventory into sales,
as compared to its competitors.

6. Asset Turnover (TTM) –

The asset turnover ratio measures the value of a company's sales or revenues relative
to the value of its assets. The asset turnover ratio can be used as an indicator of the
efficiency with which a company is using its assets to generate revenue. The higher
the asset turnover ratio, the more efficient a company. Conversely, if a company has
a low asset turnover ratio, it indicates it is not efficiently using its assets to generate
sales.

Zara’s asset turnover of 0.35 is much higher than that of the industry’s average of 0.25
which indicates that Zara is utilizing its fixed assets in a much more effective manner
as compared to its other competitors.

MANAGEMENT METRICS:
7. % Return on Assets –
Return on assets (ROA) is an indicator of how profitable a company is relative to its
total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a
company's management is at using its assets to generate earnings. Return on assets
is displayed as a percentage.

With a ROA of 2.93%, which is much higher than that of the industry average of 1.96%,
Zara proves to be utilizing its fixed assets in a way which is more profitable than its
competitors.

30
8. % Return on Investment –
Return on Investment (ROI) is a performance measure used to evaluate the efficiency
of an investment or compare the efficiency of a number of different investments. ROI
tries to directly measure the amount of return on a particular investment, relative to
the investment’s cost.

With a ROI of 3.68%, Zara proves to be the leader in the market, as compared to the
industry average of 2.09%. This indicates that Zara manages the credit it extends to
clients very efficiently.

9. % Return on Equity –
Return on equity (ROE) is a measure of financial performance calculated by dividing
net income by shareholders' equity. Because shareholders' equity is equal to a
company’s assets minus its debt, ROE could be thought of as the return on net assets.
ROE is considered a measure of how effectively management is using a company’s
assets to create profits.

With a Return on Equity of 3.10%, which is almost 3 times that of the industry average
of 1.82%, Zara proves to be utilizing the equity assets much more efficiently that its
peers.

31
V. STRATEGIES IN ACTION:
V.1 THE STRATEGIES:
1. INTEGRATION STRATEGIES
Vertical Integration: Zara designs as well as manufactures a majority of the apparel that
customers buy in its stores. This is very much in contrast to the traditional high-volume
fast-fashion companies, which outsource most of their manufacturing to contract
manufacturers. This type of vertical integration is key to quick new product introduction
cycles.
Zara applies the Forward Integration. Since Inditex demands a high integration between
the headquarters and all branches across the globe, therefore Inditex controls its retailers
and distributors all around the world in order to standardize the overall business
performance.
In addition, Zara also performs some Horizontal Integration through its acquisition of
Massimo Dutti of the Massimo Dutti group and the acquisition of Stradivarius.

2. INTENSIVE STRATEGIES
As an aggressive expander in global market; hence, Zara practices the Market
Development strategy in which they are entering new market with Asian-developing
countries being their first targets. Countries include China, India, and Indonesia. That is
why nowadays, in almost every new shopping mall in Jakarta, you can find Zara store in
it. Currently Zara is targeting the Asian market, hoping it will generate much profit from
this promising market. Zara has expanded globally fast and today it is present in 93
countries with its more than 2200 stores. In 2018, it added total 84 stores and 50 Zara
home locations. Its biggest market is Spain with 463 stores. Apart from it China, France,
Japan and Italy are also among its big markets. This shows how fast, it has expanded into
the foreign markets.

Not only that it applies the Market Development, Zara also applies the Market
Penetration strategy, especially in European and American markets. Their techniques of
doing this strategy are by improving its online store and increase customer service in all
retail stores. As Zara’s products became popular and well known the existing customers
were willing to buy from the fast fashion brand. This is how market penetration worked
in its favor and helped it grow its sales. It did not invest in marketing but the popularity
of the brand and its products grew based upon its low prices and excellent designs.

A key strategy used by Zara to grow its market base and brand. The Product Development
strategy of introducing new products to lure more customers, including new and existing
ones. Fashion cycles at Zara are shorter and it takes only a few weeks for new fashion to

32
 arrive. Moreover, the brand has managed its supply chain so well that it product ideas
take just two weeks to become products and reach the stores.

3. DIVERSIFICATION STRATEGIES
To complete its product lines, also as a form of their differentiation, Zara sells accessories
to complement their main product which is apparel. This kind of strategy is called the
Related Diversification.
Further, Zara also has the Unrelated Diversification which is the Zara Home. Zara Home
is a retail store which specializes in home fashion and decoration. Zara Home, similar to
Zara, emphasizes exclusivity in all of its products and it is also relatively more expensive
than its competitors. Zara Home is available in 55 countries including Indonesia. However,
in Indonesia we can only find Zara Home store in Plaza Indonesia, Jakarta, Indonesia.

33
V.2 MICHAEL PORTER’S FIVE GENERIC STRATEGIES:
Porter’s generic strategies describe how a company pursues competitive advantage
across its chosen market scope. There are three/four generic strategies, either lower cost,
differentiated, or focus. A company chooses to pursue one of two types of competitive
advantage, either via lower costs than its competition or by differentiating itself along
dimensions valued by customers to command a higher price. A company also chooses one
of two types of scope, either focus (offering its products to selected segments of the
market) or industry-wide, offering its products across many market segments. The generic
strategy reflects the choices made regarding both the type of competitive advantage and
the scope.

Figure 8: Porter's Generic Strategies

Zara is one of the leading brands in the Fashion Industry. The brand has grown fast in
terms of Revenue, market size and sales. It is now in 93 countries with almost 22,000
stores.

The Lavish Brand is known for turning ideas into products and in a short span which shows
the strong supply chain management.

COST LEADERSHIP:
The generic strategy that Zara has used is called cost leadership. It has provided Zara with
a distinct source of competitive advantage. Apart from that to a small extent it has also
used differentiation for advantage over other brands. The brand provides high end
fashion at low prices. The designs and styles it sells is similar to those provided by
designer brands. However, the clothes are of average but good quality. It is how Zara has
become a favorite of the millennial generation and the middle class. The modern

34
generation wants trendy fashion bat lowest prices. Middle class people want affordable
fashion and if it is trendy, nothing can be better. Zara does not just make affordable
fashion, but something that is as good looking as the designer brands. This has led to both
popularity and brand loyalty.
Zara is categorized as the Type 3 because it is aimed to the industry-wide, in which the
size of the market is large. Moreover, Zara also has some strong differentiations that make
them the leader in the industry. Differentiations such as the concept of fast-fashion
(which was pioneered by Inditex), that is supported by its excellent and integrated supply
and value chain.

It is of no doubt how Zara has used one of Porter’s Generic strategies i.e. Cost Leadership.
Any brand can be become a cost leader by providing high-quality products at a lower price
than the competitor.
The same has been used by Zara, they provide high-quality products with innovative
ideas. The designs and styles it sells are similar to those provided by other designer
brands. The brand provides high-end fashion at lower prices. Zara has used differentiation
to a very small extent. Also, it has also used Innovative technology and supply chain
management.
It takes only two weeks for Zara to go from a certain idea to the table of the final product
which shows a strong supply chain management team. While for other brands it takes
around 6 months to launch new products but Zara wins the heart of the middle class and
the millennial generation. New products are launched within weeks which makes the
consumer reach their nearby stores.

Apart from it Zara has also used innovation to build competitive advantage. Based upon
innovative technology and supply chain management it has been able to reduce the time
between fashion cycles. From bringing an idea to the table to the finalization of the
product and in-store demonstration, it takes Zara only two weeks. The other brands can
take up to 6 months to complete the process. However, at Zara the fashion cycles are
shorter and their number high. So, fashion can change inside Zara stores within a period
of weeks. This is an important source of competitive advantage because it does not just
work to retain the customers but also to engage them. Since prices are very low,
customers get back within weeks to check out new styles and designs.

35
DIFFERENTIATION:
As one of the major players in fast-fashion industry, Zara has to be able to differentiate
its products and increasing the brand equity with all of its capabilities. Zara does not only
sell apparel, but they also sell accessories to complement the apparel. The accessories are
produced with the same quality standard as the apparel and it is available in all Zara stores
worldwide.

Core Competencies of Zara:

 Attractive prices
Zara makes available, high quality products at attractive, reasonable and
affordable prices. This plays to their advantage when the customer pitches the
brand against it competitors, H&M, Uniqlo or GAP.

 Up to date design
With the designs at the stores changing twice every week, Zara keeps its style very
up to date, with a new innovation or addition, every time new inventory is brought
into the store. No other brand has a policy of such fast fashion, giving Zara the
upper hand.
 Creating sense of exclusivity
Since there is a change in the inventory twice every week, the number of SKUs are
limited, and also, the designs on display are for sale only for a limited time. This
creates a sense of exclusivity and also urgency in the minds of a customer to make
a purchase.

36
VI. STRATEGY ANALYSIS & CHOICE
VI.1 SWOT-TOWS
STRENGTHS WEAKNESSES
Global Distribution & Reach Generalized Collection &
limited Stock – Reliance on
few products
Strong Brand & Store Image Lack of Marketing
Financial Position – Cost Price
Structure & Return on Capital
Strong Supply Chain & Dealer High Day Sales Inventory
Community
Automation Low Current Ratio
Skilled Labour Cash Flow Problems
Product Portfolio Diversification in Workplace
Owns several Intellectual High Employee Turnover
Property Rights that include Rates
trademarks and patents
Quality & Unique Designs – Centralized Decision Making
Fast Changing Collection
Unsystematic Performance
Appraisal
OPPORTUNITIES SO STRATEGIES WO STRATEGIES
Increasing middle Class in New stores to be opened in In Asian countries
Asia Asia which will promote to competitive pricing should be
the global reach. (S1,O1) practiced. (W3,O1)
Rising Environmental Issues Promote the campaigns done Enhance the brand image
by the company to encourage along with their ideas
sustainability (S2, O2) towards sustainability as well
as their balance with fast
fashion. (W2,O2,O4)
Opportunity to Build Distribution centres to be Produce ample stocks for
Distribution Centres in opened in Asian countries each product and plan their
Developing Countries to which will lower the sales keeping in mind the
Lower Costs distribution cost for those products which ae sold the
areas (S3, S4, O3) most. Design signature looks
and collections. (W1,O3)
New Designers for Better Maintain the trend of fresh
Designs & Better Marketing fashion (S9, O4)

THREATS ST STRATEGIES WT STRATEGIES

Increasing Competition and Expand in new locations and Advertise the strong qualities
New Entrants promote the company’s of the company and increase

37
 unique automated aspects. the marketing budget. (W2,
(S1, S5, T1, T3) T1)
Exchange Rate & Political Production of new products
Uncertainties offering high turnovers. (S2,
S4, S5, T2)
Increasing Promotions by
Competitors
Possible Imitation of Goods Increase the value of the Produce products have a
product by adding a sense of signature feel attached with
customer experience along ZARA, and plan the sales
with it. (S6, T4) according to the response.
(W1, T4)

Depending on the discussion about Zara’s external and internal analysis, four types of
strategies can be developed: SO (strengths-opportunities) strategies, WO (weaknesses-
opportunities) strategies, ST (strengths-threats) strategies, and WT (weaknesses-threats).
The SO strategies include competitive strategies of the company to take advantage of the
existing opportunities coordinated with their strengths.

Many companies pursue the other three strategies first in order to be able to implement
SO strategies. As for Zara, they are previously in the position which enables them to apply
those SO strategies given their popular weaknesses and threats.

They have an accelerating growth driven by aggressive development into developing

markets such as China and India and boosting its shares. Zara has also already launched
their e-commerce website which contribute to increase their global reach as well as
provided healthy marketing. This also shows that they are still in the game of fast fashion
and are trending.

Zara works all its business and produce new designs which are made available on the
website within a span of 2 weeks. Apart from Zara exclusive stores, multi retail chains sell
Zara’s clothing and accessories items which are helping the company in penetrating in the
leading cities of the nations, globally.
Zara has different sustainability campaigns as well. They already sold t—shirts made out
of organic cotton which is considered to be eco-friendly. They have started putting up
collection booths for old clothes so that they can be recycled and reproduced into new
products. Now, the designs made by Zara are based on the consumer & market feedback
which they continuously work upon to be more of the consumer-oriented brand. It has
also launched kids’ section in their stores across the world.

38
VI.2 SPACE MATRIX
SPACE Analysis is an analytical technique used in strategic management and planning.
SPACE is an acronym of Strategic Position and Action Evaluation. The analysis allows to
create an idea of the appropriate business strategy for the enterprise. The analysis
assesses the internal and external environment and allows to design an appropriate
strategy.

The analysis describes the external environment using two criteria:

● Environmental Stability (ES) - it is influenced by the following subfactors:
technological change, inflation rate, demand volatility, price range of competitive
products, price elasticity of demand, pressure from the substitutes
● Industry Attractiveness (IA) - it is influenced by the following subfactors: growth
potential, profit potential, financial stability, resource utilization, complexity of
entering the industry, labor productivity, capacity utilization, bargaining power of
manufacturers

The inside environment is also described by two criteria:

● Competitive Advantage (CA) - it is influenced by the following factors: market
share, product quality, product lifecycle, innovation cycle, customer loyalty,
vertical integration
● Financial Strength (FS) - it is influenced by the following indicators: return on
investment, liquidity, debt ratio, available versus required capital, cash flow,
inventory turnover

According to this model the SPACE analysis is used in strategic management. It concerns
of key decisions that are made by CEO and senior management of the organization.

To evaluate:
● For each subfactor in each criterion a value of 0-6 is assigned (for CA and ES it is 0
to -6)
● For each criterion, the value of the total factor is expressed as the mean of the
individual factors
● The values of factors are put into the relevant axes of the matrix (see figure)
● In the quadrant, where the largest part of the surface of the resulting quadrilateral
is, there is a suitable alternative of the business behaviour

39
 Figure 9: SPACE Matrix

The strategic position of the company and alternatives of the strategic behavior are the following:
➔ Aggressive position - an attractive and relatively stable industry, the company has a
competitive advantage and it can protect it, a critical factor is the possible entry of new
competitors into the industry, it may be considered new acquisitions, increasing market
share and focusing on competitive products
➔ Competitive position - attractive and relatively unstable environment, the company has
some competitive advantage, a critical factor is the company’s financial strength - the
company should look for ways of their attachment, the solution is the possibility of joining
another company, increasing production efficiency and strengthening cash flow
➔ Conservative position - a stable industry with low growth rate and financially stable
company, a critical factor is in the product competitiveness, company should protect its
successful products and develop new ones and think about the possibilities of the
penetration into the industry more attractive and reduce costs.
➔ Defensive position - an unattractive industry, the company lacks competitive products
and financial resources, a critical factor is the competitiveness, the company should
reduce costs, reduce investment and consider leaving the industry.

40
SPACE Matrix for Zara:
Financial Position (FB) Ratings
Increase in turnover 6
Increase in Net Profit after tax 5
Decrease in Leverage 3
Total 14
Industry Position (IP) Ratings
Market growth, especially in developing countries 4
Fashion Industry itself is a sustainable industry 3
Very competitive 4
Total 11
Stability Position (SP) Ratings
Inadequate infrastructure and IT in developing countries -4
(especially India and Indonesia)
Counterfeiting in developing countries -2
Possible increase in labour costs -2
Total -8
Competitive Position (CP) Ratings
Increasing threats from new competitors such as Uniqlo and H&M -3
Zara provides unique concept -2
Zara has the largest market share -2
Total -7
Table 4: SPACE Matrix

 For Financial Position and Industry Position: +1 (worst), +6 (best)

 For Stability Position and Competitive Position: -1 (best), -6 (worst)
 Average:
SP : -2.67
IP : 3.67
CP : -2.33 AGGRESSIVE
FP : 4.67

Therefore, we get the

x-axis = -2.33 + 3.67 = 1.34
y-axis = -2.67 + 4.67 = 2

Figure 10: SPACE Matrix: Zara

41
In ZARA’s SPACE matrix we found that the curve lies in quadrant 1, which denotes that
ZARA should go for an aggressive strategy. It indicates that ZARA is in a strong financial
position where it can take advantage of internal strengths.
ZARA’s Financial position is strong and it is competing nicely in the market against its
competitors, these both points indicate the internal strategic dimensions.
ZARA is performing well in the market and its industrial stability is tough, these points
show that the external environment for ZARA is also stable.

According to the SPACE matrix ZARA should:

1. Take the advantage of external opportunities in the market
2. It should overcome internal weaknesses
3. Avoid external threats

ZARA can easily take up following strategies which are market penetration, market
development, product development, backward integration, forward integration, and
horizontal integration, related and unrelated diversification. All these strategies can be
adopted by ZARA according to the need of the brand. ZARA can also take up a combined
strategy.

42
VI.3 BCG MATRIX
BCG matrix is created by Boston Consulting Group to determine the strategic position of
the business. Business portfolio is categorized into four based on industry attractiveness
(growth rate of that industry) and competitive position (relative market share). The
Question Marks in the matrix have a low relative market share position, yet they are in a
high-growth industry. Companies in this category must decide whether to sell them or
strengthen them by pursuing an intensive strategy. The Stars describes the organization’s
opportunities for growth and profitability. The market share and growth of this industry
is high. The Cash Cows are categories which have high market share but compete in a low-
growth industry. Dogs compete in a slow-or-no-growth industry yet have a low market
share.

Figure 11: BCG Matrix

43
The following is the position of Zara and several Inditex’s brands in terms of BCG Matrix:

Figure 12: Zara's BCG Matrix

Zara is placed in Stars category because it has relatively high market share and sustain in
an industry of high growth As per the company’s annual report, from Inditex’s overall
income in 2017 is around 66.1% which is from Zara.
Based on the theory, companies positioned at Stars should consider the forward,
backward, horizontal integration strategies, market penetration, market development,
and product development strategies. Zara as a leading brand should therefore receive
substantial investment to maintain or strengthen its dominant position. As a result, not
only that it is expanding aggressively across the globe, Inditex as the owner of Zara has
also made several investments specific to Zara in order to maintain its position, those
investments include: additional investment for advertising, IT improvements for better
customer service, and hiring new designer teams to strive for becoming a trend-setter.

The BCG Matrix of Zara Products:

Figure 13: BCG Matrix of Zara Products

44
CASH COWS
The major source of the cash inflows products are under this category. Such products are
successful in creating the strong market hold and develop a high level of market demand.
Such strong position helped the company in positioning the products for becoming the
major source of revenue. The cash cow of the Zara is Cloth range, Jeans, shoes and skirts.
Zara made its own position by availing the share of 45%. The main competitors are H&M,
Gap, Gucci, etc.

STARS
These products which help in producing enough revenues for companies is known as
profitable, but still have a chance for expanding as having star products. It’s because the
future growth of star items is the scope of industry growth and it supports high market
share of such products. Fashion denim, jersey, unique collection of bags and accessories
of Zara are the star items. Zara TRF and Zara Men are also the star items, with a market
share of 24% and 10% by effective marketing strategies like product development, market
penetration etc.

QUESTION MARKS
In product portfolio, the products which have low profitability than star products and cash
cow are question marks. Along with the weak financial position of such business units, its
position is uncertain. If market conditions are stable, then these products are able to grab
the large market share to become the star item. Zara’s kid segment is the question mark
for the company with 7% of market share because there are many brands for kids which
are much more famous.

DOGS
The products which are always underperforming, and consume more than producing
return, are considered as dog items. For Zara, its maternity wear and underwear are
categorized in this quadrant, as there are many competitors in the industry which are
dominating the market, and Zara is unable to make the space for itself. Zara needs to
invest more in this category to make it in the cash cow category of the company, or it
should shut down its operations, so that funds could be used somewhere else.

45
VI.4 IE MATRIX
The Internal‑External (IE) Matrix positions an organization’s various divisions in a nine cell
matrix. The IE Matrix is a strategic management tool which is used to analyze the current
position of the divisions and suggest strategies for the future. It is based on an analysis of
internal and external business factors which are combined into one suggestive model. The
IE matrix is a continuation of the EFE matrix and IFE matrix models.

The IE matrix is based on the following two criteria:

1. Score from the EFE matrix - This score is plotted on the Y-axis.
2. Score from the IFE matrix- The score is plotted on the X-axis.

The Internal‑External (IE) Matrix positions an organization’s various divisions in a nine cell
matrix. The IE Matrix is a strategic management tool which is used to analyze the current
position of the divisions and suggest the strategies for the future.
The Internal‑External (IE) Matrix is based on an analysis of internal and external business
factors which are combined into one suggestive model.

Figure 14: IE Matrix

46
 Figure 15: IE Matrix of Zara

The result of the IE Matrix shows that Zara is positioned as the Category II because the
EFE score was 3.3 (High) while its IFE score was 2.51 (Average). Consequently, the strategy
that Zara should pursue is the Grow and Build Strategy.
Grow and Build strategies include the intensive strategies like market penetration,
market development, and product development, or integrative strategies such as
backward integration, forward integration, and horizontal integration.

47
VI.5 GRAND STRATEGY MATRIX
The Grand Strategy Matrix has become a popular tool for formulating feasible strategies,
along with the SWOT Analysis, SPACE Matrix, BCG Matrix, and IE Matrix. Grand strategy
matrix is the instrument for creating alternative and different strategies for the
organization. All companies and divisions can be positioned in one of the Grand Strategy
Matrix’s four strategy quadrants. The Grand Strategy Matrix is based on two dimensions:
competitive position and market growth. Data needed for positioning SBUs in the matrix
is derived from the portfolio analysis. This matrix offers feasible strategies for a company
to consider which are listed in sequential order of attractiveness in each quadrant of the
matrix.

Figure 16: Grand Strategy Matrix

1. Quadrant I (Strong Competitive Position and Rapid Market Growth) – Firms

located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic
position. The first quadrant refers to the firms or divisions with strong competitive
base and operating in fast moving growth markets.
Such firms or divisions are better to adopt and pursue strategies such as market
development, market penetration, product development etc. The idea behind is
to focus and make the current competitive base stronger. In case such firms
possess readily available resources they can move on to integration strategies but
should never be at the cost of diverting attention from current strong competitive
base.

48
 2. Quadrant II (Weak Competitive Position and Rapid Market Growth) – Firms
positioned in Quadrant II need to evaluate their present approach to the
marketplace seriously. Although their industry is growing, they are unable to
compete effectively, and they need to determine why the firm’s current approach
is ineffectual and how the company can best change to improve its
competitiveness.
The suitable strategies for such firms are to develop the products, markets, and to
penetrate into the markets. Because Quadrant II firms are in a rapid-market-
growth industry, an intensive strategy (as opposed to integrative or
diversification) is usually the first option that should be considered. To achieve the
competitive advantage or becoming market leader Quadrant II firms can go into
horizontal integration subject to availability of resources. However, if these firms
foresee a tough competitive environment and faster market growth than the
growth of the firm, the better option is to go into divestiture of some divisions or
liquidation altogether and change the business.

3. Quadrant III (Weak Competitive Position and Slow Market Growth) – The firms
fall in this quadrant compete in slow-growth industries and have weak
competitive positions. These firms must make some drastic changes quickly to
avoid further demise and possible liquidation. Extensive cost and asset reduction
(retrenchment) should be pursued first. An alternative strategy is to shift
resources away from the current business into different areas. If all else fails, the
final options for Quadrant III businesses are divestiture or liquidation.

4. Quadrant IV (Strong Competitive Position and Slow Market Growth) – Finally,

Quadrant IV businesses have a strong competitive position but are in a slow-
growth industry. Such firms are better to go into related or unrelated integration
in order to create a vast market for products and services. These firms also have
the strength to launch diversified programs into more promising growth areas.
Quadrant IV firms have characteristically high cash flow levels and limited internal
growth needs and often can pursue concentric, horizontal, or conglomerate
diversification successfully. Quadrant IV firms also may pursue joint ventures.

Generally, strategies listed in the first quadrant of Grand Strategy Matrix are intended to
maintain a firm’s competitive edge and boost rapid growth, while the other three
quadrants represent appropriate actions to take to reach the best position, which is the
first quadrant. Increasing market share, expanding to new markets and creating new
products are common strategies.

49
Position of Zara on the Grand Strategy Matrix:

Figure 17: Zara's Position on Grand Strategy Matrix

Since Zara has a very strong competitive position and it also has a rapid market growth of
21%, consequently, we can conclude that Zara is positioned in the 1st Quadrant of the
matrix (Quadrant I).

Strategies suggested for companies in Quadrant 1:

1. Market Development
2. Market Penetration
3. Product Development
4. Related Diversification

Among the suggested strategies of Quadrant I companies, specifically for Zara, Inditex has
used the market development, market penetration, forward integration, and related
diversification.
In general, however, Inditex has done twice of horizontal integrations in the form of
acquisition of two brands: Massimo Dutti and Stradivarius.

50
MARKET PENETRATION:
This is the strategy of selling more to the existing customer base and thus growing sales
and revenue. As Zara’s products became popular and well known the existing customers
were willing to buy from the fast fashion brand. This is how market penetration worked
in its favor and helped it grow its sales. It did not invest in marketing but the popularity
of the brand and its products grew based upon its low prices and excellent designs.

MARKET DEVELOPMENT:
Market development is the strategy of entering new markets or geographic regions. Zara
has expanded globally fast and today it is present in 93 countries with its more than 2200
stores. In 2015, it added total 65 stores and 50 Zara home locations. Its biggest market is
Spain with 436 stores. Apart from it China, France, Japan and Italy are also among its big
markets. This shows how fast, it has expanded into the foreign markets.
Market development effort for Zara includes opening new and larger stores in Asian
countries such as China, India, and Indonesia with stronger visual merchandising. They
also increase their product visibility in all the stores across the globe.

PRODUCT DEVELOPMENT:
A key strategy used by Zara to grow its market base and brand. It is the strategy of
developing new products to lure more customers including new and existing ones.
Fashion cycles at Zara are shorter and it takes only a few weeks for new fashion to arrive.
Moreover, the brand has managed its supply chain so well that it product ideas take just
two weeks to become products and reach the stores.

Market penetration efforts include enhancing its online-sales expansion in Europe,

America, Australia and South Africa. Moreover, they also enhance the in-store experience
to increase the consumers’ loyalty.

As for the forward integration, Inditex has been famous for its vertical integration in
which it takes the control over distributors and retailers. All policies regarding every
business activities from the headquarters in Spain all the way down to the retail stores,
wherever it is located, all must be approved by the headquarters first. The distribution is
centralized to Inditex’s 4 distribution centers which are located in 4 different cities in
Spain: Madrid, León, Tordera, and Barcelona. Even though the products are
manufactured in many different countries, every single product must be exported back
to Spain to be then distributed to all Zara stores around the world.

51
VI.6 QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)
Quantitative Strategic Planning Matrix (QSPM) is a high-level strategic management
approach for evaluating possible strategies. Quantitative Strategic Planning Matrix or a
QSPM provides an analytical method for comparing feasible alternative actions. The
QSPM method falls within so-called stage 3 of the strategy formulation analytical
framework.

When company executives think about what to do, and which way to go, they usually
have a prioritized list of strategies. If they like one strategy over another one, they move
it up on the list. This process is very much intuitive and subjective. The QSPM method
introduces some numbers into this approach making it a little more "expert" technique.

The Quantitative Strategic Planning Matrix or a QSPM approach attempts to objectively

select the best strategy using input from other management techniques and some easy
computations. In other words, the QSPM method uses inputs from stage 1 analyses,
matches them with results from stage 2 analyses, and then decides objectively among
alternative strategies.

QSPM OF ZARA:
Expansion in Build Distribution
Increase
Asian- Centres in Asian-
QSPM Marketing
Developing Developing
Spend
Countries Countries
Key Factors Weight AS TAS AS TAS AS TAS
Key External Factors
Opportunities
Increasing Middle Class
in Asia
0.2 4 0.8 4 0.8 3 0.6
Rising Environmental
Issues
0.05 2 0.1
Opportunity to Build
Distribution Centres in
Developing Countries to
Lower Costs
0.05 3 0.15 4 0.2
New Customers from
Online Channels 0.2 4 0.8 4 0.8

52
New Designers for Better
Designs & Better
Marketing 0.1 4 0.4 3 0.3

Threats
Increasing Competition
and New Entrants
0.2 3 0.6 2 0.4 4 0.8
Exchange Rate & Political
Uncertainties
0.05 4 0.2
Increasing Promotions
by Competitors
0.05 2 0.1
Possible Imitation of
Goods 0.1 1 0.1 3 0.3
Total 1.0

Key Internal Factors

Strengths
Global Distribution &
Reach
0.08 4 0.32 4 0.32 4 0.32
Strong Brand & Store
Image
0.04 4 0.16 3 0.12
Financial Position - Cost
Structure & Return on
Capital
0.05 4 0.2 3 0.15 3 0.15
Strong Supply Chain &
Dealer Community 0.08 4 0.32 4 0.32
Automation
0.04 3 0.12 3 0.12
Skilled Labour
0.02 2 0.04 4 0.08
Product Portfolio
0.02 4 0.08
Owns several Intellectual
Property Rights that
include trademarks and
patents 0.15 3 0.45 3 0.45 2 0.3

53
Quality & Unique
Designs - Fast Changing
Collection 0.02 4 0.08 4 0.08 4 0.08

Weaknesses
Generalized Collection &
Limited Stock - Reliance
on a few products
0.08 2 0.16 2 0.16
Price
0.02 3 0.06 3 0.06
Lack of Marketing
0.01 4 0.04 4 0.04
High Day Sales Inventory
0.01 3 0.03 3 0.03 3 0.03
Low Current Ratio
0.03 2 0.06 2 0.06 2 0.06
Cash Flow Problems
0.1 3 0.3 3 0.3
Diversification in
Workplace
0.01 2 0.02 4 0.04
High Employee Turnover
Rates
0.05 2 0.1 2 0.1
Centralized Decision
Making
0.12 3 0.36 3 0.36
Unsystematic
Performance Appraisal 0.07 2 0.14 3 0.21
Total 1.0 6.29 4.24 3.9

The decision stage based on the QSPM Matrix above, indicates that the most prioritized
strategy is the Expansion in Asian-Developing Countries since it has the highest ending
score of 6.29. The countries include China, India, and Indonesia. Inditex is actually doing
this strategy right at this very moment for Zara.

54
 VII. MATRIX ANALYSIS:

MATRIX ANALYSIS
SPACE BCG IE GSM COUNT
Forward Integration X X X 3
Backward Integration X X X 3
Horizontal Integration X X X 3
Market Penetration X X X X 4
Market Development X X X X 4
Product Development X X X X 4
Related Diversification X 1
Unrelated Diversification X 1
Joint Venture 0
Retrenchment 0
Divesture 0
Liquidation 0

The table above has been used to come to a conclusion regarding the strategies which
Zara should implement, and which will prove most beneficial to the company.

According to the analysis, the brand should adopt the Market Penetration, Market Development
and Product Development strategies.

55
VIII. ZARA’S FUTURE BRAND AND BUSINESS CHALLENGES
MOBILE COMMERCE:
Zara woke up late to the potential of mobile commerce and needs to catch up fast with
competitors. Different forms of market analysis strongly point towards a scenario wherein
spends on mobile commerce will overtake desktop based ecommerce in the next 3 years.
On an average, most brands get about 15-20% of their website traffic via mobile devices
and this is growing rapidly. With the deluge of investments planned in the mobile
commerce space and Zara’s competitors already having an advantage on the mobile front,
Zara needs to quickly make mobile shopping not only an effortless experience but also a
delightful one.

PRICE IS NOT AN ADVANTAGE ANYMORE:

Offering the latest fashion lines at affordable prices continues to be a strategic advantage
for Zara, but cannot continue to be the only one. Across the world, and closer to home in
Europe, competitors are cutting prices and refining their business models to cut the
competitive advantage that Zara has. Swedish fast fashion retailer H&M launched an
online store in Spain in 2014 to take own Zara in its home turf. Again in its home market,
it now faces increasing competition from brands like Mango, which cut prices and started
focusing on fashion segments in which Zara enjoyed popularity. In addition to H&M and
Mango, other competitors like Gap and Topshop are all fighting for a share of the fast
fashion retail market pie. Also with the rise of e- and m-commerce, the number of indirect
competitors has mushroomed. We now have online fashion aggregators that bring in
multiple brands under one single online platform and cut through borders and price
segments. Some examples of such aggregators who are doing well include Lyst, Farfetch,
Spring and Yoox Net-a-Porter.

For Zara to effectively compete and maintain its strategic advantage, the focus needs
to shift away from price but towards quality. Even today the Zara brand enjoys high
levels of appeal, which is evident by the serpentine queues outside its stores when it
launches in new markets. There is a need for Zara to start investing in building a strong
brand positioning and aggressively communicate it. Additionally, Zara needs to adopt,
imbibe and leverage social media and digital platforms in its advertising and
communication strategies deeper going forward.

NEED FOR MARKETING STRATEGY TO EVOLVE:

As discussed above, Zara does not engage in advertising and instead uses its store
locations as a marketing strategy. However, brand communication is crucial in attracting

56
new customers to the brand to support its growth. Without advertisements, Zara relies
heavily on word of mouth or social media. This causes the perception of potential
customers towards Zara to be heavily shaped by family and friends, which may not be
accurate. In addition, Zara’s social media platforms such as Facebook and YouTube exists
merely as a feed for updates rather than a platform that consumers can interact with. Its
videos on YouTube are also seeing very low viewership in comparison with its follower
count, which is not ideal as videos are a powerful medium for brands in the fashion
industry. This is a gap that Zara needs to plug immediately as the reach and impact of
social media marketing gets stronger. As Zara’s target customer segments start using
more social and digital platforms for communication and for sharing their lives, it is
important for Zara to have a strong presence on such platforms.

TRANSITION TO NEXT GENERATION OWNERSHIP:

With various technological and business disruptions in the past decade, leadership in the
21st century will be influenced by constant change, geopolitical volatility, and economic
and political uncertainty. Zara is currently controlled by 82-year-old Amancio Ortega, and
is set to be succeeded by his 34-year-old daughter, Marta Ortega. To effectively manage
the above disruptions, Zara’s next generation leadership needs to step up to the challenge
by being resilient in staying true to the brand promise to consistently produce “freshly
baked clothes” for its fashion-forward consumers, and by balancing both short-term
(profitability) and long-term goals (growing the business and reaching more consumers).
More importantly, despite Zara’s global reach and consequent product standardization,
it needs to constantly find new ways to serve local fashion needs and preferences of its
consumers across the globe. This will be a challenge for the brand’s leadership in the next
decade.

57
IX. CONCLUSION:
TAKE ZARA’S CUE AND LISTEN TO YOUR CUSTOMERS
The Zara brand was born with a keen eye on its customer – its ability to understand,
predict and deliver on its customers’ preferences for trendy fashion at affordable prices.
In addition to its effective supply chain, the brand’s ability to have its customers co-create
designs is unique and provides it with a competitive advantage. Most fashion trends often
start unexpectedly, originate from uncommon places and grow out of nowhere. With
reference to the pink scarf trend mentioned above, it could have been that Hollywood
actress Scarlett Johansson had worn a pink scarf to a charity gala the evening before in
Los Angeles, or golf star Michelle Wie had showcased a pink scarf at a celebrity
tournament in Asia. The fact that Zara was able to quickly jump on to this trend and
provide hundreds of customers with the pink scarves they desperately wanted to buy.

In a world swamped with Big Data, and yet more collected at an even more rapid pace
than before, brands still need to be careful and observant. Big Data does not provide
answers to all business challenges, and it may be too hyped to be considered as the Holy
Grail.

One of the secrets behind Zara’s global success is the culture and the respect for the fact
that no one is a better, authentic trendsetter than the customer himself or herself – and
this philosophy needs to be continually reflected in all its business strategies going
forward.

58
X. REFERENCES
 https://www.zara.com/in/
 http://www.inditex.com/
 https://martinroll.com/resources/articles/strategy/the-secret-of-zaras-
success-a-culture-of-customer-co-creation/
 https://www.slideshare.net/AlptuKA/zara-business-strategy-analysis
 https://notesmatic.com/2017/08/zara-generic-and-intensive-growth-
strategies/
 https://www.reviewessays.com/essay/Zaras-Core-Competencies/74686.html
 https://www.gurufocus.com/term/payout/AMM:ZARA/Dividend+Payout+Rat
io/Zara+Investments+%2528Holding%2529+Co.+Ltd
 https://1000logos.net/zara-logo/

59