Professional Documents
Culture Documents
ZARA Final Paper
ZARA Final Paper
ZARA
Created By:
Anggita Sulisetiasih
1006718706
1006718990
Patricia M. A. Adam
1006805694
TABLE OF CONTENTS
Chapter 1....................................................................................................................................4
INTRODUCTION......................................................................................................................4
1.1.
Company Background.................................................................................................4
1.2.
1.3.
Long-term Objectives..................................................................................................5
Chapter 2....................................................................................................................................6
VISION MISSION ANALYSIS..............................................................................................6
2.1.
2.2.
2.3.
2.4.
Chapter 3..................................................................................................................................11
EXTERNAL ASSESSMENT...................................................................................................11
3.1
3.2
3.3
Chapter 4..................................................................................................................................19
INTERNAL ASSESSMENT....................................................................................................19
4.1
4.2
4.3
Financial Analysis.....................................................................................................27
Chapter 5..................................................................................................................................33
STRATEGIES IN ACTION.....................................................................................................33
5.1
The Strategies............................................................................................................33
5.2
Chapter 6..................................................................................................................................36
STRATEGY ANALYSIS AND CHOICE................................................................................36
6.1
6.2
6.3
6.4
6.5
6.6
Chapter 7..................................................................................................................................46
IMPLEMENTING STRATEGIES: MARKETING, FINANCE/ACCOUNTING, R&D, AND
MIS ISSUES............................................................................................................................46
7.1
Marketing..................................................................................................................46
7.2
Finance......................................................................................................................49
7.3
7.4
Chapter 8..................................................................................................................................53
STRATEGY EVALUATION AND GLOBALIZATION CULTURE......................................53
8.1
8.2
Globalization Culture................................................................................................56
Chapter 9..................................................................................................................................59
CONCLUSION........................................................................................................................59
9.1
9.2
BIBLIOGRAPHY....................................................................................................................62
Chapter 1
INTRODUCTION
Chapter 2
objectives that are derived from their mission statement, create somewhat a clear standard of
their cost, time, and performance assessment, and it has been working well so far.
identify the utility of their products. However, Zara shows their emphasis on environmental
and social responsibility very well. The word sustainable development of society on their
mission statement not only shows that they are socially responsible, but also clarifies as an
enduring mission statement in term of program and actions.
On the other hand, Zaras mission statement does not completely include the nine
components of a Mission Statement. More of this will be discussed on the next section.
Lastly, it is also not reconciliatory.
A Customer Orientation
Fred David says on his book that a good mission statement reflects the anticipations of
customers. It identifies the customers needs and then provides a product or service to fulfill
them. Moreover, a mission statement should identify the utility of a firms products to its
customers. Zara implicitly states its customer orientation by using the phrase through our
business model. This will lead us to the explanation of Zaras unique business model, the
fast fashion.
The term fast fashion, by its definition, is an expression used by fashion retailers for
designs that move quickly from the catwalk to capture current fashion trends (Wikipedia,
2013). The designs are manufactured quickly and directly distributed to stores for endconsumers. Specifically for Zara, they claim that they only take two weeks for new designs to
be sold at their stores, while normally it would take more than three months. This is a form of
Zaras quick-response for their customers who desire the latest trend of apparels.
technology used allows the company to boost its value chain and eventually lower
the manufacturing time. Moreover, nowadays Zara is aiming to practice an ecofriendly technology throughout its worldwide operations.
5. Concern for survival, growth, and profitability: As one of the leading brands
10
Chapter 3
EXTERNAL ASSESSMENT
11
3.1
MODERA
TE
LOW
HIGH
MODERA
TE
HIGH
12
13
5. Rivalry: HIGH
a. High exit barriers due to high fixed and SG&A costs and excess inventory
with lots of cash tied up in out-of-fashion inventory
b. High advertising expenses; 3.5% of revenue indicative of intense competition
3.2
Weights
0.0 to 1.0
Rating
1 to 4
Weighted
Score
OPPORTUNITIES
1. Increasing middle class in Asia
0.10
0.3
0.05
0.05
0.10
0.3
0.05
0.2
5. International Recognition
0.20
0.8
1. Fierce Competition
0.2
0.8
0.05
0.1
0.05
0.1
0.2
0.8 +
THREATS
TOTAL
1.00
3.45
14
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. Zaras 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 higher response
rate.
2. 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 companys super efficient supply and value chain. That is also the
reason why we put Zaras response as 1 or poor, because they are not interested in
this option.
3. New Designers for better design weighs a 0.10 with a rating of 3; 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.
4. Rising Environmental Issues weighs a 0.05 with a rating of 4 or superior; They are
keen to have a good reputation of being an eco-friendly company, they even set
their mission regarding this issue, but too bad that sometimes the consumers do
not care about the eco-friendly issue, especially consumers in Asian-emerging
markets like India, Indonesia, and China. They simply want exclusive and trendy
clothes.
5. International Recognition weighs a 0.20 with a rating of 4 or superior response;
undoubtedly this factor is the most important for Zaras opportunities because it is
the key to successful expansion. In case of Zara, it is widely-known across the
globe with good reputation in most of the countries. Therefore, it is a winning
point for Zara to have such brand image in the eyes of global consumers.
The Threats of Zara:
1. Fierce Competition weighs a 0.20 with a rating of 4; one of the biggest threats
because of new and affordable products from different stores such as H&M,
15
Forever 21, 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 affects Zara. However, somehow, regardless the amount of
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.
Therefore, we conclude that the response rate is superior.
2. Lawsuit related to Sweatshops weighs a 0.05 with a rating of 2; this threat is not
much of a threat because the cases were not highly publicized, and also because
the company has created a commitment to stop the practice of sweatshops in every
factory; in every country where they produce their products.
3. Possible imitation of goods weighs a 0.05 with a rating of 2; there is a risk of
Zaras 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, Zaras
consumers are popularly known as loyal consumers to the brand.
4. Dilution of Brand Equity weighs a 0.2 with a rating of 4; this is also an important
threat because it can decrease in its brand value in customer eyes. Therefore, Zara
is implementing their best strategies to increase the brand equity. Probably more
significantly to their European consumers through the eco-friendly company
campaign which is highly noticed and precedence by European consumers.
Based on the EFE Matrix result, we see that Zara has a score of 3.45 which indicates a
strong response from Zara towards the opportunities and anticipation of threats.
3.3
Critical Success
Factors
Weight
Zara
Rating Score
H&M
Rating Score
Uniqlo
Rating Score
0.15
0.6
0.45
0.3
Enter marketing
strategy
0.05
0.1
0.1
0.2
Timing of entry
0.05
0.1
0.1
0.2
16
Recognition of brand
0.12
0.48
0.36
0.36
Customers knowledge
0.1
0.4
0.3
0.3
Marketing support in
global market
0.06
0.06
0.24
0.24
Location selection
0.04
0.12
0.08
0.12
Design collection
0.12
0.36
0.36
0.24
Employee
0.05
0.1
0.1
0.1
Price policy
0.1
0.3
0.4
0.4
Sales promotion
0.05
0.05
0.2
0.2
Organization and
control business
0.11
0.44
0.22
0.33
TOTAL
3.11
2.91
2.99
a. Target Foreign Market Selection: One of the most important factors in determining
success in this highly competitive industry which force its players to have massive
expansion strategy. That is why the weight is 15%. Comparing to its other 2
competitors, Zara has the highest score since they have been in the international
market longer then H&M and Uniqlo. Zara was the first to start opening new stores
in countries outside their country-of-origins continent. Zara expanded outside
Europe firstly in 1997 to Israel (Inditex, Timeline, 2013), followed by H&M which
is 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.
b. Enter Marketing Strategy: How the headquarter decides the mode of entering a
new market defines the companys interest towards the host country, as well as the
companys 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&Ms strategies in which both used third-party
17
to enter Asian markets. For example, Zara in Indonesia is under the management of
PT Mitra Adi Perkasa.
c. 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.
d. Recognition of Brand: Zara takes the lead on this factor due to its powerful brand
equity across the globe, including in Indonesia and other countries as well, they do
not need much advertisement or promotion because they are already strong in
international market. Meanwhile, H&M and Uniqlo is catching up to Zara. That is
why the company finally realized the need to invest more on commercials. They
eventually invested more than 600 million euro to improve their commercials and
their logistic simultaneously.
e. 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, customers knowledge is also important in order to
attract new consumers. Note that customers can also become tool for promotions
through the powerful word-of-mouth.
f. Marketing Support in Global Market: Zara has no lead here since after so many
years, the company seemed not care about this factor, which then ties H&M and
Uniqlos full on advertisements and marketing. Not until just recently when Inditex
finally decided to improve their marketing efforts.
g. Location Selection: H&M is behind Zara and Uniqlo since it has just opened in
only two stores in Jakarta. That is just one of the examples of how H&M is lagging
behind the other two in international market. Zara, on the other hand, is opening
more and more new stores in current market, in new market, and almost in every
big malls, shopping streets, downtown city, all strategic locations in every countries
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.
h. 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 the
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
18
furniture bedding, while H&M sells clothing, accessories, home perfume and make
up.
i. 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 apparel industry, employees (especially the
office employees) are not much of an effect more than the products itself, as a
result, the weight given is only 5%.
j. Price Policy: Price matters in apparel industry. Moreover, since the rivalry among
firms is high, therefore companies must be able to charge at competitive price. In
this aspect, H&M and Uniqlo ties on taking the lead for their more affordable
products than Zaras, especially Asian-developing countries like India, Indonesia,
and China.
k. Sales Promotion: H&M and Uniqlo also ties on taking the lead for promotions and
advertisement compared to Zara. This will relate to the companys strategy in
Marketing. Again, Zara has been very stingy when it comes to marketing
campaigns.
l. 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 Zaras performance is above
average.
19
Chapter 4
INTERNAL ASSESSMENT
4.1
Indoor Zara store (Plaza Indonesia, Jakarta) vs. Outdoor Zara store (42nd Street, New York)
b. Attractive Window Displays: Even though Zara does not have many
advertising or commercials, Zara does rely so much on its physical store-
20
d. Sophisticated IT System:
One of Zaras secret will be
the integrated information
system using the PDA and
POS.
Both
will
be
21
22
4.2
Weight
Rating
Weighted Score
0.08
0.08
0.12
0.12
0.09
0.03
0.15
3
3
4
4
4
3
4
0.24
0.24
0.48
0.48
0.36
0.09
0.6
0.08
0.12
0.08
2
1
1
0.16
0.12
0.08
0.05
0.10
23
Total
2.35
STRENGTHS
a. Global Outreach
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 apparel industry, Zara should reach every part of the world.
Therefore, a weight of 0.08 would be adequate for this factor.
We rank this strength 3 out of 4 because we think that this factor is definitely one
of Zaras strengths, even though it is not their major strength. Therefore, rating 3
(minor strength) would be sufficient to describe Zaras condition. In addition,
reaching global market is a foundation to step for an international brand to dominate
the industry.
b. Strategic Location
Zara chooses where to locate their stores carefully because they are aiming for a
direct communication strategy to promote their products. They have a unique
approach in locating their store in each countries, and even cities. For example in
Indonesia, Zara locates their stores in almost every big shopping mall because it has a
high traffic everyday and it is the main place for people to go shopping. In France,
Zara locates their store in downtown and main streets as the local people usually walk
down the street to go shopping. We gave this factor 0.08 of weight considering the
importance of convenience for consumers in the industry. Consumers will like it if
they can find good products available at their beloved shopping centers.
Since Zaras locations are strategic globally, we therefore give3 of rating for this
brand. It is categorized as their minor strength because we think this is not the main
reason why Zara is prominent in fast-fashion industry.
c. Distribution Strategy
24
In the distribution system, Zara control most of the supply chain and distribution
of its products from the headquarters. Zara has their main manufacturing place in
three different contingents. 50% of the products are produced in Spain, 26% in the
rest of Europe, and the rest 24% percent is outsourced in Asia and Africa. Then the
products were transferred to Zaras distribution centers located in Spain to be exported
to Zaras stores around the world. We can see that their distribution strategy is
vertically integrated. This requires a high concentration and control form the
headquarters in Spain, and that is exactly what Inditex does. Since the distribution
strategy is integrated, combined with their high technology, the products can be
distributed globally in just a short amount of time. This is the uniqueness of Zara.
They are able to adapt to the latest trend in limited time, using the Hybrid
Communication system, then produce those latest trend with available materials to cut
production time and cost, and after that the products are immediately transferred to all
the stores.
We found out that this is strategy has become their strength. An effective
distribution, therefore, has a higher weight of 0.12. In our opinion Zara deserves 4
rating for this factor since this is their specialty.
d. Store Image
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. In addition, their excellent customer instore services result a loyal behavior from consumers. In the industry with a high level
of competition, consumer loyalty is crucial; therefore we give a high weight of 0.12
and rank of 4 because this strength is a strong foundation for the company which is
highly acknowledged by Zara.
e. Fast Changing Collection
This factor is one the specialties and uniqueness of Zara. Every 2 weeks Zara
published brand new fashion items. This strategy exists to stimulate and refresh
consumers curiosity about Zaras 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
25
apparel industry, it is easy to copy the style of designs. Therefore, a rating of 0.09 is
given for this strategy. In terms of their response towards the factor, we give Zara 4
rating since they put high concern on this matter through their business model.
f. Responsive Employees
Employees presence is important inside the store to control, rearrange items, and
also to give information to the customers. Therefore Zara also concerns about
Employees responsiveness, especially because they claim to have direct
communication as their prominent marketing strategy. Customer control and
satisfaction sometimes depend on the service and Zara want to optimize those
satisfactions in order to get the customers loyalty. On the other hand, sometimes
consumers do not really care about the customer service. Sometimes they care only
about the product and price. Consequently, a weight of 0.03 is given for this strength,
as it is not as important as the other strengths. In term of Zaras effectiveness in
responding to this factor, a rank 3 out of 4 is adequate.
g. Brand Image
We set the brand image as the highest weight of 0.15. We do think that this is the
back bone of every player in apparel industry; again, considering the amount of
competition in this industry. One of the proofs would be the fact where consumers
still buy the product from certain brand even though many claim it uses bad fabrics, or
the price is sometimes too high, and so on. Eventually, they would still come back
because of the image that they will get when they purchase the product. In other
words, this symbolic brand benefits do exist and they are important.
The brand of Zara is famous for their exclusivity and trendy product. Zara would
never have a not up to date image as they always publish new items in every 2
weeks. The strong brand image is admitted around the world. This is what helps Zara
to keep improving and reach the sustainability. Therefore, we give a full score of 4 in
term of their response towards this factor.
WEAKNESSES
a. Limited Stocks
26
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. Customers
dissatisfaction quite have an effect for Zara, therefore rank 2 out of 4 is given with
weight of 8% considering the fact that this strategy of Zara might actually be risky.
b. Price
In its country of origin, Zara is categorized as a low-end product. However, Zara
is included in a high-end product in Indonesia and in many other countries, 1 item of
long sleeve shirt can be priced at 600,000 Rupiah. This is one of 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 rupiah just to get a T-shirt. Therefore,
we rank a low rate of 1 out of four with larger weight of 12%.
c. Brand image closely tagged to competitors
As mentioned earlier, the problem in apparel industry is that it is very easy to copy
each others designs. This weakness is one of the toughest to deal with. Beside Zara,
there are a lot of other brands that reach the international market that also build an
exclusive image for them self. Therefore sometimes public cannot differentiate
product from Zara and their competitors. In other words, it is going to be easy for
them to switch from one brand to another. Moreover, this will affect peoples
judgment that all the brands that in the same level as Zara is actually the same or
similar in term of types and products, or in other words, no clear differentiation
between those brands. As a player in this industry, Zara needs to obtain consumer
loyalty; therefore, we rank this weakness as their major weakness with rating 1 out of
4. However, the weight of this factor is not that high since in apparel industry, despite
the existence of problems in the designs differentiation, a brand can develop a strategy
to build consumers loyalty, just like what Inditex is trying so hard to do to its brands,
including Zara.
d. Lack of Marketing
Zara is lack of marketing such as promotion and advertisement. In Indonesia it is
very rare to see Zara logo and advertisement outside the store and in public area. In
27
fact, Zara in different countries also does not have that much of advertisement. They
only depend on the strong brand image that they already have. This can be a tough
weakness if the competitors keep on increasing their marketing strategy, especially in
emerging countries.
2012
2011
From all the strengths and weaknesses we come out with the result of 2.35. This is an average
Quick Ratio
1.4589
1.4366
result from a perfect score of 4. So we can conclude that their effectiveness in utilizing their
strengths to cover the weaknesses is satisfactory enough.
4.3
Financial Analysis
LIQUIDITY RATIO
Current ratio defined as how much power does the current asset can cover current
liabilities. The result shows that both in 2011 and 2012 the current ratio is above 1,
which is good for the company as their asset have more power to cover the liabilities
from their assets.
2012
1.5180
Current Ratio
2011
1.5104
Quick ratio basically has the same indication like current ratio. But quick ratio only
looks from the companys quick asset. So inventory is not included in the formula.
The result shows that the quick asset of the company still could cover the liabilities
that they have.
LEVERAGE RATIO
Debt To Total
Asset
2012
0.3420
2011
0.3197
4.4
This ratio is to find out how much from
the total asset that financed by the total debt. The higher the result will cause a higher
financial risk. A healthy company should have a low debt to total asset ratio because
they need a more flexible finances. Debt financing could lower the degree of
28
flexibility. Zara in both 2012 and 2011 had a low result on this ratio, which means
only a small amount of the total asset that financed by the debts. A slight decreasing
trend also shows a positive progress for their assets.
Debt To Total
Equity
As like the debt to
defines
how
much
2012
0.5198
2011
0.0469
2012
0.1089
2011
0.1074
from total debt. The result shows below 1 which is a good result. The equity was not mainly
financed by debt. But, in this case, Zara had a quite significant increasing trend from 2011 to
2012. The increasing
because
it
means
proportion of debt
Times interest
earned
2012
220.5988
2011
68.1513
finances
the
equity.
This ratio is much the same like debt to total equity. The different is that this ratio
only analyze from the long- term debt side. So how much equity that financed from
the long- term debt. The result shows a good sign. The long- term debt had a small
amount of proportion in financing the equity. A decreasing value of the result is also
an improvement for the company.
Times interest earned indicates the earning that is available to meet the interest
payments. A lower times interest earned will result in a less earnings available to meet
the interest payments and the company will be more vulnerable to increase the interest
rate. Zara has a significant increasing trend which is good for the company as they are
more powerful in term of the interest payments.
29
ACTIVITY RATIO
2012
24.6203
Inventory
Turnover
2011
N/A
(5612216/0)
Inventory turnover defines how fast the business can liquidate their inventory. The
higher result shows a good sign of the inventory circulation. Unfortunately we cannot
define the inventory turnover for 2011 as we have an insufficient data. But, for the
year of 2012 itself Zara has a quite good performance on their inventory turnover. 24
is quite a high result for inventory turnover.
2012
Fixed Asset
2.5727
2012
Turnover
Total Asset
1.2371
Turnover
2011
2.4978
2011
1.2585
As like total asset turnover, fixed asset turnover also measure the effectiveness of the
Company in managing their asset. But this time is only for their fix asset. The greater
the value means a high effectiveness of the Company in generating their fixed asset to
sales. From only the fixed asset, eventually Zara has a positive trend. The value is also
higher than comparing to the total asset turnover. So Zara is effective and keep on
improving in managing their fixed asset.
PROFITABILITY RATIO
Gross Profit
Margin
2012
0.5976
2011
0.5930
30
Gross profit margin has a vital role in indicating the financial health. It shows the
power that the company has to pay its operating and other expenses and build for the
future. It was a
margin for Zara
which is good
Operating
Profit Margin
2012
0.1955
2011
0.1828
stable
in
gross
2011
because
profit
and
2012,
gross
profit
Net Profit
margin
This
2012
0.1484
2011
0.1410
ratio
measures
the
Companys operating efficiency. The higher result shows a higher efficiency of the
company. Zara had a slight positive trend for their operating profit margin. It means
Zara had an improvement in managing their operation. Zara also had bigger revenue
leftover to pay their variable cost of production.
Net profit margin measures how much out of every dollar of sales a company actually
keeps in earnings. A higher profit margin indicates a more profitable company which
has a good control on their costs. There is not much difference from 2011 and 2012
for Zara. So we could say that there is no improvement for Zara on their costs control.
Return on Total
Asset
2012
0.1836
2011
0.1775
This ratio basically measures the Companys effectiveness in generating their assets
into earnings. The higher the value, the better for the company as they are more
31
effective in managing their assets. Zara does not have a significant improvement from
2011 and 2012.
Return on
Stockholders
Equity
2012
0.2791
2011
0.2609
Return on stockholders equity indicates the amount of net income generates to the
2012
2011
Earnings per share
3.7981
3.2888
stockholders equity. The higher value shows a bigger amount of percentage from the
net income to the equity. So a high return on stockholders equity will attract investors
to invest to the company. Zara had a slight increasing trend for this ratio but it is not
significant enough to attract the investors.
Earnings per share (EPS) is a portion of companys profit that allocated to each share
of the outstanding stock. This ratio will also attract investors attention, as they will
hold the shares. Zara had quite of an improvement her. They have 0.5 bigger portions
in 2012 comparing to 2011. The higher the earnings per share the better it is for the
investors.
2012
30.0410
2011
30.4414
The P/E Ratio is a comparison and valuation ratio of the companys current share
price compared to the price- share earnings. A higher price earnings ratio could define
a better performance of the company. Zara had a quite negative trend on their priceearnings ratio, which means a decreasing performance and investors less expectation
on the earnings growth.
GROWTH RATIO
32
Based on the financial statement, Zara had a 16% growth of sales. This could be
affected by an improvement on the effectiveness of managing their assets and
inventories. 16% is quite a large number of growths in one year.
Net Income had a growth of 22%. This is even bigger than the sales growth. So, it
shows that Zara not only improve in managing their assets and debt, but Zara is also
good in managing their expenses so that the net income was boosted up.
Zara also has an increase of 13.47% in earning per share growth. With an increase
of net income, Zara allocates more from their earning to the outstanding shares.
33
Chapter 5
STRATEGIES IN ACTION
5.1
The Strategies
A. Integration Strategies
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 from the Massimo Dutti group and the
acquisition of Stradivarius.
B. 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, almost in every new shopping malls 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.
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.
C. 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 form of
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 f 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.
34
Zara Homes first store in Indonesia, located in Plaza Indonesia on 2nd Floor
D.
Defensive Strategies
Zara has no defensive strategy because the company is in good condition, not in
any kind of jeopardy. Therefore, it does not need any defensive strategy at the
moment.
5.2
Large
SIZE OF
Cost Leadership
Type 1
GENERIC STRATEGIES
Differentiation
Focus
Type 3
Type 2
MARKE
T
Small
Type 3
Type 4
Type 5
35
(which was pioneered by Inditex), that is supported by its excellent and integrated supply
and value chain.
36
Chapter 6
6.1
Strengths
Weaknesses
Global Outreach
Limited Stocks
Strategic Location
Price
Distribution Strategy
Store Image
Lack of Marketing
SO Strategies
WO Strategies
Charge products at
competitive price in Asian
countries standards (W2, O1)
Opportunity to build
distribution center in
developing countries to lower
costs
37
designers
International Recognition
ST Strategies
WT Strategies
Threats
Fierce Competition
Enhance ZARAs
differentiation through its
unique designs (W3, T4)
38
6.2
Ratings
6
5
3
Total 14
Ratings
4
3
4
Total 11
Industry Position
Market growth, especially in developing countries
Fashion Industry itself is a sustainable industry
Very competitive
Stability Position
Inadequate infrastructure and IT in developing countries (especially
India and Indonesia)
Counterfeiting in developing countries
Possible increase in labor costs
Total
Competitive Position
Increasing threats from new competitors such as Uniqlo and H&M
Zara provides unique concept
Zara has the largest market share
Total
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
FP : 4.67
Therefore, we get the x-axis
= -2.33 + 3.67 = 1.34
the y-axis
= -2.67 + 4.67 = 2
The following is the SPACE Matrix picture:
Ratings
-4
-2
-2
-8
Ratings
-3
-2
-2
-7
AGGRESSIVE STRATEGY:
39
Since the curve is upward sloping placed at upper-right of the quadrant, we can
conclude that Zara can pursue the Aggressive strategies, by means the company is in an
excellent position to use its internal strengths to: (1) take advantage of external
opportunities, (2) overcome internal weaknesses, (3) avoid external threats. Therefore,
market penetration, market development, product development, backward integration,
forward integration, horizontal integration, related and unrelated diversification, or a
combination strategy all can be feasible, depending on the specific circumstances that
face the firm. That is exactly what Zara is doing now, as we recall our previous analysis
on the Strategies in Action (Chapter 5).
6.3
40
The following is the position of Zara and several other Inditexs brands in terms of
BCG Matrix:
STARS (High Market Share, High Market
Growth)
Zara is placed as Stars because it has high market share and compete in an industry
with a high growth whereas the other Inditexs brands such as Stradivarius, Pull&Bear,
and Bershka are placed at the Question Marks since they have lower market share
compared to Zara. Based on the companys annual report presentation, from Inditexs
overall income in 2012, exactly 66.1% comes from Zara, while Stradivarius, Pull&Bear
and Bershka contributed 6%, 6.8%, and 9.3% respectively.
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 remain 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.
6.4
41
High
3.0 4.0
THE EFE
TOTAL
WEIGHTED
Medium
IV
VI
VII
VIII
IX
2.0 2.99
SCORES
Low
1.0 1.99
The IE Matrix for Inditexs brands is as follows:
The result of the IE Matrix shows that Zara is positioned as the Category II whereas
Bershka, Pull & Bear, and Stradivarius are at the Category V. Zara is considered as
Category because the EFE score was 3.45 (High) while its IFE score was 2.35 (Average).
Consequently, the strategy that Zara should pursue is the Grow and Build Strategy.
Meanwhile for the other 3 brands we assume that they have same level of IFE because
they come from the same company with similar strategies in doing expansion. However,
the three brands may have lower level of EFE compared to Zara since based on the
number of stores available globally, especially in Asian countries, the other three brands
are lagging way behind Zara. In other words, the response of these three brands to the
growing market of Asian countries like China, India and Indonesia is low compared to
Zara. Therefore, they should pursue the Hold and Maintain Strategies.
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. As for the Hold and Maintain
strategy, it includes the market penetration and product development strategy. In other
words, Bershka, Pull & Bear, and Stradivarius should either consider creating a whole
different concept of product or increasing the level of Branding and Marketing to boost
sales.
42
6.5
QUADRANT I:
1.
2.
3.
4.
5.
6.
Weak Competitive
Position
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal
integration
Strong
Competitive
Position
43
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 Inditexs 4 distribution centers which are located in 4 different cities in
Spain: Madrid, Len, 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.
44
The last strategy is the related diversification. As one of the major player 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.
Zara accessories in store and online
45
6.6
Expansion in
AsianDeveloping
Countries
QSPM
Key Factors
Build Distribution
Center in AsianDeveloping
Countries
Increase
Marketing
Spending
Weigh
t
AS
TAS
AS
TAS
AS
TAS
0.1
0.4
0.4
0.3
0.05
0.15
0.2
0.1
0.05
0.2
3
2
4
0.3
0.1
0.8
0.2
4
0.8
0.2
0.05
0.05
0.2
1
3
1
1
2
0.6
0.05
0.05
0.4
0.8
0.6
KEY EXTERNAL
FACTORS
Opportunities
Increasing middle class in Asia
Opportunity to build distribution
center developing countries to
lower cost
Cooperation with new designers
Rising Environmental issues
International Recognition
Threats
Fierce competition
Lawsuit related to sweatshop
Possible imitation of goods
Dilution of brand equity
Total
0.4
46
Global outreach
Strategic locations
Distribution strategy
Store image
Fast changing collection
Responsive employees
Brand image
Weaknesses
Limited Stock
Price
Brand image tagged to
competitors
Lack of marketing
Total
0.08
0.08
0.12
0.12
0.09
0.03
0.15
4
4
4
4
3
2
4
0.08
0.12
2
3
0.08
0.05
1
2
2
0.32
0.32
0.48
0.48
0.27
0.06
0.6
0
0.16
0.36
0.16
0.1
6.16
4
3
4
3
2
3
0.32
0.24
0.48
0.27
4
3
0.32
0.24
3
2
0.36
0.18
0.6
4
4
0.32
0.2
4.72
0.16
0.36
3.03
Based on the QSPM Matrix above, we conclude that the most prioritized strategy will
be the Expansion in Asian-Developing Countries since it has the highest ending score.
The countries include China, India, and Indonesia. Inditex is actually doing this strategy
right at this very moment for Zara.
Chapter 7
7.1
Marketing
As the world is now becoming digital, many marketers initiate the digital
marketing campaign. Many companies now engage actively to promote their products
on social media like Facebook, Twitter, YouTube, or Instagram. Not wanting to be a
laggard, Zara also created its own Facebook page, Twitter account, YouTube, and also
Instagram accounts. More than 16 million people like Zaras FB page and more
than 300 hundred people followed Zara on Twitter, thousands of people also
subscribed to Zaras channel on YouTube. Unfortunately, it is not enough. Despite its
availability on social media, Zara is not utilizing using these social media to do
advertisements; therefore, these accounts are not really productive or useful for the
company.
47
worldwide. The store is located in prime locations of the area with high
concentration of visitors. In distributing its products, Zara practices the
constant flow of updated data that mitigates the so-called bullwhip effectthe
tendency of supply chains to amplify small disturbances. A small change in
retail orders, for example, can result in wide fluctuations of factory orders
after it's transmitted through wholesalers and distributors. In an industry that
traditionally allows retailers to change a maximum of 20 percent of their
orders once the season has started, Zara lets them adjust 40 to 50 percent. In
this way, Zara avoids costly overproduction and the subsequent sales and
discounting prevalent in the industry (Keller, 2012).
4. Promotion: In the competitive clothing industry, Zara has successfully built a
worldwide famous brand by a unique management system of design,
production and supply chains. The fast fashion concept and operation allow
Zara to always provide the most fashionable clothes to their customers and the
48
always renewing collections definitely help build a brand loyalty. This results
a remarkable growth globally with only limited investment on advertisements,
or even none. Inditex on its company report states that its business model
includes no advertisement when entering a new market to avoid the main fixed
costs of international expansion. Moreover, even in its home country, Zara
does not rely on traditional tradition. Instead, they rely on direct
communication with consumers.
Retention-based Segmentation:
The customers of Zara can be classified into 3 following segments:
1. Fashion Chaser: people who are fashion trend followers and value fashion
over exclusivity. They prefer well-known brands and price is of lower priority
to them. They are also the most loyal customers of Zara.
2. Opinion Seeker: people who rely heavily on mass media and people around
them in their purchase decision, including close friends, family, or the shop
assistant.
3. Value Buyer: the type of customers that are more price-conscious. They
compare prices and qualities between brands before finally decide which gives
them the most value.
Product Positioning
Since Zara is available across the globe, the positioning of Zara becomes different
depending on the GDP/capita in certain countries. For countries with medium to high
GDP/capita, Zara is considered as low-price product. On the other hand, for countries
with medium to lower GDP/capita (mainly in Asian countries), Zara is considered as a
high-price products. As for the fashion/couture, Zara is considered high level of
fashion/couture regardless the geographic area.
49
Product Positioning of Zara in developed countries (left) vs. developing countries (right)
7.2
Finance
2012
2011
1.7
2010
1.3
1.3
2009
2008
50
Source: inditex.com
The graph above shows the increase of Net Income of Inditex group as a whole. It
indicates a positive trend year by year in the last 5 years. Based on this date, we can also
calculate the estimated future benefit as follows:
Future benefits = 5 x current annual profit
= 5 x 2.4 billion euro = 12 billion euro.
Therefore, Inditex is projected to have 12 billion euro worth of benefits.
7.3
51
design and development overrides fabric procurement. In Zara, the design teams work
with the available fabric, allowing for faster fashion, also minimizes costs.
52
centers.
Environmental information and awareness-raising campaigns aimed at all
store staff.
Move towards renewable sources of energy and cogeneration plants (850 kW
wind turbine, 1,500 m2 of solar thermal collectors and 3 CHPs).
7.4
53
Moreover, in its day to day operation, Zara also uses the Point of Sale System (POS)
which includes the transaction processing system that captures customer purchase
intentions. The examples will be asking customers what they like and what they do not
like in fitting rooms, etc. The POS system show how garments rank in sales in different
areas, Therefore, the headquarters can identify their customers purchase behavior and
preferences more accurately, based on their geographic area.
The following picture is a real example from our research in one of Zaras stores
located in Plaza Indonesia. In the picture we can see the store manager of Zara Plaza
Indonesia using a PDA to send information to the headquarters about a complaint from a
customer that is being handled by the saleswoman (on his right). We could not get a better
angle because we took the photo tacitly at the cashier.
54
Chapter 8
8.1
Measure or Target
Time
Expectation
Primary
Responsibility
Customers
Improve the
customer service
through employee
trainings
Aggressive
expansion
Utilize the POS
through customer
feedback reported
by the store
manager through
PDA
1. Satisfactory shopping
experience
EBIT increased by
35% (from 24% in
2012)
2015
2. Local Variation
2015
Employee Turnover
decreased by 20%
10 years
Enhance good
communication
between
managers and
employees
2015
Marginal Cost
decreased by 5%
2015
Utilize the
purchase office to
project the trend
in Asian market
Outsource more
types of clothing
to be produced in
Asia
Unemployment Rate in
host country (India)
decreased by 3%
Annually
Managers/Employees
1. Employee welfare
Operations/Processes
Community/Social Responsibility
Through major
outsourcing,
ZARA (Inditex)
55
Number of ecological
clothing items
increased to 20 million
2014
Environmental
Management
System pursuant
to the ISO 14001
standard
Emission control
dumping and
waste Plans
Admission to
Dow Jones
Sustainability
Index
2015
TQM practice
Inditex
sustainability
model
Optimization of
global expansion
Financial
1. Financial sustainability
Analysis:
Since Zara is practicing
both market penetration and
market
development
strategies;
therefore,
it
is
consumer
shopping
many
new
potential
markets.
and
Further,
56
57
the emission control through the use of thermal energy, and finally the Dow Jones
Sustainability Index.
Last but not least, as a public company, Inditex must be able to ensure its stakeholders
that the company can last a long time. Inditex needs to show how can the company
sustain itself and maintain its profitability in the long-term. Therefore, the company
should practice the TQM or the Total Quality Management continuously. By means, the
company should continuously improve the customer service, quality, accessibility, and all
other key critical success factors in the industry. Furthermore, since the Asian market is
booming nowadays, then the company should optimize this situation to generate as much
profit as possible.
8.2
Globalization Culture
As mentioned in the previous sections, Zara is a highly vertical-integrated company.
Even though Inditex enters many markets through another retailer, however the concept,
decision-making, and business operations and standards are always centralized and
standardized universally. For example in Indonesia, Zara is brought-in by PT Mitra Adi
Perkasa which comply all Inditexs regulations from the importing process down to the
post-purchase customer service. PT Mitra Adi Perkasa is not able to make any decision
regarding the brand without the permission from the headquarters. Moreover, they need to
report to the headquarters daily about activities in the store. As a result, we can find that
the culture of Zara, or the concept of Zara, or pretty much everything about Zara will be
the same regardless the location of the store. This includes the store layout, the store
design, lighting, window displays, and other physical resources, as well as the
management of the store. The following pictures will show how Inditex as the owner also
the headquarters of Zara controls all of its retailers in order to vertically-integrate Zaras
overall business operation. Moreover, Inditex actually applies this policy to all of its
brands sold by other retailers worldwide.
58
59
60
Chapter 9
CONCLUSION
9.1
61
B u sin ess
O p e r a tio n
C u sto m e r r e s p o n s iv e n e s
s
C u s to m e
r
L o y a lty
9.2
62
has brought a positive impact for the host country, as we recall the example of India.
Moreover, especially for environmental issues, Zara has committed to help reduce the
emission and create an eco-friendly business and the commitment is still strongly
upheld until today. Even now there are more and more concrete moves that the
company is doing in order that this mission can be achieved, including investing more
money on creating a eco-friendly business operation starting from the headquarters,
the manufacturing plants, and all the way down to the stores across the globe.
In conclusion, looking from the strategies that Zara is doing now, we can say that
these strategies are aligned with the visionmission and that these strategies are
effective and sufficient enough for the company to achieve the stated vision and
mission.
63
BIBLIOGRAPHY
David, F. (2013). Strategic Management: Concepts and Cases. New Jersey: Pearson
International Edition.
Ghemawat, P., & Nueno, J. L. (2012). ZARA: Fast Fashion. Harvard Business Journal , 1-35.
Inditex. (2013, September 18). Inditexs net sales rise 6% to 7.7 billion euros. Retrieved
November
28,
2013,
from
Inditex:
http://www.inditex.com/en/press/press_releases/extend/00001019
Inditex. (2013, November 28). Our Team. Retrieved November 28, 2013, from Inditex:
http://www.inditex.com/en/who_we_are/our_team
Inditex. (2013, November 28). Timeline. Retrieved November 28, 2013, from Inditex:
http://www.inditex.com/en/who_we_are/timeline
Keller, A. A. (2012, October 26). Zara Strategic Marketing Plan. Retrieved December 1,
2013, from Oeconomicae: http://www.oeconomicae.com/documents/Author/Strategic
%20Marketing%20Plan,%20Zara,%20Arteixo,%20Spain.pdf
Sandoval, B. (n.d.). Zara: IT for Fast Fashion. Retrieved November 28, 2013, from UHV:
http://www2.uhv.edu/luj/MGT6352/Samples/Student%20Sample%203.pdf
Wikipedia. (2013, November 19). Fast Fashion. Retrieved November 28, 2013, from
Wikipedia: http://en.wikipedia.org/wiki/Fast_fashion