Professional Documents
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The Strategic Management Analysis of ZAR
The Strategic Management Analysis of ZAR
ZARA
Created By:
Faculty of Economics
University of Indonesia
Depok 2013
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TABLE OF CONTENTS
Chapter 1....................................................................................................................................4
INTRODUCTION......................................................................................................................4
1.1. Company Background.................................................................................................4
1.2. Vision and Mission......................................................................................................4
1.3. Long-term Objectives..................................................................................................5
Chapter 2....................................................................................................................................6
VISION – MISSION ANALYSIS.............................................................................................6
2.1. Importance (Benefits) of Vision and Mission Statements...........................................6
2.2. Characteristic of a Mission Statement.........................................................................7
2.3. Mission Statement Components..................................................................................8
2.4. Vision and Mission Relation: Is It Achievable?............................................................10
Chapter 3..................................................................................................................................11
EXTERNAL ASSESSMENT..................................................................................................11
3.1 Michael Porter’s Five-Forces Model.........................................................................11
3.2 External Factor Evaluation (EFE) Matrix.................................................................13
3.3 Competitive Profile Matrix........................................................................................15
Chapter 4..................................................................................................................................19
INTERNAL ASSESSMENT...................................................................................................19
4.1 Resource-Based View Analysis.................................................................................19
4.2 The Internal Factor Evaluation (IFE) Matrix............................................................22
4.3 Financial Analysis.....................................................................................................27
Chapter 5..................................................................................................................................33
STRATEGIES IN ACTION....................................................................................................33
5.1 The Strategies............................................................................................................33
5.2 Michael Porter’s Five Generic Strategies..................................................................34
Chapter 6..................................................................................................................................36
STRATEGY ANALYSIS AND CHOICE...............................................................................36
6.1 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix........................36
6.2 The Strategic Position and Action Evaluation (SPACE) Matrix...............................37
6.3 The Boston Consulting Group (BCG) Matrix...........................................................39
6.4 The Internal-External (IE) Matrix.............................................................................40
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Chapter 1
INTRODUCTION
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 interacts”.
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Chapter 2
Moreover, since the mission statement is very clear and direct, it is easier for the
employees to set their mindset and behavior to be aligned with the company’s objective. In
other words, employees know what they should do, how they should do it, in order to achieve
those objectives. Finally, Zara as a determined company, with the purposes of being a fast
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fashion company that concern its environmental-friendliness, combined with their long-term
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.
In case of Zara’s mission statement, based on what is stated on the website and quoted
on this paper, it is said that through its business model, Zara aims to contribute to society
development and environment sustainability. That is their objective and the attention that
they devote to. Zara states that an eco-friendly company is what their direction is, other than
fulfilling their consumer’s fashion needs.
1. Broad in scope
2. Less than 250 words in length
3. Inspiring
4. Identify the utility of a firm’s products
5. Reveal that the firm is socially responsible
6. Reveal that the firm is environmentally responsible
7. Include nine components
8. Reconciliatory
9. Enduring
In Zara case, we can conclude that it is broad in scope. It clearly states their mission
statement and differentiated from their objectives, though the two are still aligned one
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another. The length also does not exceed 250 words. However, in our opinion, their mission
statement is too simple in order to inspire people to take actions. We think that a brief
statement of their act would be better if it is mentioned on the mission statement also.
Moreover, their mission statement is too direct to the company’s direction that it does not
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, Zara’s 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 customer’s needs and then provides a product or service to fulfill
them. Moreover, a mission statement should identify the utility of a firm’s 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 Zara’s 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 [ CITATION
Wik132 \l 1033 ]. The designs are manufactured quickly and directly distributed to stores for
end-consumers. 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 Zara’s quick-response for their customers who desire the latest trend of apparels.
1. Customers: The customers of Zara are men, women and kids who love fashion
and like to wear the latest trend of clothing and accessories in their daily life.
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9. Concern for employees: Related with its philosophy, Zara places teamwork
and communication among employees as one of the company’s top priorities.
This is also aligned with their practice of IT which requires fast-delivering
information, which is why they educate their staff in sustainable practices. It is
one of their long-term objectives stated on their website.
Further, in case of their mission, since it is enduring and talks about their direction in
the future, we think that Zara is getting there. In addition, if we consider their long-term
objectives and their current strategies, then their mission is achievable, promising and
actually undergoing.
Chapter 3
EXTERNAL ASSESSMENT
MODERATE
HIGH
c. Concept to store which takes 6 months to a year which refers to long sales
cycle. However, in case of Zara, the lead time of clothes first-designed by the
designer teams to finished products sold at the store take only about two
weeks.
d. Brand equity which is valuable to consumers
2. Substitues: MODERATE
a. Buyer propensity to substitute is high with several competitors to choose from
(H&M, Uniqlo, MANGO, and many other fast-fashion brands)
b. Low buyer switching costs and easily substitutable where a customer can walk
into its neighboring store instead of Zara
c. Zara has gained substantial customer loyalty which has more visits per year
than its competitor’s store
d. 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.
THREATS
1. Fierce Competition 0.2 4 0.8
2. Lawsuit related to sweatshops 0.05 2 0.1
3. Possible imitation of goods 0.05 2 0.1
4. Dilution of Brand Equity 0.2 4 0.8 +
TOTAL 1.00 3.45
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,
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
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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-origin’s continent. Zara expanded outside
Europe firstly in 1997 to Israel[ CITATION Ind132 \l 1033 ], 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 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’s 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.
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
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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, customer’s 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
Uniqlo’s 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
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%.
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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 Zara’s, 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 company’s 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 Zara’s performance is above
average.
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Chapter 4
INTERNAL ASSESSMENT
Further, RBV is divided into three main categories: Physical Resources, Human
Resources, and Organizational Resources. In order to be valuable, each resource must
be either: (1) rare, (2) hard to imitate, (3) not easily substitutable. The following are
the analysis of Zara using the RBV:
1. Physical Resources
a. Prime Location: One of the best strategies that Inditex applies to all of its
brands, including Zara is that the stores are always located in prime
locations of the city. If the center of the crowd is in the shopping malls
like Jakarta, then that is where you will find Zara stores. In European
countries and USA, crowds are usually centered downtown or in
shopping streets, and that is exactly where Zara stores are located.
Choosing prime locations give more benefits to the company from the
amount of store visitors which can result more sales created.
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-
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3. Organizational Resources
a. Market-oriented Strategy: Just like what the old saying says, the
customer is the king. In the industry with high competition profile,
choosing to emphasize on your customer is important and wise. Because
in this type of industry, the key is to be able to make your customer loyal
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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 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 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
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c. Distribution Strategy
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 Zara’s distribution centers located in Spain to be
exported to Zara’s 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 in-
store 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.
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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 Zara’s 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
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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
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 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%.
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
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
2012 2011
Quick Ratio 1.4589 1.4366
From all the strengths and weaknesses we come out with the result of 2.35. This is an average
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.
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
2012 2011
Current Ratio 1.5180 1.5104
from their assets.
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Quick ratio basically has the same indication like current ratio. But quick ratio only
looks from the company’s 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
2012 2011
4.4 Debt To Total 0.3420 0.3197
Asset
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 flexibility. Zara in both 2012 and 2011 had a low
result on this 2012 2011 ratio, which means
only a small Long Term Debt 0.1089 0.1074 amount of the total
To Equity
asset that financed by the debts.
A slight decreasing trend also
shows a positive progress for their assets.
2012 2011
Debt To Total 0.5198 0.0469
Equity
As like the debt to total asset, this ratio defines how much equity that financed 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 result is not good because it means they have a bigger proportion of debt that
finances the equity.
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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.
ACTIVITY RATIO
2012 2011
Inventory 24.6203 N/A (5612216/0)
Turnover
2012 2011
Inventory Fixed Asset 2.5727 2.4978 turnover defines how
fast the business Turnover can liquidate their
inventory. 2012 2011 The higher result
shows a good Times interest 220.5988 68.1513 sign of the inventory
earned
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 2011
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PROFITABILITY RATIO
2012 2011
Gross Profit 0.5976 0.5930
Margin
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 stable gross profit margin for Zara in 2011 and 2012, which is good
because gross profit margin should be stable and not too much fluctuation.
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This ratio measures the Company’s 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.
2012 2011
Return on Total 0.1836 0.1775
Asset
2012 2011
Net Profit 0.1484 0.1410
margin
This ratio basically measures the
Company’s effectiveness in
generating their assets into earnings. The higher the value, the better for the company
as they are more effective in managing their assets. Zara does not have a significant
improvement from 2011 and 2012.
2012 2011
Return on 0.2791 0.2609
Stockholders’
Equity
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Return on stockholders’ equity indicates the amount of net income generates to the
stockholder’s equity. The higher value shows a bigger amount of percentage from the
net income to the equity. So a high return on stockholder’s 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.
2012 2011
Earnings per share 3.7981 3.2888
Earnings per share (EPS) is a portion of company’s 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 2011
Price Earnings Ratio 30.0410 30.4414
The P/E Ratio is a comparison and valuation ratio of the company’s 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 price-
earnings ratio, which means a decreasing performance and investors less expectation
on the earnings growth.
GROWTH RATIO
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.
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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.
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Chapter 5
STRATEGIES IN ACTION
Zara Home’s 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.
GENERIC STRATEGIES
Cost Leadership Differentiation Focus
Large Type 1 Type 3
SIZE OF Type 2
MARKET
Small Type 3 Type 4
Type 5
Chapter 6
Strengths Weaknesses
Global Outreach Limited Stocks
Strategic Location Price
Distribution Strategy Brand image closely tagged
to competitors
Store Image Lack of Marketing
Fast Changing collection
Responsive Employees
Brand Image
Opportunities SO Strategies WO Strategies
Increasing middle class in Open new stores in Charge products at
Asia developing countries in Asia competitive price in Asian
(S1, O1) countries’ standards (W2,
O1)
Opportunity to build Build distribution centers in Produce a signature
distribution center in Asia to lower distribution collection (W3, O3)
developing countries to lower costs for Asian countries (S3,
costs O2)
Cooperation with new Be the trendsetter (S5, O3) Enhance the current brand
designers image and company’s image
(W4, O4, O5)
Rising environmental issues Promote the company’s
vision to be an eco-friendly
company (S7, O4)
International Recognition
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,
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The following is the position of Zara and several other Inditex’s brands in terms of
BCG Matrix:
STARS (High Market Share, High Market Question Marks (Low Market Share, High
Growth) Market Growth)
Cash Cows (High Market Share, Low Market Dogs (Low Market Share, Low Market
Growth) Growth)
Zara is placed as Stars because it has high market share and compete in an industry
with a high growth whereas the other Inditex’s 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 company’s annual report presentation, from Inditex’s
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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.
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
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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.
QUADRANT I:
1. Market development
Rapid Market Growth
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal
integration
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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. 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.
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The opening of Zara’s first store in China Zara first launched its online store in US on September 2011
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.
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.
Based on these matrices, we derived the most prominent strategies for Zara which are
achievable and have strong positive impact to Inditex as the owner of Zara. There are 3
strategies that we propose: (1) Expansion in Asian-Emerging Countries, (2) Build
Distribution Centers in Asian Countries, and (3) Increase Marketing Spending. Moreover,
these strategies are for the long-term.
QSPM
Asian- Center in Asian-
Marketing
Developing Developing
Spending
Countries Countries
Weigh
Key Factors t AS TAS AS TAS AS TAS
KEY EXTERNAL
FACTORS
Opportunities
Increasing middle class in Asia 0.1 4 0.4 4 0.4 3 0.3
Opportunity to build distribution
center developing countries to
lower cost 0.05 3 0.15 4 0.2
Cooperation with new designers
0.1 3 0.3 2 0.2
Rising Environmental issues 0.05 2 0.1
International Recognition 0.2 4 0.8 4 0.8
Threats
Fierce competition 0.2 3 0.6 2 0.4 4 0.8
Lawsuit related to sweatshop 0.05 1 0.05
Possible imitation of goods 0.05 1 0.05
Dilution of brand equity 0.2 2 0.4 3 0.6
Total 1
KEY INTERNAL
FACTORS
Strengths
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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” Zara’s FB page and more
than 300 hundred people followed Zara on Twitter, thousands of people also
subscribed to Zara’s channel on YouTube. Unfortunately, it is not enough. Despite its
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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.
1. Product: Inditex describes Zara as the brand for the latest fashion for women,
men, and children. Product lines include: apparel, footwear and accessories.
Inditex also claims that Zara is not a luxury-brand.
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.
Product Positioning of Zara in developed countries (left) vs. developing countries (right)
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7.2 Finance
2.4
1.9
1.7
1.3 1.3
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:
Furthermore, Zara designers are trained to limit the number of changes made by
lowering the number of samples required, minimizing cost and turnover time. Its demand
based production or Just-in-time (JIT) production reduces the amount of inventory
available, lowering Zara’s storage cost. Zara's outstanding lead time is unbeatable in the
industry at the moment. In addition, Zara eliminated the traditional design process, where
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design and development overrides fabric procurement. In Zara, the design teams work
with the available fabric, allowing for faster fashion, also minimizes costs.
Further, the company has developed a Strategic Environmental Plans 2011 – 2015
which can be summarized as the following:
Natural Gas generators at the heart of Inditex’s Trucks to ship Inditex’s products from the
plant and distribution center in Tordera, Spain. logistics centers daily
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
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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 Zara’s 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.
Chapter 8
Community/Social Responsibility
1. Provide jobs through its Unemployment Rate Annually Through major
outsourcing in host country (India) outsourcing,
decreased by 3% ZARA (Inditex)
has been able to
provide jobs for
more than 5
million people in
India
Business Ethics/Natural
Environment
1. Eco friendly company Number of ecological 2014 Environmental
clothing items Management
increased to 20 System pursuant
million to the ISO 14001
standard
Emission control
dumping and
waste Plans
Admission to
Dow Jones
Sustainability
Index
Financial
1. Financial sustainability Net Income increased 2015 TQM practice
to 30% (currently Inditex
22%) sustainability
model
Optimization of
global expansion
Analysis:
entering many new and potential markets. Further, Zara is currently expanding
aggressively in Asian countries; consequently, to increase sales they need to be able to
adapt its designs with the local preferences to generate more profit from Asians’ pocket.
What the company can do is to enhance customer service through employee trainings,
especially those who face the customers directly everyday in the store. Moreover, Zara
can optimizing the use of its PDA and POS technology to obtain information regarding
the customer’s preferred designs and feedbacks.
Inditex, including Zara, unfortunately is famous for having a high employee turnover
due to its working environment which is stressful and subjective. Not many younger
employees get promoted, and according to many reviews of Inditex’s employees,
managers in Inditex do not get along with the sub-ordinates; therefore, creating a gap
between the employee and the managers. Clearly Inditex must be able to overcome this
problem so that the company will not have to pay extra costs for training new employees
every once in a while and also considering the company image.
As for its business operations/processes, since the company has just bought a
purchasing office located in Hong Kong, they can now use this facility to increase the
sales in Asian countries, especially China as the largest developing market today. By
combining the PDA and POS as well as the Purchasing Office, Inditex can now project
the Asian market easily and more accurately. Another option for the company is to lower
the production cost by outsourcing more types of clothing to be produced in Asia.
Currently, Inditex only outsources about 30% of its total products [ CITATION Ghe06 \l 1033
].
Through its outsourcing program, Inditex has been able to provide jobs for more than
5 million people in India. The company acknowledges the situation and claims it as one
of their corporate social responsibility. Inditex does not really concern about developing
an extensive CSR initiatives. On the other hand, they put more consideration to the
operations in their outsourced companies, including strict regulations banning child labor,
also improvement of labor education, as well as the quality of product that will be
produced. Each Inditex’ outsourcing partner must have a quality of A or B while in this
industry, the outsourcing company quality is usually B or C or even D.
As for the environmental objective, Zara puts more emphasis since this is their
mission. Therefore, the responsibilities are many including the ISO 14001 compliance,
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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.
Chapter 9
CONCLUSION
In our opinion, according to what we found during our analysis, one of the
competitive advantage that Zara has and its competitor lacking is the customer-
responsiveness. Even though Zara does not have many investments in Marketing, but
Zara relies on the most important aspect of the business, the customer. They focus on
their customer, listen to what their customers have to say, obtain their comments and
feedbacks, and then use those information to evaluate the next production, meaning
on the next production, they will produce based on the information given.
Consequently, the results will be gratifying for the consumers.
Next competitive advantage that Zara has will be its business operation. Zara’s
overall business operations, including the design process, production process, and the
distribution process, all are so sophisticated that it enables Zara becomes the forefront
in the industry. Especially because it is combined with their customer–responsiveness,
imagine how impressive it is. Zara is the only brand that has the capacity to produce
the latest design that the consumers demanded, and make it available at the stores in
just 14 days. Because Zara will be the first one to place a certain design in the store,
hence the customers will tend to make Zara their first choice in shopping or browsing
for clothes.
Zara in its vision stated that it aims to satisfy the desires of its customers. They
pledge to continuously innovate their business to improve customer experience. Up to
this point, we think that Zara’s strategies are already aligned and so far effective
enough to drive the company closer to achieving the vision. Think of Zara’s effort in
obtaining feedback from consumers in order to understand the consumers and
therefore able to produce the designs that the consumers love. Moreover, Zara also
never stops improving its in-store customer experience through employee trainings
and direct communication with the consumers. Further, in the vision statement Zara
also promises to provide new designs made from good materials and also affordable.
With the information Zara gets from customers, Zara is able to provide good designs
with available materials and therefore can lower the production cost as well as the
production time. As a result, a more affordable outcome of products can be distributed
to end consumers.
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 vision–mission and that these strategies are
effective and sufficient enough for the company to achieve the stated vision and
mission.
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