Business level strategies of Zara

  1. SUMMARY SWOT
  2. CORPORATE AND BUSINESS LEVEL STRATEGIES

The corporate level strategies of Zara are based on doing what they do best and focusing on where they have achieved the greatest efficiency.

  1. Supply Chain

One of the corporate level strategies of Zara is efficient supply chain which is very critical to meeting the current demands in the fashion industry. Business level strategies of Zara Zara is positioned in such a way that it launches new products in the market on a regular basis to meet the increased demands of customers. To be effective in this, the company has focused mainly on improving the supply chain. The company has ensured that it has a competitive advantage by bringing products to the market within two months (De Toni & Tonchia 2003). This unique selling point should be exploited further though it may require customers to pay slightly more in order to get the new products more than others. Fashion is all about accessing new products before others and hence having an effective supply chain is a crucial strategy for Zara to satisfy the needs of their customers. In the current highly contested environment, Zara has demonstrated that having a strong and effective supply chain is a necessity (Lopez & Fan 2009). Effective supply chain offers sustainable competitive positioning and differentiation and helps in reducing inventories as well as operating expenses.

  1. Cost Effectiveness

According to Doherty (2004), Zara has attained support customer in the high street market because customers are constantly looking for fast fashion at a disposable level. Therefore, the company should retain a cost base strategy. As a result of increased competition in the fashion market from multinational corporations such as H&M and Primark, Zara has to maintain a reasonable price position to encourage customers and consumers to regularly purchase new fashion products hence providing a continuous flow for the company. Zara achieves cost advantage through cheap labour. However, as mentioned by Lopez and Fan (2009) the company’s operational efficiencies are hindered by inflexibility in changing orders centred on the today’s orders. Competitors have higher inventory costs because orders are placed for a long period of time. However, Zara is capable of responding to consumer demands swiftly and effectively hence competing against its competitors.

  • Centralized Manufacturing

Zara has concentrated its manufacturing operations in Europe with more than 80% of its materials being manufactured in Spain. Most of its competitors have outsourced its manufacturing operations in Asian countries to reduce the cost of production. Business level strategies of ZaraDespite that in Spain production cost is 17-20% more, Zara has competitive advantage over them because it has maintained strong local strategic partnerships with European manufacturers (Acur & Bititci 2004). As a result, the company is able to distribute its products effectively to meet customer demands.

  1. Continuous Evolution in Fashion Design

One of the factors that have made Zara very competitive in the fashion market is the quality of their products in the high street market. Customers look forward to purchasing cutting- edge fashion at reasonable price (Lopez & Fan 2009). Zara controls the production of their fashion products to ensure that they are based on the current trends. To ensure that customers keep on visiting Zara stores to look for new products, the company conducts market research to understand customer needs and demands.

  1. STRATEGIC ISSUES FACED BY ZARA
  2. Increasing Production Costs

Zara faces the challenge of rapidly- increasing costs of raw materials and labour in the producing countries. Zara manufacturing operations are based in Spain where the cost of production is 17-20% higher than Asian countries. Sorescu, Frambach, Singh, Rangaswamy and Bridges (2011) discussed that the cost of raw materials such as spandex, wool, and nylon increased by more than 20% between 2009 and 2010. The increasing labour costs in Europe squeeze Zara’s profit margins. The labour costs have been increased by tighter labour market conditions. As a result of economic changes in the developed and emerging markets, employees working in manufacturing plants demand higher compensation package. As mentioned by De Toni and Tonchia (2003), the success of any company in the fashion industry is determined by the type of raw materials used and its availability. Business level strategies of Zara High costs of raw materials used in Zara indicate that the company may not be in a position to design and produce new products and introduce them in the market at the interval of two months. Labour cost is higher in Spain as compared to China and India hence Zara has to bear with the increasing costs. Zara is forced to comply with the cost leadership strategy to reduce production costs.

  1. Cultural Implications of the Transnational Strategy

The expansion strategy adopted by Zara increases its product awareness as well as market share. Nonetheless, complying with the local regulations is difficult because of cultural and institutional differences (Caro & Gallien 2010). For instance, in 2011 Zara was attacked by the China’s consumer watchdog for poor quality (Joy, Sherry, Venkatesh, Wang & Chan 2012). Therefore, it is important for the company to develop strong relationships with the local stakeholders. Zara’s product quality is influenced by the European culture which may not be accepted in other cultures across the world. Therefore, it is a challenge for Zara to establish high customer loyalty in markets due to cultural differences. Zara faces the challenge of imitation whereby their designs are imitated by some Chinese designers. Therefore, the company’s brand reputation may be dented because of low quality products produced by the imitating designers.

  • Logistical and Business Set-up Implications of Transnational Strategy

The manufacturing strategy of Zara (having a production base in Spain) may not be effective for the company’s operations in the emerging markets because the shipping costs would increase the prices for products set by the company. Operations of Zara Company in Australia would be faced with logistical and human resource challenges. Business level strategies of Zara Additionally, basing their production base in Spain would work contrary to the testes of the local customers. Customers are attracted to products which are produced locally because they are associated with them (Sorescu, Frambach, Singh, Rangaswamy and Bridges (2011). Having a production base in Europe it means that the company employs mostly the Europeans in the production and manufacturing processes. This would not work to satisfy the desires and needs of the local customers. As mentioned by Lopez and Fan (2009),

 

  1. RECOMMENDATIONS

Zara should integrate cost leadership and differentiation strategies in the fashion industry. By reducing the costs of labour and raw materials, the company would earn high revenues because the profit margins would increase. However, cost reduction should not compromise the quality of products offered. Zara should decentralize their manufacturing and production units to reduce the costs of production and shipping their products to the foreign markets. Starting up production base in China, India, and Australia would help the company to enjoy cheap labour and raw materials hence increasing their profit margins. Additionally, the company should develop strategies and innovations which are not easily imitated by the competitors. To evade the logistical and business set- up challenges, Zara can enter the foreign market through partnerships and joint ventures. Joint ventures would allow the company to operate in a foreign market without contradicting the local laws and regulations. Zara should understand the cultures of the local customers and design their products based on their desires and testes.

The key strength of Zara is its highly established supply chain which enables the company to introduce new products to their customers as they demand them. As mentioned by Acur and Bititci (2004), the ability to regularly introduce new products in the market increase consumer acceptance and willingness to purchase. Business level strategies of Zara As a result, there is reduced timeline for introducing new designs to the market and keeps ideas fresh in stores hence customers regularly revisit the stores and restock their fashion items. Additionally, Zara has a large global presence with over 2000 stores across the world which has allowed it to build a strong and recognized brand.

Nonetheless, there are weaknesses related to the internal operations of Zara. Since it has established itself as a large brand locally and globally, the company has to regularly produce large volume of products. This might deny the company the opportunities of producing new and highly innovative design at the market (Doherty 2004). Additionally, Zara is believed to offer luxury products and target the high end market; therefore, its prices are believed to be high and hence could not be accepted by low income customers (De Toni & Tonchia 2003).

The fashion industry has a lot of opportunities. In high street end market where products are perceived as disposable, customers require regular updates to keep up with the latest trends. As a result, Zara can retain a high customer base by producing new and innovative products perpetually. Since new products are launched in Zara, customers would therefore visit its stores more than the competitors. This strategy would enable the company to gather customer support and hence expand further in the market (Finch 2004).

Zara is faced with two main threats in the fashion industry: competition and price wars. Large competitors such as H&M and Primark can reduce their prices to attract customers. Business level strategies of Zara Business level strategies of Zara Unique fashion houses on the other hand can increase the price for producing new designs at the high end of fashion (Acur & Bititci 2004). Additionally, large and small organizations in the fashion industry can reduce their prices beyond what can be achieved by Zara. Competition increases customer or buyer bargaining power and hence reducing profit margins (Lopez & Fan 2009). Competitors reduce their prices in order to get a large number of customers and encourage referrals. However, Zara can overcome these threats by maintaining high quality products and targeting less price-sensitive customers.

LIST OF REFERENCES

Acur, N. & Bititci, U. (2004) ‘A balanced approach to strategy process.’ International Journal of Operations & Production Management, 24(4): 388-408

Caro, F. & Gallien, J. (2010) ‘Inventory management of a fast fashion retail network.’ Operations’ Research, 58(2): 257S273

De Toni, A. & Tonchia, S. (2003) ‘Strategic planning and firms’ competencies: Traditional approaches and new perspectives.’ International Journal of Operations & Production Management, 23(9): 947-97

Doherty, A. M. (2004) Fashion Marketing: Building the Research Agenda. London: Emerald Group Publishing Limited.

Finch, P. (2004) ‘Supply chain risk management.’ Supply Chain Management: An International Journal, 9(2): 183-196

Lopez, C. & Fan, Y. (2009) ‘Internationalisation of the Spanish fashion brand Zara.’ Journal of Fashion Marketing and Management, 13(2): 279 – 296

Sorescu, A., Frambach, R. T., Singh, J., Rangaswamy, A. & Bridges, C. (2011) ‘Innovations in retail business models.’ Journal of Retailing, 87(1): S3-16

 

Lopez, C. & Fan, Y. (2009) Internationalisation of the Spanish fashion brand Zara. Journal of Fashion Marketing and Management, 13(2): 279 – 296

Joy, A., Sherry, J. F., Venkatesh, A., Wang, J. & Chan, R. (2012) Fast fashion, sustainability, and the ethical appeal of luxury brands. Fashion Theory: The Journal of Dress, Body & Culture, 16(3): 273–296.