Zara Fashion Case Analysis

Question 2
Why might Zara fail? How sustainable would you calibrate its competitive advantages
as being relative to the kinds of advantages typically pursued by other apparel
retailers?
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Answer: Zara’s plan to expand internationally on one hand and its
standardized production line and strategy limited to current
geographical base in Europe on the other hand could be a
possible threat of failure to Zara. There are visible differences in
cultural, social, political conditions across different countries
and the difference in tastes, liking, and fashion across regions
can also pose a threat of failure to Zara. This vulnerability that
faces Zara when it enters international markets can cause Zara
to succumb in face of stiff competitors and its alleged
“diseconomies of scale”. To enter international markets, Zara
needs to deliver its apparels in-time, at competitive prices,
customized for local market, and short-lead time.
Another threat of failure that lingers Zara is their inability to
develop a strong supply chain in the Americas. The U.S apparel
market covers 29% of the world’s market. Their current strategy
in Europe has given them success and ability to grow. Outside
Europe however, Zara lacks the essence of strong internal
production and distribution facility, producing in small batches,
and delivering in short-lead times in international markets.
To add to that, changes in foreign currency market can also be a
possible threat. Production costs may increase if Euro becomes
stronger against Dollar, leading higher costs of apparels to final
consumer.
Another threat to Zara is direct competition. H&M, The Gap,
Benetton are all looking at international markets to enhance
their growth opportunities. H&M comes closest to Zara in terms
of price and fashion sense. It is also commendable to note
H&M’s strategy of entering one international market at a time
and designing clothes based on international tastes. H&M has
also is in the process of building distribution centers in their
international locations to save on lead time, transportation costs,
and logistics costs.
Zara’s centralized logistics model may hinder its movement and
growth in international markets. Also, Zara is not sure about
which market to enter. This may be a possible barrier for Zara
since the markets are diversified, have different tastes and
requirements, the industry structure is different, and it may be
difficult for Zara to impose its existing structure in foreign
countries unless it understands the markets.
 Zara’s competitive advantages are highly sustainable and have
boosted the company’s success in Europe. Zara’s core
competencies mainly revolves around the high turnover rate of
products, limited level of stock, highly efficient distribution
system, skillful management and employees, innovation,
segmentation, all-inclusive target market, quick adaptability to
market needs, in-house production, vertical integration, and
quick response system. Zara has also maintained low
advertising cost than its competitors and the corporate culture
allows employees to work in teams is more horizontal than
hierarchical. The Divisional Structure that Zara follows allows a
lot of information sharing and suggestions to other divisions
that might be located away from the stores. Other apparel
retailers found it difficult to imitate Zara’s business model as it
would need them to change their entire model and make it as
close to Zara as possible. Zara chose Quick Response (QR) over
being the cost leader and admitted to selling clothes that are “to
be worn ten times”. Zara’s QR was also not easy to imitate as
other company would have to incur large costs to acquire such
systems.

Feedback: Thoughtful observations

Question
3
Was Galicia/Spain fertile ground for the emergence of an apparel retailing
powerhouse?
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Answer: Galicia was the third poorest of Spain’s regions, had high
unemployment rate, poor communications links. Additionally,
the inhabitants relied heavily on agriculture and fishing, the
Galicians were considered as tailors to aristocrats and was
home to thousands of apparel workshops. However, what
Galicia lacked was strong local demand for apparel, strong
base upstream in textiles, sophisticated local demand, technical
institutes and universities to facilitate specialized training.
However, Zara took advantage of Galicia’s geographical
proximity to Europe, as it lies in the corner of Europe, hence
reducing transportation costs, employed labor at cheap rates,
and the area has always been well versed with apparels.
Even though Galicia has its limitations, the advantages clearly
outweigh the drawbacks. Hence it was definitely a fertile place
for apparel retailing.

Feedback: Good points

Question
4
How well does Zara's advantage travel globally?
Selected Zara has several advantages when it expands its operation in global
Answer: markets.
Firstly, Zara has always promoted its products via its stores and it had
its own centralized distribution center which will translate to low
advertising and logistics costs when it enters new markets. As opposed
to its competitors who would invest heavily on advertising and organize
a distribution system.
Secondly, apparel retailing was witnessing increasing concentration
which would benefit Zara when it entered new markets.
Thirdly, there was more homogeneity in fashion which supported Zara's
brand of clothing since its target market is consumers receptive to
fashion. Moreover Zara has an adequate system of knowing local trends
and tastes which it would reflect in its designs. The strategy of opening
one store for information gathering in the initial phase of entering new
markets is one of it key strengths.
Lastly, economies of scale was another advantage for Zara when
entering a new market.

Feedback: Good insights

Question
5
What is the best way to grow the Zara chain? How, specifically, do you see prospects
in the Italian market? And, more broadly, what do you think of the strategy of focusing
on Europe versus making a major commitment to a second region?
Selected
Answer: The best way for Zara to grow would be expand its market
operations by following a short term and long term strategy.
In the short term Zara should aggressively pursue European
markets especially Italy to begin with. However, since all
major European markets would have heavy presence of
competitors, it would be beneficial for Zara to seek help from
an experienced player to set its foot in the market. Hence, Zara
can either outsource its retail stores to interested franchisees or
to maintain greater control can form joint ventures. Zara can
continue to own its flagship stores and franchise other stores
with the intention of buying them out when they increase their
market share.
The Italian market is highly lucrative because of several
reasons:
<!--[if !supportLists]-->a) <!--[endif]-->It is an attractive
market since Italians are fashion conscious, spend close
to 1000 Euros on apparel, Italy is also the largest
apparel market, and Italians are frequent shoppers.
<!--[if !supportLists]-->b) <!--[endif]-->Proximity to its
warehouse and distribution facility. This advantage will
help Zara operate better and faster than any of its
competitors.
<!--[if !supportLists]-->c) <!--[endif]-->Zara has
 experience in Europe and can apply its business model
in Italy without undergoing several structural changes.
<!--[if !supportLists]-->d) <!--[endif]-->Zara can maintain
its structure and take advantage of its unique business
system in Italy.

However, the Italian market will be difficult to enter unless

Zara partners with a local business that reflects the market
conditions and gives Zara an entry into the market. Also, Zara
will need prime locations for its retail stores if it plans to keep
the advertising to minimum.

European Market:

The European market is lucrative since it is not fully exploited

to its potential and there are several markets like Greece,
Sweden, and Italy. To add to that there is a low retail chain
concept in there markets which makes room for entrants like
Zara to get a foothold in the market. Finally, the sale per capita
is considerably high in Europe and this would make for an
interesting statistics for strategists. :

Asian Market:

The Asian markets would require Zara to remodel its structure

and set new structure in place. This could a potential step if the
market potential was known. However, the initial costs will be
to high and Zara would have to spend large amounts to get the
brand image it advocates. To add to that, there would be tough
competition from such markets due to low cost of productions
and low price of apparels. This front will be difficult for Zara
to combat.

North America:

The market suffers from retailing overcapacity, the consumers

have less fashion forward sense, they demand larger sizes, the
operating costs will be higher, and retailers are fighting for
market share on prices and discounts. In the long term, the U.S
market looks lucrative as Zara would be able to out-compete
other companies owing to its commendable financial position,
its marketing strategy, its personnel, information systems,
market study, and updates itself with latest trends and fashion.
 However, Zara must keep a look on the American market and
watch its movements closely to find the best time to enter the
market. Since the American market is fragmented, Zara must
build a strategy to enter major cities one at a time and use the
experience obtained and apply to new store openings.

To summarize, Zara must look to enter the European markets

in the short term and enter the U.S market one city at a time in
the long run.

Feedback: Thorough analysis