Since Zara imitates fashion trends, the company is often rushing to get these products in stores at peak times, and this can result in shipping becoming delayed and quality of product lowering due to inventory being changed every week. Zara will need to increase the amount of money they spend on advertising to continue to establish their brand in new markets.
David J. Arnold
Harvard Business Review (503050-PDF-ENG)
March 11, 2003
Case questions answered:
Case study questions answered in the first solution:
- What is Zara’s strategy?
- What makes Zara special and unique?
Case study questions answered in the second solution:
- What are the issues in this ZARA case study?
- What are the problems faced by ZARA?
- What is your analysis of the case?
- Give your recommendations.
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Case answers for ZARA
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Strategic issues faced by Zara
Zara has a unique business model and highly dedicated to their craft of personal and fast fashion. However, the London College of Fashion’s Center for Sustainable Fashion states that they do not believe that the company can continue with the same business model that they have been using for an extended period of time.
The main problem is that the company is looking to expand beyond fast fashion and grow sustainably. Therefore, the issue that will be analyzed is how Zara should alter their manufacturing structure, how sustainable their current strategy is, and how to expand without risking the quality or pricing of their clothing.
Zara is assessed using a SWOT Analysis, as shown below.
Zara’s strengths are its cost leadership strategy, fast turnaround times, and real estate. Through their cost leadership strategy, they are able to efficiently set prices low and churn out their clothes within two to three weeks for a lower price than higher-end brands.
Moreover, their fast production time sets them apart from many other fashion brands and creates a mindset for customers that if they do not buy it now, they’ll lose a great opportunity. Zara invests in very expensive locations and buildings with historical appeal and is located in a prime location. By doing so, it attracts more foot traffic, and consumers might associate Zara with other high-end brands located nearby like Gucci, Chanel, and Prada.
One of Zara’s biggest weakness that was mentioned was the lack of marketing and sales. The case mentioned that Zara had a close to a non-existent marketing team. Zara heavily relies on word of mouth from customers. However, eventually, the lack of marketing isolates Zara from the possibility of being able to double its profits and turnovers. Advertising can pull in a lot more customers than just word of mouth.
Another weakness that can also be seen as an asset is that Zara only has one distribution center. This one distribution center increases the efficiency by a great amount, but if a disaster happens to hit that distribution center, Zara cannot function at all.
An opportunity for Zara is online e-commerce. Zara can increase their global footprint through e-commerce and expand globally from their own home base. E-commerce can also serve as a marketing campaign by getting more traffic on their website. It is much easier to send a friend a link than to recommend a store to a friend and hope that they would visit. Another opportunity is expanding their retail channel.
Zara can consider expanding into Asia and North America, as per their current plans for the future. By expanding their retail channels, Zara can also have a wider global reach through markets that have much potential and are expanding fast, ie. Asia.
A threat that Zara is currently encountering is reached. Zara is currently very centralized in the European markets, but there is a much larger market beyond just European consumers. If Zara does not expand into available markets, then another company would just step up and occupy space that could have been Zara’s.
An additional threat is that eventually, there will not be enough resources to sustain fast fashion. The production costs will get more expensive, and companies based on a fast-fashion model will no longer be able to keep up and absorb the additional costs.
The Fast Fashion Industry is assessed using Michael Porter’s 5 Forces Model.
Rivalry – MEDIUM
There is a medium level of competition in the fast fashion industry. The main competition in the industry so far for Zara include H&M, Gap, and Mango. As the case mentioned, fashion and fashion trends are similar to each other, and fashion companies also copy each other. Thus, the product differentiation is low.
Consumers – HIGH
Customers who shop at fast fashion stores have low switching costs, and they also have options beyond fast fashion companies. Consumers also have less consumer loyalty to fast fashion companies than compared to high-end fashion companies due to how much they pay for the clothes. Trends are fast-paced and are constantly changing; therefore, these consumers are conscious of spending too much money that could not be trending anymore in a couple of months.
Suppliers – LOW
Fast fashion industries have the option of outsourcing their production to countries that have much longer production costs compared to local, Western companies. Moreover, the fashion industry creates a substantial amount of waste, and that means production costs will increase. Thus, the fast-fashion companies might look towards regions with cheaper production costs, so the power of the supplier is low.
Threat of New Entrants – LOW
There is also a…