Zara Analysis
Vision and Mission of the Company
Zara is one of the largest retail fashion companies, which, according to the Hansen (2012) grew from an “unfashionable corner of disheveled Spain, the company conquered the market with its new approach to “fast fashion” and innovation in handling seasonality. The company aims to enact community and environmentally-friendly practices to its operations and ensure that that Corporate Social Responsibility (CSR) is in the core of its supply chain management and suppliers relationships. The mission statement of the company is the formulated around the sustainable development of the society and the environment with which the company interacts. The mission statement specifically outlines the projects of the company, which include the energy saving initiative, eco-friendly shop layouts, waste management and other CSR initiatives. One of the distinguishing characteristics of the company is the extension of the above policies and practices to all the levels of organizational hierarchy and promotion of CSR activities among employees (Zara, 201, Armstrong and Baron, 2002).
The vision of the company is not explicitly outlined, but from the brand positioning and the communication, which the company develops with its stakeholders, it is possible to argue that its focus is on sustainable development and satisfaction of the customers´ desires. This places innovation and improvement in the core of the business (Zara, 2012).
Industry Five Forces Analysis
One of the effective methods to analyze the external environment is the Porter´s Five forces, which look at competition, suppliers´ power, buyer´s power, threat of new entrants and substitutes (Sadler, 2003).
Competition
Zara operates in a very competitive fashion retail industry, accounted for a total of USD$ 304 billion in revenue for 2013 alone. With varied market proposition of Zara Clothing and Zara Home, the company has a number of competitors. Competition power is very high and it is the main factor of the industry. The rivalry is based on the increasing consumer demands and saturated market, where companies compete for the same customers. Such competitive market profile demands a lot of focus on product and service innovation.
Power of Suppliers
The market is characterized by a large number of raw material supplier, where companies effectively work with global sourcing strategies. With that in mind, the power of suppliers can be evaluated as low to moderate. While it takes some time and financial resources to switch to another supplier, the oversupply makes the situation favorable for retail companies.
Power of Buyers
While the customers constitute the major stakeholder group for the retail industry, they cannot place extreme pressure on the companies due to the low weight of individual customer spending in the total sales volume and large number of consumers on the market. The major threat for the retailers is the price sensitivity of the client, which is strengthened by the low brand loyalty in general. With the above in mind, this threat can be evaluated as moderate.
Threat of Substitute
It is possible to argue that the clothing industry is one of the sectors, which has zero substitutes. This, on one side, makes the competition more severe, but, at the same time, eliminates the rivalry from related sectors. One of the potential ways to look at substitute for clothing is e-commerce, but the traditional breaks-and-mortals operations companies, like Zara, build on diversification strategy, entering online sales business. This allows evaluating this threat as low to moderate.
Threat of New Entrants
New market entrants have potential benefit of reasonably low investments and almost no barriers, with the only exception of financial resources and the access to the distribution network. Overall, the return on the investment in the industry is high and the power of new entrants is significant, given the e-commerce market opportunities. The threat is evaluated as moderate to high.
Industry PESTLE Analysis
Retail industry is a subject to various political, economic, socio-cultural and technological, legal and environmental influences. These external factors outline the range of influences on the activities of the company. From political perspective, the companies, operating in the retail industry are highly affected by the taxation system and investment regulations, which are imposed within the industry. It is possible to argue that the governmental policies in the clothing retail demonstrate favorable conditions for the players in this industry, providing opportunities for Foreign Direct Investments (FDI) and outsourcing of the labor intensive practices. Economic influences, which mostly affect the industry, include general economic stability and currency fluctuations. As such most recent economic crisis of 2009 illustrated the volatility of the ready-to-wear and mass production in clothing. While some clothing categories are the necessity, others are seen as a luxury, which results in a significant drop of spending on these items. The effect of currency fluctuation affects the upstream of the business in the international transactions with the overseas suppliers.
Socio-cultural arena of the retail industry is relatively stable, as the North American demographics do not change significantly over the past decades. The trends and tendencies in the younger generations with regards to the style and frequency of clothing change will continue shape the industry overall.
Technology has had a significant impact on the development of the industry as the online sales channels and platforms drove e-commerce. Additionally, technological advancements enable more structured and economically viable approach to managing an integrated supply chain.
Environmental factors, which influence the industry, are more general. Similar to other sectors, retail industry is subject to local and international environmental and Corporate Social Responsibility (CSR) standards, such as waste management and carbon gas emissions. With that in mind, organizations should look for ways to integrate CSR into their core strategies. Zara demonstrates alignment with the international standards in this area and can be seen as CSR-driven company (Zara, 2013).
Economic Traits
Fashion retail is typically a consumer goods market, which can be characterized by short product lifecycle and high competition. Additionally, fickle consumer preferences complicate the operations on the market. While the market comprises the couture, ready-to-wear and mass production, Zara competes only in two last segments, where price sensitivity with slightly different customer profile. The traits in the industry outline that the consumers measure the quality of the product by its price. The price, at the same time, is determined by the supply and demand relationships. The macroeconomic factors that affect the industry are wide. Some of the most relevant forces include cultures, norms and lifestyles, demographic and population changes. In North American market, the demographic factors positively affect the industry, by building on the size of the consumer market. The culture of the region is very fashion-focused, where middle and high middle class constitute a large share of the market especially in mass production and ready-to-wear segments, were Zara operates.
Key Success Factors and Implications
There several major factors, which affect the companies in the industry. First of all, it is critical that the company develops a business model, which allows flexibility and extremely high responsiveness to the short product lifecycle. That said, Zara should continue invest in innovation and its distribution network, as well as upstream supply chain operations. The implications of such strategy are a sustainable competitive proposition and market share growth. Secondly, cost-effectiveness is the critical construct on building on competitive price. The implication of the lack of focus on te cost strategy may result in the loss of competitiveness in very price sensitive, as it was outlined before, market of ready-to-wear and mass production segment (Hansen, 2012). Finally, differentiation strategy, which makes the market offer in one or another way different is another important element, which allows maintaining and building on the customer base in the saturated market with slow pace of growth. Zara´s differential is the quality and extremely fast product renovation, where the company builds on six to eight season changes, outpacing its competitors.
Recommendations
Taking into account the findings from the Porter´s Five Forces analysis and the insight gained about Zara operations, based on the analysis of the Annual report and the organizational strategy, it is recommended that the organization continues building its competitive advantage and strategy on three pillars: innovation of product and supply chain design on the upstream, differentiation into accessories and home products, customer relationships management. It is believed that the above-outlined strategy will enable the company to further strengthen its market position and brand image.
References
Armstrong M. and Baron A. (2002) Strategic HRM. The Key to Improved Business Performance. London: Chartered Inst. of Personnel and Development. Print.
Hansen S. (2012). How Zara Grew into the World´s Largest Retailer. Ew York times [Online]. Retrieved 26 October 2014, from http://www.nytimes.com/2012/11/11/magazine/how-zara-grew-into-the-worlds-largest-fashion-retailer.html?pagewanted=all&_r=0
Sadler Ph (2003). Strategic Management. 2nd Edition. London: Kogan Page Limited
Zara (2013). Zara Annual Report. Zara Corporate Website. Retrieved 26 October 2014, from http://www.inditex.com/documents/10279/18789/Inditex_Group_Annual_Report_2013.pdf/88b623b8-b6b0-4d38-b45e-45822932ff72
