Executive Summary
Zara is one of the largest retail fashion companies that has grown from an “unfashionable corner of disheveled Spain” to “fast fashion” and innovation in handling seasonality. The company aims to enact community and environmentally friendly practices in its operations and ensure that Corporate Social Responsibility (CSR) forms the main core of its supply chain management relationships.
With regard to financial segment, the capital expenditure of Zara is expected to reach approximately $1.908 billion, primarily on new retail space. The company expects to launch 450-500 new stores in 2014 while “selectively absorbing” 80-100 small stores into larger nearby locations. The report highlights the financial and non-financial objectives of the company for 2014.
Zara operates in a highly competitive fashion industry that is saturated and characterized by a high degree of rivalry among the existing firms. The price sensitivity of the consumers is very high in the industry that adds to the challenges for the fashion retailers to introduce products that are lower priced than that of the competitors. The threat of new entrants in the industry is high and a lot of equipment need to be purchased by the players for industry operations. Zara has expanded its operations to open many stores and it has purchased a large number of equipment and facilities for larger inventory that have added a lot of cost to the company.
Zara has applied forward integration and produces quality and differentiated products that are distributed through integrated value chain and supply chain network. Zara has also implemented an inventory control strategy as it holds inventory for only 6 days in comparison to the competitors that hold an inventory for 50-54 days on an average. Zara is quick to respond to changing customer preferences and needs. The company has adopted multichannel strategy for product promotions and distribution.
In order to analyze the external environment of Zara, Porter Five Force Analysis has been conducted to study the competitive forces affecting the company operations. A PESTEL analysis has also been conducted to analyze the political, economic, socio-cultural, technological, environmental and legal environment that have an impact on Zara.
The report also identifies the key success factors that affect the companies operating in the industry and also correlates the strategies of Zara in accordance with these factors. Some of the key factors that have been identified include flexible business model, cost effectiveness, innovation and differentiation.
The competition analysis has also been conducted for the main competitors- Beneton, GAP and H&M. A SWOT analysis to identify the internal strengths and weaknesses and the external threats and opportunities for Zara has also been conducted. An analysis of the value chain of the company along with the insights on the current business strategies implemented by the company have also been provided.
Zara has a high level of competitive advantage as it has a better control over its inventory through an efficient supply chain and distribution network. Zara has an efficient forecasting method that allows the company to better address the needs of the customers. The company has an increased control over quality of its products due to in house production facilities.
The report concludes with recommendations for Zara for its future business operations. Zara needs to reduce its dependence on the European operations and adopt strategies for better efficiency of the operations in the different geographies in which it operates. Zara should continue with its international expansion and also improving the cost efficiency of its supply chain network.
