Zara Case Study

Running Head: Zara Case Study

Zara: The Spanish Retailer Goes to the Top of World Fashion Case Study

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Table of Contents Introduction .................................................................................................................................................. 3 Zara’s Internationalization ............................................................................................................................ 4 Introduction .............................................................................................................................................. 4 Internationalization................................................................................................................................... 4 Conclusion and Recommendation ............................................................................................................ 7 Competitive Strategy of the big three world market leaders ....................................................................... 7 Introduction .............................................................................................................................................. 7 Competitive Strategy ................................................................................................................................ 7 Conclusion and Recommendation .......................................................................................................... 11 Advantages and Disadvantages of Zara’s multi-brand store strategy ........................................................ 11 Introduction ............................................................................................................................................ 11 Advantages:............................................................................................................................................. 11 Disadvantages: ........................................................................................................................................ 12 Conclusion and Recommendation .......................................................................................................... 13 Introduction: ........................................................................................................................................... 13 How Zara deals with ‘risk of cannibalization’ through its multi brand strategy: .................................... 14 Conclusion and Recommendation .......................................................................................................... 15 Advantages and Disadvantages of going into joint venture with Tata ....................................................... 15 Introduction ............................................................................................................................................ 15 Advantages:............................................................................................................................................. 16 Disadvantages ......................................................................................................................................... 16 Recommendation and Conclusion of Tata and Zara Collaboration ........................................................ 17 Conclusion ................................................................................................................................................... 17 Recommendation........................................................................................................................................ 17 Bibliography ................................................................................................................................................ 18

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Zara Case Study Introduction Thisreport is based on the case study of Zara, which is a Spanish brand which specializes in clothing and accessories. This retailer was founded in 1975 by Amancio Ortega and RosalíaMera. It is the flagship chain store of the Inditex group which is the world's largest apparel retailer(Tungate, 2005). This fashion group also owns brands such as Massimo Dutti, Pull and Bear, Uterqüe, Stradivarius, Oysho and Bershka [www.inditex.com]. Zara was expressed by Louis Vuitton Fashion Director Daniel Piette as "possibly the most innovative and devastating retailer in the world." It has also been expressed as a "Spanish success story" by CNN. According to CNN, this retailer brand has turned control over clothing factories into a competitive advantage. This company not only sells garments but also designs and fabricates them. It has, in no way, run any marketing campaign, yet has more than 1,000 stores globally. As it manufactures the garments itself, it can respond quickly to varying market trends. Whereas others, including rival companies, Gap and H&M, take around nine months to launch new collections into their shops. Zara takes just two to three weeks and is ahead in the game. Through this report the business model of the company and its structurewill be discussed in detail. This report will also highlight the major aspects of the company in depth by answering the questions and also analyzing those questions properly.Next, focus will be on the internationalization, brand portfolio, joint venture and competition with the big firms in the global market that has a huge impact on the operations of Zara. Lastly, the success of Zara will be discussed with reference to different authors and their perspectives and theories which will give its deep understanding. Moreover, recommendations will be provided for future prospects of Zara.

Running Head: Zara Case Study

Zara’s Internationalization Introduction Inditex Group is one of the most successful businesses present and Zara is one of the biggest fashion retailers present in the world. Starting from Spain, spreading across similar territories, Zara is now a global household name with 1830 stores in place. Zara’s penetration and internationalization is quite commendable, if nothing; taking a Spain based brand worldwide with the same amount of dedication and success.

Internationalization Brown and Burnt (1992) stated that, “one view of internationalization is that based on the transfer of a retail brand, with its associated image for consumers across national borders.” The process of Internationalization can be described as “the process of increasing involvement in international operations”. (Welch and Luostarinen, 1988). The process essentially involves the adaption of firm operations like strategy, structure, resources etc. to perfectly fit the international environments. Furthermore, the degree of internationalization can be measured as foreign sales relative to total sales. (Welch and Luostarinen, 1988). One of Zara’s greatest contributors to success is the fast fashion theory. Fast fashion is defined as “a business strategy that aims to shrink the processes involved in the buying cycle and lead times for getting new fashion products into stores, in order to satisfy consumer demand at its peak”(Barnes & Greenwood, 2015). The internationalization of Zara seems to follow the classic “stage model” by firstly entering socially close markets before taking open doors in more inaccessible markets. This worldwide development was activated by both push and draw elements. Contrasted and the opposition, Zara has three qualifications: 

Vertical combination to accomplish a speedier turnaround time;



Utilizing establishment and joint endeavors for fast extension;

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Utilizing store as the principle instrument for advancement with little to spend on advertising and promotions.

The Uppsala model is a theory that explains how firms intensify their activities in the market. Firms first pick up experience from the home market before they move to outside business sectors; firms begin their remote operations from socially and/or geographically close states and move step by step to socially and geologically more far off areas; firms begin their remote operations by utilizing conventional fares and progressively move to utilizing more escalated and requesting operation modes (deals backups and so forth.) both at the organization and target nation level. The same model also fits into Zara’s scenario too. The first step was to set up and get a good local handful experience and credibility in their own region and then a steady movement to nations that were closer to them regionally as well as culturally so the market dynamics were somewhat the same and gained experience from there. Then moving to more areas and franchising and strategically aligning with companies familiar with their areas and managing their distribution and sales accordingly till you gain a proper grasp of the area and the retails there. Zara's pace of internationalization can be partitioned into two stages: cautious development period (1988-1996) and forceful extension period (1998 and onwards). In period from 1988-1996 Zara generally extended to psychically close markets, for example, Portugal (1988), France (1990), Mexico (1992), Greece (1993), Malta (1995) and Cyprus (1996). In any case, the second outside business sector Zara extended to was psychically far off nation USA (1989). Amid the time of mindful development, Zara included stand out or two nations for each year to its business sector portfolio accordingly progressively securing outside business sector learning. Until 1998, Zara opened 107 stores abroad and was available in 10 markets (Annual Report, 1998). Long household market entrance period before first extension abroad and starting development to nations with low psychic separation is regular for conventional

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organizations that receive customary internationalization design by bit by bit extending to outside business sectors. From year 1997, Zara began to extend abroad forcefully. Around then, Zara had as of now increased profitable involvement in global environment. Hence, advance extension was performed all the more quickly by entering showcases that are more removed and opening a bigger number of stores. According to (Mo, 2015), Zara’s vertical integration grants them great opportunity; since being its own supplier, designer and distributor, the hassle for Zara minimizes and operations become smoother and faster which also runs in favor of them to work internationally because good operations are vital for a firm. Zara’s main competition being Gap and H&M, they don’t focus much on them since their trends and operations and research are way ahead of them, as Zara has a new fashion stock delivered every week and goes on sale as soon as it’s made and discontinued for a new line which is also a success contributor. Zara ś creation cycle begins with clients’ ́ judgments on the new plans of garments and the data gathered by staff individuals who go to urban communities, watching individuals in the city, productions and going to the venues that are frequented by their potential clients (Fabrega, 2004). A major contributor to their internationalism is also the joint ventures that they practice in foreign markets, Zara moved from reluctance growth to cautious growth and to aggressive, where the joint ventures come in, a co-operative strategy in which the manufacturing facilities and know-how of the local company are combined with theexpertise of the foreign firm in the market, especially in large, major and competitive markets where it is difficult to acquire property to set up retail outlets or where there are other kinds of obstacles that require the co-operation with a local company (Camuñas, 2003). Zara ś franchises follow the same business model as the own subsidiaries regarding the product, store location, interior design, logistic, human resources, etc. However, they are responsible for investing in fixed assets and recruiting the staff. The recruiting of staff also plays a vital role since they focus on geocentric policies and working for the customers to feel welcomed and at home.

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Conclusion and Recommendation Zara’s internalization strategy has worked well for them and gets Zara in the league of exquisite retailers amid its competitors; H & M and Gap to be named. Their integration and strategies are also to be noticed as for who among them could emerge as the next market leader, in the global retail sector. Therefore, Zara should keep on considering the integration factor and joint ventures for internationalization. They are thinking about joint venture with Tata which must be monitored and applied.

Competitive Strategy of the big three world market leaders Introduction The difference between a company and its competitors matters to customers. That difference forces competitors to transform their business just to compete is a competitive strategy (Gartner, 1985). Firms that fight for the edge are usually in the race to be market leaders; such is the case for Gap, H & M and Zara, for retailing. Worldwide retailers characterize systems intelligent with nearby societies and customs, as additionally create items fixated on globally diffused items. In this viewpoint, private marks get to be central for such techniques to the extent they contribute straightforwardly to store devotion solidification and in a roundabout way, to retailers brand value support. In addition, private name items demonstrate the retailer's sensibility before nearby client's needs and inclinations.(Gnecchi, 2013).

Competitive Strategy Zara faces major global competition from H&M and Gap. Gap is American clothing and accessory retail brand while H&M is a Sweden based clothing retail brand.

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Company

GAP

H&M

ZARA

Product

They have garments for

The product for H&M

For a product, one of the

men and women, as well

started only for female

major strength of the

as shoes and accessories

clothing as Hennes that

company is that it is able

that range in all sizes for

changed to both the

to respond very quickly to

them

genders later on – clothes,

the changing needs of the

accessories, shoes and

customers. The company

perfumes.

does not source its manufacturing process, making it fully in control of the products it produces. Its unique selling preposition is to imitate or create the latest trends, for men and women, even accessories.

Price

They have a moderate

With a specific end goal to

Because the concept of

wholesale price zone.

suit numerous clients

Zara is to provide its

Odd, multiple-unit, and

needs H&M use web

products at a reasonable

high/low pricing.

advertising's more

price to its customers, it

Women’s $16 tank top,

extensive scope of items

follows that customers

$65 jeans, $200 handbag.

to offer an extensive

find its prices quite

Men’s$20 T-shirt, $35

variety of costs on their

affordable, making is

polo, $85 jeans

merchandise

people centric.

Due to internet marketing

Zara is very unique and

(tentatively). Place

They have almost 1500

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locations spread across 5

H&M can now reach wider

one of the things that

countries

markets where they don’t

make it a stand out brand

even have a store on a

is the fact that it is a

high street. 2206 locations

vertically integrated retailer. And that too to be present almost worldwide being a major player in the global retailing market.

Promotions

Heavily promoted

Very heavily promoted

Not promotion focused

Profit

11,280 Million (pounds)

14,842 Million (pounds)

3,793 Million (pounds)

Employees

132,000

67,000

109,000

Number of stores

3100 stores

2206 stores

5500 Inditex, 1830 of Zara

The competitive strategy for Gap remains for urban clothes and apparel for men and women with a giant chunk of its operations in America only. 4 Ps: They have garments for men and women, as well as shoes and accessories that range in all sizes for them. They have a moderate wholesale price zone: Odd, multiple-unit, and high/low pricing of Women’sclothing. They have almost 1500 locations spread across 5 countries and heavy promotions with activations and advertising and billboards. H&M on the other hand has 100 in house designers with special guest designers in seasons like Karl Lagerfeld, Lanvin and Madonna who design special collections. They have a heavy expansion plan and association with fashion designers and a lot investment in advertising with centralized distribution. Their competitive strategy functions of centralized supply chain, and strong e-commerce(Willems et al., 2012).

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4Ps: The product for H&M started only for female clothing as Hennes that changed to both the genders later on – clothes, accessories, shoes and perfumes. With a specific end goal to suit numerous clients’ needs H&M use web advertising's more extensive scope of items to offer an extensive variety of costs on their merchandise. However to suit the clients who have more discretionary cash flow H&M likewise offer more premium items. Due to internet marketing H&M can now reach wider markets where they don’t even have a store on a high street. This helps H&M meet the customer’s needs as they can provide their service to 3 times as many countries due to internet marketing, however they 2206 total stores worldwide, the promotions are heavily campaigned throughout the time with use of designers and celebrities and advertising. Zara here has the best edge because of its vertical integration and new product line every two weeks which increases footfall and sales around the world, and the global presence with same roots and geocentric approach appeals to the customers. Zara has the potential to be the global leader looking at their current approach and worldwide presence, what they can do to ensure this is to continue with the vertical integration and new fashion line supply every other week and design products geographically needed too, as per their region and culture too, not going beyond their lines but to attract the region. Also to penetrate in India with Tata’s joint venture since Asia is a market with whole lot of potential. The best way to become a global leader is to continue with their current strategy(Willems et al., 2012). 4Ps:For a product, one of the major strength of the company is that it is able to respond very quickly to the changing needs of the customers. The company does not source its manufacturing process, making it fully in control of the products it produces. Its unique selling preposition is to imitate or create the latest trends, for men and women, even accessories. Because the concept of Zara is to provide its products at a reasonable price to its customers, it follows that customers find its prices quite affordable,

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making is people centric. Zara is very unique and one of the things that make it a stand out brand is the fact that it is a vertically integrated retailer. The focus on promotions is quite low as compared to the competition but that is considered strength by Zara. They do not advertise nor publish their trends or any promotional campaigns at any time of the year.

Conclusion and Recommendation To be a global market leader, a company goes through many developments and Zara is no different. Zara adopts a multi brand strategy and that too may have its perks and repercussions internally as well as in terms of franchising and spreading its operations.

Advantages and Disadvantages of Zara’s multi-brand store strategy Introduction As sourced by (Kapferer, 1997), Multi-brand strategy is a marketing technique in which two and more than two similar brands are under the umbrella of one company. Zara, over the past 30 years has built a wide range of brand portfolio, also known as multi-brand strategy which has helped it gain competitive edge. It has extended the brand portfolio by development as well as acquisition of Massimo Dutti (1991), and Stradivarius. According to Inevitable Steps (2015), marketing of more than two competing as well as identical products of a single organization is called multi-branding (Sepherteladze, 2015). Zara has this strategy which has advantages as well as disadvantages:

Advantages: Firstly, Zara will have a wide range of portfolio of brands which will be effective for brand switchers. Those, who love to experiment with different brands or are risk takers, will definitely love to try different brands. They will re-visit and switch brands whenever they feel like to.

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Secondly, Zara lovers will not have fear of trying different brands thus; it will result in increase in sales and return on investment. Apart from that, there will be competition between brand managers who will try to achieve efficiency among their brands and will focus on achieving higher sales than any other brand offered by the same company. They will innovate and also try to advertise in a different way to target the market relative to the brands. If one brand of the company is very successful, it will develop another brand and that, there will be a trust factor among customers regarding the company. Also, the development of the second brand will be done without a noticeable expense through the franchise. Lastly, it will be able to fill the gaps of quality; quantity and price so that, customers think of this company first and then prefer other companies’ brands.

Disadvantages: There are risks in creating a multi brand store too and specifically for Zara which has a high risk of getting the image distorted since this brand is known by masses. Firstly, according to Custom printed bags and boxes (2013), since the brand range or portfolio is wide, thus the chances of it failing will increase due to mismanagement. The brands can be mishandled thus leading to either failure of all the brands or cannibalization which means the success of one brand will eat other brands. For example, Stradivarius might lead to failure of Massimo Dutti (Custom printed bags and boxes , 2013). Another potential problem for Zara is that if one brand is not performing well, it will damage the image of all the other brands and thus the image of Zara itself. Therefore, every new product must have a

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homework done before launching to the general public or, research findings must be done so that the management is done properly along with proper monitoring system else, Zara will lose its equity. Also, the quality might be different of every different brand because of different management system thus resulting in the damage of reputation of the business. This is very true in every multi-brand store and this problem has to be solved.

Conclusion and Recommendation To conclude, Multi-brand strategy will have number of pros and cons which will affect the business of Zara in a good and bad way however, the major factor will be the risk of cannibalization which will be discussed next. However, the company should monitor the brands carefully so that cannibalization does not take place. Multi-branding strategy is good for different customers as those brands are whatever suits them so careful research should be done before creating multiple brands along with controlling those brands.

Introduction: Cannibalization occurs for a company when it introduces a new product that decreases the sales volume, sales revenue and market share of existing products. Rather than increasing a company’s market share and capturing new segments of the market, the new product acquires the company’s existing market share. Zara has a huge line of collection and logically should have been in the risk of cannibalizing its own market share of products. However, Zara has brilliantly avoided this risk through its multi brand strategy. In 1991 Zara initiated a multi brand strategy that put the company in risk of cannibalizing its own market share. In 1991 Zara initiated a multi brand strategy that put the company in risk of cannibalizing its own market share.

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How Zara deals with ‘risk of cannibalization’ through its multi brand strategy: Zara ensures that a new product is differentiated from any existing product by launching that new product far away from existing product (Igami, & Yang, n.d.). Inditex created a brand portfolio including brand names that were acquired by other companies and currently has eight brand stores. These brands include Massimo Dutti, Pull & Bear, etc. Zara has effectively nullified the threat of cannibalizing their own market share by differentiating all these brands and their products. The consumer does not see these brand names in a similar category. For instance, Zara has introduced each one of its brand in a different image to one another. Pull & Bear is viewed as a brand offering casual clothing, Massimo Dutti is a brand name that offers conventional clothing, Berksha is another brand of Zara that is viewed by consumers for Avant-Garde clothing, Stradivarius is positioned as a brand offering trendy clothing, Oysho is a brand offering Lingerie and Uterque is a brand name of Zara that offers accessories. Zara has positioned each brand name in a different category to minimize the risk of cannibalizing its own market share. Secondly, Zara targets different values among the target market in order to capture and cater to different segments in the market. This is done through targeting different markets when new products of varying brand names are introduced by Zara. This differentiation is based on age groups, target market gender and different occasions and events. This helps Zara in entering a new market and expanding its market share allowing Zara to expand its customer base. Zara’s different brand target different segments. For instance, Pull & Bear is for both women and men in the age group of 13 to 23. Massimo Dutti is targeting both women and men I the age group of 25 to 45 and Berksha is a brand targeting both women and men in the age group of 11 to 26. Also, Zara has differentiated the retail image and its store presentation to minimize threat of cannibalizing its existing market share.

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When Zara launches a new store for one of its brand names, Zara ensures that the new store is located far away from any other store offering brands of the company. Retail image and the trust of customers towards the existing brand names are applied as a tool to minimize the threat of cannibalization of the existing market share.

Conclusion and Recommendation As Zara partners with Tata it must ensure that the new products are launched far away from existing brands of Zara to minimize risk of cannibalization. Also, two strong brands can take advantage of loyal customer support to ensure that there is a strong demand and preference among all types of customers. Hence, it can be concluded that Zara is effectively dealing with the risk of cannibalization (Haynes, Thompson, & Wright, 2013).

Advantages and Disadvantages of going into joint venture with Tata Introduction A joint venture is a business agreement in which two or more parties agree to contribute in the equity of businesses. They have control over the enterprise and also share assets, expenses as well as revenues. With respect to the case, it a cooperative strategy in which facilities and the expertise of a local company are combined with the international company and that company is Zara. Joint venture for Zara is very important since it is planning to operate in India. It has assets however; there are other obstacles that might create difficulty in operating the company smoothly. The obstacle can be language, culture, do’s and don’ts(Hall, 1984).. In 2001, Inditex and Tata Company joined together to form an agreement to open up stores in India having 51% shares with Zara and 49% with Tata company. Tata Company is among the largest firms in the world which will be beneficial for Zara however, there are problems too.

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Advantages: Firstly, Zara will be able to have access to the cheap labor and capital in India with greater economies of scale. It will reduce its expenses and increase in income since the Asian countries a somewhat brand conscious. This will be beneficial for India as well as new jobs will be created and that; there will be more innovative capabilities with an increase in the potential brand portfolio in accordance with the need of Indian market (Hall, 1984) . Also, the partnership can make the operations easy due to combine efforts and resources to reach a market that is difficult to approach specifically due to cultural, legal and lifestyle analysis issues, Also, the agreement with Tata can avoid cost of litigation in India of affiliation rules along with government contracting laws will allow companies to use the venture contract for more than one contract(Gutterman, 2009) .

Disadvantages The image of Tata will be highly influential on Zara in India and slowly globally since the power of internet is so strong that the messages can be spread around the world in minutes. If something unacceptable happens, reason being Tata that will also affect the image of Zara (Watson ,2016). Secondly, litigation process can be very time consuming and costly due to the venture going into other country and collaboration with Tata. This can incur expense in terms of time as well as money (Watson, 2016). Moreover, Hubpages (2013) states that the difference in the cultural values and style can lead to miscommunication or lack of communication that can highly affect Zara and poor co-operation. Also, there can develop a lack of responsibility assumed by partners that can lead to business being collapsed (Hubpages, 2013).

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Another major factor is that there is a difference between the objective of Tata and Zara which lead to difference in strategies and visions. Activities can also become different leading to poor co-operation again. Therefore, there are advantages as well as disadvantages of joint venture for Zara in terms of image, profitability and Return on investment.

Recommendation and Conclusion of Tata and Zara Collaboration To conclude, the Pros and Cons will definitely be there, however, the Pros are more since this joint venture will create so many opportunities for Zara as well as Tata and its economy. Therefore, Zara should create a joint venture with Tata to gain profits.

Conclusion To conclude, Zara has a very strong vision and the strategy it is applying is leading to it becoming a growing firm day by day. Not only that, but Zara has a wide mission of getting into joint venture with Tata. Moreover, Zara has been successful in focusing on the brands so that it does not cannibalize other brands of Zara itself. It has taken care of different types of customers and each with different attitude such as brand switchers or those who are loyal towards a certain product only. Also, the internationalization strategy according to (Lin, 2012) and integration has enabled it to achieve success over competitors in terms of cost and quality which is the reason why its demand is high all over the world.

Recommendation Zara should continue to focus on the strategies that it is implementing so that it grows day by day by also capturing the global market and main focus on developing countries as well. The cost strategy that

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it is performing is the best however; it should also monitor the cannibalization in the brand portfolios so that no customer becomes dissatisfied.

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