ZARA: Performance Analysis

free essayIn fact, Inditex is the lucky owner of Zara, Bershka, Pull&Bear, Oysho, and Massimo Dutti. Every store reflects the company’s approach towards the integration of fashion in the daily clothes of every customer. Moreover, Inditex demonstrated the importance of fashion and proved its desire to obtain a leading position in the market thanks to the active expansion. In particular, Zara became one of the most successful projects, which helped Inditex to generate millions of euros.

International competition

Hennes and Mauritz (H&M) would be the most appropriate international competitor that is worth comparing to the financial results of Inditex and Zara, in particular. In fact, the company was based in Sweden and became the major competitor of Zara in terms of development and growth. Regardless of the fact that Zara used a more aggressive approach towards the expansion of its territory of operations, H&M was more focused on a systematic expansion. The case outlined that regardless of different approaches towards expansion, H&M opened one store at a time, which helped it to analyze customer tastes, needs, demands, and preferences in more detail. In fact, such a systematic expansion helped H&M to establish a flexible pricing policy, which allowed navigating through financial capabilities of the customers. The primary interest of comparison of financial results of H&M and Inditex lies in the different approach towards management. Actually, H&M employed fewer designers and did not refurbish stores with the same frequency. Such a strategy helped to save costs, focus on customer service, and take care of profitable expansion by considering every point of further actions. In addition, H&M used extensive advertising, which is the main difference that requires a precise consideration in order to see the reflection in the financial statement. In fact, H&M is a significant international competitor, which should have to be carefully analyzed in order to see the distinctive features of European success in apparel retailing.

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Business model

One of the main peculiarities of Zara’s business model lies in the internal production of fashion-sensitive items. Actually, Zara had both internal and external suppliers that ship the necessary resources for the manufacturing process. As a result, Zara’s fashion oriented manufacturing process led to the production of 11000 distinct items (Ghemawat & Nueno, 2006). Moreover, Zara centered its performance on the concept addressed to the customers that communicated the following message: the customers should buy the item as soon as they find it at the store or they will not get a chance to see it again in a few days. In fact, Zara needed only seven weeks to create a new product line in accordance with the fashion standards, which created a natural rapid revival of the company’s assortment. In such a way, Zara reduced the intensity of working capital thanks to the rapid upgrade of products presented at the stores. In addition, Zara’s administrative expenses swallowed only 20% of its revenue, which was a relatively low indicator compared to the competitors in the same industry. Finally, Zara used an appropriate approach towards the distribution of its products to the stores, which focused on two distribution centers that sent products by trucks or the third-party delivery services. In addition, Zara managed to create the distribution centers in the places near to the airport, railway and road networks, which helped to make delivery as fast as possible. The speed of the processes in Zara’s business model became the outlining feature of the operating economics, which kept Zara’s competitive position and financial sustainability in balance.

Competition strategy

First, it is worth mentioning that Zara’s positioning in the market and its desire to become a primary leader in the field of apparel retailing were inconsistent with the existing advertising strategies aimed at attracting customer attention. In fact, Zara spent only 0.3% of its revenue on advertising (Ghemawat & Nueno, 2006). Moreover, Zara spent the majority of income on the development of new products, opening of new stores, and the distribution of products. However, Zara’s competitors were using colorful and persuading advertisements, which helped to extend the target customer audience. Moreover, a clear marketing strategy contributed to the support of image and brand. Zara created three segments of products for women, men, and children along with the accommodation of products different in terms of prices, fashion, and age target. In such a way, the company managed to create an effective advertising platform based on outstanding understanding of customer needs, tastes, age peculiarities, and financial opportunities. In fact, such an approach became new in the market of apparel retailing, which focused on catchy advertisements that encouraged the customer to visit the store. Zara, in its turn, decided to focus on the freshness of product lines, which encouraged the customers to spread the word about Zara.

Sustainability of competitive advantages

The competitive advantage of Zara, which was gained by the means of a unique approach towards advertising, is sustainable enough to keep the company moving towards a higher level of the performance. Actually, the key idea of Zara’s sustainability is not to be typical like other companies that work in the same industry. While other companies invest in advertising, Zara takes care of choosing the prime locations for the stores before other companies obtain the competitive position (Ghemawat & Nueno, 2006). The presentation of the storefronts is another significant part of Zara’s performance, which keeps it sustainable in comparison to the competitive advantages of other retailers. For example, the company takes care of its image by creating a beautiful storefront, which provides much pleasure to the customers, when they come to the store. In such a way, Zara focuses on making an unforgettable first impression on the customers, which encourages them to come back to the store. In fact, Zara relates to the primary competitive advantage of its competitors. However, it does not use benchmarking for creating competitive benefits of the same level. Actually, Zara chooses the opposite ways of increasing the demand on its products by building relations with the customers that are full of trust, comfort, and passion for fashion. In general, the climate of scarcity, uniqueness, and opportunity became an appropriate support of the company’s competitive advantage in comparisonto the market position of other apparel retailers.

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Strategy for product-market selection

In fact, Zara’s international expansion strategy had a major characteristic feature, which focused on rapid expansion. The company started its expansion in 1988, when it opened the first store in northern Portugal. However, Zara’s growth reached its peak in the period from 1998 to 2001, when the company opened new stores in 24 countries (Ghemawat & Nueno, 2006). In such a way, the company obtained a guaranteed footprint in the European scope. However, the competitors could not perform and expand the territory of the performance in the same pace due to the lack of financial resources. The company’s modes of entry included company-owned stores, joint ventures, and franchises. What is important, the company selected the most appropriate ways of market entry, as it allowed competing with international companies regardless of the market penetration in the selected area. Thus, such a strategy helped Zara to open new stores in terms of joint ventures and franchises in the countries, where the competitors obtained leading positions. In such a way, financially efficient agreements contributed to the stabilization of Zara’s marketing position in every new country. Finally, the standardization of the marketing approach allowed Zara to apply the same management principles in combination with the fashion trends according to the macro and microeconomic conditions of the country. Actually, it is one of the most reliable approaches towards business expansion.

Growth of chain

Probably, Zara has already created the best approach towards the expansion of its chain. However, it is possible to make some recommendations to the existing expansion strategy. In fact, Zara should work on the expansion of its product lines and location of separate stores for women, men, and children. Such a strategy would help to diversify the existing product lines and obtain a bigger market share thanks to the focus on three main categories of the contemporary community. The extension strategy should have the same approach as the international strategy has. For example, the company may open new stores in the same cities, where it already has presence. Another recommendation focuses on the enhancement of quality and design features in the manufacturing process of Inditex stores. If Zara focuses on middle and upper middle classes, it should work on making the quality of products higher than it is today. The case demonstrated that some customers still consider Zara’s products worth wearing ten times. Thus, Inditex should prove that not only Zara but also every other store, which belongs to Inditex, is capable of continuous quality improvement.

Conclusion

The analysis showed that Zara operates in a highly competitive environment. Regardless of the tension that comes from the international competitors, Zara has managed to win loyalty and trust of the consumers. The company started its expansion in aggressive way and obtained various competitive advantages thanks to its confidence and positive strategic vision. Moreover, Zara learned how to emphasize its interest in fashion and desire to impress customers with the latest trends. In such a way, the company decided not to waste the revenue on advertising, which became unnecessary due to the natural desire of customers to be the lucky ones, who purchase the items they like. However, if Zara wants to expand its chain and generate more profits, it should take care of the continuous quality improvement. Otherwise, the empire of fashion products may breakdown.