ZARA – Case Solution

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ZARA Case Answers

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Strategic issues faced by Zara

Zara has a unique business model and is highly dedicated to its 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 its current strategy is, and how to expand without risking the quality or pricing of its clothing.

Internal Analysis:

Zara is assessed using a SWOT Analysis, as shown below.

Strength

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.

Weaknesses

One of Zara’s biggest weaknesses that were mentioned was the lack of marketing and sales. The case mentioned that Zara had 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 efficiency by a great amount, but if a disaster happens to hit that distribution center, Zara cannot function at all.

Opportunities

An opportunity for Zara is online e-commerce. Zara can increase their global footprint through e-commerce and expand globally from its 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 will 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 its retail channels, Zara can also have a wider global reach through markets that have much potential and are expanding fast, i.e., Asia.

Threats

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.

External Analysis:

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 includes 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 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.

The threat of New Entrants – LOW

There is also a…