Zara is one of the largest and the most internationalized retailers that Inditex Group owns. Inditex Group is based in Spain, which is a global specialty retailer that designs, manufactures, and sells apparel, footwear, and accessories for women, men and children around the world. Zara’s history
The founder of Zara, Amancio Ortega, opened the first Zara store in 1975 in a central street in La Caruña, Spain. It was first featured as low-priced look-alike products of popular, higher-end clothing fashions. The first store proved to be a success, hence Inditex Group started to open more Zara stores in Spain. In order to reduce the lead time and also react to new trends in a faster way, Ortega decided to change the design, manufacturing and distribution process during the 1980’s. This is what Ortega called “instant fashion”. The company made their improvements by the use of information technologies and using a group of designers instead of individuals. The core concept of Zara is they sell “medium quality fashion clothing at affordable prices”, and the vertical integration and quick-response are also keys to Zara’s business model. Zara started to expand internationally in late 1980’s. The first Zara store outside Spain was opened in Portugal in 1988. Then they entered New York in 1989 and in Paris in 1990. The expansion of Zara stores keeps growing, and until now, it presents in seventy three countries, with 1,341 stores in prime locations of major cities. Business environment
The apparel market is a consumer-driven industry, and globalization and new technologies have allowed consumers to have more access to fashion. Due to these reasons, consumer tastes are changing rapidly, competition is fierce, and companies are evolving to meet these demand. There are two types of considerations for Zara to successfully enter into the international market- internal factors and external factors, as will be explained in detail later in this paper in the section of international strategy. Market Structure for Clothing Industry
ZARA is in a monopolistic competitive market. There are many competitors in this industry such as GAP and H&M. The clothing industry is facing high pressure of reducing costs as they try to have a lower price than their competitors, and aggressive price wars, initiated by competitors working to improve their supply chain management, have slowly removed less efficient makers out of the business. Due to the global financial crisis, the clothing industry slowed down in profit growth from the beginning of 2008, and because of this huge negative impact to the global economy, there are downward pressures on price for clothing makers. The worldwide sluggish economy has decreased the demand since previous affordable prices may not be affordable now. Company such as Old Navy has been able to take over some of Zara’s market shares by offering lower prices. Competitors
Gap, H&M, and Benetton are considered three closest comparable international competitors. Zara is relatively more fashionable than all three competitors, and prices are less than Gap and Benetton but higher than H&M. Among these three competitors, H&M is considered the most closest competitor to Zara with some similarities and some differences. H&M differs from Zara in the way they outsource all of their productions and spend more money on advertising, while Zara does little outsourcing and virtually does no advertising. Also, Zara sells only trendy products and not trying to produce “classic” clothes which would always be in style while H&M does produce some “classic” clothes in addition to trendy products. The similarities are they both are European based companies, are fashion forward at low price retailers, and both have a strong international expansion strategy.
Strategy and Core Competency
Zara uses a combination of cost leadership strategy and product differentiation strategy to support its business model’s core concept of...