Zara Strategy

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Masters in Financial Management
2011 - 2012


Zara: responsive, high speed, affordable fashion

Strategic Management

Prof Dr Peter Verhezen

Quynh Lan Nguyen

Engaging in irregularities is severely sanctioned in correspondence with article 34 of the Examination rules.

We hereby declare that we have not engaged in any such irregularities.

Student(s)’s signature(s)
Table of contents
Industry competition3
Positioning and competitive advantage5
Blue Ocean Strategy6
Resource capacity8
Performance measurements9
Reputation risk11
Recommendation and conclusion11

Inditex is one of the world's largest fashion retailers, present in 78 countries. It welcomes customers at its eight-store formats - Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe (Inditex Group (a), n.d). Among these brand names, Zara is the most successful one that contributes a large portion to the total revenues of the group. Zara offers clothes and accessories to women, young girls, men and children. The first Zara shop was opened in 1975 in La Coruna, Spain and now Zara has a network of 1.557 stores in upscale locations in the world's largest cities (Inditex Group (b), n.d). What makes Inditex and its Zara brand so successful is its unique business model that will be discussed more detailed in this paper. The distinct business model helps Zara differentiate itself from competitors and gain world – wide competitive advantage. However, in the past few years, the company has faced a number of challenges, which arise from both internal and external environments. How Zara deals with present and future obstacles will be suggested in this paper. Challenges

Zara has been facing a number of challenges stemming from both inside and outside environments that put its sustainable development at risk. There are three major weaknesses existing inside the company. Firstly, Inditex has 8 different store formats among which Zara is the most successful fashion chain and contributes 64,6% of the Group’s revenue in 2010 (Inditex Group, 2010). High proportion of the total revenue means that if Zara loses its competitive advantage and customer royalty, Inditex may go into internal meltdown. Therefore, every strategic decision as to Zara must be taken into careful consideration. Another problem to Zara is the issue of cannibalism. Zara’s extensive expansion strategy multiples the number of Zara stores that carry the same clothes in the same cities. The third weakness resulted from Zara business model is lack of economies of scale. They cannot gain the advantage of producing large quantities of goods with discounted cost, which leads to higher production cost for Zara. In order to achieve a high rate of product turnover, Zara has a higher cost of research and development. Traditional apparel retailers do not experience extra costs like Zara (Craig et al, 2004). Challenges that Zara has to deal with not only arise from internal operation but also from the market outside. It has to face the tense competition from both local and global competitors such as H&M, United Colors of Benetton, and Gap. H&M is its closest competitor but more price-oriented. Thus, in the markets where customers are more price-conscious, Zara easily loses its market share to H&M. Zara has its main market in Europe. However, in recent years, the euro zone economy has troubled and Greek debt crisis is severe, which makes customers more careful in spending now and in the future. Moreover, Zara has not achieved great success in the U.S. market. The U.S. market is quite different from the European market. Customers are, in...
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