Zara Case analysis.docx

Spring, 2015Page3

















Case Analysis: - ZARA





Table of Contents
1. INTRODUCTION 3
2. STRATEGIC ISSUES 3
3. EXTERNAL ANALYSIS 5
3.1 Overview of ZARA 5
3.1.1 Economic forces 6
3.1.2 Social, cultural, natural and demographic environmental forces 6
3.1.3 Government, legal and political forces 7
3.1.4 Technological forces 7
3.1.5 Competitor analysis 7
3.2 Porter's five-force model 7
4. COMPANY SITUATION 9
4.1 SWOT Analysis 9
4.2 Company's strength 11

5. RECOMMENDATIONS 11





INTRODUCTION
"ZARA", a well known and biggest retailer in fashion designing was founded in 1975. It is a Spanish brand of clothing which offers the fabulous fashionable designs; sell the accessories for women, men and kids. It is a part of one of the most popular fashion retailer named as INDITEX that was founded by Amancio Ortrga in 1963. The eight brands owned by "INDITEX" made it a popular fashion retailer in market and now it is considered as the star of "INDITEX". "ZARA" mainly differentiate from other competitors with low affordable prices, up to date designs, bring the products from conception to their stores at a great instant level. From its humble opening of 5,527 stores; vision is to deliver the new designs which are affordable to experience our business. The Company's long term objectives as stated on their website. In this modern era, "ZARA" use franchising even when the market is completely stable and has more cultural issues , differences. By opening stores in large countries in 2011, INDITEX expanded its rumor and presence in all five continents as well as diversified its retail by acquiring new brands to meet their customer's requirement (Yip, A. C., & Huang, M. 2016).
The industry has changes from ready to wear to the fast and affordable wear segments and the company has also adopted these aspects in the business. ZARA has also started different strategies which are being implemented by them in the case of product managements and supply chain management. In case of design around 1000 professionals are working in company's Spain headquarter to provide new and innovative designs.

STRATEGIC ISSUES
Unlike the other retailers in market, "ZARA" mostly deals with supply chain. In Spain, around half of their clothing products are produced, some in the European and Asian countries. Because of its high demand of Accessories and clothing products, company may faces a various strategic challenges (Nelson, O. et al 2016).
At the very beginning rather than traditional media support, company has adopted a unique and efficient marketing method to promote itself in media as well as social media websites. In this fast communication age, marketing is a necessity for each business. If some of the business is doing well and great without marketing then they are following other opportunities to grow in market by launching a better marketing campaign. From the last two years, this highly productive brand "ZARA" has changed its marketing way and started marketing campaign through social networking sites to acquire more attention from their customers.
Because of its main origin of business in Europe, "ZARA" is very sensitive about its liberal strategy. In economic system, the traditional media has plays an important role in flashing the political issues. Because of its existence in Europe, five to six colors are mainly used by its designers all the time. UAE is a different cultural country has a stable readymade cloth industry with different colorful clothing material. But this quality is lack in "ZARA" fashion designing clothes (Joy, A. et al 2012).
Whether is one of the major strategic issues faced by this company because country's climate is extremely different from other countries Due to the variation in local whether, customers requires a change in fashion as well. So that's why almost at all "ZARA" stores you will find the normal whether clothing material. The social and political aspects of a country also affect the business of a company in different company and they usually tend to change the present structure of the business. ZARA has also adopted different strategies which are implemented by the then in the business environment.
EXTERNAL ANALYSIS
Mostly an external environment of industry depends on the several factors including the social, demographical and economical and we can say that environment of company is made up of these factors. The external environment analysis can directly lead to the possible future trends reorganization. On the basis of company's level, an evolution analysis would be predicted and this can become a strategic opportunity to increase income. By taking the benefits from such type of opportunities can lead to the better productivity in an efficient manner. Moreover the identification of company depends on the close research of its environment as well as its capacity (Cachon, G. P., and Swinney, R.2011).
In order to maintain and develop the queue of opportunities that could benefit the company and several threats that could be harmful for a firm; an external audit would be created. Its aim to identify the key variables that provide various responses in future rather than to maintain an exhaustive list of all possible factors around its environment. But company should be able to respond back to those factors either indecently or decently way by defining the various strategies that decrease the potential threats impact.
3.1 Overview of ZARA
"ZARA", a well known and biggest retailer in fashion designing was founded in 1975. It is a Spanish brand of clothing which offers the fabulous fashionable designs; sell the accessories for women, men and kids. It is a part of one of the most popular fashion retailer named as "INDITEX" that was founded by "Amancio Ortrga" in 1963 (Casamassima, P. 2011).
3.1.1 Economic forces
The economic factors play a significant role on the company operations because in this clothing industry, customers will be choosing to spend less money on much expensive clothes. However, the operational cost of ZARA clothing brand will be increasing or decreasing all depends on euro/dollar rate and the currency risk will always be present in this organization. As we know the American dollar is becoming more powerful and stronger due to some euro crisis. Because of this reason, raw material costs will go up that is purchased by "INDITEX" in American dollars. Since its origin, it has been dealing only in a single currency.
In the last few years, ZARA clothing brand does not affected by arriving some fluctuations in the economical conditions of market. ZARA was getting successful in the share market because this brand was not dealing in dollars and for its dealing purpose they were using a safer currency. The economical situation of the country is evaluated in an efficient manner before entering in its market and till now Spain has a most stable market conditions.
3.1.2 Social, cultural, natural and demographic environmental forces
Because of the aging structure of customers of ZARA clothes; the social as well as demographic analysis is essential. Due to the purchasing power of customers, ZARA clothes are sold in different cultures of different regions. The slim design clothes do not have fabulous match with the US market demands still it has high purchasing power. Right now ZARA faces several social influences because it is only operating in a single country. ZARA luckily got a country for its operation management process because Spain is the only country which has independent cultural roots and filled with the bright cultural events. The tourists become customers due to its low price and it makes easy to purchase for shoppers (Barnes, L., & Lea-Greenwood, G. 2010).
3.1.3 Government, legal and political forces
In particular country, government and political parties play an important role in developing and maintaining the political environment. They may support the several policies for industry and it cat as a silent factor in an organization or firm. In order to expand the business in different countries, the political support provided by government should be critically evaluated. Mostly the European countries has safe economic circumstances and over there companies can never be pressurized from government bodies, so ZARA has better option to expand its business in those countries.
3.1.4 Technological forces
In this clothing industry, the technological factors are not usually critical, but ZARA has its own specific business model is an exception. For the communication purpose, high-technology should be adopted because it is used fast-delivery, an emergency query from customers and many others. On the daily basis, all the information go flow orderly and in efficient way at the central head in Spain. Moreover, ZARA use the latest technology advancements at a great instant level.
3.1.5 Competitor analysis
In market, there are only three competitors for ZARA like GAP, Mango, H&M. Due to its high merchandise range, every retailer can be a threat to ZARA. GAP, Mango, H & M all these have same stuff quality and affordable prices as ZARA. They are more attentive when entering in new markets.
3.2 Porter's five-force model
This model depicts the way that how companies can develop their strategies?
The analysis of five-force model of ZARA
3.2.1 Entry barriers
Because of the high saturation of market participants, the average growth of the apparel industry is low. Manufactures made a high investment in the market for entry and exit. Moreover, the entry and exit barriers are relatively law for only distributors. But the storage costs are relatively low in comparison of food industry because of its physical attributes. So the low quantities of apparel should be manufactured because of the fast change occurring in the market.
3.2.2 New entrants
In the local market, there are no administrative restrictions in the local market and store should be rented. Moreover, there are no restrictions for the distributors. However in the production, for an existence of economical scale there are several barriers and restrictions.
3.2.3 Threats of substitutes
This is the major threat that all companies may suffer from. Customers are always looking for more trendy apparel at affordable prices. The threat is other competitors can provide the trendy clothes with low price to meet the requirement of customers.
3.2.4 Customer's bargaining power
According to the ZARA business model, they offer only limited stock and provide the service of frequent replenishing of products. Special discounts offering to the customers after a season because some of them feel that price is too much and at that time non-unified bodies not able to defend themselves. But on sales, customers are rarely able to select the apparel what actually they want for them.
3.2.5 Supplier's negotiation power
The largest clothing apparel organization named as "INDITEX" has 200 external suppliers for the purpose of raw material collection. So the negotiation power of large amount of suppliers is less.
3.2.6 Rivalry among the competitor
In the clothing industry, there is tough competition in the existing firms. So ZARA does not only compete with local Spanish brands but also with other international clothing apparel brands like GAP.
4. COMPANY SITUATION
ZARA beat the other apparel brands due to its latest trends with an affordable price and now became the top most as well as a favorite brand for those who liked to keep up-to-date with the fashion. The most surprising thing about this fabulous brand is it never advertises itself in any form because till now no other brand has delivered the same quality. From the very beginning, ZARA operates under the parent organization named as "INDITEX" that was established in 1974 in Spain. In terms of developing the new and tremendous designs, ZARA is considered as a publically traded company as well as market leading firm because in a year more than 10000 designs are released to satisfy their customers (Tokatli, N. 2008).
The eight brands owned by "INDITEX" made it a popular fashion retailer in market and now it is considered as the star of "INDITEX". ZARA mainly differentiate from other competitors with low affordable prices, up to date designs, bring the products from conception to their stores at a great instant level. From its humble opening of 5,527 stores; vision is to deliver the new designs which are affordable to experience our business. In this modern era, ZARA use franchising even when the market is completely stable and has more cultural issues , differences. By opening stores in large countries in 2011, INDITEX expanded its rumor and presence in all five continents as well as diversified its retail by acquiring new brands to meet their customer's requirement.

4.1 SWOT Analysis:
The external analysis is an element of SWOT analysis as it meant to refer to the firm's strength and weaknesses, opportunities and hazards. Moreover this analysis deals with an internal and external analysis but all these elements work together. The strength and weaknesses of the SWOT analysis mostly refers to an internal strategic analysis and on the other hand opportunities and hazards of the SWOT analysis refers to an external strategic analysis. Ideally a company tries to change its weaknesses and gaps into strengths.

4.2 Company's Strength:
Instead of advertising its clothing apparel in the market, a vertical integration strategy is followed by this firm in which all the clothing apparel are produced and managed at one central location and after that in very short time delivered the same to its worldwide stores. Rather than advertisement this company follows an efficient strategy of hiring the most talented and expert designers who are committed in developing the attractive and extraordinary designs for their beloved customers at a higher rate as compared to other competitors. By following all these strategies, the company is able to fulfill their customer's requirements that don't bother about the higher price than the average market and interested to follow the latest fashion trends (Mazaira, A. 2003).

Unlike the other retailers in market, "ZARA" mostly deals with supply chain. In Spain, around half of their clothing products are produced, some in the European and Asian countries. Because of its high demand of Accessories and clothing products, company may faces a various strategic challenges. This company follows the environmental policies very well and it is almost successful in implementing an eco-friendly environment in their stores by less energy consumption, maintain sustainability including the stores designing, heating, lightening and so on. In term of cost and size, the products are mostly differentiated for the purpose of increasing the base of customers. In terms of area like George Street in London, Rathenauplatz in Frankfurt, Pitt Street in Sydney; ZARA has several stores that are characterized by its amazing interior designs. However by using a multi channel strategies, this company is now moving to look forward to expand its business from traditional market to new markets in Asian countries.
4.3 Opportunities:
To overcome the several weaknesses faced by this company, they are moving to invest globally in order to keep their prices low as compared to its competitors in the market. ZARA doesn't have any experience in Albanian market and don't have any idea about its laws, culture for clothing and religion. By creating franchise with the local partners of those countries, they can easily overcome these issues. Moreover, in order to avoid the excessive dependency on its physical stores over worldwide, this company now prefers the adoption of an online shopping. In this apparel industry, the online shopping is the only way to increase the market shares and to manage the competition from the existing international clothing brands. So ZARA is now moving to this latest strategy in order to expand its market shares.
This firm is now entering in the Australian market this year. This company uses the information technology advancements at a great instant in order to support the online selling system where the return and exchange system is almost same for the customers. It will help to make the customer more willing to buy the products. At several locations, customers can purchase its products via I phone because it has a core concept in IT field. Everyday their manager has to report back to its expert designers to give feedback and to ask some queries and on the other hand ZARA models have provides a more flexibility in production sales. It seems to be very good coordination among the whole department and they will be more able to meet their customer's need.

4.4 Weakness:

ZARA is well known in making creativity with new design clothes, shoe and accessory products but their innovation is at high risk and may stumble in the future and lose their balance in the market. ZARA market strategies has some weaknesses which may be affected its ambitious growth in the future although this firm has a more successful business criteria in comparison of others.
Some of the Weakness of ZARA Fashion are;
Threats:
Some of the threats of the company are the ;
Competition in the market
Increasing cost of the raw materials
Changing market conditions
These are some of the threats which the company is facing nowadays.

Financial Analysis:
Revenue growth :

Since last 10+ years company has shown positive growth in the case of sales and sales revenue of the company. Here in this case the company has provided better strategies which can be helpful in the market.
Profitability, liquidity, leverage and activity – identify each in the topical sentence for that paragraph.
Here we are going to calculate the liquidity ratio of ZARA. The ratios are mention in the below
Current ratio = 107.87/99.35=1.08
Current ratio is good as per fashion industry.
Quick ratio=107.87-7.89/99.35=99.98/99.35=1.003
Now we are calculating the debt equity ratio of ZARA
Leverage =debt /equity=193.88/659.48=0.293
Debt-asset ratio =debt/asset=193.88/981.81=0.1974
Hence we are calculating the Profitability ratio of ZARA
Gross profit ratio=gross profit/sales ×100=82.13/85480×100=0.096
Operating ratio=10.02/85480×100=0.011
Net profit ratio=-1.99/85480×100=- 0.002
We are calculating the turnover ratio of ZARA
Inventory turnover=net sales/average inventory= 85.48/7.89= 10.83
Total assets turnover=net sales/average total assets= 85.48/245.45=0.348
ZARA financial analysis: For the Table please refer to appendices


Financial analysis of the company has shown positive growth strategy of the company. Past few years has shown positive sign for the company in terms of financial growth and market growth. These are the aspects which can be determined with the help of the calculations.
In terms of Zara all the liquidity ratios are higher than industry average
Leverage ratios are slightly lower than industry average.
Turnover ratios are more or less equal to industry average.
Profitability ratios are higher than the industry average.
So we have seen that Zara in running smoothly and Zara can make more profit in future

Conclusion
ZARA has made its founder the richest person of the Spain and in the fast fashion era, it really enjoys a competitive leadership. The traditional strategies implemented by this company helps in getting a firm base for an organization. It is a difficult process to introduce the several changes in strategies but to cope up with the existing expanding companies and to excel in business, ZARA has to implement the useful and new objectives in the market to expand its business. Moreover a single strategy can never be sufficient to serve this purpose. It is highly recommended that there is no need to implement all decision and new objectives in one step, but this company has to wait for several responses from customer side and then launch the new strategies in orderly. Within the supply chain, a proper emphasis should be developed. This strategy can help this organization to bring the new trendy material in market at a rapid rate. It's must that designer team become more efficient and careful while designing the new clothing material and garments because cost pressures are being placed on the organization.
Recommendation
Strategy recommendation
To gain more market value, it is essential to work on assessments in depth before finalizing any decision related to apparel because this fashion industry may change frequently and our rough estimates regarding the production may lead to the undesired results and market share of firm would be flow down. It can also impact on the status of its parent organization "INDITEX". The success of this firm is directly related to their ability for better understanding with customers. This organization has maintained a good communication network with customers. However ZARA still needs to overcome the various issues faced on a daily basis like strong competitors in the market, financial crises and many others and also needs to change some macro economical changes.
Objectives
This research has been carried out to investigate why the perspectives given of ZARA's human resource management have risen through their employees, media and many others. Another one is what actual knowledge they can provide and how, which knowledge can be analyzed of these perspectives with the help of human resource management. By taking the case study of ZARA, an objective of this assignment is to analyze and present the current situation of the international apparel industry.
Strategic justification

These recommendations are justified because if company wants to gain more market value then this firm needs to solve the different problems stated in this study. It strongly suggests that Zara Sweden could offer more trendy apparel in order to better their performance. In this way, the product differentiation enables ZARA to attain customers and stable the preferences of more customers. By offering more affordable prices with good product quality, it can make sure that this company will lead better in future trends.


Appendix:

Appendix 1: SWOT Analysis

Appendix 2: Porter's five-force model



Financial Analysis table:
liquidity ratio
Current ratio = 107.87/99.35=1.08
Quick ratio=107.87-7.89/99.35=99.98/99.35=1.003


debt equity ratio
Leverage=193.88/659.48=0.293
Debt-asset ratio=debt/asset=193.88/981.81=0.1974

Profitability ratio
Gross profit ratio=82.13/85480×100=0.096
Operating ratio=10.02/85480×100=0.011
Net profit ratio=-1.99/85480×100=- 0.002

Turnover ratio
Inventory turnover=85.48/7.89=10.83
Total assets turnover= 85.48/245.45=0.348