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Advanced Competitive Position Assignment—Zara

Introduction

Zara is one of the largest international fashion companies belonging to Inditex, one of the world’s largest distribution groups.
But as the market evolves, it faces increasing pressure from competitors entering the market and from customers demanding
higher quality and lower prices, also, a variety of global factors are shaping the future of the clothing industry, an example of
that is the growth of direct-to-consumer selling. Below, we’ll explore Zara’s competitive landscape, international and
diversification strategy, and their stakeholders.

Competitive Landscape

Apparel industry's market growth (post-2017 figures are projected). Source. MarketLine

According to MarketLine, the global apparel industry has been growing at a 4.78% yearly rate since 2011. Now valued at
nearly $1.4 trillion dollars in sales for 2017, the industry shows no signs of slowing as the market is projected to experience
5.91% yearly growth over the next three years. By 2020, the market size of the apparel industry is expected to reach a mind-
boggling $1.65 trillion sales in US dollars worldwide.
Apparel industry market size (post-2017 figures are projected).

Statistically then, it’s clear that people have a greater interest in shopping than they have had in previous years. Fashion Life
cycle contains the introduction acceptance, culmination and decline of the acceptance of a certain style. The Fashion cycle is
not meant for long time, it changes in very short period. It is not compulsory that to introduce fashion and try to encourage
consumers buying behavior before the decline stage is very important "Fast Fashion" as a conception helps to take the market
and attract consumer earlier than other competitor by dropping the lead-time in supply chain. Fast Fashion is a term used by
fashion retailers to describe inexpensive designs that move quickly from the catwalk to stores to meet new trends

There is a tough competition in clothing retailers. Who has a competitive advantage in clothing retailing will be the winner.
"Competitive Advantage" refers to a company's profit and market share. Offshore supply is one of the processes, which is used
generally by clothing retailers to accomplish low labor cost, as the apparel industry is still labor concentrated industry. The
supply chain in the apparel industry is compound and lengthy. The longer the supply chain the additional complicated it is to
handle and the more a company relay on long-range forecasts. Challenging consumers and competitive retailing have
produced stress to take action with multiple refreshes per season. The focal point is on replenishment of the exact styles,
designs and colors that are selling well, whilst reducing, changing or abandoning those that turn out to be less popular than
forecast. This decreases the difficulty of marking down the price of less popular clothing that fails to sell in the forecasted
volumes.

It’s clear that the apparel industry is in a growth phase in the competitive life cycle. However, Zara as one of the leaders of Fast
Fashion, is in the mature phase but in 2016 a disruption occurred when Zara decided to develop a new sustainable collection,
Join Life, as part of a commitment to strengthen its sustainability commitments. This line meets health, safety and
environmental sustainability standards, and, shoppers are being encouraged to return old clothes to its stores for recycling as
part of the movement.

Zara’s strategy involves adapting couture designs, manufacturing items, and distributing products to stores a mere two to
three weeks after they first appear on catwalks. In addition, store managers and sales teams continuously monitor trends and
customer preferences and report them back to designers at headquarters. Zara’s operational key is its product development,
manufacturing, and supply chain processes which represents agility.

Zara designs as well as manufactures a majority of the apparel that customers buy in its stores (vertical integration) This is very
much in contrast to the traditional high-volume fast-fashion companies, which outsource most of their manufacturing to
contract manufacturers. Zara for a long time held in reserve almost half of its production in Spain and Portugal, earning the
reputation of being one of the exceptions to globalization. As a number of supplier firms in countries such as Morocco, India
and Turkey have gained the competence to manufacture intricately worked high-quality garments with the compulsory
elasticity and speed, Zara has turned to sourcing from these countries.

From this data, one can assume that Zara has a good position and a competitive advantage by offering customer stylish clothes
at inexpensive prices with an agile supply chain strategy and the unique implementation.

Internationalization Strategy

Zara, the most internationalized chain of Inditex, opened its first store in 1975 in La Coruña, north-west Spain. During the
1980s, Zara expanded within the domestic market, opening stores in all Spanish cities with population greater than 100,000
inhabitants. The second involved the international expansion of Zara with the opening of a store in Oporto (Portugal) in 1988.
By the end of January 2006, Zara was operating in 59 countries with 852 stores: 664 stores were located in Europe (259 in
Spain), 112 in America, 45 in Middle-East and Africa and 31 in Asia. International sales accounted for 69 percent of its total
turnover in 2005, with Europe being its largest market by far. This section will discuss the internationalization process of Zara
focusing on three issues: motivation, market selection and entry options.

Motives for Internationalization


Jose Maria Castellano, former CEO of Inditex, recalls in an interview that the main reason why the company decided to launch
an international expansion was the saturation in the domestic market. Therefore, the limited market growth opportunities In
Spain was the key influence on Zara´s decision to expand internationally. According to the literature, the motives for retail
internationalization can be classified into push and pull factors. Push factors are those that encourage the organization to
search for international opportunities. Pull factors involve attractive conditions in the host market. Hence the
internationalization of Zara is a reactive response to the domestic market maturity (push factor) but according to Castellano,
there were other push factors for the internationalization: in the 1980s, the Spanish economy pointed toward a decrease in
consumption in general terms. In the apparel industry, the consumption of clothes in a good quality at affordable prices
showed a slow pace of growth. Furthermore, a change in the Spanish consumer behavior was taking place during that time;
they started to spend more on spare time, travelling and education, and less on clothes.
The key pull factors that explain the internationalization of Zara include Spain’s entry into the European Union in 1986, the
globalization of the economy and thus potential economies of scale, the homogenization of consumption patterns across
countries, the abolition of barriers to export and the development of the information technology. But, there is also a third
group of factors related to the organization, the facilitators or enabling factors. The expansion of Zara in New York (1989), Paris
(1990) and Milan (2001) was justified by image and status reasons as mentioned earlier (these three cities are considered
fashion capitals that are highly competitive). The USA offered Zara the opportunity to learn first-hand about its American
competitor Gap and consumers in a large market with an interest in fashion.

Last but not least, the internationalization involved the spreading of cost and risk into different markets. Table I summarizes
the factors influencing the decision to internationalize.

Push Factors Inhibitors Facilitators Pull Factors


 Administrative barriers  Spain joined the EU
 Saturation of local market  Geographic distance  Economies of scale
 International status
 Low growth opportunities  Low economic  Globalization
 Learning process
 Changes in consumer development  Cultural affinities
 Spreading cost and risk
behavior  Different seasonality  Abolition of economic
 Cultural distance barriers

Since 1988, Zara has moved smoothly from a reactive position at the beginning of internationalization, where the maturity of
the domestic market was behind of its decision to internationalize and the inhibitors were hampering the process, to a
proactive position where the pull factors are more significant and the company has large growth opportunities internationally.
Today, Zara has now 2266 stores across 88 countries.

Diversification Strategy

Many clothing companies higher their clothing to be made but Zara uses vertical integration because they make all of their
own clothes in house. This gives them an edge for quicker turn-around times and faster shipping. This is a huge benefit in this
industry which has helped them capture the market. The negative to this aspect is that it can be tough to ensure team unity
when you have the selling side of the clothing and then the production side. Team members making the clothing may not be
getting the appreciation or the ability to please as quickly as those in sales.

To complete its product lines, also as a form of their differentiation, Zara sells accessories to complement their main product
which is apparel. This kind of strategy is called the related diversification. Further, Zara also has the unrelated form of
diversification which is the Zara Home. Zara Home is a retail store which specializes in home fashion and decoration. Zara
Home, similar to Zara, emphasizes exclusivity in all fits products and it is also relatively more expensive than its competitors.
Zara Home is available in 55 countries including Indonesia
Stakeholder analysis

Whole Foods has been able to develop a competitive position that allows it to create value to its key stakeholders. The company
effectively works to satisfy stakeholders’ needs and it is very clear with its commitments. Zara’s competitive position is able to
align its values, opportunities and capabilities in a very effective way.

Zara and Inditex mantain a relationship of transparency and dialogue with their stakeholders in order to create sustainable
value, and constitutes a fundamental tool for facing the challenges and opportunities that arise in the course of their activities.
The company follows global and specific policies that guide the relations with the stakeholders. The Board of Directors has
approved policies concerning human rights and corporate social responsibility, among others. Zara also follows a Code of
Conduct and Responsible Practices and a Code of Conduct for Manufacturers and Suppliers, all of which bring together the
values and principles that guide their activities and ensure accountability for the supply chain. Inditex regularly identifies and
reviews its stakeholders. Once identified, these stakeholders are classified and prioritized according to their business model.

Inditex also has at its disposal a Social Advisory Board that advises the Group on sustainability issues. Advisory Board’s members
are external individuals or institutions independent from the Group. The Social Advisory Board has a key role in Inditex’s
relations with stakeholders, as the Advisory Board is responsible for formalizing and institutionalizing dialogue with key players
across communities in which they operate.

Inditex has five main stakeholders: more than 67.000 shareholders, over 1170 suppliers, stores in societies of more than 78
countries, clients all-over the world and about 95.000 employees

Shareholders Suppliers Clients Employees Society


 Finished goods of
quality
 Purchases  Efficiency
 Capital  Low prices  Acceptance
What do  Loyalty  Motivation
Inditex need  Trust  On-time delivery  Good image
from them?  Free marketing  Loyalty
 Compromise  Responsibility  Be welcomed
 Good reputation  Stability
 Effective
communication
 Responsible for  Composes their
Importance  Source for  Source of good
 Source of income day-a-day “field ofaction” and
for Inditex investments sold
productivity potential clients
 Stability
What  Increase their  Fair Salary  Provision of jobs
interest do  Obtain a good market  Obtain fashionable
they have of ROE and economic goods  Social Benefits  Competitiveness
Inditex?  Gain profits in the fashion market
 Career
possibilities
Stakeholders Map. Source: Inditex
In conclusion, Zara is currently enjoying competitive leadership in fast fashions. This brand’s success story shows the strength
of its operations. Its cross-functional operations strategy, coupled with its vertically integrated supply chain, enables mass
production under push control, leading to well-managed inventories, lower markdowns, higher profitability, and value creation
for shareholders in the short and long term. Zara is all about staying on top of the hottest trends, and exuding an exclusive
feel, but its supply chain is the real star of the show. Its logistics is what means to take it from being just another fashion retailer
to an industry example of fast fashion done right.