General Economic Conditions
Zara retail clothing chain was the leading global apparels retailer in 2011 following continual growth over the years. The clothing industry is competitive and subject to dynamic consumer tastes, changing spending trends as well as economic and trade requirements. Economic conditions affect the spending patterns of consumers.
For the past three years, the global economy slumped. Slow growth in economy did not affect the continued increase in sales for Zara in the past four years. Zara has recorded an impressive 10% growth in sales on average since 2008. However, the economic situation continues to improve. In particular, there is notable recovery in the United States where Zara has expanded in both online and store presence. In Europe, the prospects of growth are guarded because of the recent tightening of regulations and fiscal policies.
On the brighter side, the debt crisis has eased in countries such as Greece and Spain. The emerging markets for Zara and associated brands (e.g. Brazil, Japan and China) have had relatively stable economies. This makes the company’s strategic online and store presence in those countries worthwhile as the company heads to 2012. Improving economic conditions may increase growth in the overall apparel industry, reduce uncertainties and open new markets (Tokatli 2008).
Technology
Internet and globalization are crucial to a current business. Zara’s store presence goes hand in hand with its online presence. This drives its flexible business model of fitting the right fashion to the right people at the right time affordably. Zara introduced 17 new online markets in 2011. 2012 is already promising to be successful. Inditex, Zara’s parent company, introduced e-shopping to 18 new countries in Europe alongside United States and Japan.
With store sales remaining relatively unchanged at an average of 25% across all major markets, online presence has experienced tremendous growth. However, connectivity has brought a major lifestyle revolution the world over. Hence, Zara is even more cautious on trends in regional and global markets. This shows that the overall industry needs to be aware of the benefits that technology brings in line with the continued uptake in many countries. It is a new route for more revenue generation, trend evaluation and growth (Tokatli 2008).
Societal Values and Lifestyles
Different societies have different values and lifestyles (Tokatli 2008). Zara takes this as a challenge by giving the right people the right fashion. However, affordability, trend, durability and functionality form the basis for Zara’s products. Additionally, globalized and highly connected world has brought major changes in lifestyles.
This diversity affects employment, operations and sales. During the British Royal wedding, for example, Kate Middleton wore a Zara dress for her honeymoon. A day later, Pippa was spotted wearing a Zara dress. This propelled Zara sales globally and particularly in Britain. In 2011, Brazil launched investigations against Zara for possible violations of international labor regulations.
Because of outsourcing, Zara got involved in a scandal where a London newspaper claimed Zara subcontractors were employing underage employees and keeping them in bad conditions. Zara has also been mentioned adversely in situations involving poor payment to workers. The industry needs to evaluate its affiliations along the entire supply chain to reduce embarrassing instances. Additionally, the industry should asses the different lifestyles to enable calculated strategic responses.
Key Success Factors
Strategy Elements
Generally, Zara has a flexible business model. It develops affordable clothes in a timely manner. Its production cycle is fast (around three weeks) and customized. Zara was the trailblazer in ‘fast fashion’. Products are updated twice in a week. This makes its response to trends quite fast.
The company gauges the tastes and preferences of customers carefully to ensure competitiveness and to avert excess inventory. Online transition at Zara is spot-on. This is in line with globalization and internet uptake world over. It is new frontier for competition in the near future.
The strict code of conduct that guides companies that Inditex outsources garments manufacturing to is a strategic move in ensuring both ethical and quality adherence. Additionally, Zara streamlines its supply chain to ensure that products reach customers at the right time. This has increased funds from operations by an average 12% since 2008. Strategic management is vital to the success of a business. A business that loses its strategic focus fails hence the need to look into the main strategic elements at Zara.
Competitive Capabilities
The most outstanding feature about Zara is the company’s ability to understand the customer’s preferences, tastes and dynamics. This explains its online transition, flexible and fast business model and product attributes. Additionally, Zara strives to make its supply chain stable. This compliments its ‘fast fashion’ model which ensures that products reach the customers soon enough. This gives it competitive advantage over competitors such as Gap.
After transitioning to e-shopping, gap experienced steady growth. However, its earnings declined for the first time since 2006. Though Zara does not emphasize too much on brand building, it enjoys stronger brand success than competitors because it ensures big names use its brands. Competitive capabilities inform a firm’s strategic focus and competitive dimension. It is imperative for a company to be fully aware of its capabilities in order to shape its market focus (Tokatli 2008).
Reference
Tokatli, N. (2008). Global Sourcing: Insights from the Global Clothing Industry-The Case of Zara, a Fast Fashion Retailer. Journal of Economic Geography, 8.2: 21–38. Retrieved from https://academic.oup.com/joeg/article-abstract/8/1/21/910523?redirectedFrom=PDF