ZARA
Created By:
Anggita Sulisetiasih 1006718706
Kenji Wibawa Junardy 1006718990
Patricia M. A. Adam 1006805694
International Undergraduate Program Faculty of Economics
University of Indonesia Depok 2013
TABLE OF CONTENTS
Chapter 1 ... 4
INTRODUCTION ... 4
1.1. Company Background ... 4
1.2. Vision and Mission... 4
1.3. Long-term Objectives ... 5
Chapter 2 ... 6
VISION – MISSION ANALYSIS ... 6
2.1. Importance (Benefits) of Vision and Mission Statements ... 6
2.2. Characteristic of a Mission Statement ... 7
2.3. Mission Statement Components ... 8
2.4. Vision and Mission Relation: Is It Achievable? ... 10
Chapter 3 ... 11
EXTERNAL ASSESSMENT ... 11
3.1 Michael Porter‘s Five-Forces Model... 11
3.2 External Factor Evaluation (EFE) Matrix ... 13
3.3 Competitive Profile Matrix ... 15
Chapter 4 ... 19
INTERNAL ASSESSMENT ... 19
4.1 Resource-Based View Analysis ... 19
4.2 The Internal Factor Evaluation (IFE) Matrix ... 22
4.3 Financial Analysis ... 27
Chapter 5 ... 33
STRATEGIES IN ACTION ... 33
5.1 The Strategies ... 33
5.2 Michael Porter‘s Five Generic Strategies... 34
Chapter 6 ... 36
STRATEGY ANALYSIS AND CHOICE ... 36
6.1 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix ... 36
6.2 The Strategic Position and Action Evaluation (SPACE) Matrix ... 37
6.3 The Boston Consulting Group (BCG) Matrix ... 39
6.5 The Grand Strategy Matrix ... 41
6.6 The Quantitative Strategic Planning Matrix (QSPM) ... 44
Chapter 7 ... 46
IMPLEMENTING STRATEGIES: MARKETING, FINANCE/ACCOUNTING, R&D, AND MIS ISSUES ... 46
7.1 Marketing ... 46
7.2 Finance ... 49
7.3 Research and Development (R&D)... 49
7.4 Management Information System ... 51
Chapter 8 ... 53
STRATEGY EVALUATION AND GLOBALIZATION CULTURE ... 53
8.1 The Balanced Scorecard ... 53
8.2 Globalization Culture ... 56
Chapter 9 ... 59
CONCLUSION ... 59
9.1 Zara‘s Competitive Advantage... 59
9.2 Vision, Mission, and Strategies ... 60
Chapter 1
INTRODUCTION
1.1. Company Background
Zara is a Spanish brand of clothing founded by the visionary Amancio Ortega Gaona and Rosalia Mera in Artexio, Galicia. Zara was founded in the year 1975. It is one of the major selling brands of one of the biggest fashion retailer "INDITEX". Zara is now available in 86 countries with total of 1,763 stores worldwide.
Inditex itself is a huge fashion retailer company which owns 8 brands namely Zara, Pull &Bear, Massimo Dutti, Bershka, Stradivarius,
Oysho, Zara Home and last but not the least Uterque. Amancio Ortega is the founder of Inditex, which was established in 1963. Amancio Ortega adapted unique business model, which were innovative and flexible. This made Inditex one of the biggest retailers in the world. In 1975 Inditex established Zara‘s first store in downtown A
Coruna, Spain. Zara offers fashionable designs for men, women, and kids. They also sell accessories to complete their product lines.
1.2. Vision and Mission
The company‘s vision as stated on the website: “Zara is committed to satisfying the desires of our customers. As a result we pledge to continuously innovate our business to improve your experience. We promise to provide new designs made from quality materials that are affordable”.
Zara states that its mission is that “Through Zara’s business model, we aim to contribute to the sustainable development of society and that of the environment with which we interacts”.
1.3. Long-term Objectives
The company states on their website the following as their objectives in the long-term:
1. Save energy, the eco-friendly store: They are implementing an eco-friendly
management model in their shops in order to reduce energy consumption by 20%, introducing sustainability and efficiency criteria. This management model sets out measures to be applied to all processes, including the design of the shop itself, the lighting, heating and cooling systems and the possibility of recycling furniture and decoration.
2. Produce less waste and recycle: Zara recycles their hangers and alarms, which are
picked up from their shops and processed into other plastic elements. This is an example of their waste management policy. Millions of hangers and alarms are processed each year and both the cardboard and plastic used for packaging are also recycled.
3. Their commitment extends to all their staff, increasing awareness among the team members: The Company holds In-company awareness campaigns and specific
multimedia-based training programs to educate their staff in sustainable practices, such as limiting energy consumption, using sustainable transport and modifying behavior patterns.
4. Use ecological fabrics, organic cotton: Zara supports organic farming and makes
some of its garments out of organic cotton (100% cotton, completely free of pesticides, chemicals and bleach). They have specific labels and are easy to spot in the shops.
5. Use biodiesel fuel: Zara‘s fleet of lorries, which transport more than 200 million
items of clothing a year, use 5% biodiesel fuel. This allows them to reduce their CO2 emissions by 500 tons.
We can see from the objectives that Zara is aiming to be an environmental-friendly company. It is their top priority at least until the year 2020.
Chapter 2
VISION – MISSION ANALYSIS
2.1. Importance (Benefits) of Vision and Mission Statements
Zara clearly has a formalized mission statement and they are currently striving to achieve their mission through strategies implemented though their objectives in long-term period. According to King and Cleland, taken from Fred David‘s Strategic Management book, it is said that there are six benefits of having carefully-developed mission statement:
1. To ensure unanimity of purpose within the organization
2. To provide a basis, or standard, for allocating organizational resources 3. To establish a general tone or organizational climate
4. To serve as a focal point for individuals to identify with the organization‘s purpose and direction, and to deter those who cannot from participating further in the organization‘s activities
5. To facilitate the translation of objectives into a work structure involving the assignment of tasks to responsible elements within the organization
6. To specify organizational purposes and then to translate these purposes into objectives in such a way that cost, time, and performance parameters can be assessed and controlled
In case of Zara, their mission statement clearly and firmly emphasizes their purpose, which is to be an environmental-friendly company and contribute to society development. Their purpose is also their base in making allocation to their resources in which we know that Zara allocates more on creating an eco-friendly operations and boosting its supply and value chain other than spending for marketing campaigns. The mission statement, combined with its corporate culture, somehow produces a conducive organizational climate for achieving their objectives.
Moreover, since the mission statement is very clear and direct, it is easier for the employees to set their mindset and behavior to be aligned with the company‘s objective. In other words, employees know what they should do, how they should do it, in order to achieve those objectives. Finally, Zara as a determined company, with the purposes of being a fast fashion company that concern its environmental-friendliness, combined with their long-term
objectives that are derived from their mission statement, create somewhat a clear standard of their cost, time, and performance assessment, and it has been working well so far.
2.2. Characteristic of a Mission Statement
A Declaration of Attitude
A mission statement is more than a statement of specific details; it is a declaration of attitude and outlook (David, 2013). A good mission statement sets the company‘s objectives and strategies without limiting the management‘s creativity. It also needs to be broad enough to reconcile the stakeholder‘s differences. Moreover, a good mission statement indicates the relative attention that the organization/company will devote to; it reflects judgments about future growth directions and strategies that are based upon forward-looking external and internal analysis.
In case of Zara‘s mission statement, based on what is stated on the website and quoted on this paper, it is said that through its business model, Zara aims to contribute to society development and environment sustainability. That is their objective and the attention that they devote to. Zara states that an eco-friendly company is what their direction is, other than fulfilling their consumer‘s fashion needs.
Furthermore, Fred David on his book summarizes nine Characteristics of a Mission Statement, they are:
1. Broad in scope
2. Less than 250 words in length 3. Inspiring
4. Identify the utility of a firm‘s products 5. Reveal that the firm is socially responsible
6. Reveal that the firm is environmentally responsible 7. Include nine components
8. Reconciliatory 9. Enduring
In Zara case, we can conclude that it is broad in scope. It clearly states their mission statement and differentiated from their objectives, though the two are still aligned one another. The length also does not exceed 250 words. However, in our opinion, their mission
statement is too simple in order to inspire people to take actions. We think that a brief statement of their act would be better if it is mentioned on the mission statement also. Moreover, their mission statement is too direct to the company‘s direction that it does not identify the utility of their products. However, Zara shows their emphasis on environmental and social responsibility very well. The word ‗sustainable development of society‘ on their mission statement not only shows that they are socially responsible, but also clarifies as an enduring mission statement in term of program and actions.
On the other hand, Zara‘s mission statement does not completely include the nine components of a Mission Statement. More of this will be discussed on the next section. Lastly, it is also not reconciliatory.
A Customer Orientation
Fred David says on his book that a good mission statement reflects the anticipations of customers. It identifies the customer‘s needs and then provides a product or service to fulfill them. Moreover, a mission statement should identify the utility of a firm‘s products to its customers. Zara implicitly states its customer orientation by using the phrase ―through our business model‖. This will lead us to the explanation of Zara‘s unique business model, the fast fashion.
The term fast fashion, by its definition, is an expression used by fashion retailers for designs that move quickly from the catwalk to capture current fashion trends (Wikipedia, 2013). The designs are manufactured quickly and directly distributed to stores for end-consumers. Specifically for Zara, they claim that they only take two weeks for new designs to be sold at their stores, while normally it would take more than three months. This is a form of Zara‘s quick-response for their customers who desire the latest trend of apparels.
2.3. Mission Statement Components
Zara may not state all of the 9 components on their mission statement; however, they do explain those components on the company website.
1. Customers: The customers of Zara are men, women and kids who love fashion and like to wear the latest trend of clothing and accessories in their daily life. 2. Products or services: Clothing, accessories, home and bedding sets collection
3. Markets: Geographically, Zara now operates in 86 countries across the globe, in every continent, with total of 1,770 stores.
4. Technology: Zara uses the Hybrid Model Information, in which information from stores to headquarters relies from combined human intelligence input and from information technology, such as their PDA devices (Sandoval). The technology used allows the company to boost its value chain and eventually lower the manufacturing time. Moreover, nowadays Zara is aiming to practice an eco-friendly technology throughout its worldwide operations.
5. Concern for survival, growth, and profitability: As one of the leading brands in the fashion industry, company profitability and growth is of course important. At the beginning of 2013, Inditex reported a 22% increase in their earnings as they expanded in many emerging markets such as China, India, and Indonesia as well as the online retail.
6. Philosophy: Zara, under the Inditex umbrella, shares the same core values with the overall group, which is based on teamwork and open communication, and performance expectations are very high. These principles underpin each staffer‘s personal commitment to meeting customers‘ needs (Inditex, 2013). Moreover, the company believes that in the course of doing business, they must implement sustainable development standards that promote environmental protection, ensure that resources are properly managed and meet society's needs. Inditex has the strategy called ―Sustainable Inditex‖, which was initiated in 2007 and continued up to today in which they try to reduce the CO2 emission by 10% in 2015, and 20% in 2020. Moreover, they are opening sustainable and environmental- friendly stores worldwide.
7. Self-concept: Zara‘s competitive advantages as one of the members of Inditex group are that it has compelling mix of latest fashion and quality at relatively affordable price. It has unique product strategy with 36,000 new designs per year with 2 – 6 weeks delivery time to each store. Zara also emphasizes customer interaction by using the daily-in store feedbacks. Lastly, Zara also has attractive stores in prime locations.
8. Concern for public image: As mentioned on their company mission, Zara aims to be an environmental-friendly company that is successful in meeting their customers‘ needs.
9. Concern for employees: Related with its philosophy, Zara places teamwork and communication among employees as one of the company‘s top priorities. This is also aligned with their practice of IT which requires fast-delivering information, which is why they educate their staff in sustainable practices. It is one of their long-term objectives stated on their website.
2.4. Vision and Mission Relation: Is It Achievable?
Today, Zara is one of the world‘s largest brands. They are successful and still expanding in many emerging markets. Even in Indonesia, they are loved by the fashionistas. They produce new and good designs that their customers love, and their customers are also loyal. Zara‘s customers are so loyal that the value of each fan of Zara is placed the highest among other customer-favorite brands (as shown on Figure 1). If we take a look back to their vision, we can conclude that Zara‘s vision is not only achievable, but actually achieved.
Further, in case of their mission, since it is enduring and talks about their direction in the future, we think that Zara is getting there. In addition, if we consider their long-term objectives and their current strategies, then their mission is achievable, promising and actually undergoing.
Figure 1 Value of a Fan: Across Brands 2013 Source: Syncapse 2013
Chapter 3
EXTERNAL ASSESSMENT
3.1 Michael Porter’s Five-Forces Model
The model identifies and analyzes 5 competitive forces that shape and help companies to determine their industry‘s degree of competitiveness and therefore helping the companies to develop their strategies. The following is the Five-Forces Model for Fast-Fashion with further analysis relevant to Zara:
Figure 2 Fast Fashion Five-Forces Model
We can take a look at each one more specifically of their measurement: 1. Barriers to entry: HIGH
a. High fixed cost business requires economics of scale for sustained profitability b. High SG&A which includes advertising, in-store promotions, etc.; up to 3.5% of its revenue, even though for Zara, the company is famous for spending minimum level of advertisements and commercials. However, recently the company announced that it invested €450 million in commercials as well as logistics area (Inditex, Inditex‘s net sales rise 6% to 7.7 billion euros, 2013).
MODERATE
MODERATE
HIGH
HIGH
c. Concept to store which takes 6 months to a year which refers to long sales cycle. However, in case of Zara, the lead time of clothes first-designed by the designer teams to finished products sold at the store take only about two weeks.
d. Brand equity which is valuable to consumers 2. Substitues: MODERATE
a. Buyer propensity to substitute is high with several competitors to choose from (H&M, Uniqlo, MANGO, and many other fast-fashion brands)
b. Low buyer switching costs and easily substitutable where a customer can walk into its neighboring store instead of Zara
c. Zara has gained substantial customer loyalty which has more visits per year than its competitor‘s store
d. Copying of styles is quite prevalent in this industry, which can attract the customer who does not mind lower quality but ―similar‖ looking apparel. The example will be counterfeiting of Zara products in Indonesia which is currently trending.
Example of Zara counterfeiting in Indonesia
3. Buyer Power: MODERATE
a. Trendy fashion wear is appealing to regular consumers and they would not shop lower quality apparel or accessories
b. Apparel consumers have lots of choices when it comes to trendy clothing and accessories, but price can be a factor. In the case of Zara, for European, American, and eastern Asian countries, Zara is positioned as the low-end
products, however, in emerging markets such as India, China, and Indonesia, Zara is considered as the high-end products.
4. Supplier Power: LOW
a. Contract based cloth production and stitching functions readily available b. Low price of fabric
c. Local cooperatives work without contracts or labor unions 5. Rivalry: HIGH
a. High exit barriers due to high fixed and SG&A costs and excess inventory with lots of cash tied up in out-of-fashion inventory
b. High advertising expenses; 3.5% of revenue indicative of intense competition
3.2 External Factor Evaluation (EFE) Matrix
KEY EXTERNAL FACTORS Weights
0.0 to 1.0 Rating 1 to 4 Weighted Score OPPORTUNITIES
1. Increasing middle class in Asia 0.10 3 0.3
2. Opportunity to build distribution centers
in developing countries to lower costs 0.05 1 0.05
3. New designers for better designs 0.10 3 0.3
4. Rising environmental issues 0.05 4 0.2
5. International Recognition 0.20 4 0.8
THREATS
1. Fierce Competition 0.2 4 0.8
2. Lawsuit related to sweatshops 0.05 2 0.1
3. Possible imitation of goods 0.05 2 0.1
4. Dilution of Brand Equity 0.2 4 0.8 +
TOTAL 1.00 3.45
The Opportunities of ZARA:
1. Increasing Middle Class in Asia weighs as 0.10 with a rating of 3; it is categorized as highly-rated since it is an important factor. Not only because Asia is a booming continent in which there are populous countries with growing GDP, but also because people in Asian countries have the taste which Zara offers for its clothing. Moreover, people in Asian countries, especially the teenagers and young adults are usually western oriented. Meaning, they like to follow the trends that the western culture currently has and adapt those trends in their country. One of those trends is definitely apparel. Zara‘s rating for this factor is 3, which indicates that
the response is above average because Zara is expanding aggressively in these emerging markets of Asia (India, China, and Indonesia). They are also the first mover in these countries. Therefore, we conclude that they have higher response rate.
2. Opportunity to Build Distribution Centers in Developing Countries to Lower Costs weighs only 0.05 because even though it sounds interesting in order to cut costs of distributing the finished products, but there are problems that may occur, such as infrastructure problems in developing countries which might actually hamper the company‘s super efficient supply and value chain. That is also the reason why we put Zara‘s response as 1 or poor, because they are not interested in this option.
3. New Designers for better design weighs a 0.10 with a rating of 3; this is very important since they are based on fast-fashion which they need to change products every 2 weeks. Therefore, excellent team of designers is crucial in this business. Since Zara just cooperated with a lot of new designers, consequently their response is categorized as above average.
4. Rising Environmental Issues weighs a 0.05 with a rating of 4 or superior; They are keen to have a good reputation of being an eco-friendly company, they even set their mission regarding this issue, but too bad that sometimes the consumers do not care about the eco-friendly issue, especially consumers in Asian-emerging markets like India, Indonesia, and China. They simply want exclusive and trendy clothes.
5. International Recognition weighs a 0.20 with a rating of 4 or superior response; undoubtedly this factor is the most important for Zara‘s opportunities because it is the key to successful expansion. In case of Zara, it is widely-known across the globe with good reputation in most of the countries. Therefore, it is a winning point for Zara to have such brand image in the eyes of global consumers.
The Threats of Zara:
1. Fierce Competition weighs a 0.20 with a rating of 4; one of the biggest threats because of new and affordable products from different stores such as H&M, Forever 21, and Uniqlo may harm Zara in terms of consumers‘ loyalty. The analysis from Five-Forces also gives us some details about how this fierce
competition can affects Zara. However, somehow, regardless the amount of advertising investments Zara made, this brand can still enjoy remarkable growth across the globe. Allegedly it is the supply chain that makes it the winner. Therefore, we conclude that the response rate is superior.
2. Lawsuit related to Sweatshops weighs a 0.05 with a rating of 2; this threat is not much of a threat because the cases were not highly publicized, and also because the company has created a commitment to stop the practice of sweatshops in every factory; in every country where they produce their products.
3. Possible imitation of goods weighs a 0.05 with a rating of 2; there is a risk of Zara‘s products being copied, either by their competitor (the designs) or by irresponsible people that practice counterfeiting. However, since Zara is targeting the middle-upper class, therefore, it is not much of concern. Moreover, Zara‘s consumers are popularly known as loyal consumers to the brand.
4. Dilution of Brand Equity weighs a 0.2 with a rating of 4; this is also an important threat because it can decrease in its brand value in customer eyes. Therefore, Zara is implementing their best strategies to increase the brand equity. Probably more significantly to their European consumers through the eco-friendly company campaign which is highly noticed and precedence by European consumers.
Based on the EFE Matrix result, we see that Zara has a score of 3.45 which indicates a strong response from Zara towards the opportunities and anticipation of threats.
3.3 Competitive Profile Matrix
Critical Success
Factors Weight
Zara H&M Uniqlo
Rating Score Rating Score Rating Score Target foreign market
selection 0.15 4 0.6 3 0.45 2 0.3 Enter marketing strategy 0.05 2 0.1 2 0.1 4 0.2 Timing of entry 0.05 2 0.1 2 0.1 4 0.2 Recognition of brand 0.12 4 0.48 3 0.36 3 0.36 Customers knowledge 0.1 4 0.4 3 0.3 3 0.3 Marketing support in global market 0.06 1 0.06 4 0.24 4 0.24 Location selection 0.04 3 0.12 2 0.08 3 0.12
Design collection 0.12 3 0.36 3 0.36 2 0.24 Employee 0.05 2 0.1 2 0.1 2 0.1 Price policy 0.1 3 0.3 4 0.4 4 0.4 Sales promotion 0.05 1 0.05 4 0.2 4 0.2 Organization and control business 0.11 4 0.44 2 0.22 3 0.33 TOTAL 1 3.11 2.91 2.99
a. Target Foreign Market Selection: One of the most important factors in determining success in this highly competitive industry which force its players to have massive expansion strategy. That is why the weight is 15%. Comparing to its other 2 competitors, Zara has the highest score since they have been in the international market longer then H&M and Uniqlo. Zara was the first to start opening new stores in countries outside their country-of-origin‘s continent. Zara expanded outside Europe firstly in 1997 to Israel (Inditex, Timeline, 2013), followed by H&M which is originated in Sweden, first opened their store outside Europe in 2001, located in New York. Uniqlo was the last because they are a new player, established in 2005. b. Enter Marketing Strategy: How the headquarter decides the mode of entering a new
market defines the company‘s interest towards the host country, as well as the company‘s capability and strategy to do international expansion. Uniqlo takes the lead for this aspect, thanks to its advertisement and promotions which are everywhere. They even outran H&M in Asian countries by expanding rapidly with strategy of wholly-owned subsidiary which potentially gives more concentrated strategy compared with Zara and H&M‘s strategies in which both used third-party to enter Asian markets. For example, Zara in Indonesia is under the management of PT Mitra Adi Perkasa.
c. Timing of Entry: Uniqlo has the highest rating for its timing to entry because of the booming trend of East Asia in other Asian countries, like Indonesia which is currently suffering from Korean Invasion. This perfect timing result a surge of consumers dying to shop at Uniqlo stores just out of curiosity.
d. Recognition of Brand: Zara takes the lead on this factor due to its powerful brand equity across the globe, including in Indonesia and other countries as well, they do not need much advertisement or promotion because they are already strong in international market. Meanwhile, H&M and Uniqlo is catching up to Zara. That is why the company finally realized the need to invest more on commercials. They
eventually invested more than 600 million euro to improve their commercials and their logistic simultaneously.
e. Customers Knowledge: As the first mover in the international market, Zara wins again for this factor. The first player usually gets the most advantage compared to those who lagged. Moreover, customer‘s knowledge is also important in order to attract new consumers. Note that customers can also become tool for promotions through the powerful word-of-mouth.
f. Marketing Support in Global Market: Zara has no lead here since after so many years, the company seemed not care about this factor, which then ties H&M and Uniqlo‘s full on advertisements and marketing. Not until just recently when Inditex finally decided to improve their marketing efforts.
g. Location Selection: H&M is behind Zara and Uniqlo since it has just opened in only two stores in Jakarta. That is just one of the examples of how H&M is lagging behind the other two in international market. Zara, on the other hand, is opening more and more new stores in current market, in new market, and almost in every big malls, shopping streets, downtown city, all strategic locations in every countries around the world. Meanwhile, Uniqlo is trying to catch up by opening more new stores concentrated in Asian countries like the one which has just been opened in Indonesia at Lotte Shopping Avenue.
h. Design Collection: In apparel industry, designs are the key. In order to be successful in this industry, designers must be able to produce designs that the consumers currently like, designs that consumers will like in the future, and designs that consumers did not expect they would ever like. Impressing the consumers and be creative is important. Zara and H&M, in this case ties while Uniqlo is behind. Zara not only sells clothing, accessories and perfumes, but also furniture bedding, while H&M sells clothing, accessories, home perfume and make up.
i. Employee: None of the stores takes the lead and are tied with a rating of 2, because generally all companies evidently put their best service to attract customers considering the high level of competition. In other words, no company outperforms the others in this matter. Moreover, in apparel industry, employees (especially the office employees) are not much of an effect more than the products itself, as a result, the weight given is only 5%.
j. Price Policy: Price matters in apparel industry. Moreover, since the rivalry among firms is high, therefore companies must be able to charge at competitive price. In this aspect, H&M and Uniqlo ties on taking the lead for their more affordable products than Zara‘s, especially Asian-developing countries like India, Indonesia, and China.
k. Sales Promotion: H&M and Uniqlo also ties on taking the lead for promotions and advertisement compared to Zara. This will relate to the company‘s strategy in Marketing. Again, Zara has been very stingy when it comes to marketing campaigns.
l. Organization and Control Business: In fast-fashion industry, the business control operation is important. Because the lead time needs to be as low as possible, therefore there is no room for defects. Zara is in the lead for this aspect, thanks to their highly-integrated information response, by using PDA to directly inform the headquarters about what is going on in the store. The report will be daily, or even hourly.
Based on the result of CPM matrix, we see that Zara is still the winner among its competitors with 3.11 score. Moreover, it also means that Zara‘s performance is above average.
Chapter 4
INTERNAL ASSESSMENT
4.1 Resource-Based View Analysis
The RBV approach to competitive advantage contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage. Therefore, in this analysis, we will look deeper into the internal factors that Zara is relying on for their success.
Further, RBV is divided into three main categories: Physical Resources, Human Resources, and Organizational Resources. In order to be valuable, each resource must be either: (1) rare, (2) hard to imitate, (3) not easily substitutable. The following are the analysis of Zara using the RBV:
1. Physical Resources
a. Prime Location: One of the best strategies that Inditex applies to all of its brands, including Zara is that the stores are always located in prime locations of the city. If the center of the crowd is in the shopping malls like Jakarta, then that is where you will find Zara stores. In European countries and USA, crowds are usually centered downtown or in shopping streets, and that is exactly where Zara stores are located. Choosing prime locations give more benefits to the company from the amount of store visitors which can result more sales created.
b. Attractive Window Displays: Even though Zara does not have many advertising or commercials, Zara does rely so much on its physical store-Indoor Zara store (Plaza Indonesia, Jakarta) vs. Outdoor Zara store (42nd Street, New York)
experience. Their ―marketing‖ strategy includes putting attractive and creative window displays to attract consumers, and maintain them inside the store with the store ambiance and service; hence, creating an impressive shopping experience for consumers.
Examples of Zara‘s attractive window displays
c. Exclusive and Trendy designs: As the leader in fast-fashion industry, Zara is popular for its fast-changing designs. What makes it interesting is that Zara is able to provide apparel designs that their customers love and it is consistent, even in a very short amount of time. Their total designs in 2012 reached 36,000 designs in a year. That is a marvelous number.
Examples of Zara collection per season and customer‘s excitement towards Zara store d. Sophisticated IT System: One of Zara‘s secret will be the integrated
information system using the PDA and POS. Both will be explained further in the following chapters.
2. Human Resources
a. Trained designers: In order to boost their product quality in terms of its couture value, Zara cooperates with many new designers and they give training to the designers for them to able to produce in shorter lead-time, and adaptive enough to produce with materials/fabrics that are available
instead of designing the apparel first then finding the material/fabric. That type of operation will cost more also consumer more time to the company.
Zara designer teams in action
b. Caring Employees: In order to enhance the customer service in each of its retail store, Zara, therefore, train their employees to prove better service, including their attitude, professionalism, having a sense of belonging to the store, and hard-working.
3. Organizational Resources
a. Market-oriented Strategy: Just like what the old saying says, the customer is the king. In the industry with high competition profile, choosing to emphasize on your customer is important and wise. Because in this type of industry, the key is to be able to make your customer loyal so that they will not shift to other brands easily. By concentrating on customer‘s demand and preferences, supported by its operational strategies, Zara shows their commitment towards their customers. That is why Zara‘s customers are loyal; thus, Zara can reach its position right now.
b. Staff-education: Related with the discussion on Zara‘s human resources, Zara is concentrating on customer service; thus, the need to educate their staff is one of their top priorities.
c. Eco-friendly: The global warming issue is a hot topic nowadays. More and more companies start to put special attention to deal with this issue. Especially in European countries, where the society is fully-aware with the importance of eco-friendly business operation, having a mission of
becoming an eco-friendly company will inevitably bring positive response from the society. Note that the society is actually the consumers.
d. Production strategy: One of the most innovative strategies that Zara applies is the production process. As mentioned before, instead of designing the clothes first, the designers actually examine the available materials and/or fabrics, then after that they will design apparel based on the existing material and/or fabrics, therefore, the lead time can be reduced and costs will be decreased.
e. Value chain: Zara‘s overall value chain differs from its competitors and it is unbeatable until today, especially its lead time of 2 weeks. Zara‘s value chain is actually what makes Zara able to produce new designs in just 2 weeks. We will analyze the value chain later in the following chapters.
4.2 The Internal Factor Evaluation (IFE) Matrix
STRENGTHS
a. Global Outreach
Key Internal Factors Weight Rating Weighted Score
Strengths
Global Outreach 0.08 3 0.24
Strategic Location 0.08 3 0.24
Distribution Strategy 0.12 4 0.48
Store Image 0.12 4 0.48
Fast Changing collection 0.09 4 0.36
Responsive Employees 0.03 3 0.09
Brand Image 0.15 4 0.6
Weaknesses
Limited Stocks 0.08 2 0.16
Price 0.12 1 0.12
Brand image closely tagged to competitors
0.08 1 0.08
Lack of Marketing 0.05 2 0.10
Inditex, as the head company, expands Zara in a large amount of scale. Currently they have more than 1,700 stores in exactly 86 countries around the world. This condition is one of a good strength that Zara has because as an international brand company, especially in apparel industry, Zara should reach every part of the world. Therefore, a weight of 0.08 would be adequate for this factor.
We rank this strength 3 out of 4 because we think that this factor is definitely one of Zara‘s strengths, even though it is not their major strength. Therefore, rating 3 (minor strength) would be sufficient to describe Zara‘s condition. In addition, reaching global market is a foundation to step for an international brand to dominate the industry.
b. Strategic Location
Zara chooses where to locate their stores carefully because they are aiming for a direct communication strategy to promote their products. They have a unique approach in locating their store in each countries, and even cities. For example in Indonesia, Zara locates their stores in almost every big shopping mall because it has a high traffic everyday and it is the main place for people to go shopping. In France, Zara locates their store in downtown and main streets as the local people usually walk down the street to go shopping. We gave this factor 0.08 of weight considering the importance of convenience for consumers in the industry. Consumers will like it if they can find good products available at their beloved shopping centers.
Since Zara‘s locations are strategic globally, we therefore give3 of rating for this brand. It is categorized as their minor strength because we think this is not the main reason why Zara is prominent in fast-fashion industry.
c. Distribution Strategy
In the distribution system, Zara control most of the supply chain and distribution of its products from the headquarters. Zara has their main manufacturing place in three different contingents. 50% of the products are produced in Spain, 26% in the rest of Europe, and the rest 24% percent is outsourced in Asia and Africa. Then the products were transferred to Zara‘s distribution centers located in Spain to be exported to Zara‘s stores around the world. We can see that their distribution strategy
is vertically integrated. This requires a high concentration and control form the headquarters in Spain, and that is exactly what Inditex does. Since the distribution strategy is integrated, combined with their high technology, the products can be distributed globally in just a short amount of time. This is the uniqueness of Zara. They are able to adapt to the latest trend in limited time, using the Hybrid Communication system, then produce those latest trend with available materials to cut production time and cost, and after that the products are immediately transferred to all the stores.
We found out that this is strategy has become their strength. An effective distribution, therefore, has a higher weight of 0.12. In our opinion Zara deserves 4 rating for this factor since this is their specialty.
d. Store Image
Zara is a trendy yet exclusive fashion store. This is the image of Zara from around the world. A unique concept of fast fashion might become a trendsetter in international fashion industry. A good store image also drives people to consider Zara when they want to purchase fashion items. In addition, their excellent customer in-store services result a loyal behavior from consumers. In the industry with a high level of competition, consumer loyalty is crucial; therefore we give a high weight of 0.12 and rank of 4 because this strength is a strong foundation for the company which is highly acknowledged by Zara.
e. Fast Changing Collection
This factor is one the specialties and uniqueness of Zara. Every 2 weeks Zara published brand new fashion items. This strategy exists to stimulate and refresh consumer‘s curiosity about Zara‘s products. This is also the strategy to strengthen the image of Zara as the designer teams always work to find out what the new designs should be. The aim is to be the trendsetter of fashion business. However, in the apparel industry, it is easy to copy the style of designs. Therefore, a rating of 0.09 is given for this strategy. In terms of their response towards the factor, we give Zara 4 rating since they put high concern on this matter through their business model.
Employees‘ presence is important inside the store to control, rearrange items, and also to give information to the customers. Therefore Zara also concerns about Employees‘ responsiveness, especially because they claim to have direct communication as their prominent marketing strategy. Customer control and satisfaction sometimes depend on the service and Zara want to optimize those satisfactions in order to get the customers‘ loyalty. On the other hand, sometimes consumers do not really care about the customer service. Sometimes they care only about the product and price. Consequently, a weight of 0.03 is given for this strength, as it is not as important as the other strengths. In term of Zara‘s effectiveness in responding to this factor, a rank 3 out of 4 is adequate.
g. Brand Image
We set the brand image as the highest weight of 0.15. We do think that this is the back bone of every player in apparel industry; again, considering the amount of competition in this industry. One of the proofs would be the fact where consumers still buy the product from certain brand even though many claim it uses bad fabrics, or the price is sometimes too high, and so on. Eventually, they would still come back because of the image that they will get when they purchase the product. In other words, this symbolic brand benefits do exist and they are important.
The brand of Zara is famous for their exclusivity and trendy product. Zara would never have a ‗not up to date‘ image as they always publish new items in every 2 weeks. The strong brand image is admitted around the world. This is what helps Zara to keep improving and reach the sustainability. Therefore, we give a full score of 4 in term of their response towards this factor.
WEAKNESSES
a. Limited Stocks
Even though Zara has a fast fashion concept, which is publishing new items in every 2 weeks, but some of the items are limited. So for some items, they might not be available in every store. Even though this is actually intentional, but for consumers, this can be included as a weakness as some customers will not be satisfied if they did not get the items that they want when they want it and where they want it. Customer‘s
dissatisfaction quite have an effect for Zara, therefore rank 2 out of 4 is given with weight of 8% considering the fact that this strategy of Zara might actually be risky.
b. Price
In its country of origin, Zara is categorized as a low-end product. However, Zara is included in a high-end product in Indonesia and in many other countries, 1 item of long sleeve shirt can be priced at 600,000 Rupiah. This is one of the weaknesses for Zara as the customer will think twice to purchase if price is a big consideration for them. This problem occurs mostly in developing countries, where the GDP per capita is still relatively low. Even though the middle class segment is growing, but not all of them are used to spend hundreds of thousand rupiah just to get a T-shirt. Therefore, we rank a low rate of 1 out of four with larger weight of 12%.
c. Brand image closely tagged to competitors
As mentioned earlier, the problem in apparel industry is that it is very easy to copy each other‘s designs. This weakness is one of the toughest to deal with. Beside Zara, there are a lot of other brands that reach the international market that also build an exclusive image for them self. Therefore sometimes public cannot differentiate product from Zara and their competitors. In other words, it is going to be easy for them to switch from one brand to another. Moreover, this will affect people‘s judgment that all the brands that in the same level as Zara is actually the same or similar in term of types and products, or in other words, no clear differentiation between those brands. As a player in this industry, Zara needs to obtain consumer loyalty; therefore, we rank this weakness as their major weakness with rating 1 out of 4. However, the weight of this factor is not that high since in apparel industry, despite the existence of problems in the designs differentiation, a brand can develop a strategy to build consumers‘ loyalty, just like what Inditex is trying so hard to do to its brands, including Zara.
d. Lack of Marketing
Zara is lack of marketing such as promotion and advertisement. In Indonesia it is very rare to see Zara logo and advertisement outside the store and in public area. In fact, Zara in different countries also does not have that much of advertisement. They only depend on the strong brand image that they already have. This can be a tough
weakness if the competitors keep on increasing their marketing strategy, especially in emerging countries.
From all the strengths and weaknesses we come out with the result of 2.35. This is an average result from a perfect score of 4. So we can conclude that their effectiveness in utilizing their strengths to cover the weaknesses is satisfactory enough.
4.3 Financial Analysis
LIQUIDITY RATIO
Current ratio defined as how much power does the current asset can cover current liabilities. The result shows that both in 2011 and 2012 the current ratio is above 1, which is good for the company as their asset have more power to cover the liabilities from their assets.
Quick ratio basically has the same indication like current ratio. But quick ratio only looks from the company‘s quick asset. So inventory is not included in the formula. The result shows that the quick asset of the company still could cover the liabilities that they have.
LEVERAGE RATIO
4.4
This ratio is to find out how much from the total asset that financed by the total debt. The higher the result will cause a higher financial risk. A healthy company should
2012 2011 Quick Ratio 1.4589 1.4366 2012 2011 Current Ratio 1.5180 1.5104 2012 2011 Debt To Total Asset 0.3420 0.3197
have a low debt to total asset ratio because they need a more flexible finances. Debt financing could lower the degree of flexibility. Zara in both 2012 and 2011 had a low result on this ratio, which means only a small amount of the total asset that financed by the debts. A slight decreasing trend also shows a positive progress for their assets.
2012 2011
Debt To Total Equity
0.5198 0.0469
As like the debt to total asset, this ratio defines how much equity that financed from total debt. The result shows below 1 which is a good result. The equity was not mainly financed by debt. But, in this case, Zara had a quite significant increasing trend from 2011 to 2012. The increasing result is not good because it means they have a bigger proportion of debt that finances the equity.
This ratio is much the same like debt to total equity. The different is that this ratio only analyze from the long- term debt side. So how much equity that financed from the long- term debt. The result shows a good sign. The long- term debt had a small amount of proportion in financing the equity. A decreasing value of the result is also an improvement for the company.
Times interest earned indicates the earning that is available to meet the interest payments. A lower times interest earned will result in a less earnings available to meet the interest payments and the company will be more vulnerable to increase the interest rate. Zara has a significant increasing trend which is good for the company as they are more powerful in term of the interest payments.
2012 2011
Long Term Debt To Equity 0.1089 0.1074 2012 2011 Times interest earned 220.5988 68.1513
ACTIVITY RATIO
2012 2011
Inventory Turnover
24.6203 N/A (5612216/0)
Inventory turnover defines how fast the business can liquidate their inventory. The higher result shows a good sign of the inventory circulation. Unfortunately we cannot define the inventory turnover for 2011 as we have an insufficient data. But, for the year of 2012 itself Zara has a quite good performance on their inventory turnover. 24 is quite a high result for inventory turnover.
2012 2011
Total Asset Turnover
1.2371 1.2585
Total Asset turnover measures Company‘s effectiveness in generating asset to sales. So, the higher the value will show a higher effectiveness of the Company in managing their assets. Zara had a slight decrease on the trend which actually is not a good performance by the company.
As like total asset turnover, fixed asset turnover also measure the effectiveness of the Company in managing their asset. But this time is only for their fix asset. The greater the value means a high effectiveness of the Company in generating their fixed asset to sales. From only the fixed asset, eventually Zara has a positive trend. The value is also higher than comparing to the total asset turnover. So Zara is effective and keep on improving in managing their fixed asset.
2012 2011
Fixed Asset Turnover
PROFITABILITY RATIO
Gross profit margin has a vital role in indicating the financial health. It shows the power that the company has to pay its operating and other expenses and build for the future. It was a stable gross profit margin for Zara in 2011 and 2012, which is good because gross profit margin should be stable and not too much fluctuation.
This ratio measures the Company‘s operating efficiency. The higher result shows a higher efficiency of the company. Zara had a slight positive trend for their operating profit margin. It means Zara had an improvement in managing their operation. Zara also had bigger revenue leftover to pay their variable cost of production.
Net profit margin measures how much out of every dollar of sales a company actually keeps in earnings. A higher profit margin indicates a more profitable company which has a good control on their costs. There is not much difference from 2011 and 2012 for Zara. So we could say that there is no improvement for Zara on their costs control.
2012 2011 Gross Profit Margin 0.5976 0.5930 2012 2011 Operating Profit Margin 0.1955 0.1828 2012 2011 Net Profit margin 0.1484 0.1410 2012 2011 Return on Total Asset 0.1836 0.1775
This ratio basically measures the Company‘s effectiveness in generating their assets into earnings. The higher the value, the better for the company as they are more effective in managing their assets. Zara does not have a significant improvement from 2011 and 2012.
Return on stockholders‘ equity indicates the amount of net income generates to the stockholder‘s equity. The higher value shows a bigger amount of percentage from the net income to the equity. So a high return on stockholder‘s equity will attract investors to invest to the company. Zara had a slight increasing trend for this ratio but it is not significant enough to attract the investors.
Earnings per share (EPS) is a portion of company‘s profit that allocated to each share of the outstanding stock. This ratio will also attract investors‘ attention, as they will hold the shares. Zara had quite of an improvement her. They have 0.5 bigger portions in 2012 comparing to 2011. The higher the earnings per share the better it is for the investors.
T
he P/E Ratio is a comparison and valuation ratio of the company‘s current share price compared to the price- share earnings. A higher price earnings ratio could define a better performance of the company. Zara had a quite negative trend on their price- earnings ratio, which means a decreasing performance and investors less expectation on the earnings growth.
2012 2011 Return on Stockholders‘ Equity 0.2791 0.2609 2012 2011
Earnings per share 3.7981 3.2888
2012 2011
GROWTH RATIO
Based on the financial statement, Zara had a 16% growth of sales. This could be affected by an improvement on the effectiveness of managing their assets and inventories. 16% is quite a large number of growths in one year.
Net Income had a growth of 22%. This is even bigger than the sales growth. So, it shows that Zara not only improve in managing their assets and debt, but Zara is also good in managing their expenses so that the net income was boosted up.
Zara also has an increase of 13.47% in earning per share growth. With an increase of net income, Zara allocates more from their earning to the outstanding shares.
Chapter 5
STRATEGIES IN ACTION
5.1 The Strategies
A. Integration Strategies
Zara applies the Forward Integration. Since Inditex demands a high integration between the headquarters and all branches across the globe, therefore Inditex controls its retailers and distributors all around the world in order to standardize the overall business performance. In addition, Zara also performs some horizontal integration through its acquisition of Massimo Dutti from the Massimo Dutti group and the acquisition of Stradivarius.
B. Intensive Strategies
As an aggressive expander in global market; hence, Zara practices the Market Development strategy in which they are entering new market with Asian-developing countries being their first targets. Countries include China, India, and Indonesia. That is why nowadays, almost in every new shopping malls in Jakarta, you can find Zara store in it. Currently Zara is targeting the Asian market, hoping it will generate much profit from this promising market.
Not only that it applies the Market Development, Zara also applies the Market Penetration strategy, especially in European and American markets. Their techniques of doing this strategy are by improving its online store and increase customer service in all retail stores.
C. Diversification Strategies
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 f its products and it is also relatively more expensive than its competitors. Zara Home is available in 55 countries including Indonesia. However, in Indonesia we can only find Zara Home store in Plaza Indonesia, Jakarta, Indonesia.
D. Defensive Strategies
Zara has no defensive strategy because the company is in good condition, not in any kind of jeopardy. Therefore, it does not need any defensive strategy at the moment.
5.2 Michael Porter’s Five Generic Strategies
According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation, and focus. Porter called these strategies the Generic Strategies. The following is the framework of Porter‘s Five Generic Strategies and the position of Zara in this classification.
SIZE OF MARKET
GENERIC STRATEGIES
Cost Leadership Differentiation Focus
Large Type 1 Type 2
Type 3
Small Type 3 Type 4
Type 5 Zara Home‘s first store in Indonesia, located in Plaza Indonesia on 2nd
Zara is categorized as the Type 3 because it is aimed to the industry-wide, in which the size of the market is large. Moreover, Zara also has some strong differentiations that make them the leader in the industry. Differentiations such as the concept of fast-fashion (which was pioneered by Inditex), that is supported by its excellent and integrated supply and value chain.
Chapter 6
STRATEGY ANALYSIS AND CHOICE
6.1 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix
Recalling the previous explanation about Zara‘s External and Internal Analysis, we can now develop the four types of strategies: SO (strengths-opportunities) strategies, WO (weaknesses-opportunities) strategies, ST (strengths-threats) strategies, and WT (weaknesses-threats). Remember that there is no one best set of matches among these strategies.
Strengths Weaknesses
Global Outreach Limited Stocks Strategic Location Price
Distribution Strategy Brand image closely tagged to competitors
Store Image Lack of Marketing
Fast Changing collection Responsive Employees Brand Image
Opportunities SO Strategies WO Strategies
Increasing middle class in Asia
Open new stores in
developing countries in Asia (S1, O1)
Charge products at
competitive price in Asian countries‘ standards (W2, O1)
Opportunity to build distribution center in
developing countries to lower costs
Build distribution centers in Asia to lower distribution costs for Asian countries (S3, O2)
Produce a signature collection (W3, O3)
Cooperation with new designers
Be the trendsetter (S5, O3) Enhance the current brand image and company‘s image (W4, O4, O5)
Rising environmental issues Promote the company‘s vision to be an eco-friendly company (S7, O4)
International Recognition
Threats ST Strategies WT Strategies
Fierce Competition Expand in new market and be the first player in the market (S1, S2, T1)
Increase spending for marketing campaign (W4, T1)
Lawsuit related to sweatshops
Produce the new trends with higher turnover (S5, T3)
Enhance ZARA‘s
differentiation through its unique designs (W3, T4)
Possible imitations of goods Increase the brand equity through better service (S6, S7, T4)
Dilution of Brand Equity
The SO strategies include aggressive strategies of the company to take advantage of the existing opportunities matched with their strengths. Many companies pursue the other three strategies first in order to be able to apply the SO strategies. As for Zara, they are already in the position which enables them to apply those SO strategies given their current weaknesses and threats. Currently Zara has already opened new stores in Asia, they are also transforming into the trend-setter instead of trend-follower through its major cooperation with many designers. In addition, Zara has promoted their eco-friendly campaign through the company‘s vision and mission that is applied all the day down to the retail stores. For example, Zara sells t-shirts that are made from organic cotton which considered as environmental friendly. Unfortunately, they currently do not have any intention to open a new distribution center in Asian country just yet. However, they already have their purchasing office in Hong Kong and they are maximizing the use of this office to boost sales in Asian region. They have also invested a large amount of money in advertising to make them a much stronger competitor.
6.2 The Strategic Position and Action Evaluation (SPACE) Matrix
Financial Position (FP) Ratings
Increase in turnover 6
Increase in Net Profit after Tax 5
Decrease in Leverage 3
Total 14
Industry Position Ratings
Market growth, especially in developing countries 4 Fashion Industry itself is a sustainable industry 3
Very competitive 4
Stability Position Ratings
Inadequate infrastructure and IT in developing countries (especially India and Indonesia)
-4
Counterfeiting in developing countries -2
Possible increase in labor costs -2
Total -8
Competitive Position Ratings
Increasing threats from new competitors such as Uniqlo and H&M -3
Zara provides unique concept -2
Zara has the largest market share -2
Total -7 For Financial Position and Industry Position: +1 (worst), +6 (best)
For Stability Position and Competitive Position: -1 (best), -6 (worst) Average:
SP : -2.67 IP : 3.67 CP : -2.33 FP : 4.67
Therefore, we get the x-axis = -2.33 + 3.67 = 1.34
the y-axis = -2.67 + 4.67 = 2
The following is the SPACE Matrix picture:
Since the curve is upward sloping placed at upper-right of the quadrant, we can conclude that Zara can pursue the Aggressive strategies, by means the company is in an excellent position to use its internal strengths to: (1) take advantage of external opportunities, (2) overcome internal weaknesses, (3) avoid external threats. Therefore, market penetration, market development, product development, backward integration,
AGGRESSIVE STRATEGY:
Backward, forward horizontal
integration Market penetration Market development Product development Diversification (related or unrelated)
forward integration, horizontal integration, related and unrelated diversification, or a combination strategy all can be feasible, depending on the specific circumstances that face the firm. That is exactly what Zara is doing now, as we recall our previous analysis on the Strategies in Action (Chapter 5).
6.3 The Boston Consulting Group (BCG) Matrix
The BCG Matrix portrays differences among divisions in terms of relative market share position and industry growth rate. The Question Marks have a low relative market share position, yet they compete in a high-growth industry. Companies in this group must decide whether to strengthen them by pursuing an intensive strategy, or sell them. The Stars represent the organization‘s best long-run opportunities for growth and profitability. They have high market share and high industry growth rate. The Cash Cows have high market share but compete in a low-growth industry. As for the Dogs, they have a relatively low market share and compete in a slow-or-no-growth industry.
The following is the position of Zara and several other Inditex‘s brands in terms of BCG Matrix:
STARS (High Market Share, High Market Growth)
Question Marks (Low Market Share, High Market Growth)
Cash Cows (High Market Share, Low Market Growth)
Dogs (Low Market Share, Low Market Growth)
Zara is placed as Stars because it has high market share and compete in an industry with a high growth whereas the other Inditex‘s brands such as Stradivarius, Pull&Bear, and Bershka are placed at the Question Marks since they have lower market share compared to Zara. Based on the company‘s annual report presentation, from Inditex‘s
overall income in 2012, exactly 66.1% comes from Zara, while Stradivarius, Pull&Bear and Bershka contributed 6%, 6.8%, and 9.3% respectively.
Based on the theory, companies positioned at Stars should consider the forward, backward, horizontal integration strategies, market penetration, market development, and product development strategies. Zara as a leading brand should therefore receive substantial investment to maintain or strengthen its dominant position. As a result, not only that it is expanding aggressively across the globe, Inditex as the owner of Zara has also made several investments specific to Zara in order to remain its position, those investments include: additional investment for advertising, IT improvements for better customer service, and hiring new designer teams to strive for becoming a trend-setter.
6.4 The Internal-External (IE) Matrix
The IE Matrix positions an organization‘s various divisions in a nine-cell display, in which both EFE and IFE is again used to determine the organization‘s position. The strategic implications from this matrix will differ with those from the BCG Matrix.
The IE Matrix for Inditex‘s brands is as follows:
THE EFE TOTAL WEIGHTED SCORES
THE IFE TOTAL WEIGHTED SCORES
Strong 3.0 – 4.0 Average 2.0 – 2.99 Weak 1.0 – 1.99 High 3.0 – 4.0 I II III Medium 2.0 – 2.99 IV V VI Low 1.0 – 1.99 VII VIII IX
The result of the IE Matrix shows that Zara is positioned as the Category II whereas Bershka, Pull & Bear, and Stradivarius are at the Category V. Zara is considered as Category because the EFE score was 3.45 (High) while its IFE score was 2.35 (Average). Consequently, the strategy that Zara should pursue is the Grow and Build Strategy. Meanwhile for the other 3 brands we assume that they have same level of IFE because they come from the same company with similar strategies in doing expansion. However, the three brands may have lower level of EFE compared to Zara since based on the number of stores available globally, especially in Asian countries, the other three brands are lagging way behind Zara. In other words, the response of these three brands to the growing market of Asian countries like China, India and Indonesia is low compared to Zara. Therefore, they should pursue the Hold and Maintain Strategies.
Grow and Build strategies include the intensive strategies like market penetration, market development, and product development, or integrative strategies such as backward integration, forward integration, and horizontal integration. As for the Hold and Maintain strategy, it includes the market penetration and product development strategy. In other words, Bershka, Pull & Bear, and Stradivarius should either consider creating a whole different concept of product or increasing the level of Branding and Marketing to boost sales.
6.5 The Grand Strategy Matrix
This matrix will determine the company‘s position based on two evaluative dimensions: competitive position and market growth. Since Zara has a very strong competitive position and it also has a rapid market growth of 16%, consequently, we can conclude that Zara is positioned in the 1st Quadrant of the matrix (Quadrant I).
Among the suggested strategies of Quadrant I companies, specifically for Zara, Inditex has used the market development, market penetration, forward integration, and related diversification. In general however, Inditex has done twice of horizontal integrations in the form of acquisition of two brands: Massimo Dutti and Stradivarius.
Market development effort for Zara includes opening new and larger stores in Asian countries such as China, India, and Indonesia with stronger visual merchandising. They also increase their product visibility in all the stores across the globe. Market penetration efforts include enhancing its online-sales expansion in Europe, America, Australia and South Africa. Moreover, they also enhance the in-store experience to increase the consumers‘ loyalty. Weak Competitive Position Strong Competitive Position
Slow Market Growth
QUADRANT I: 1. Market development 2. Market penetration 3. Product development 4. Forward integration 5. Backward integration 6. Horizontal integration 7. Related diversification Rapid Market Growth
