Model of business strategies of Zara

1. NATIONAL COLLEGE OF BUSINESS
ADMINISTRATION & ECONOMICS
MULTAN
Assignment Topic:
Model of business strategies of Zara
Submitted by: Fatima Rani
Submitted to: Prof Muhammad Adnan Malik
M Phil in Business Administration
(Fall 19)
Date: 07/02/2020

2. Table of Contents
Topic:......................................................................................................................................... 3
1.1 Introduction of Zara:..........................................................................................................3
1.2 SWOT analysis of Zara:.....................................................................................................4
Strengths in the SWOT analysis of Zara:.......................................................................5
Weaknesses in the SWOT analysis of Zara:...................................................................6
Opportunities in the SWOT analysis of Zara:............................................................... 6
Threats in the SWOT analysis of Zara:..........................................................................7
1.3 PESTLE analysis of Zara:..................................................................................................7
Political Factors that Affect Zara:...................................................................................8
Economic Factors that Affect Zara:................................................................................8
Social Factors that Affect Zara:...................................................................................... 8
Technological Factors that Affect Zara:.........................................................................8
Legal Factors that Affect Zara:.......................................................................................9
Environmental Factors that Affect Zara:.......................................................................9
1.4 BCG Matrix analysis of Zara:........................................................................................... 9
Cash Cows..........................................................................................................................9
Stars:.................................................................................................................................. 9
Question Marks:..............................................................................................................10
Dogs:.................................................................................................................................10

3. Topic:
Model of business strategies of Zara:
1.1 Introduction of Zara:
Zara SA (Spanish: [ˈθaɾa]) is a Spanish apparel retailer based in Arteixo (A Coruña)
in Galicia. The company specializes in fast fashion, and products include clothing,
accessories, shoes, swimwear, beauty, and perfumes. It is the largest company in
the Inditex group, the world's largest apparel retailer. Zara as of 2017 manages up to
20 clothing collections a year.
Products:
Zara stores have men's and women's clothing as well as children's clothing (Zara
Kids). Zara's products are supplied based on consumer trends. Its highly responsive
supply chain ships new products to stores twice a week. After products are designed,
they take ten to fifteen days to reach the stores. All of the clothing is processed
through the distribution center in Spain. New items are inspected, sorted, tagged, and
loaded into trucks. In most cases, the clothing is delivered within 48 hours. Zara
produces over 450 million items per year.
Favored by fashion editors, bloggers and style-conscious citizens alike, Zara has
become the first name on everyone’s lips when it comes to fast fashion. So much so
that its success catapulted co-founder Amancio Ortega’s net worth to USD 67 billion
in August 2019, making him the richest person in Europe, and the wealthiest retailer
in the world.
History:
Zara was founded by Amancio Ortega and Rosalía Mera in 1975 as a family
business in downtown Galicia in the northern part of Spain. Its first store featured
low-priced lookalike products of popular, higher-end clothing and fashion. Amancio
Ortega named Zara as such because his preferred name Zorba was already taken. In
the next 8 years, Zara’s approach towards fashion and its business model gradually
generated traction with the Spanish consumer. This led to the opening of 9 new stores
in the biggest cities of Spain.
In 1985, Inditex was incorporated as a holding company, which laid the foundations
for a distribution system capable of reacting to shifting market trends extremely
quickly. Ortega created a new design, manufacturing, and distribution process that
could reduce lead times and react to new trends in a quicker way, which he called
“instant fashion”. This was driven by heavy investments in information technology
and utilising groups instead of individual designers for the critical “design” element.
In the next decade, Zara began aggressively expanding into global markets, which
included Portugal, New York (USA), Paris (France), Mexico, Greece, Belgium,
Sweden, Malta, Cyprus, Norway and Israel. Today, there is hardly a developed
country without a Zara store. Zara now has 2,266 stores strategically located in
leading cities across 96 countries. It is no surprise that Zara, which started off as a
small store in Spain, is now the world’s largest fast fashion retailer and is the flagship

4. brand of Inditex. Its founder, Amancio Ortega, is the sixth richest man in the world
according to Forbes magazine.
Today, Inditex is the world’s largest fashion group with more than 170,000 employees
operating more than 7,400 stores in 202 markets worldwide including 49 online
markets. The revenues of Inditex was USD 29.4 billion in 2018.
The other fashion brands in the Inditex portfolio are:
Zara Home: Home goods and decoration objects founded in 2003. Operating 596
stores.
Pull & Bear: Casual laid-back clothing and accessories for the young founded in
1991. Operates 975 stores.
Massimo Dutti: High end clothing and accessories for cosmopolitan men and women
acquired in 1995. Operates 760 stores.
Bershka: Blends urban styles and modern fashion for young women and men
founded in 1998. Operates 1,111 stores.
Stradivarius: Casual and feminine clothes for young women acquired in 1999.
Operates 1,011 stores.
Oysho: Lingerie, casual outerwear, lounge wear and original accessories founded in
2001. Operating 677 stores.
Uterqüe: High-quality fashion accessories at attractive prices founded in 2008.
Operating 90 stores.
Apart from fashion brands, Amancio Ortega has also set up a global real estate
investment fund, Pontegadea Inversiones, which manages corporate offices across 9
countries including United States (Seattle), Britain (London), France (Paris), Canada,
Italy, South Korea. These corporate properties house large companies including
Facebook, Amazon and Apple, and prestigious luxury and retail brands.
1.2 SWOT analysis of Zara:
One of the stores which gives marketers lessons on how to keep customers coming
back is Zara. It is the flagship brand of the Inditex group, which has more then 8
brands and subsidiaries in its belt. Out of all these, the one brand driving a lot of
revenue towards Inditex is Zara.

5. Zara is known for its fresh designs and for keeping the designs on rotation so that the
customers always get new designs whenever they walk into the showroom.
Consequentially, till date, there has been almost zero advertising expenses by Zara
and yet, the brand is one of the most powerful retail brands across the world. If there
was an epitome of pull strategy based on product and strategic design, then Zara
would be among the top 10 contenders of that price elegant yet trendy, and are loved
by their customers.
Strengths in the SWOT analysis of Zara:
 Unique designs – One of the first and foremost advantages of Zara lies in its
design abilities. It has a plethora of designers on board who understand the Zara
brand and the psyche of the customers who visit Zara very well. The clothes are
elegant, superior quality and have fantastic finishing. They come in a lot of
varieties including party wear, office wear, for kids, for men and women, casuals
as well as several others. Even accessories are an integral part of Zara wear.
 Strong presence – Zara has kept expanding its presence across the globe. On
latest count in 2015, it had 2100 stores worldwide with an average sale of 15.9
Billion per annum. In 2016, it has expanded even further. If it has to survive in
retail, Zara has to keep expanding its presence and it is good to know that the
brand is doing exactly that.
 Brand value – The brand is ranked number 53 by Forbes in its brand ranking and
is valued at a whopping 10.7 Billion dollars. There are several positive points
leading to the excellent brand equity of Zara. The performance over the years and
the consistent quality it has provided has given a boost to the brand in recent
years. Besides this, the brand has stayed away from controversies and tried to stay
humble even when it came across them. Such a healthy culture has resulted in the
brand being loved by its consumers over and over again.
 Superb supply chain – Zara is known to get its designs from conception to the
stores in 2 weeks whereas it takes other competitors minimum 6 weeks or more,
automatically making Zara the trendiest store which has the latest in fashion. On
an average, 450 million items are designed every year by Zara. This naturally
pushes the consumers to visit the store again and again to check out the latest
designs.
 Design advantage – Zara has the reputation of launching 1000’s of new designs
every year across the globe. As a result, a customer who might visit other stores
twice or thrice a year to check out the latest in fashion, might have to visit Zara
every month to see whats new in Zara. Because of their strong design advantage,
the customer keeps buying fashion forward clothing from Zara
besides purchasing the basics from the brand as well. Some customers dedicate
their complete wardrobe to Zara clothing. All of Zara’s designs are low cost and
higher profits – Because of their design advantage and fantastic physical
evidence in stores, Zara rarely advertises its products. It relies completely on its
trendy image to pull the customers to its stores. This is the reason that Zara has

6. very low cost of operations and at the same time has high margins. It spends most
of its earnings and profits on backward integration and on supply chain rather
then spending it on Advertising.
 Physical evidence of stores – Another strong positive of Zara is that the service
has very good physical evidence of the stores. Whenever you walk into the store,
you will get this open minded feeling instead of feeling cramped like you do in
other showrooms. Zara uses a wide and deep store layout so that customers would
love to walk around the store while picking up and trying out their favorite
designs.
Weaknesses in the SWOT analysis of Zara:
 Generalized collection – Zara does not specialise in anything and has everything
for everyone. One of the reasons that a customer shifts to a competitor is when
the competitor is focused on one thing. It might be shirts, it might be pants, it
might be dresses or party wear or whatever. Such immediate focus is lacking in
Zara and it is good for the day to day wear or trendy wear.
 Lack of advertising – While it may lead to a cost advantage and cost is one of
the strengths of Zara, the lack of advertising is a weakness because the brand can
double its profit and its turnover by advertising its collection. It is known to be a
trendy fashion outlet and it can easily pull in more customers with advertising
which will generate a lot of positive word of mouth for the brand.
 Low safety stock – A regret which Zara stores have is that stocks which are fast
moving rarely have a safety buffer behind it. Low inventory is kept at Zara as a
strategy to keep customers walking into the stores to check out the latest items.
But it also means that if a particular design is a hit with the customers, it wont
reach its potential because there is no safety stock or buffer for this design.
Opportunities in the SWOT analysis of Zara:
 Online E-commerce – Zara can definitely take advantage of the online buying
trend and make its clothes available not only in its own stores but also on other
E-commerce stores as well thereby bringing a hike in sale.
 acking some flagship designs – One of the common traits of top brands is that
they have some designs which are flagship designs of their stores. This is lacking
in Zara and hence, there should be some designs which should always be sold
from a Zara store, bringing in great demand for these designs and building even
more brand identity for the brand.
 Growing market potential – Wherever Zara is currently existing, he brand is
becoming more and more popular, thereby resulting in growing market potential.
A rise in earning potential of consumers results in rise in demand for status
symbols. Zara is one such status symbol in clothing industry which consumers

7. love to wear. Hence, Zara needs to capitalize on the growing market potential of
existing markets.
 Market expansion – New markets will always give new business and potentially
profitable business to Zara. It needs to keep a constant eye on emerging markets,
where the spending power is rising and where people can spend on a semi
premium brand like Zara so that they can wear better and more stylish clothing.
Such market expansion insures the clothing brand against saturation in developed
countries where the competition is too high.
Threats in the SWOT analysis of Zara:
 Low advertising – Zara needs to ask this question to itself. Looking back, will
Zara think that it made a mistake by not advertising its unique brand proposition
from the start? The way that Zara keeps rotating design, it can rope in a lot more
consumers if it advertises the fact that you will get the latest in designs from Zara.
But maybe, if its consumer base increases tremendously, coming up with new
designs and differentiating itself will become more and more difficult. So, the
debate of whether Zara should advertising or not, will be going on in the
management room of Zara itself.
 Competition – Zara is not the only one which is known for its chic design. Vero
moda, H&M and Mango are also loved for its design. But the advantage to Zara
is that the other brands are quite costly when compared to Zara whereas Zara
gives much better designs at affordable prices. However, this competition leads to
saturation in the semi premium segment indirectly affecting the margins.
 Reach – Zara needs to increase its reach tremendously. Zara operates
exclusively through its own stores and does not have shop in shop kind of stores
or smaller displays (at least in Asia). This is where the competition gets its
tremendous volumes from. But these volumes are missing in Zara and the only
answer to this is that Zara increase its reach. If it does not, then competitors will
eventually affect the brand equity of Zara because of their sheer power of
penetration.
1.3 PESTLE analysis of Zara:
The Spanish lifestyle and retail brand Zara have been making waves throughout the
world with its compelling line of fast fashion and accessories. Considered as the
flagship brand of the Inditex Group, Zara has quickly become one of the names to
reckon with in the global fashion industry.
With over 10,000 stores worldwide and more coming up steadily, the future of Zara
lies in its ability to effectively gauge customer preferences and meet their expectations
at affordable prices. Not only that but Zara’s ability to churn out multiple clothing
cycles within the course of a year is certainly one of the factors that have worked in
the favor of the brand.

8. however, the success of a business depends not only on its commercial feasibility but
on certain macro-environmental factors as well. Global political and economic
trends, together with socio-cultural, environmental and technological factors all
contribute towards the smooth running of a brand. In Zara PESTLE analysis, we are
going to take a closer look at this lifestyle and retail brand, and how its future may be
affected by associated global changes.
Below is the Zara pestle analysis.
Political Factors that Affect Zara:
 As Zara is a brand operating from Spain, it falls under the ambit of the European
Union and enjoys the benefits of free trade agreements and tax-concessions that
have become the hallmark of the EU business scene. Due to extensive trade
agreements among the EU countries, Zara finds it extremely easy to import raw
materials and export finished products.
 However, if Zara looks to expanding into other territories it must keep into
account the political scenario of the region. Expanding into any country with a
volatile political regime is surely not going to be conducive towards business.
Further, before starting operations in a new location, Zara must keep in mind the
laws and procedures of the land, as red tape can prove to be a significant
hindrance in the progression of any business venture.
Economic Factors that Affect Zara:
 The success of Zara is deeply tied with the economic status of the territories it
operates in. For example, being primarily a Spanish brand, Zara can utilize the
low-cost labor that is easily available in Spain. This allows them to maintain
profitability and also provide its loyalists with affordable fashion. Due to being a
top fashion label that is trendy as well as affordable, Zara has been able to remain
relevant even in times of global economic turmoil and worldwide financial
slowdowns.
Social Factors that Affect Zara:
 One of the leading causes behind the worldwide acceptance of Zara is the ability
of the organization to effectively research the social and cultural nuances of
its target market. This allows the company to provide fashion that is readily
acceptable by its target demographic, and also at prices that they can afford.
Together with this, Zara’s innovative marketing tropes give its consumers a
feeling of exclusivity which they just can’t afford to miss.
Technological Factors that Affect Zara:
 As with everything else in the 21st century, technology has a big role to play in
the success of Zara. The brand has both brick-and-mortar and online stores,
which makes it easy for them to collect and collate immense amounts of customer
data and information. Using proper analytics, Zara can unearth a better
understanding of customer preferences. Further, the use to automation and AI

9. can help streamline the manufacturing, logistics and delivery processes, thereby
improving operations across the entire supply chain.
Legal Factors that Affect Zara:
 A business cannot operate in vacuum and has to comply with the legal structure
of the territory it operates in. Zara too is not an exception. It has to keep in mind
the legal ramifications of its operations and make sure that compliance rules are
effectively followed. Labor laws, supply chain functioning and trademark &
copyright are some of the issues which the brand must successfully navigate to
ensure its prosperity.
Environmental Factors that Affect Zara:
 Environmentally sustainable business practices are influencing businesses like
Zara the world over. Zara’s parent organization Inditex has already pledged
numerous sustainable goals that it intends to fulfill. Zara stores are being made
more energy efficient and the manufacturing process is being streamlined to
reduce wastefulness. The fast fashion industry is considered one of the biggest
promoters of wasteful clothing purchases. So, if Zara wants to remain relevant,
they need to maintain an eco-friendly business practice.
1.4 BCG Matrix analysis of Zara:
Analyzing effectively the company’s strategies, approaches, and future options
through various matrices. BCG matrix is one of the most effective tool, which helps in
analyzing the strategic position of different products in the product portfolio of the
company. This deals in two main dimensions; market share and market growth. Here
is the detailed BCG matrix analysis of Zara;
Cash Cows
 The products in this category are the major source of the cash inflows in the
organization. Such products are successful in creating the strong market hold and
successfully develop the high level of market demand. Such strong position
helped the company in enabling the products for becoming the major source of
revenue for the entity. Trafaluc cloth range, Jeans, shoes and skirts are the
cash cow of the Zara. In the most competitive market, Zara is able to make its
own position by availing the share of 45%. The main competitors are H&M, Gap,
Gucci, etc. Many people in various countries know Zara because of its apparel
and accessories.
Stars:
 These products help in generating the enough revenues for companies to be
known as profitable, but still have a chance for expanding as having star products.
The main reason of the future growth of star items is the scope of industry growth,
and consequently support the high market share of such products. Fashion denim,

10. Fashion jersey, and unique collection of bags and accessories of Zara are the
star items. Zara TRF and Zara man are also the star items, with the estimated
market share of 24% and 10%. Zara retain this position with the help of effective
marketing strategies like product development, market penetration etc.
Question Marks:
 In product portfolio, there are products that have the low profitability than star
products and cash cow. Along with the weak financial position of such business
units, it possess the potential for future growth, but still the situation is uncertain.
If market conditions are stable and favorable, these products then are able to grab
the large market share to become the star item. Pull & Bear, Bershka and
Stradivarius are the question mark for Zara, which has 9.3%, 6.8% and 6%
market share. Zara’s kid segment is also the cash cow for the company with 21%
of market share.
Dogs:
 The products which are constantly under-performing, and consume more than
generating return, are considered as dog items. For Zara, its maternity wear and
underwear are categorized in this quadrant, as there are many competitors in the
industry which are dominating the market, and Zara is unable to make the space
for itself. Zara needs to invest more in this category to make it cash cow of the
company, or should shut down its operations, so that funds could be used
somewhere else.