Strategic Management Team Assignment
Zara’s Mission Statement
“Through its business model Zara aims to contribute to the sustainable development of society and that of the environment with which we interact” ToughNickel 2018
1.Introduction (words 164)
Evidence suggests that the stronger a company’s current overall performance, the more likely it is directed by a well-conceived and well executed strategy (Thompson,Peteraf, Gamble& Strickland, 2016, ). This paper explores the organisational strategy of Zara, a Fast fashion company, referring to the design, creation, and marketing of clothing fashions that reflect fashion trends quickly, readily available and cheaply to consumers. Zara successfully meets three criteria of an effective organisational strategy, as identified by Thompson et al, (p.80, 2016):
Achieves stated financial and strategic goals;
Financial performance above industry standard;
Gaining customer and increased market share.
Throughout this discussion Zara’s organisational and market performance will be benchmarked against three rival fashion retailers- H & M, ASOS and Cotton On. Organisational strengths and weaknesses, key success factors (KSF) will be analysed to determine Zara’s competitive advantage in its strategic execution. This review demonstrates the importance of understanding drivers in both internal and external environment that impact business success. (Thompson et al, 2016).
2.Fast Fashion Industry and introduce Zara
Zara is a member of the Inditex Group, a new generation fashion retailer who has instigated a variety of innovative management systems in fast fashion supply chain to optimise their competitive edge in the market.
Zara, established in 1975 in Spain, is a leading global fast fashion volume garment retailer. Over the years, Zara has remained authentic to its core values, expressed simply across all Zara stores: beauty, clarity, functionality and sustainability. Without advertising, their successful business model dominates the fashion industry, such that in 2017 revenue $12.1B US, an increase of 9% from 2016, additionally, the organisation employs over 12,000 employees and has over 2,200 stores across the globe (Forbes, 2017, Statistics.com).
Zara’s owns most of its supply chain allowing for vertical integration to align business objectives. Delivery of catwalk fashion in as little as 15 days, through synchronisation of schedules and partner relationships which accelerate production and distribution (Richardson, J, 1996).
Zara is an example of an organisation who is strategically aligned, as demonstrated throughout this paper. Trevor & Varcoe (2017) state that a rigorously managed enterprise value chain that connects an enterprises purpose, to its business strategy; organisational capability; resource architecture and management systems ensures enterprise alignment, as demonstrated below in Figure 1.
Figure 1 – Features of a Strategically Aligned Enterprise
(Trevor & Varcoe, p. 3, 2017)
2.1 Competitors (word count 369)
H&M began with the opening of a small shop in the country town of Va¨stera˚s in Sweden in 1947. It has since grown to over 1000 stores and approximately 40,000 employees across various countries (Slack et al. 2015). H&M’s biggest difference to the other fast fashion retailers is that H&M believes fashion does not have to be expensive. H&M’s business concept has been, “to offer fashion and quality at the best price” (Giertz-Mårtenson 2012). H&M have over 100 designers that work for the company together with buyers and pattern makers who work with other suppliers around the world. The company’s sales revenue for the 2017 financial year was 231,771 million which was up 4% from the previous year (H&M group reports. 2018).
ASOS is a global online fast fashion outlet who sell more than 85,000 branded as well as their very own labelled products. ASOS has eight different warehouse sites across the world but have already delivered their products across 240 different countries and territories, ASOS sales revenue for 2016 financial was up 26% to 1.444 billion and currently have an active customer base of 12.4 million (ASOS plc. 2018). As the company continues to grow their mission remains unchanged, to be the world’s number one fashion destination for 20+ somethings. ASOS also focus their business around their core four strategic pillars which are: Great fashion, Great price, Awesome on mobile, engaging content and experience and best in class service.
Cotton on clothing PTY LTD is an Australian owned private company which operates eight brands in 1300 stores across 17 different countries around the world and employs close to 22,000 staff (Cotton On Clothing Pty Ltd – Retail 2018). Cotton On Clothing Pty Ltd sell clothing, accessories, footwear, stationery, and homeware for all of their eight owned brand stores including Cotton On, Cotton On Kids, Cotton On Body, Rubi Shoes, Typo, Factorie, T-bar and Supre. The company’s main focus is to target price and fashion conscious young people via their eight brands with fashionable products that people can afford. The group have also developed an online presence via their brands to tackle the growing market in this industry of online shopping which continues to grow within their business.
3.Key Success Factors and Analysis
Key success factors (KSF) are defined by Howell (2009) as the elements that must be delivered, whether it be systems, product or service attributes, resources and operational approaches to succeed and ultimately achieve the company’s purpose, mission and objectives. Figure 2 reflects Zara’s identified KSF as being lead time- referring to short production time, inventory on the floor for short periods with marketing focus on impulse buying, scarcity and variety. Market research and response, distribution and advanced IT all contribute to the success of Zara as an International leader in Fast Fashion.
1Production time -
how quickly can the brands take designs from the runways and be able to manufacture and make these accessible to customers in the shortest timeframe.
Figure 3, represents key drivers of an agile and collaborative supply chain, Zara's in-house production model includes a closely monitored outsourced portion in which products are sewn by external workshops located primarily in Spain and Portugal, ensures an unparalleled turnaround time between approval of a design and delivery of finished goods (Forbes, 2018).
Distribution capability – how quickly is stock physically moved from the warehouse to stock and replenish stores. Zara manufactures most of its products in Europe, although more expensive, this is offset with the fact ~66% sales are in Europe, thus with better capital equipment and more adept employees, the result is quality garments. Moreover, vertical integration and locating manufacturing close to markets, enables Zara to manipulate designs and churn out new ones very quickly. This geographical site location is demonstrated in Figure 4.
Agility – how quickly can the company respond to customer demand and be flexible with their stock to introduce new product lines throughout the season. As demonstrated in the 15-day design to customer model depicted in figure 5.
Figure 2 Zara’s Business Model
IT systems – what systems does the brand have in place to collect information in real-time, including sales data, stock levels and replenishment requirements and customer feedback.
Zara utilises proprietary software analysis of fashion trends from its stores around the world, which enables Zara to capitalise on a rapid product replacement cycles by cataloguing in real-time which products are being purchased, in what quantity, and where, enabling Zara to dominate the Fast Fashion Industry.
Zara has agile chase demand meeting consumer demand with their co-located design model, that has the store at the beginning of the design stage of the chain, to learn from customer feedback and network liaisons (slack, et al, 29015).
Further enhancing the quality of customer service, Zara stores also include Radio Frequency Identification Technology (RFID), using cutting-edge systems to track the location of garments instantly and making those most in demand rapidly available to customers.
Managers utilise personal digital assistance (PDA) which enable data collection of customer feedback and customer input which is directed to design department. (Zhang, Onal & Das 2017). This innovative model is further exemplified in figure 6.
Customer service capabilities – what level of service and customer interaction does the brand offer customers instore and online. Key factors in fast fashion is to achieve trust, effective communication, transparency and mutually beneficial partnerships (Benavides, Eskinazis & Swan, 2012).
Green and socially responsible values impacts an organisations reputation, as well as innovative business models ie. Zara’s de-tox campaign and selection of supply chains to protect endangered forests. ( Pedersen, Gwozdz & Hvass, 2016).
Cultivation of an intimate relationship with its customers, Zara’s designers respond intuitively to their changing needs, reacting to the latest trends and constant feedback received across its Woman, Man and Kids collections, to design new ideas and inspire consumer adoption.
Brand image and reputation – how is the brand personality, identity and unique traits perceived by the customer (Stern, 2006).
The fashion industry has some major sustainability problems, it is estimated by 2030, the industry’s water consumption will increase by 50%, its carbon footprint will increase to 2,791m tonnes and the amount of waste it creates will hit 148m tonnes. (Sun, 2017).
Zara’s flagship eco-stores underline the brand’s unwavering focus on sustainability environmentally friendly image and improved customer experience. These developments have been further enriched by a range of new and innovative projects, such as the installation of clothing recycling containers in-store and a scheme providing for free at-home collection of used garments to complement the delivery of online orders.
Price competition – how can the brand provide the product at the best price to the customer. Zara’s business model and value chain execution such as quick production, out sourcing- Zara offshores labour intensive work to minimise costs (Goyal, Dua & Kaur, 2012) and low-inventories are examples of how Zara remains competitive on price. Figure 7 exemplifies how low inventory reduces costs.
Quality Control – while fast fashion is only intended to last the customer for a ‘season’ what quality control measures and procedures are in place to ensure that the always purchases product of the same quality. Zara’s market specialists relay customer feedback from retail stores back to supply chain to promote a culture of continuous improvement (Slack et al 2015).
Zara’s low inventory strategy and rapid product replacement equips Zara to experiment with fashion with minimal waste. To shed some light on the number of product introductions at Zara, H&M introduces 2,000-4,000 new products annually compared to near 11,000 new designs introduced annually at Zara. Additionally, average inventory times at Zara is 6 days compared to 52 days at H&M. (Tough Nickle, 2018).
Each of these KSF identified provides a business with the capabilities to “either outmatch rivals on differentiation or beat them on costs to give the company a competitive advantage” (Thompson et al. 2016, p. 104). In order to evaluate Zara’s overall competitive success against H&M, Asos and Cotton On, weights have been assigned to each of the KSF to measure their competitive strength based on their perceived importance as identified in Colum two of Figure 8.
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