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Zara Briefing Paper Assignment
Zara is the leading retailer in the fashion industry whose parent organisation is Indicted. Indicted is the world’s largest apparel retailer. It also holds several brands like Pull and Bear; Oysho etc. Amancio Ortega is the founder of Zara who opened the first Zara store in 1975. The current study would focus on the core competencies of Zara that transforms the single woman clothing to global fashion by the principles of Amancio Ortega. He changed the design manufacturing distribution process to reduce the lead time and respond to new trends in faster way by exploring core competencies that will be discussed below. The next task will throw light on macro environment that would influence the operations in France along with its evaluation with Zara management strategy.
Core competencies of Zara
Amancio Ortega is the Spanish resident and the founder of Zara and is best known for its chain of Zara clothing and accessories retail shops. He is richest person in the Europe. He made Zara one of the well brand own recognition in the International marketing of fashion. Amancio Ortega worked on five principles. The strategy was to refresh the stock of Zara stores twice a week and receives orders within 48 hours. This step prove that the strong distribution channel where a dress of a model take one month to arrive on the stores but at Zara stores the customer can get just after a few weeks. He observes on the requirement of the customers. He keeps the customer at the centre of attention rather than putting his clothing on fashion shows. Ortega manufactured its products from Spain, Portugal mostly. The designs are cut by the materials and treated in his mills and then stitched by network of local shop. This is benefitted because it reduces supply chain and hence reduces unnecessary inventory (Wilkinson, 2013). He also believes that the efforts the employees and management is putting should be true and he himself remains true towards his work and employees. Ortega transformed single women fashion clothing into global fashion by never stopping innovation in his designs and production with the motive that success is never guaranteed. With this above principles he had achieved several core competencies in the business of Zara which has been consider below.
Different organisation has different core competencies which differs on many factors that have influence their business operations. The services and production of Zara is in the following sectors of fashion like shirts, jeans, jackets, one piece, skirts, bags, belts and perfumes which shows that the business of Zara has expanded globally from single women clothing. The success of the Zara is maintained by expanding its business all over the nation by utilizing the shops actively. The core competency of Zara is that the distribution channels of the organisation are strong. The supply chain operations have been organised in such way that it respond quickly to meet the demand of the customers by offering them affordable prices with latest fashion. The function of the organisation has formed the capability in every stage of design, production, distribution and retailing. The other core advantage is that it has a commercial team of designers, market specialist who assist in maintaining the brand image by bringing the creative in their fashion trend.
The strength of the Zara is that it exploits technology and automation in every area where possible. For example: Zara has automated its five stored distribution centre that helps them to reduce the lead time. This upgraded technology had move ahead of its competitors as this technology is made in house and has proprietary copyright of Zara. It consider its design of clothing and accessories by taking into account the range of demographic factors which is possible because of high designer stylist and market experts and with efficient production area. This type of product mix helps the Zara in developing their core competencies (Cortez et.al 2014).
The objective of Zara is to meet the requirement of fast changing market of fashion. The organisation has strong internal core competencies which helps them in maintaining their brand image. Due to the having the goal of meeting with ever changing fashion the Zara has low level of inventory which helps the organisation in reducing the blockage of funds, dead stock etc. The other internal competency is that the employees are committed to their jobs because of flexible system at workplace. The employee’s commitment to their jobs depicts long term retention of employees by considering their need and motivating the employees by training and development and with reward system. In this way, Zara has its own key resources that give them competitor’s advantage. It also has it key process like design, centralised distribution, customer’s observation and feedback process, fresh stock offering through online platform. It also focuses on providing the value to the customer by feeling them fashionable at reasonable prices and quality. Zara main target is on young fashion (Fernie, 2014). It also works on the pricing strategy of product sale ignoring mark down with low product cost and low inventory. With the above core competencies Zara has been able to achieve the financial status that provides them competitive advantage over traditional retailer in the fashion industry. Zara core competencies in transforming single women fashion into global fashion is due to core competencies in area of excellent distribution channel with providing fast changing fashion clothes and accessories.
Zara also focus on vertical integration which prove as the advantage to the organisation as it result in cost reduction because they do not outsource their product to any distribution channel. It would result in core competency by creating monopoly of Zara products in the market and would also reduce the conflict from different distribution medium. The success is also definite as it doesn’t rely on outside channel and distributes its product in small batches. It manages all function itself like designing, storing in stores, distribution and logistics (Chan et.al. 2016). Zara is the first organisation who has set a benchmark standard for doing diverse business in fashion industry. The feature of working with flexibility at workplace created environment of scarcity and opportunity with fast fashion system.
The HRM system of Zara also helps in achieving the core competencies by deploying quick responding system composed with information technology that focus on customer demands. The team work towards the goal and employees are made responsible for their jobs so that they can meet the right demand of customer according to the season. In retail environment, the managers and sales person are capable of analysing the sales trends which helps the manufacture to produce the right product.
The Zara designer’s would maintain the design with the modern trends so that they can maintain the core advantage to remain more and more creative and maintaining the tag of fast fashion. In brief the Zara organisation is the fashion trend setter for the fashion industry which enables them to achieve the competitive advantage through exploring their strength areas of efficient distribution of products by considering the true fashion brand according to the body shape of the customers. They follow people centric approach that helps in maintaining their quality of product differentiation along with utilizing the benefits of geographical conditions and taking short period for preparing the new collection (Wang, 2016). For exploring core competencies Zara use efficient business model that work on the three basic elements: value drivers and capabilities and concept i.e. Zara gives value to the customer demand by exploring the capabilities of human resources in production with the concept of deploying own distribution channel to have a quick respond to change demand in fast fashion.
2. Macro-economic environment in Western Europe and its evaluation in Zara’s management strategy
Macro environment is the condition that exists in the economy as a whole and not in a particular region. It includes gross domestic product (GDP), employment, monetary, inflation and fiscal policy. The macro economics environment is related to the general business cycle. GDP is a measure of output and production of goods and services. It influences the profit of the country and affects the productivity.
Macroeconomic environment in France
French economy is a robust economy and is among the fifth largest in the word and is responsible for one fifth of the total GDP of European Union. The economy is service oriented as the 70% of the contribution to GDP comes from service industry. In manufacturing domain, France has been a global leader in aerospace, railways, consumer cosmetics and luxury items. The French Capital Paris is said to be worlds fashion capital. France is also among the most visited places in the world and tourism is among prominent contributors to GDP (Focus Economics, 2016). In terms of robustness, the French economy was able to face the economic crisis well due to its less dependency on external trade as well as the steady private consumption rates. The policy makers in France are working to modernize the economy
In terms of exports, France is currently second in Europe. France is also a leading consumer of imported consumer goods which are comparatively cheaper than the French goods. Thus the French Market provides an opportunity to the organizations producing quality goods at cheaper prices (Focus Economics, 2016). France is a member of European Union and World Trade Organization and has favorable trading policies which provide opportunities to Zara which is producing quality clothing products at relatively cheaper prices.
Zara is a clothing brand which is renowned for its high quality and trendy products. Founder and CEO Amancio Ortega have spread Zara in over 86 different countries. Zara has managed to keep up with the latest fashion throughout the world, whether it is in Italy, Japan, Canada or USA. Zara keep on adapting the fashion around the world like a chameleon. Zara ends up producing about 450 million items a year for their stores. Its well constructed supply chain management strategic makes Zara to stand out from all the other fashion brands (Lorenzoni.et.al, 2013).
The strategy has many stages redesigning fashion trends for the main market and after this manufacturing, distribution and finally retailing. Organization gives focus on time management, as all this work is done on 2 weeks, on the other hand many designer and stores would take about six months to bring new fashion to their stores. To manage the process, a large amount of production is kept in house. This is done to manage the amount, frequency and variety of products. It would help in creating products that are in latest trend and flood in the market when the demand is in peak. Zara is also taking advantage of mobile world, with shopping online. The new products are very quickly communicated to their fashion conscious followers through social media. Social media displays the latest products made by Zara which are available on stores also. In Spain as soon as the new style comes and sent to stores, it would be available on the social media. Zara has always the policy of satisfying the customers by implementing management strategies, by which it is dominating the fashion world. Zara brand is spread over in about 68 countries around the world (Agha et.al. 2012). With effective communication system, organization is capable of adapting the changes and provides the latest fashion to the customers.
Zara focuses on optimal combination of demand management and supply chain management, and follows the market trends to earn advantages over competitors. For retailers the aim is to ensure timely delivery of product, providing customer satisfaction, Zara has emphasized on supplying the product directly to market and not through a third party. With policy of end-user satisfaction, the sales of the Zara products are toughing new heights. Conventional market trends are never followed by the organization. Window displays are the only promotional tactic and marketing style followed at the Zara stores. Before entering in a new market, organization conducts PESTEL analysis to identify whether entering in the new market would be favorable or not. Zara is of the belief that political parties are responsible for developing political environment, government plays a silent and a major factor in the business, and they help organization in the form of policies (Budhwar.et.al. 2013). Hence the organization enters in market where the government has favorable trade policies. Because of the favorable political condition in France, Zara is looking to enter in French Market.
Zara is the major distributor of apparels and clothing in the Spain till now, for expanding their business around the world political support provided should be evaluated critically. Because of predicable and safe economic circumstances, as Euro is the currency used in France, Zara would be dealing with a single currency; there will be no change required in business systems as well as there will not be a change. With this there is no effect of fluctuating economic condition all over the world. As working with only currency, the organization is not dependent on dollars; this is the main reason for the success of Zara.
Organization is currently operating in a single country and is facing a social influence that was already coped by Inditex group for its other brands. Spain has a history, with a lot of contribution in designing and artistic domain; there is a calm social environment. The country has a large attraction of tourists from all over the world and having lots of bright cultural events. Due to strong tourism exchange, Zara is capable of retaining their customers through its quality supplying products. Higher turnover encourages sale of items in a single visit and then the tourist becomes customer, it is the strategy of Zara. Today technical input is very important in the retailing industry, for the improvement (Wedel, 2015). The macroeconomic environment of France is quite similar to the Spain and hence above mentioned factors would help the organization in establishing business in France.
Zara has been using three generic business strategy namely cost leadership, segmentation strategy and differentiation strategy. With the help of cost leadership the cost of operations is kept at minimum which helps in reducing the price of its products. The marketing efforts of Zara are based on the market segment which it is targeting. Zara offers products for male, female and kids, thus catering to all the segments of society. The products of Zara are differentiated by their designs and quality (Foss and Knudsen, 2013).
Zara, as world leader in manufacturing fashionable clothes is enjoying a competitive environment in fast fashion. Making a change in the strategy is a difficult task, but to excel in business and customer satisfaction in market Zara has made some new strategies and objectives. Zara believes it is a good idea to enter in new markets, but it is important to consider the macro environment of the country. Zara has identified France as the new market for its products. The macro environment of France is favorable for the business and is much like Spain which would be helpful for the organization to excel. The supply chain business and using of in-house resources by Zara is an innovative strategy that is helping organization to explore their core competencies and to be competitive.
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