Critically evaluate the key issues that strategic analysis plays in a business or organisation that you are familiar with.
Zara has achieved accolades and glory by emerging as the world’s largest apparel retailer. With its headquarters in Spain, the brand has its outlet in 7475 locations worldwide including Portugal, New York, France, Mexico, Athens, Belgium, Sweden, Malta, Nicosia, Norway, Israel, UK, Turkey, Emirates, Kuwait, Lebanon, Japan, Argentina, Venezuela among others. The brand operates under the parent company, Inditex (Zara.com, 2018). As a matter of specification, the brand deals in clothing. According to the annual report of 2016, the revenue earned by Zara has been recorded as US$9 billion annually.
· Financial regulations
· Foreign direct investment
· Political instabilities
· Cost cutting strategies
· Cultural influences
· Social media marketing
· Employment legislations
Table 1: PESTLE analysis of ZARA
(Source: Zara.com, 2018)
The government plays an important role in Zara’s business operations. However, different governmental agencies do not have the same outlook regarding the operations of Zara. Most of these agencies lack the access to the foreign direct investment. Political instabilities aggravate the complexities for Zara in terms of penetrating into the foreign markets. These instabilities adversely affect the economy. However, limiting the supply chain to the native areas of operation has enabled Zara to overcome these difficulties (Apenko, 2017).
Affordable pricing strategy is one of the integral steps of Zara’s business. This strategic approach is assistance in terms of dealing with the economic instabilities. Reduction in the value of dollar reduced the profits for the Zara outlets in US (Zara.com, 2018). Decreasing power of the customers compelled the Zara personnel to cut operational costs, creating heavy impact on the sales. As per the opinions of Bettis et al., (2014), rise in the labor production costs aggravated the financial burden within the business operations.
Zara takes special care of preserving the workplace culture. One of the mentionable points is execution of market research before making plans for entering into the foreign markets. This research proves beneficial in terms of achieving proper placement for the apparels. However, cultural influences from the foreign markets influences the purchasing decisions of the customers. Zara needs to be applauded for exposing conscious approach towards preserving the traditional culture (Zara.com, 2018).
Adopting social media has revolutionized the workplace operations of Zara. Uploading the specific details of the apparel have increased the trafficking of the audience towards the brand image. As a matter of specification, social media has enhanced the supply chain network of Zara. Within this, use of security cookies and policies aligns with the legal parameter avoiding encountering illegal instances. Engert et al., (2016) opines that rationality in the implementation of the legislations helps Zara in achieving loyalty, trust and dependence from the clients and the customers.
Using high quality fibres results in the production of good quality apparels. Consciousness towards this direction helps in sustaining the resources for the future generation (Zara.com, 2018). Laboratory tests for the produced apparels helps in catering to the health issues of the customers.
In spite of foreign influences, Zara conducts market research, which helps them in gaining an insight into the culture, customs and traditions. Rationality in this approach is assistance for achieving trust, loyalty and dependence from the clients and the customers.
Zara receives intensive competition from brands like H&M, Benton and the Gap. Reasonability in the prices of the apparels is assistance for Zara in terms of overpowering Benton and Gap. H&M can be placed on equal pedestal with Zara. Wide supply chain network helps in gaining the awareness about the altering trends of fashion and the needs of the customers. Due to limited stock and limited time, Zara collects 80% of the price money earned through the retails sales (Zara.com, 2018). This is more than the usual market ticket sales collection of 60-70%. As a result of this, the sales margin of Inditex was accounted as 10.5% in 200. In comparison to this, the sales margin of Benton was mere 7%, which was 9.5% in case of H&M.
Reasonable pricing strategy proves advantageous for Zara in terms of dealing with the financial crisis. Increase in the Euro rates is a threat, as it increases the selling price, making it difficult for the customers to purchase their favourite apparels. This situation indicates employee and customer turnover, which aggravates the complexities, as it adds vulnerability into the brand image. According to Frynas and Mellahi, (2015), brand equity and shortest sales cycle has enabled Zara to attain brand image within short time. Inauguration of 448 Inditex inaugurated 448 stores in 2005 while H$M opened 145 stores. Analysts were concerned about rapid evolution, which led to sales growth (Zara.com, 2018). This compelled Zara to invest in the emerging markets for sustaining the market position in the competitive ambience. Investment in the real estate business within the local prime location makes the competitive risk very low.
The supplier power is weak in case of Zara, due to low wages in the threshold of China. Mention can be made of the licensed contracts within which Zara indulges. These contracts leaves little or no space for bringing innovation within the designs of the apparel (Goetsch & Davis, 2014). This aspect adds vulnerability into their control within the market. Therefore, the bargaining power of the suppliers is high, as the switching cost is higher. Zara tends to indulge in alliance with the brands, who have adequate knowledge about the standards of safety and quality (Zara.com, 2018).
Advertising, word-of-mouth widens the customer base. Indulging in alliance with the research and development team for gaining an insight into the needs, demands and requirements of the customers. Hanson et al. (2016) states that strategic planning helps Zara in coping up with the altering demands of the clients and the customers. Hikes in the quality and prices of the apparel compels the loyal customers to wait in line for getting their favourite dresses.
In terms of quality and affordability, H&M gives tough competition to Zara. Spending quality time in advertising helps Zara in attracting large number of customers. This advertising is advantageous in terms of dealing with the crisis. However, the supply chain fails to reach to the standards of Inditex (Zara.com, 2018). This provides the H&M, Benton and others an opportunity to enjoy competitive advantage, adding vulnerability in the market position.
Capitalizing the strength is one of the effective means for Zara in terms of sustaining the market position. Reviewing the current trends would help in developing strategies for upgrading the standards and quality of the business operations.
Zara’s resources can be divided into tangible and intangible. Tangible resources are the financial parameter, which is strong and competitive, assisting in increasing the sales revenue and profit margin. On the other hand, Hill et al. (2014) proposes that intangible resources are customer loyalty, brand awareness of Zara, which results in strengthening the customer base. Innovative designs of the production machines is an answer to the queries of the customers regarding the current fashion trends (Zara.com, 2018). Rationality in the use of the resources helps the personnel in generating value for the business operations, which differentiates the brand from others in the competitive ambience of the market.
Skilled and qualified employees are an asset for Zara. This is in terms of imitating certain portion of the capital. Strategic alliance with the research and development team proves beneficial in terms of dealing with the crises. As per the propositions of Hill, (2017), cooperation from the designer team helps in overpowering the contemporary brands like H&M. Time compressed production process makes Zara a rare brand. This type of production is efficient in terms of enhancing the organizational productivity.
Along with this, quick and rapid production process is assistance in terms of completing the orders within the stipulated time (Zara.com, 2018). This improves the stability in the relationship between the clients and the customers.
Exploitation of the market opportunities assist Zara in increasing the sales revenue and the profit margin. As a matter of specification, Zara personnel are capable of designing, making effective production, manufacturing and indulging in strategic partnerships. The skills and qualification of the labours is effective in terms of manufacturing innovative design apparels. These qualifications helps in maintaining the required speed and flexibility, which is integral in the production process. Mention can be made of Lasserre, (2017), who states that Zara has the capability of produce 12000 new apparels annually. This capability aligns with the capability to attain the identified and the specified objectives for expanding the scope and arena in the overseas markets (Zara.com, 2018). The skills, qualification and expertise of the designers assists Zara to produce quality apparels.
Spontaneous approach of the design team helps in supplying the orders to the clients. Flexibility in the application of the skills is beneficial in terms of reaching to the benchmark level of performance. Ordering fresh and new products upgrades the stock of products for Zara, which attracts the foreign clients. On the contrary, resistance towards outsourcing increases the labour maintenance charges which results in employee and customer turnover. Low in-store inventories is one of the other challenges in terms of tackling with the online marketing issues. Rising production costs compel the personnel to satisfy the needs, demands and requirements of the clients (Zara.com, 2018). Typical example of this is the increase in the prices of the raw materials. As a result of this, profit margin has collapsed. In such a scenario, cost leadership strategy seems difficult to survive.
Along with this, there are cultural issues within contracts with the stakeholders. However, regulations makes it difficult for Zara to enter into the foreign markets.
Consideration of the latest haute designs assist Zara to align with the latest fashion trends in the market. Low cost of the apparels helps in attracting large mass of audience across the world. Along with this, low cost of fabric is one of the other aspect, where strategic approach helps in regulating the customers in terms of affordability. For every new design, the strategy is to sell it in small portions. This is in terms of gaining an insight into the approaches of the customers towards the design of the apparels (Zara.com, 2018). This process helps in reducing the costs when a certain apparel does not gain popularity in the market.
Apart from this, one of the other strategies, which Zara develops is the production, which can be completed within short time. Strategies towards decreasing the quantities for saving on the inventory cost is a wise step, which Zara chooses. Along with this, the number of choices available to the customers are adequate in terms of attracting them towards the brand image (Michael, Storey & Thomas, 2017). The strategy of NO SALE act as a preparation time for the ZARA personnel in terms of preparing effective strategies to enhance the stock of a particular apparel.
Conscious approach towards the home furnishing aligns with the strategy of attracting the customers towards the brand image. This approach reflects the adherence towards upgrading the standards and quality of particular parameters for enhancing the organizational efficiency (Zara.com, 2018). In terms of the transnational strategy, Zara plans to attain global efficiency. For this, Zara seeks assistance from locals. Vertical integration provides more flexibility to Zara in terms of overpowering the contemporary brands in terms of the process of designing the apparels and storing them in the shelves (Morschett, Schramm-Klein & Zentes, 2015).
Apart from this, feedbacks from the customers help Zara to assess the effectiveness, feasibility and appropriateness of the planned strategies. Direct communication takes place between the designer team and the managers for upgrading the knowledge on the latest fashion trends. Information technology is effective in terms of altering the workplace scenario. As a matter of specification, information technology is beneficial in terms of adding automation into the business operations (Zara.com, 2018).
In order to maintain the balance between the low cost and the different apparels, Zara adopts the strategy of cost leadership. This relates with the component of “product design” in the primary activities, as mention in the value chain analysis. Here, leadership relates to the expression of rationality in maintaining the balance between supply and demand of the apparels. Countering this, the strategy of cost leadership can be related with the procurement option of the value chain analysis. Procurement is a supporting activity, which helps Zara to acquire equipment and supplies (Rees & Smith, 2017). The personnel are aware of the differentiation, which exists within the expenses of the department in the countries of operation. Competitive bidding process helps Zara to indulge with the external prospective sources, which enhances the scope and arena of the business. Offshore management is also effective in terms of widening the supply chain network. Adhering to the legislative requirements reflects the leadership skills of the personnel in terms of effective handling of the business operations (Stead & Stead, 2014).
Zara emerges as one of the largest apparel retailers. Focusing on the quick and rapid production means helps in completing the orders within the stipulated time. In spite of external cultural influences, the brand exposes strategic planning in terms of luring the clients and the customers towards the brand image. Social media marketing helps the brand to increase the trafficking of the audience.
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