Value Creation in the Global Apparel Industry Case Analysis #3 By Deborah Bennett Julie Bryan Wynette Gayle Vivian Pankey Neisha Vitello Executive Summary Zara is the flagship fashion retail company under the parent corporation Inditex.
First opened in Spain, Zara currently has a network of 1,292 stores spread across 72 countries. The infrastructure Zara has built is a core competency. Their innovations to bring new fashion designs to market faster than competitors differentiates Zara from their rivals.Managers believe the allure of Zara is the freshness of its offerings, the creation of a sense of exclusiveness, an attractive in-store ambience, and positive word of mouth (Daniels, Radenbaugh, Sullivan, 2011). The strategic innovations in design, production, logistics, distribution, and retailing activities have made Zara a global leader that is now moving into the United States. This paper will examine five of the external influences that will shape the response and ultimately the success Zara will have adapting to the physical, social and competitive factors in the United States clothing retail industry.The external influences examined will be; competitive dynamics, economic conditions, technology standards and trends, cultural orientation, and customer expectations.
Zara continues expansion in the Untied States, currently with 49 stores coast to coast. Their differentiation strategy has been successful (Maiellaro, 2010). Zara’s strategy and business design leave rivals with less time to figure out how to better configure and coordinate operations. As U. S. competitors attempt to follow Zara’s lead, Zara continues to set the pace and increase the distance between them and the competition.Issue Identification Zara came to the United States, first in New York City in 1989.
With more than ten years in the states and 49 locations Zara is making their mark in the fashion industry. With the external influences impacting Zara’s management vision, strategy, value creation and firm performance, how does Zara continue to create value with their differentiation strategy in the U. S. fashion market? External Influence #1: Competitive Dynamics Zara has taken the industry standard of a six-month time frame to create and produce new clothing lines to only two weeks (Daniels, et al 2011).Breaking the industry standard in getting fashion to the public is the competitive advantage Zara is best known for. Zara’s other strength’s include logistics, marketing, store operations and firm infrastructure. Zara spends less than 1 percent of its revenue on advertising (Daniels, et al 2011).
Zara is dependent on word of mouth advertising from its shoppers who tend to be loyal to the brand. Marketing is another key advantage Zara has over the competition, which can spend up to 3 to 4 percent of their revenue on advertising.External Influence #2: Economic Conditions Current Economic Conditions in the U. S. appear to show that it is in a “disappointingly sluggish” (June 2010) recovery. While the U. S.
does not appear to be in the downward trend that everyone was concerned with in, growth will remain stagnant or slow. Consumer confidence appears to be at the highest level in two years (Dennis, 2010), but the unemployment rate does not fall below 9 percent (Isidore, 2010) for the next year, and it is unknown if we will ever see the unemployment rate low of 4. percent in 2007 (Isidore, 2010). The good news is that inflation does not appear to be an issue, as it remains steady for the next three years (Isidore, 2010). The economic conditions in the United States for Zara’s do not appear to be at the best point for rapid growth, although with Zara’s unique way of doing business growth is possible. The economic slowdown, high unemployment, and other economic factors pointing in the wrong direction, Zara’s growth in the U. S.
Market will need to be carefully monitored. External Influence #3: Technology Standards and TrendsA cultural aspect of the American Shopper is her expectation of value or reasonableness. This direction is in line with Zara’s aim to democratize fashion by offering the latest fashion in medium quality at affordable prices. In the USA, the GAP has already been identified as tapping into this market. One of the ways that Zara? s business model is differentiated from that of its competitors is the turnaround time and the store as a source of information. The store acts not only as a point of sale but also influences the design and speed of production. It is the end and starting point of the business system.
Zara? managers get feedback from the customers at the point of sales and in turn these managers report the demands of customers and the sales trends to the headquarters on a daily basis. This business model augurs well in America today with the technological advancements of the Hi-tech age with computer and cell phones, 24-7 news circus and talk show now becoming the new norm. External Influence #4: Cultural Orientations Zara’s secret, according to CEO Jose Castellano, is its reliance on communication, and the way it uses existing technology to take control of almost every aspect of design, production and distribution. This ‘fast fashion’ system depends on a constant exchange of information throughout every part of Zara’s supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. ” Zara has made enormous efforts to ensure that operational procedures, performance measures, and even store and office layouts are designed to make information transfer easy.It can therefore be concluded that information management is one of core activities for Zara to leverage its ‘fast fashion’ system. This model is in direct relations to the cultural orientation of the American Shopper who likes to be fashionable and that right after the red carpet event.
External Influence #5: Customer Expectations Americans have many choices in fashion styles and price range, from boutique to large chain to discount fashion warehouses. Zara meets customer expectations with fashions superior to or different from alternatives that are available from rivals.With their grassroots marketing research performed by agents on the store floors, Zara has perfected technology to be able to incorporate customer comments into designs through wireless, handheld organizers carried around the store (Daniels et al. , 2011). On the Zara website is the following: ‘What do you think of the collection? Are these looks that you would like to recreate? I love to hear your opinions every week – and I always take suggestions into consideration! If you have any looks you’d like recreated here, let me know!Be sure to leave a comment’ (Rachel, 2010). This channel of customer/company interaction ensures Zara continues to deliver what customers want in fashion. The Internet feedback will especially serve the U.
S. market as Americans are very accustomed to writing product reviews on retail web sites. Zara instills a sense of urgency in the shoppers’ mind because the style they see in the store today may not be there next week. This dynamic plays well in the urban Americans shopping style that has ready access to the store front windows in malls or the city’s fashion districts.The average Zara customer visits the chain seventeen times per year versus three to four visits per year at competitors. Anyone with the shopping style of “let me look around first and then come back”, will lose out on the Zara design. Exposure to current fashion trends are in every medium in the U.
S. Zara’s ability to deliver almost immediately on what is hot will bode well in meeting customer expectations in the U. S. market. Recommendations and Conclusion Zara has taken advantage of its core competencies: competitive advantage, economic condition, technology standards and trends, cultural orientation, and customer expectation.This well organized firm uses logistical design in all areas of its operations. Getting high fashion clothing to the public much quicker than the competition and at a reasonable price has led the organization to the top.
While this “fast track” clothing idea is new and still in vogue, Zara needs to constantly be looking at ways to improve their product line and business model as the competition moves in on their competitive advantage. Staying ahead of other retailers by continuing to evaluate their design, sourcing, production, logistics, marketing, store operations, and firm infrastructure is key.While Zara is spreading worldwide, they may need to adjust their distribution centers a bit, in order to keep their speed maintain their pace, particularly in the US market. As they get larger the firm grows , they may not be able to keep up with demand unless they adjust their logistics chain accordingly.References 2010, November 22. http://www. modernights.
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