Company analysis for Zara

Company analysis for Zara Strengths Zara is a very powerful brand and influential in overseas markets as America, Asia, Europe and Africa (according to article Best Global Brands 2010, 14 Sep 2010).Zara needs 2 weeks to design a new product and to bring in stores by meeting costumers preferences, meantime its competitors need 6-8weeks(chapter11-The strategy of international business). Competitive advantage of Zara is because didnt transfer all production to low cost countries, but kept most of them in Spain and Portugal where wages are lower than Western Europe. With this, it cuts shipping costs, and has more flexibility to answer the consumers demands for new products in quick way because of location than its competitors that have factories in low cost countries. According to a statement by Louis Vuitton Zara is Possibly the most innovative and devastating retailer in the world. The company applied Instant Fashion in order to meet costumers demands by new designs and new trends in manufacturing and distribution, also by keeping prices low. Zara used group of designers instead of individuals in comparison with GAP, HM and others. Zaras stores are company owned, and it is vertically integrated retailer. It does designs, production and distribution by itself and controls everything. In comparison with competitors it doesnt promote its designs via fashion shows, but is delivering they direct to costumers through the stores to understand their need, thats why the company doesnt do advertising (article-the Secret of Zaras Success, Store Magazine, fall 2004). Another advantage is that the company has one of the highest numbers of products in the world that produces annually 11.000 and its key competitors 2000-4000.The company keep low inventory in stock because each new product is supposed to be sold within 10 days, if not is replaced after 2 weeks. By this measure the company keeps low cost of inventory. Every store in Spain is supposed to be visited on average 3 times a year, but Zara 17 times(according to article Zara a Spanish Success Story, CNN, 15 June 2001). Also this year the company will enter Australian market. The company has a core concept in information technology to support its international logistics system and online selling where return and exchange is the same as the store system(Wikipedia). Also in some location people can buy Zara products by IPod, I Phone application. Zara model have more flexibility in production sales, and stock management and its stores managers report back every day to designers in La Coruna for sells which shows a nice coordination between departments in order to meet costumers needs(Zara website). Zara is part of Spanish group Inditex is expanded worldwide in 77 countries with 5000 stores. Net Income was increased by 42% for the first 9 months of 2010 and share price 57.60 euro (Inditex Group). The company has Strong relationship between wholesalers, stores, management and costumers. Also, the use of the highest quality of materials for clothing. Zara revenue for 2009 was 7.071 billion Euros and operating profit is 15% higher than HM and GAP, but working capital is the lowest(Wikipedia). Weaknesses Zara is one of the largest clothing retailers in the world and this can cause its weakness in different parts of business, and is too difficult to control. The company is global but has presence in 77 countries (Wikipedia).Also Zaras greatest advantage lies in  its ability to provide the most interesting cutting-edge items, risk free.  Normally the more cutting edge the design, the greatest the risk. Clothes do not always last long (Zara 2.0- Fashion index.com). Zara has a reputation for new design product development and creativity, but is the risk that their innovation may stumble in future. Costs of doing business with Albanian stores, while the Zara is located in La Coruna Spain. Although ZARA has a successful business model it also have some weaknesses which could limit its scalability and ambitious growth. ZARA constitutes around 80% of Inditex business (8 companies) which means a failure in ZARA can put the whole group at a risk (Inditex group). Advertisement is becoming an important part of the business and it reflects directly to the sales. Zaras in-store advertisement model may not work going forward (Zara). Another weakness for the company in Albanian market is that, most of people are low income and could be difficult for the Zara to keep the growth. Opportunities Merge with Inditex group has created more possibilities to invest in emerging markets (Wikipedia). Zara stores are located in 77 countries and are lot of opportunities to invest and expanding the market as in India and China (Inditex). Albania is a nice opportunity for the company to open stores because people like high fashion brands. New location and stores offer the company opportunities to exploit market development. Grow into new markets/consumer segments Albanian Consumer Taste Albanian consumer view ZARA as fashionable house. If ZARA needs to grow in Albanian it needs to address specifically the Albanian needs and perception of fashion. Threats The biggest threats are its competitors as HM, GAP and Benetton and new entries in market that want to recapitalize their profits in new markets as Albanian.  Rising production cost because of labor and raw materials. As economic crisis is striking back costumers are trended to spend less. Imitation of companys logo by people that do not have permission to use it. Increase in Euro Rate An increase in Euro rate will increase the consumer selling price, consequently Zara will lose price advantage against relative competitors outsourcing in Albanian lek. Zara sales are increasing 25% over the past 5 years it has become one of the worlds fastest growing retailers, and to keep this growth has to invest in emerging markets. Zara strategy is growth through diversification with both horizontal and vertical integration, and brings new fashion (Zara website). The company controls all distribution channels, and invests a lot in Real Estate business in order to buy prime locations for new stores. This risk for Zara because its net cash flow is less than its competitors. Although ZARA has a successful business model it also has some weaknesses which could limit its ambitious growth, Inditex over dependence on ZARA (Wikipedia) Zaras business model is based by bringing new designs models in market every two weeks. For countries like Albania, where people are less fashion forward, it may be a challenge for Zara to sustain its presence. Other threat for the company in Albania is the politic stability that is still fragile because of disagreements between two main political forces. Petrol prices are very expensive in comparison with other countries and will affect the cost of products by increasing their prices. Situational Analysis (TOWS) Weaknesses and Threats (WTH) The weaknesses of Zara is to be part of Inditex group which has 8 companies and means failure of one of them can put Zara at a risk too(Inditex group). The company has to find a strategy in order to overcome weaknesses and developed them into strengths. As you see from the chart the direction shows the strength- opportunity position (so). The strategy is to reduce the competitive threat by developing in market flexible new designs in order to meet costumers preferences on time. Weaknesses Opportunities (WO) Another weakness of Zara is raising production costs in Spain and Portugal with introduction of Euro in 2002. Products became more expensive for export. To overcome this Zara started to invest globally and new mergers in order to keep prices down as its competitors. If Zara enters in Albanian markets, it doesnt have experience with Albanian laws and their culture for clothing but could overcome those barriers by creating franchise with local partners. Strengths Threats (ST) One of the greatest threats to Zara is the continuing an appreciation of the Euro against other currencies this means higher prices for the buyer and less competitive posture. To reduce threats of competition and exchange rate Zara has built factories in North Africa and emerging markets. Economic crisis that started in 2008 and still goes on has obliged costumers to spend less on clothing items, and the company must bring new designs with affordable prices in order to handle this situation. Strengths Opportunities (SO) In order to be a successful retailer Zara has to build on its strengths and to take advantage of opportunities by using its RD. It brings in market each year 11.000 new products more than its competitors and this evident by its growth rate by 25% each year. In order to keep that growth rate Zara is investing its profits to buy new real estate location, technologies and to open new plants in low costs countries. Internal strengths 1) Strong Rd and designers. 2) Strong sales and global network. 3) Efficient products. Internal Weaknesses 1) Strong reliance in Europe. 2) Rising costs in Spain because of Euro. 3) No experience with Albanian laws. External opportunities-O 1) Growing market demands for fashion. 2) Will open new stores in Australia in 2011. 3) Low costs products to cope the competition. SO- Strategies 1) To develop and produce new designs with different prices. 2) To go global by using its RD and capital. 3) Increase efficiency by using new technologies in production. WO- Strategies 1) To develop existing products for different price model. 2) To cope with rising costs in Spain and Portugal by building new plants and stores in emerging markets. 3) To stay in touch with new technologies. Threats-T 1) Exchange rate risk, devaluation of euro in relation to other currencies. 2) Competition from HM, GAP, Benetton act. 3)Economic crisis ST-Strategies 1) To reduce the effect of exchange rate by building plants in countries outside the euro area. 2) Meet competition with advanced designs. 3) Bring new designs in market with lower prices. WT-strategies 1) Overcome weaknesses by making them strengths. 2) Reduce threat of competition by developing flexible product lines. 3) Engage in joint operation with other firms.TOWS Matrix for Zara Marketing Strategy Zara marketing strategy for Albanian market will include the use of targeted print media advertising and direct selling to Tirana and Durres area. The company will also use a website to keep costumers in touch with new designs and to sell products online.  In order to be successful as a new Zara store in Albanian market we have to beef up our relationship with corporate headquarters. Also we have to put our franchise in position to provide the highest quality of clothing in Albania market by bringing new brand and new designs. Our marketing strategy is to communicate this to our customers and to build a good relationship with them. Target Markets The potential customers for Zara are: Albanian costumers of Zara products: Market research suggests that there are approximately 50% of populations which are trended by fashion. All products for our franchise that would be able to handle the quantities of Zaras shipments and are in their target market. Inditex group wholesalers: This market serves as a safety for our import business. By maintaining relationships with Spanish wholesalers we have an alternative market with established distribution channels. As Zara moves in Albanian market need to be more aggressive in order to target this audience. Positioning Zara will position as the high end quality fashion distributor in Albanian market. Zara will only sell the highest quality of designs and recognizing that fashion is a commodity.   The company will leverage their competitive edges to achieve the desired positioning (Inditex group). We have established relationships with Zara, and Inditex group, in order to sustain our competitive edge. Our franchise has received affirmation of the demand for their product in the form of requests from Zara for larger product shipments. Our designs will be superior because of the larger average size of the Zara products 11.000 a year and low price and shipping cost will be less because Albanian market is too close from Spain. Strategies The single objective is to position Zara in our market as the premier in fashion field, and to create customer awareness in connection with designs offered, and to build good relationship to costumers in order to have their loyalty. The message that our store seeks to communicate is that our name is synonymous with the highest quality Zara designs available in Albanian market.   This message will be communicated through a variety of methods.   The first method will be the use of printed sales material.   The material will detail all of the different products that Zara sells. Another method of communication is through the development of strategic relationships with buyers and sellers of our (Zara) products.   As we are aware a nice communicative relationships with our clients is essential for our business.   Our franchise will also use advertisements, in TV, radio, newspapers, magazine and Email to increase brand awareness.    The use of the website will allow different people around Albania to view a lot of information regarding Zaras products in our store, their production methods, and other information. Marketing Mix Marketing mix is comprised of the following approaches to pricing and distribution, advertising and promotion and costumers service. The product can be distributed throughout the Tirana and Durres area. Several different methods will be used for advertising and promotions; we will use the same advertising methods as I meant it above. With regard to promotion we will offer as discount price, rebate Zara credit cards and other methods in order to keep loyal customers and to get new ones. Customer service is our priority in order to build good relationship with them.