Analysis of Zara

In the case of ZARA: Fast Fashion I noticed a pattern that highlights different schools of strategy in different aspects of their processes. Zara seemed to have employed the design school of strategy to some extent, their focus on constant variation, expansion of successful product items and continued in-season development allowed them to adapt to design trends in the market. I believe that Zara’s use of a high frequency information system (customer preferences, sales data, sales potential etc.) to adapt to trends and create new designs as evidence of the learning school of strategy formation. The dominant school of strategy seen in the case however, is that of the positioning school. The facts presented in the case and additional research provides numerous arguments to support this position.

According to Mintzberg (1998) the positioning school recommends that companies seek desirable positions in the economic marketplace that can be defended against competitors.  The positioning concept also suggests that this can be done with the use of analytical frameworks for strategic decision making which ultimately leads to competitive advantage. We see evidence of this in the case as Zara utilizes various strategies to better position the company in the industry, for instance their focus on quick merchandise turnover, rapid updates of design and less stock of merchandise, expansion etc. These shows evidence of Porters generic strategies, value chain and five force model and Barney's (1991) VRIN framework being used, all tools utilized in the positioning school.

Of the four competitors outlined in the case, Benetton and Gap place at relatively less fashionable and higher price, while Zara and H&M is more fashionable and price lower making Zara a low cost producer.  Zara is also the largest and most internationalized of Inditex’s chains, with 507 stores in countries around the world. Major investments in manufacturing logistics and IT, including their just in time system, these are all factors that would serve to lowered their overall operating costs. This is an indication of the Cost Leadership strategy of Porter’s generic strategies outlined in the third wave of the positioning school. According to Mintzberg (1988), this strategy aims at being the low-cost producer in an industry. The cost leadership strategy is realized through gaining experience, investing in large scale production facilities, using economies of scale, and carefully monitoring overall operating costs.

Zara tries to capture rapid change of customer’s demand and fulfilling it in timely manner. The core competency that enables Zara to do this lies in their highly responsive value chain. This value chain is built from constant learning and collaboration of different part within organization and it becomes a distinctive value. Zara’s value chain is designed to close the information gap between the upstream chain and the end customers. It relies heavily on the information exchange throughout the value chain. According to Porter (2001), information technology (which is employed by ZARA) has significant impact in optimizing linkage of separate yet interdependent activities within the value chain. I believe that being able to strategically utilize IT like Zara did enhance their value chain enabling competitive advantage and sustainability.

We can deduce that Porter’s model of competitive analysis was also utilized by Zara as a strategy to determine their position in the industry. This would explain why they adopted particular strategies to survive competition in the long run. Threat of new entrance for Zara is low as Marketing, production, and distribution costs are spread over large production units which lower overall production costs. Small players would find this extremely difficult to achieve, making it difficult for them to compete, especially when considering the huge initial investments required to enter the fast fashion industry. The bargaining power of suppliers would be low because Zara received fabric from their own supplier also; there are a lot of suppliers in the apparel industry. The bargaining power of buyers can be seen as moderate since customers’ switching costs are low and there is a lack of high brand loyalty in the fast fashion industry, customers can be very flexible in choosing products across brands. The threat of substitute products is high. The substitute sources for fast fashion apparel retailers can be competitors such as The Gap, Benetton or high-end luxury retailers, discount retailers, and department stores. This high availability of substitute products poses a huge threat for fast fashion retailers.  Rivalry among competitors is intense in the fast fashion apparel industry. There are a large number of global apparel retailers adopting the fast-fashion model (e. g. H&M etc).

Applying Barney's (1991) VRIN framework can determine if Zara resource is a source of sustainable competitive advantage. To serve as a basis for sustainable competitive advantage, Zara’s products must be --

• valuable – Zara’s products are a source of greater value, in terms of relative costs and benefits, than similar products in competing stores. Instead of relying on third parties, the company manages all design, warehousing, distribution and logistics function itself. Doing that they are more flexible and faster than competitors and this is very valuable in apparel industry. Along with the vertical integration which also reduces operating costs it has excellent organizational structure and values that all employees must respect. The reward is great autonomy that store managers have. Zara carefully follows changes in consumer tastes and due to flexibility and speed it can adapt. 
• rare – Their products are rare in the sense that it is scarce relative to demand. Zara’s designers create approximately 40,000 new designs annually, from which 10,000 are selected for production. This creates a sense of exclusivity by displaying a limited number of items in store and removing them often after 2 or 3 weeks. It gives customers a sense of scarcity.
• inimitable – if competitors were to copy Zara’s  business model, they could, but only in the very  long run. It would take a few years to establish vertical integration model with that kind of supply chain and even more to create organizational structure (culture) that Zara has. By that time Zara would have expanded even further. We should also take into consideration enormous costs that those firms would incur in order to copythe model, which are often impossible for firms to incur.
• nonsubstitutable -- other different types of resources cannot be functional substitutes

This analysis shows that Zara has a high possibility of maintaining their competitive advantage.

From my assessment, I believe that the positioning approach to strategy is indeed effective. From the statistics presented in the case we can see steady increase in the organization’s profit with each passing year. My major concern with this positioning strategy adopted by Zara is that the message put out by this school is not to get out there and learn, but to crunch the numbers in a detached manner (Mintzberg 1988). Although I saw no evidence of this weaknesses in the case, I would recommend that LVMH continue employing some aspects of the learning school which should provide the firm with even superior growth potential as it allows for emergent strategies (Sirén, C., & Kohtamäki, M. (2016). According to Mintzberg (1998), this would lead to continuous learning as it recognizes the organization’s ability to take action, learn and adapt to change.

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