Zara Case Analysis

Claire Steffen

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Zara Case Analysis

        Zara is an international company, but it’s biggest issue is international expansion. There are two challenges to this big issue, which are that it is difficult to satisfy people’s different tastes and that the cost is high. It is difficult to satisfy people’s different taste because Zara has to collect more trends and fashion from more countries for the designing and it is time-consuming. The cost is high because of in-house production and because Zara has to import resources. Fixing both of these smaller issues can fix Zara’s bigger issue and can lead to an increased profitability.

        Zara expands its market to more than 56 countries and districts of the world, with more than 2,000 stores. International sales accounted for around 69% of Zara’s total turnover in 2005. Zara has expanded so rapidly that it can be hard to keep stabilized, while increasing profitability. Zara’s core competitiveness is that they have an integrated production which ensures the fastest response to the newest fashion and focuses mainly on people’s requirement. Right now Zara’s integrated production goes through collecting information, design, production, and distribution. This means a high level of control and a quick response, but a high cost. The internationalization of Zara seems to follow the classic “stage model” by firstly entering geographically or culturally close markets before taking opportunities in more distant markets. This global expansion was triggered by both push and pull factors. Compared with the competition, Zara has three distinctions: vertical integration to achieve a faster turnaround time; using franchise and joint ventures for rapid expansion; and using its store as the main tool for promotion with little spend on advertising. H&M is considered Inditex’s closest competitor and is similar in the way that they both sell lower priced fashion. But, H&M does something different where they outsource all their production which implies lead times that are good by industry standards, but are longer than Zara’s. Another thing about H&M is that the company was quicker to internationalize, being 10 years earlier than Inditex. Hennes and Mauritz has a more focused approach entering one country at a time and building a distribution center in each one. Zara has a more extensive and quick international expansion strategy. In fiscal 2001, Inditex had sales of $3.250 Billion and a net income of 340 Million compared to H&M with $4.269 Billion in sales and $410 Million in net income. This shows that H&M is doing something right and Zara is close, but just not there yet. This also shows that H&M’s revenue is larger meaning that they have been able to expand in a more beneficial way.