Zara Casestudy

1 January 2017

The international expansion of Zara started with the opening of a store in Portugal in 1988. Through establishment in Portugal Zara acquired international market experience and knowledge and realized that it would have to adjust its business model to suit the new international markets. International sales accounted for 69 percent of its total turnover in 2005, with Europe being its largest market by far. The limited market growth opportunity at home was the main influence on Zara’s decision to expand internationally.

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In addition to the maturity of market, there was a change in Spanish consumer behavior over this period, with increased spending in their spare time on travelling and education, and less on clothes. The key pull factors that explain the internationalization of Zara include Spain’s entry into the European Union in 1986, the globalization of the economy and thus potential economies of scale, the homogenization of consumption patterns across countries. Answer 2: While Zara controls its entire production chain, Gap Inc and H&M outsource all their production.

Zara’s vertical integration enables the firm to have a faster turnaround than its competitors. Product and geographic diversification has been used by the three clothing brands as their main directions for growth. Gap Inc and H&M have also developed new channels of sale. The development of electronic commerce sets Gap Inc and H&M apart from Zara which does not offer its products online. Gap Inc has focused mainly on the home market, international sales accounting for merely 15 percent of its turnover in 2005. H&M’s expansion strategy is characterized by developing and reinforcing its business system in each country entered.

Zara has a wider international presence in comparison to both Gap and H&M, having become a global company in a shorter period of time. The international expansion of Gap and H&M has been largely organic. In contrast, Zara has used franchising and joint ventures as entry strategies. The expansion pattern of all three brands is marked by the physical and cultural proximity of the international markets. Advertising is a strong communication tool for both Gap Inc and H&M, while Zara hardly advertises. All three make some adjustments to their product offerings to satisfy the needs of local consumers.

The location of the store is a key principle of the H&M and Zara business models. Last but not least, what distinguishes Zara from its competitors is the feedback that Zara’s managers get from the customers at the point of sale in the stores about new clothing that they are interested in. Zara controls most of the steps on the supply chain makes it more competitive also. Answer 3: Over the past 30 years, Inditex has built a portfolio of brands through brand acquisition and brand development by using a multi-brand strategy and an extension strategy. In line with the multi-brand development strategy, Zara was created in 1975.

The extension strategy was applied to Zara Home. Inditex used the name of the existing Zara brand to take advantage of the transfer of associations between the parent brand and the extended one, Zara Home. Inditex’s multi-brand strategy has helped it broaden its customer base, for example through the Bershka fascia, which has successfully attracted a younger generation. 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. All these brands were built within the domestic market and then launched for international markets.

This multi-brand portfolio has allowed Inditex to target different segments more effectively. However, the cost of maintaining several brands and the risk of cannibalization are the major drawbacks of this strategy. Inditex tries to tackle cannibalization by differentiating the brands mainly through the product, target markets, store presentation and retail image. Answer 4: Cannibalization could be a vital risk for the development of Zara. Its extensive location strategy involves putting multiple Zara stores that carry the same merchandise in the same cities.

That means Zara is trying to sell the same exact merchandise to the same people that reside in that city. For example, the two hundred and twenty-five Zara stores in Spain can cannibalize sales from each other especially if multiple locations are within the same city. Also, the other 544 Inditex stores located in Spain can cannibalize Zara’s sales since the majority of the chains have a similar target market to Zara. And nowadays, Inditex has successfully tackled the risk of cannibalization by differentiating the brands mainly through the product, target markets (customer groups and countries), store presentation and retail image.

Answer 5: This is a co-operative strategy in which facilities and know-how of the local company are combined with the international fashion expertise of Zara. This mode is especially used in large, competitive markets where it is difficult to acquire property to set up retail outlets or where there are other kinds of obstacles that require co-operation with a local company. The day Inditex’s Indian joint venture with Tata Group’s retail arm Trent opened the first Zara outlet; it sold apparel worth a record 90 lakh, according to industry estimates. The 18,000 sqft shop at Select Citywalk sells 5-6-crore clothes a month.

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