Zara is a Spanish clothing and accessory retailer founded in 1975. The retailing store is a private limited fast fashion company, they offer modest priced, top trend apparel. The emergence of global fashion has transformed the way fashion is perceived in the contemporary world (Nobukaza & John 2003) In this essay, I will investigate how globalisation impacted Zara’s growth.
To continue, requires definition of terms. A private limited company is a type of privately held business entity. This type of business entity limits owner liability to their shares, limits the number of shareholders and restricts shareholders from publicly trading shares. Globalisation is the integration of products, technology, information and jobs across national borders and cultures (Carol M Kopp 2019). Stakeholder in general is a person with an interest or concern about a business; within the essay are a group or individual who can affect and be affected by the performance of Zara.
The strategy ZARA’s success is in its production speed – four weeks for a new fashion idea to hit the retail stores, two weeks for modification of current models obtaining advice from store managers and presenting to head office, thus allowing them to improve their ideas. The stakeholders of ZARA are the investors, owners, customers, employees, store managers, distributors, manufacturers, shipping company, social groups, governments. Using the Mendelow stakeholder matrix to analyze, the stakeholders could be categorized into four distinct groups, 1. Key players 2. Keep satisfied 3. Keep informed 4. low power and interest. High power and high interest are such as customers, owners. These groups are key players and would determine the company’s outcome giving them high power and interest status. Groups that would need to be kept satisfied are the ones that have high power but low interest, these are the governments, store managers, shipping companies, distributors, manufactures and investors, as they play a key role in the company, but might not be directly interested in products, giving them high power with low interest. Groups that need to be kept informed are groups such as social groups including activists. These groups would be keeping them informed as such they don’t target the company and slander, giving them a low power high interest. Groups at minimal effort are the employees, especially store employees as they could be easily replaced giving low power low interest groups.
The globalisation of marketing from customer wants and taste in fashion due to existence of global customers (Mckinsey Company 2019), leads to transferable marketing between different countries. mass marketing of largely the same products between different countries are used. Zara has used such opportunity to grow within the market. The use of social media marketing is a new phenomenon. Judging by how Zara has given consumers a key player role. By such they have adapted with being one of the first to use instagram to promote their products. This is evident by their revenue increase by adapting to the changing global consumers. From 1,159 million euros in 2014, when instagram was created, to 16,620 millions in 2017, shows in three years, there is a significant increase in revenue (inditex 2019). Another change that Zara has taken advantage of by using both social media marketing, and brand philosophy is the adoption of fast fashion. Their products often target the consumer mindset of now or never (McKinsey&company) which plays into their strength. This proves Zara has the ability to adapt to changing global markets. Changes specifically in forecasted consumer wants, inputted by the consumer directly into their open loop design chain of information. Although this trend has played into Zara’s strength and is an opportunity that Zara has exploited; It also shows the weakness of not fully part of high street fashion. With threats such as supreme, off-white to disrupt the market. In this case, globalisation of market want, taste and trends have benefited and helped grow the company.
The globalisation of supply chains, has helped Zara’s growth. This semi-globalised network has helped Zara become such a large brand now. Zara firstly has a centralized distribution center in Arteixo, Spain, where products arrive at a central hub then redistributed: a hub and spoke model instead of point to point. This allows for the use of the fast fashion strategy, and allows them to keep inventory low and speed up the change in rotations, where new products can hit the shelf within one month. This method in the perspective of the store manager would increase their liability, potentially not a great thing as they have to manage what goes into the feedback loop. This vertical integration of design and production, give them turnaround time to adapt to market changes. Zara has not followed the globalization cost driver to offshore their manufacturing facilities. Although the manufacturing aspect of the supply chain is vertically integrated. In the perspective of owners and investors, this might financially be a burden, but it allows the company to be more flexible, and better for overall growth. This plays in as a strength of the company as it allows them to adapt to the changing global market. With the cost of air shipping decreasing in price, this allows them to keep up and it’s using this opportunity to keep the business afloat. A threat would be the increase of oil prices, which would halt the business, like the 70s oil crisis that the US was hit with. This also highlights a weakness in it’s distribution, Zara attempts to solve the issue with secondary hubs near secondary manufacturing plants in south america. Paired with firm control from the headquarters, Zara does not respond to global changes such as demand for plus sized or vanity sizes to fit other markets, but tightly follows market trends.
Zara is also successful in multinational trade because of the competitors. Using Ansoff Matrix for growth strategies, Zara has taken time to consider their market directions. They focus on product development, market development diversification. With Zara being in 94 countries, and online retailing to 202 countries, compared to H&M’s 71 and 49 respectively. This High risk approach allows Zara to grow globally rapidly compared to H&M. Zara has minimized the risk of diversifying and market development by following closely to trends, which is a strength. Although the weakness comes from not being able to fully exploit by not creating vanity sizes. Opportunistically Zara is riding on the strengthening economy around the world to establish itself but their sales is dictated by the global economic health.
Recommendations for Zara would be to add an offshore high value manufacturing plant, this is not only to cut down shipping cost, but to address a weakness in the supply chain. Another recommendation is to increase product development when considering expansion as they could increase in sizes to attract other markets.
In conclusion, Zara’s success comes from the integration with different countries as well as growth speed. By analysing their strength, weakness, opportunities and threats, along with effects of globalisation, we can see how Zara manages risk, adapts and changes with market trends. Overall, Zara has used globalization to grow, but also threatens the changing market, by keeping products newly designed, allows the company to respond to changes with ease.
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