Zara Fast Fashion From Savvy Systems - Coursework Example

? Zara: Fast Fashion from Savvy Systems Task: Outline Introduction and Key Issues Present Vision, Mission and Corporate Objectives Situational Analysis Environmental Analysis Industry Analysis Internal Analysis Brief Summary of Current Situation Analysis Introduction and Key Issues The development of this strategic plan comes in the backdrop of numerous external of the company Inditex, and specifically the Zara brand, as a wild success. Numerous analysts have related the success achieved by the company in recent years. BBC in a business article described Zara’s advancement into the global market as beating expectations in each quarter (BBC, 2010). Tiplady described the rising of the company past the former leader in the industry, H&M (Tiplady, 2006). She dramatically expressed the rise as beating off the pants from the leader and everyone else. Fox described it as a global achievement story (Fox, 2011). The company’s innovativeness has been hailed as the spine of the Spanish success story (CNN, 2001). The image of the firm has looked incessantly looked up in the global stage. This is convoyed by a steady elevation of revenue indexes. The company’s size trebled from1996 to 2000, and then jumped from $2.43 billion in 2001 to $13.6 billion in 2007. By August 2008, sales overtook Gap, making Inditex the global leader in apparel retailing (Hall, 2008). The growth of the company has been proped by seven other brands, and Zara is unquestionably the firm’s crown jewel and growth engine, accounting for roughly 2/3 of sales (Murphy, 2008), opening a store a day and entering new markets in 68 countries so far. The chain’s profitability is among the highest in the industry (Sull and Turconi, 2008). The growth of the company is deemed to emanate from three innovating characteristics. All analysis reviews cite short lead times, lower volumes and more styles, as the drivers behind the company’s achievements. Present Vision, Mission and Corporate Objectives Inditex mission is enshrined customer service and the satisfaction of customer needs in fashion. The mission of the company is to give priority on the customer combined with a high degree of vertical integration across all the fashion process. This includes the design, manufacture, logistics and sale. Additionally, the company strives to respond with swiftness to the demands of the market. The company’s visions are to be a part of the customer’s life, achieve a customer’s experience inside its shops and achieve a social action perception. Additionally, the company aims to contribute to the sustainable development of the society and the environment. Situational Analysis The apparel industry is a very dynamic industry. What is in demand today may be junk tomorrow. Unlike other industries, apparel manufacturing is work intensive rather than resource intensive. It is highly subjective to political factors; laws are passed which significantly affect the industry. Other dynamics include changing social trends, market development and global economic trends. Environmental Analysis The environmental analysis utilizes the PEST model. This evaluates the political, economic, social and technological factors affecting the apparel industry (Thompson & Martin 2005, p. 86). The labor-intensive nature of the industry makes it dependent on such factors as employment laws and consumer protection. The employment laws are significantly complicated in developed countries. Regulations within this law which have hit the industry include the minimum wage and health protection laws. Coupled with globalization, this has led to companies shifting their production to developing nations. Investment in PPE has reduced across the industry. Developing countries have in turn opened up their countries in an attempt to boost FDI. There has been an improvement in the nature of international commerce laws which has attracted many companies to offshore production. One of the most devastating economic factors to the industry is demand. In 2007, demand in the apparel industry declined significantly due to the financial crisis. Though the crisis seems over, consumers remain wary. Clients today are likely to use cash or debit cards. This is contrasting to the pre-2007 period in which patrons were more liberal in their spending. Further, consumers want quality at much farer prices. The import/export ratio biased in favor of imports (plunkett research, 2011). The European market faces inundated with goods from China. China has massive firms in the apparel industry with closely incorporated units providing rapid design, manufacturing and logistics. These firms have high vertical integration, and are now breaking the quality barrier that separated them from western apparel houses (Plunkett research, 2011). This poses a threat since they are able to produce at lower costs due to the availability of HR. quality and fare prices meets the consumer orientation in a global scale. The apparel industry is influenced fashion. Fashion changes significantly, and within a short period of time. This presents a challenge to companies to keep in touch with the consumer, and efficiently project the next hit. Wrong projections have sent companies into financial woes. For example, GAP. The question of fashion also brings the question of how much inventory cost companies should seek to keep. Optimistically, there is a swell in the population of the middle globally. This presents prospects for companies to expand and utilize international markets. Another area that is affecting the apparel industry is the advent of internet. Each day, numerous activities are becoming accessible online. Companies are embracing internet marketing to market their wares. Additionally, there are online companies offering marketing research on products. The credibility of this is one question, but it presents a quick and efficient way of getting consumer opinions, especially the youth. However, the most significant in the use of this contrivance is the advent of e-outlets. Consumers can access and buy products online. Accessibility and appeal determine the effectiveness of this tool. More accessible and appealing sites will boost sales. Industry Analysis Prior to the global fiscal crunch, postulates showed expected high growth in the apparel industry. After the crunch, the prospects of growth were revived. However, many companies had suffered numerous losses, with some closing businesses. The industry is very dynamic with companies trying to balance between the concerns of quality, cost and lead time (Fafadia, 2010). However, the growth is not evenly distributed, with most companies in the Europe and America experiencing reduced growth. China has taken a large share of this growth. As globalization advances, numerous companies have shifted their production offshore to developing nations owing to low production costs. European markets have highly evolved, and quality is a main concern, but still customers demand reasonable prices. Companies are, moreover, faced with challenges of large inventories, for example, GAP (Gentry, 2007). This has led companies to opt for lesser orders, however, this are not attractive to offshore manufactures, and forcing companies to resume home production. The natures of the home markets are making companies enlarge globally. Analysis, however, reveal that Zara has achieved a high operating efficiency. Analysis of the major competitors in the industry revealed that Gap, Bentton, H&M and Zara had operating margins of 29.2%, 43.33%, 51.63%, 51.91% respectively. The average was 44.2%. This indicates that companies in the industry require large revenues to be able to cover operating costs (plunkett research, 2008). The higher margin for Zara shows a reduced operating cost, majorly due to low inventory cost and a quick response time. In the utilization of NWC, the most dependent on NWC was Bentton with an index of .29 and the least was Zara at .1. A related index, NWC turnover formula shows a combined index of 21.64 for the three competitors compared to 162.5 for Zara. This show how effective is a dollar in generating revenue, with Zara being the most efficient. Briefly, there is increased competition, and companies are adopting numerous strategies to adapt to the situation. Zara is identifiable with vertical integration and an emphasis on lead time. While fewer companies previously paid attention to this, there is a likely hood of more companies capitalizing on lead time. The concept of lead time has bypassed the emphasis on cost which led to offshore production. Increased adoption of the Zara model of business is expected, further increasing competition. Internal Analysis Zara has a gross margin of 51.9% compared to the average industry margin of 44.20%. the profit margin is at 10.01 percent. This has been lower than other industry players’ due to the reduction in cost of goods sold, about 48 percent. The profitability of the company is hooked on its ability to minimize cost in the supply chain. Zara has continued keeping inventory levels and expenses at a minimum. The company has attained a NWC to sales ratio of 0.01 and NWC turnover of 162.50. This indicates the level of efficiency in the company. Each dollar used in Zara creates more proceeds than any other company in the industry. This is attributable to the quick response strategy which allows the company to match supply to demand within short cycles off time (Vitzthum, 2001). Keeping a low inventory translates having lesser current assets thereby making the company achieve a greater operating efficiency. The PPE ration for Zara is at .38. This ratio shows the reliance of the company on property, factory and equipment. The ratio shows a high level of vertical integration. The large ratio contrasts sharply to the profit margins and to the expectations associated with such ratios. Each dollar in assets earns the company 1.25 dollars in revenues. This is further accompanied by a 12.49% profit per dollar in assets. This efficiency is dependent on the flexibility of the company and response to client requirement. The total debt ratio stands at 0.43. This further indicates efficiency (less that industry average of .46) and a strong financial situation. Brief Summary of Current Situation Analysis From the preceding analysis of the company and the industry, the strengths, opportunities, weaknesses and threats to the company can be identified. The design and reasonable prices offered by the company match the customers’ expectations. The timely delivery has created a good reputation for the company. Further, the efficiency of the company increases the profit margins and also contributes to a strong financial system. Additionally, the segmented supply has contributed to the increased proceeds. However, some factors continue to be hindrances to growth. These include the saturation of the market and overlapping of product designs within the other brands. The centralization of distribution in Spain also limits the lead time. Nevertheless, there are prospects of upward growth through creation of more outlets internationally to capture the increasing middle class. Increase in embracing technology in marketing and retailing will enhance this development. The side-traps to watch in this endeavour include the increase competition, which might eat into sale volumes. Others include the interests and demands of customers. References Tiplady, R 2006, “Zara: Taking the Lead in Fast Fashion”, Business Week. Surowiecki, J 2000, “The Most Devastating Retailer in the World”, The New Yorker, Sept. 18. CNN 2001 “Zara, a Spanish success story”, viewed 12 January 2012, BBC 2010. Zara profits jump on strong global sales, viewed 12 January 2012, . Fox, K 2011, zara a success story, Graziado business review, viewed 12 January 2012, . Fafadia, P 2010, Global apparel sourcing: what’s the preference-cost, quality or lead time? , viewed 12 January 2012, http://www.fibre2fashion.com/industry-article/29/2863/global-apparel-sourcing-whats-the-preference-cost-quality-or-lead-time1.asp Pluncket, J 2008, Plunkett’s Apparel & Textiles Industry Almanac, Plunkett Research, Texas. Thompson, J & Martin, F 2005, Strategic Management: awareness and change, Cengage Learning Hampshire. Vitzthum, C., (2001).“Zara's Success Lies in Low-Cost Lines and a Rapid Turnover of Collections”, The Wall Street Journal, May 18 Gentry, C. (2007), “Euro Fashion Stores Edge Past US Counterparts”, Chain Store Age. Read More