Zara: Fast Fashion from Savvy Systems
They are currently operating in 68 countries, globally, and have entered in new markets, due to the development of international enterprises, a consequence of reduced barriers for trading due to developments in information technology. Ezra is a Spanish firm founded by Mr.. Manioc Ortega. At first, Ezra is a subsidy company that falls under the parent company of Inedited Industrial De Dissemination, which is a futuristic central command of game – changing clothes and also holds eight different brands.
Sara’s business strategy is quite different than their competitors, for example, their expenditure on racketing is very little as compared to their competitors, such as H;M, GAP, Next, Top Shop, Unique etc. , namely H;M and GAP. However, like their competitors, they too outsource their production to low cost industries, such as China, India, Pakistan, Bangladesh, but only for those products that have ‘long shelf life’, which will be discussed later in the report.
All other manufacturing takes place in Spain, therefore, making the company highly vertically integrated which allows them to adapt to their product strategy easily and efficiently (London Metropolitan University, 2011). Ezra, as a business has grown rapidly between 1996 and 2000. As the popularity of the firm grew in the market, it gave an opportunity to establish its brand, therefore boosting their sales from $2. 43 billion in 2001 to $13. 6 billion by the end of 2007, resulting in a 26% growth in the last 5 years.
Gradually, the firm’s sales had Jumped ahead, leaving behind the sales of one of the major competitors, GAP, in the market, thus making the parent company of Ezra, Inedited, the leading fashion retailer. As mentioned before, Inedited holds eight other brands besides Ezra, forever, Ezra is accountable for making two – thirds of the sales to the parent company itself leaving out the other eight companies Inedited holds. Due to this, the chain’s profitability is the highest in the industry, hence the market share of Ezra consequently is high, compared to the other competitors.
Analysts have described Ezra as “AIRMAN at moderate prices” because if their recent success. A success that can be attributed to their below the line marketing strategy by introducing new fashion twice a week (London Metropolitan University, 2001). The main key issues that his report would be examining are the internationalization of Ezra, market selection, entry strategies, and international marketing strategies (Lopez ; Fan, 2009). 2. Present Vision, Mission, and Corporate Objectives: Ezra is devoted to accomplish consistent improvement in the system of providing products and services to the customers through on time delivery and enhancing customer satisfaction by means of quality and value as it is stated in the case study through the use of technology, such as Pads (Personal Digital Assistants), to have a quick, efficient ; thorough market research (Ezra, 2010).
Ezra pledges to continuously innovate its operations to remain competitive in the fashion industry, promising to provide its customers with new affordable fashionable the welfare of environment by introducing CEO-friendly management model in order to reduce energy consumption by 20 % (Ezra, 2010). Ezra aims to maintain the high profits in the future. As the study shows that Ezra boosted its profit in 2010 to January 2011 by 32%(lengthened. Co. K) to gain more market share and continues to be expanding in many parts of the world, targeting Asia, where thriving economies of China and India have been Sara’s main focus as it remises them with high profit margins (Thompson, 2011). 3. 0 Situational Analysis: Situational Analysis is a methodical assessment of the PEST (Political, Economic, Social, and Technological) and the SOOT (Strengths, Weakness, Opportunities, and Threats) of an organization. These analysis help to identify the internal and external forces that could affect the firm’s performance and their strategic choice (Oxford Dictionary of Business and Management, 2006).
In order to analyses the questions below, the PEST and SOOT analysis are the finest tools available to help the firm answer them. 4. Environmental Analysis: 4. 2. 1 PESTLE: The PESTLE analysis is used for all the activities that take place outside the business, in which the firm has no control over. The term PESTLE stands for Political, Economic, Social, Technological, Legal, and Environment. These factors help the firm identify problems and threats affecting them, allowing them to plan accordingly to these external threats by optimizing themselves in the given situation.
Political: Political factors have a significant impact on the organization’s operations, the purchasing power of consumers and other companies. An organization must be able to consider issues such as how stable is the political environment, and what government regulations influence the policies that regulate or tax the firm, what is the government’s position on the ethics of marketing, what global changes that occur, data protection, health and safety, and environment policy. (Please refer to appendix…. ) Economic: The economic factors that could affect the firm economically include mainly interests’ rates and exchange rates.
It is evident that the company can be more vulnerable to financial crisis. However, the weakening of the Euro has resulted in fall in profits in Europe, though compensated from abroad with the strengthening dollar (Morris, 2011). This had also boosted the Euro in relation to the dollar. Therefore, profit earned is dependent on the country in which Ezra operates, as respective exchange rates affects the cost of product, for example, there is an increase of prices of 40% in the US market (London Metropolitan University, 2011). Please refer to appendix…. ) Social: Social and Cultural factors is an important factor in the fashion retail industry, as the emend and tastes of a product could differ over a period of time. According to situation of market saturation (Thompson & Martin, 2005). However, this is not alien concept as there are always change in products thus a regular turnover of shelves (Christopher, et al. , 2009). (Please refer to appendix…. ) Technological: According to the case study, Ezra is well advanced in its technology.
As discussed in the previous section (2. 0 – Present Vision, Mission, and Cooperate Objectives), Sara’s sales assistants have been equipped with Pads (Personal Digital Assistants), which lows them to do an instantaneous market research on the prospective clothes that Ezra could sell in their stores by using Pads, whereby the information is collected and sent to their tills which is interlinked with the main systems at their headquarters in Spain (London Metropolitan University, 2011).
Ezra is a highly vertical integrated organization it reduces the amount of the “bullwhip effect” (Somewhat ; Noon, 2006), which stops the amount of fluctuation of the final demand, as Ezra sends out the back up of the supply chain (Somewhat ; Noon, 2006). (Please refer to appendix…. Legal: An important legal factor of Ezra is, plagiarism, as the style of clothes can be easily replicated in the fast fashion industry and sold in the black markets as well as in stores of the competitors (Caudal ; Scarabs, 2010).
Moreover, global expansions for businesses have many problems in relation to legal security and political stability of a country (Caudal ; Scarabs, 2010). (Please refer to appendix…. ) Environmental: In 2007 Manioc Ortega decided to take a conscious environmental path by using renewable energy systems installed in stores resulting in a reduction of 20%, bio readable plastic bags (90% of the bag is made of paper), which are given out to customers on the purchase of goods (Ezra, 2010).
Furthermore, according to research, Ezra have begun to use organic cotton and also use ecological fabrics in their products (Ezra, 2010). Its organic cotton is 100% pure cotton, with no additional chemicals or pesticides, as for footwear, Ezra does not use any non – biodegradable materials (Ezra, 2010). Ezra has been reducing waste products, but has been recycling them. Such waste products which Ezra recycle are plastic hangers, security tags, cardboard and plastic (Ezra, 2010).
Additionally, the logistic side of Ezra; the trucks that are used to transport goods of 200 million items a year, use 5% of bodiless fuel, which helps and eliminates CA emissions by 500 tons (Ezra, 2010). Furthermore, Ezra stores do not sacrifice an animal to make money. As stated by Ezra themselves, “All products of animal origin sold in our shops, including fur and leather, come exclusively from animals raised on food farms and under no circumstances come from animals sacrificed exclusively for the sale of their hide” (Ezra, 2010). (Please refer to appendix…. ) 3. 1. 2 Market Structures:
Since research shows that Sara’s barriers of entry to economies of scale is high and it differs its product with the brand name, compare to its competitors; it can be concluded that Sara’s market structure is more of an Oligopolies structure, rather oligopolies structures, tend to expect profits to be higher in the long run (Impeacher, 2009). As BBC have mentioned in the report that, “… Inedited made a net profit of ?301 million ($360 million; Multimillion) in the first three months of 2010, up from ?184 million for the same quarter of last year” (BBC NEWS, 2010). (Please refer to appendix…. . 2 Industrial Analysis: 4. 3. 2 Competitive Forces: Competitive Rivalry within an Industry: Currently there are not many fast fashion shops like Ezra around this exclusivity allows Ezra to profit from the public without spending large sums on advertisement in order to gain market share which can be evident from the case study that Ezra is undergoing one of the fastest global expansions the fashion world has ever seen. Moreover, Ezra has only few numbers of competitors as given in the case study its main competitors are GAP, H;M, and Banana republic (London Metropolitan University, 2011).
Ezra has competitive advantage unlike its competitors due to its vertical integration of its operations. According to the case study Sara’s revenue have increased profusely from $2. 43 billion in 2001 to $13. 6 billion in 2007 this relevant an extravagant strength Ezra in the industry (Lopez & Fan, 2009). Furthermore, in for last few years Ezra has been leading it rivals in growth, in 2010 H&M operating profit raised by 7. 4% as compare to the operating profit of 2009 (Somewhat & Noon, 2006) whereas, Top Shop increased its operating profit by 2. 1% (BBC NEWS, 2010) but Ezra generated highest of these two by 8. (Inedited, 2010). Threats of New Entrants: Profitability attracts potential individuals with investment to enter the market. As mentioned in the case study: Ezra is undergoing one of the fastest global expansions the fashion industry has ever seen. It is stated in Independent that in one year (2010) Ezra opened 437 stores in 45 countries making it difficult for the new entrants to enter the market as it attracted the vast quantity of customers other words, above all it would be pretty difficult to gather all the workforce needed in a short period of time (London Metropolitan University, 2011).
Threats of Substitutes: The fashion industry is largely unpredictable with many competitors, who want to project the next big trend, nevertheless, Ezra still have a distinctive position in the market by innovating and creating most up-to-dated designs which renders Ezra with the competitive advantage in the market (Lopez & Fan, 2009). Bargaining Power of Suppliers: Ezra is dominant over its suppliers: it makes 40% of its own fabric and buys the most of its dyes from its subsidiaries (London Metropolitan University, 2011) (Somewhat & Noon, 2006).
Bargaining Power of Buyers: Like strong supply power, Ezra has strong buyer power as well, as given in the case study that Ezra manufactures products for short run, which helps it offer more exclusive design to its customers in short period than its rivals (London Metropolitan University, 2011). Offering latest designs in short period helps Ezra attracting more the customer buy the products on fixed price hence, high revenues, and limited production encourages customers to visit Ezra stores at higher frequency (London Metropolitan University, 2011).
One customer visits a store 17 times as compare to 3 visits in the rivals’ stores (Stepsisters, 2010). . 3. 3 Strategic Groups: According to research, Porter had suggested that “A strategic group is the group of the firms in an industry following the same or a similar strategy along the strategic dimensions” (Porter, 1980). The model below illustrates the position of each firm in the sane industry, and to which strategic group they establish in.
However, Ezra has been in the 14th place in the fashion industry, providing clothing and footwear in the I-J (Somewhat ; Noon, 2006). Sara’s target market is the middle class market (class B), of which they provide its customers a range of high laity, latest fashion, at low prices products (London Metropolitan University, 2011). (Please refer to appendix…. ) 3. 2. Key Factors for Success: Following are the key success factors of Ezra, * Short Response Time * Reducing Risks * Leadership in Numbers Each of above is discussed as follows: Short Response Time / Limited Runs: keeping up with fashion: Buying low, selling high; buying on credit and selling on cash is the reflection of profit: for example, that if we buy a product for EX and it for EYE as long as the operating profits costs are covered and lower than gross margin normally business is in profit.
However, fashion industry is highly perishable and are to very large extent they depend on the season therefore, gross margin makes no difference if the products are not sold, so gross margin makes no difference if the product are out of fashioned hence, unable to be sold or on lower price: it be better so sale more at 30% margin of OHIO rather than selling low quality on 70% margin on Ole sales.
There conventional formula of profit (profit = sales – cost) does not work in fashion industry but it depends on the quantity sold rather than in stock left UN sold as fashion clothing is like a loaf of bread first ay it looks fresh and has so many customers on the second day it starts to look stale customers still buy it but on reduced price and therefore low profit margin for the business so is the case with fashion industry, creating new designs and bringing them to the market attracts more customers leading to the high profitability. According to Sara’s CEO, Jose Maria Costello, “This business is all about reducing response time.
In fashion, stock is like food, it goes bad quickly’. Ezra is flagship brand for Inedited group and accounted as 80% sale of Inedited group focuses on the here wining formulae to bake its fashion firstly it produces for limited runs / short lead time therefore more creative designs in the market, secondly lower quantities prevents from unsold stock and thirdly Ezra yields more styles demanded by the Catching up latest designs helps Ezra to sell most of it products in full price rather than reduced prices unlike its competitors (Garcia, 2010).
Reducing Risk: By reducing the amount of quantity process Ezra not only pay less attention to only one product but also creates artificial scarcity. As with all fashionable commodities less the availability of a product, more desirable it becomes. When Ezra opened its first store in Regent street, customers were browsing a lot but not shopping, they were thinking of coming back and purchase the good on sale price, then a store assistant explained that styles were changed every week, and if the any style liked by the customer would not most probably available later.
Later this store became one of the profitable ones. Moreover, the added benefit producing lower quantity is that if one style is not well liked by the customers there is not much display in season – end sales. Only 18% of Ezra products are offered on, nearly half the amount of competitor. Leadership in Number: Ezra is not quantity oriented rather it mainly focuses on more styles: if one style is sold out quickly, another new style is in queue to be launched hence more choice available in Ezra stores for customers than its rivals roughly 12,000 styles it introduces every year.