1-Why does Zara’s approach seems so irrational?
The Business approach of Zara seems irrational due to some irrational strategies as these strategies are beyond business objectives. Instead of focusing on high-quality products in the market, the company is investing in advertisements and promotions to enhance the visibility of sales. The expensive promotional business approach is not pertinent because the company cannot sustain the business without quality and differentiation for a long period. Also, the company has depicted the big blunder in the market, as the management considered the high-cost labor market. Also, the high cost of labor increased the prices of products, which has made its products expensive for the customers. It is entirely irrational, due to going beyond the marketing and business directions. It is a fact that Zara is looking to enhance the production process, and in the result, it increases the production cost. Apparently, it is imperative for the company to keep the cost of the production low even when maximizing the process. Speeding up the process seems irrational because it does not justify intention of the company to stay successful in the competitive market. Due to sales and growth, these approaches have looked good for a while, but as far as the competition and new trends are concerned, there is a need of change in the approach to gain the output, which would be relevant (Loeb, 2013).
2-Assess the key external risk factors that ultimately translate into financial risk in the apparel industry.
There are different external risk factors for Zara Company, which are in the limelight. For Instance, due to spikes in an economy or sluggish conditions, the bargaining power of the people can be diminished, and as a result, the sales process can be decreased. The slow growth rate of the company is a massive threat due to these spikes and people behavior. The low-income people cannot buy high process products of the company, which is a substantial financial risk for the company. Also, this has been revealed the cultural differences in the apparel industry that lack of cultural integration in the markets may not lead towards the efficient positioning process, and the company, as a result, may lose the profitability. When conducting the diversification process, the company is facing different issues due to the political instability. For Instance, in Asian countries, it seems the unstable political system, which hit the company’s financial objectives in this particular region very hard. In the apparel industry, these risks contain the surge. Of Course, the company has to make and maintain the appropriate strategy to mitigate all these external risks and express the long-term sustainability (Pattani, 2016).
3-Discuss how the industry deals with the risk factors and how this translates into a business model.
Concerning different factors, both, internal and external, in the industry, it has been revealed that the companies in this industry are looking forward to boosting the visibility of planning, production, and marketing by adopting efficient and productive business strategies. Being a good company in the industry, it is vital for the companies to create the risk mitigation strategies, and these are triggered by the planning, production, and marketing. For Instance, to mitigate the financial risk, the company may contain the low-cost business model, which is in the best interest of the business sustainability regarding finance and growth. Moreover, the production process has also been linked with the cultural integration. It is an external risk in the market where the change in the behavior of the customers can hit both, production and marketing. Thus, deriving the insights from this case, the low-cost business model is the best option for the company. Dealing with risk needs some improvisation and change with the passage of the time, as the mitigation strategies cannot be the same (Schlossberg, 2015).
4-What is the key business metrics companies must manage to mitigate these risks?
Key business metrics have been developed by the companies in the apparel industry. For Instance, top matrices are quality, fashion, sustainability, and price. The primary intention of the companies in this competitive market is to contain the highest quality and differentiated fashion prices in the low cost as compared to the other competitors and substitutes. It is due to the competition that the companies can emerge in an efficient and lucrative manner. For example, to mitigate the risks, the best option for the companies to exist through new fashion products for the customer. Accordingly, the consideration of the concentrated suppliers to have the newest and the highest-quality raw material is vital to the results. Regarding the pricing strategy, the management can link with the activity-based costing in the industry. Furthermore, the production process must consist some modern techniques. The modern approach is accelerating the inventory and delivery to enable the right thing at the right time to meet the needs of the customers in the competitive market. These critical business metrics are facilitating the management of the firms to mitigate the risks, and role of contingency planning when dealing with these metrics to alleviate the risks (Baker, 2016).
5-Discuss how Zara (versus Gap) manages these metrics.
Zara has to manage these business risks through an appropriate business model. For this purpose or to justify the objective in the apparel industry, the fast fashion approach has been developed. It is an appropriate business model for the company regarding the change, and the customer needs the fast fashion approach is assisting the company to come up with some new products for the customers in every season. Coming up with something new and unique for the customers is the best approach to manage these business metrics. For Instance, production, being a metric, may contain the flexibility to make the changes and produce the outputs according to the expectations. Therefore, to change the production process and accelerate the inventory system in the company, the vertical integration is also critical in this whole process. Through boosting the real-time sales, the financial risk can be diminished. Notably, in the peak season, increased sales are the significant source of the financial gains. Zara, to control and manage the business metric should implement this approach to gain the advantage (Pattani, 2016).
6-Define the business Zara is in and draw the company’s business model
Zara is using differentiated and useful business model, which has made it a fast Spanish retailer of fashion clothes and double the earnings in the competitive market. Top five Cs of the business model are coordination, commerce, community, content, and communication. First, describing the coordination, pricing, production, marketing, and planning are integrated. In other words, an integrated system is the main aspects of this business model. Second, the company management utilizes its store’s operations and depict the discounted products for the customers. It is the best way to accelerate the revenues and probability. The third aspect is concentrated on the community and different customer segments such as women, men, and girl along with different fashion wearable. Fourth, the content regarding the products is quite informative for the target customer. The management makes the minds of the customers through a comprehensive content and lets them make decisions. At last, the fifth aspect of the business model is the integrated communication process. Social media channels and different fashion show is big platforms for the company to communicate with the customers. On social media, the communication process has been enhanced through acquiring the feedback from the customers (Loeb, 2013).
Interesting Things
Zara’s long-term consideration is interesting for me. Marketing, production, and planning are three different aspects, which are interlinked in this case. Based on customer data, this Spanish fashion retailer looks to come up with something new and unique for the customers. In result, the customers of this fashion retail chain seem more assertive and responsive. Despite observing many challenges, it is the most interesting thing that in have observed in Zara’s case.
Reference
Baker:, S. (2016, November 22). Zara’s Recipe for Success: More Data, Fewer Bosses. Retrieved from https://www.bloomberg.com/news/articles/2016-11-23/zara-s-recipe-for-success-more-data-fewer-bosses
Loeb, W. (2013, October 14). Zara’s Secret To Success: The New Science Of Retailing. Retrieved from https://www.forbes.com/sites/walterloeb/2013/10/14/zaras-secret-to-success-the-new-science-of-retailing-a-must-read/#2b9316ae534f
Pattani, A. (2016, September 16). 5 success tips from a multibillionaire who went from rags to riches. Retrieved from https://www.cnbc.com/2016/09/16/5-secrets-for-success-from-zara-billionaire-amancio-ortega.html
Schlossberg, M. (2015, December 19). This Spanish retailer with the ‘best business model’ in apparel is scaring Gap, Abecrombie & Fitch, and J. Crew. Retrieved from http://www.businessinsider.com/zara-has-the-best-business-model-2015-12
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