Porters Analysis of Zara
MGT136- Management Themes and Perspectives
Strategy
MGT136-1
Provide an analysis of an organisation explaining the relative importance of each of Porter’s Five Forces for the organisation’s strategic position. You should support your arguments with evidence from the company and/or the relevant literature.
Zara has been the major pioneer of ‘disposable’ fashion; which makes up over 12% of the UK clothing industry. Zara outperforms its rivals in profitability, brand identity, and its successful business model.
I have used Porter’s five forces model (Porter, 1995) to analyse the industry and Zara’s strategic position. I have applied the theory of this model and its determinants to my research of Zara; providing evidence to form strong conclusions.
Zara faces competition from other market leaders such as Topshop and H&M which all provide customers similar products of ‘disposable’ fashion. The concentration of the market also influences rivalry amongst competitors. I believe the ‘fast-fashion’ industry is an oligopolistic market; concentrated by a few main competitors.
Through its ‘unique business model’ Zara has revolutionised the modern clothing industry and bought about industrial growth. Zara shows higher levels of profits than its competitors during 2009. The Arcadia Group (Topshop) experienced a 2.1% increase in their operating profit. (Arcadia Group, 2010). H&M increased operating profit by 7.4% (comparing figures from 2008 and 2009). (H&M Corporate, 2010). Inditex (Zara) showed increased annual operating profit of 8.6% (Inditex Group, 2010).
Zara’s consumers, on average, will visit the store seventeen times per annum, whereas the average for a London high street store is four times. (Ferdows, K., Lewis, M. A., Machuca, J. A. D., 2005). Consequently, Zara has to spend less on advertisement. The industry average is around 3-4% of sales, whereas Zara spends just 0.3% of sales on advertising. Porter (2004) states, “The intensity of
Strategy
MGT136-1
Provide an analysis of an organisation explaining the relative importance of each of Porter’s Five Forces for the organisation’s strategic position. You should support your arguments with evidence from the company and/or the relevant literature.
Zara has been the major pioneer of ‘disposable’ fashion; which makes up over 12% of the UK clothing industry. Zara outperforms its rivals in profitability, brand identity, and its successful business model.
I have used Porter’s five forces model (Porter, 1995) to analyse the industry and Zara’s strategic position. I have applied the theory of this model and its determinants to my research of Zara; providing evidence to form strong conclusions.
Zara faces competition from other market leaders such as Topshop and H&M which all provide customers similar products of ‘disposable’ fashion. The concentration of the market also influences rivalry amongst competitors. I believe the ‘fast-fashion’ industry is an oligopolistic market; concentrated by a few main competitors.
Through its ‘unique business model’ Zara has revolutionised the modern clothing industry and bought about industrial growth. Zara shows higher levels of profits than its competitors during 2009. The Arcadia Group (Topshop) experienced a 2.1% increase in their operating profit. (Arcadia Group, 2010). H&M increased operating profit by 7.4% (comparing figures from 2008 and 2009). (H&M Corporate, 2010). Inditex (Zara) showed increased annual operating profit of 8.6% (Inditex Group, 2010).
Zara’s consumers, on average, will visit the store seventeen times per annum, whereas the average for a London high street store is four times. (Ferdows, K., Lewis, M. A., Machuca, J. A. D., 2005). Consequently, Zara has to spend less on advertisement. The industry average is around 3-4% of sales, whereas Zara spends just 0.3% of sales on advertising. Porter (2004) states, “The intensity of
References: Arcadia Group. (2010). Financial Results for the 52 weeks ended 29 August 2009. Retrieved November 17, 2010 from http://www.arcadiagroup.co.uk/assets/pdfs/AGroupAnnualRespReport_2009.pdf Ferdows, K., Lewis, M. A., & Machuca, J. A. D. (2005). Zara’s secret for fast fashion. Retrieved November 17, 2010 from http://hbswk.hbs.edu/archive/4652.html H&M Corporate. (2010). Annual report 2009. Retrieved November 17, 2010 from http://www.hm.com/filearea/corporate/fileobjects/pdf/en/ANNUAL_REPORT_ARCHIVE2009__ITEM_4_1269424654871.pdf Inditex Group. (2010). Inditex code of conduct for external manufacturers and suppliers. Retrieved November 17, 2010 from http://www.inditex.es/en/corporate_responsibility/social_dimension/code_conduct#q2 Inditex Group. (2010). Zara launches its online store. Retrieved November 17, 2010 from http://www.inditex.es/en/press/press_releases/extend/00000800 Inditex Group. (2009). Annual report 2009. Retrieved November 17, 2010 http://www.inditex.com/en/shareholders_and_investors/investor_relations/annual_reports Porter, M. E. (1995). How competitive forces shape strategy. In H. Mintzberg, J. B. Quinn, & S.Ghoshal, (Eds.), The strategy process (European ed.). (pp. 64-72). New York: Prentice Hall. Porter, M. E. (2004). Competitive strategy. In R. Meyer, & B. De Wit, (Eds.), Strategy: Process, content, context, an international perspective (3rd ed.). (pp. 258-267). South Western: Division of Thomas learning.