GLOBAL STRATEGY AND SUSTAINABILITY BPP

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BPP Coursework Cover Sheet Please use the table below as your cover sheet for the 1 st page of the submission. The sheet should be before the cover/title page of your submission. Programme Module name Schedule Term Student Reference Number (SRN) Report/Assignment Title GLOBAL STRATEGY AND SUSTAINABILITY BPP-Zara Date of Submission (Please attach the confirmation of any extension received) Declaration of Original Work : I hereby declare that I have read and understood BPP’s regulations on plagiarism and that this is my original work, researched, undertaken, completed and submitted in accordance with the requirements of BPP School of Business and Technology. The word count, excluding contents table, bibliography and appendices, is words. Student Reference Number: Date: By submitting this coursework you agree to all rules and regulations of BPP regarding assessments and awards for programmes. Please note, submission is your declaration you are fit to sit. BPP University reserves the right to use all submitted work for educational purposes and may request that work be published for a wider audience. BPP School of Business and Technology 1

Table of Contents Introduction 4 Task 1: The External and Internal Environment 4 1.1. 4 1.2. 8 Task 2: Strategy in the Global Environment 9 2.1. 9 2.2 10 Task 3:Corporate Strategy 10 3.1. 10 3.2. 11 Task 4: Strategic Purpose 12 4.1. 12 4.2. 13 Conclusion 13 Reference 14 3

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Introduction (Zara Mission Statement 2021) claims that Inditex, one of the most successful and significant global fashion retailers, owns Zara as its Spanish Flagship store. The major global clothing brand Zara has thousands of physical stores all over the world in addition to a significant online presence. As per the report (Zara. 2020), Zara was introduced by Amancio Ortega in the year of 1975 where the company was headquartered at Arteixo, Coruna in Galicia. As a management consultant tasked with undertaking the strategic upgradation of Zara, here the aim is to analyze the company’s current business model with the major areas of improvement and find out some suitable strategic recommendations for the sake of the company’s growth and opportunities. Zara has been widely recognized due to its unique fashion sense and target to implement a fast fashion approach this enables the company to achieve remarkable success in the global market region. As per the report (Inditex Annual Report.2020), Zara has grown as the most successful fashion retail brand as per current news where the brand currently values at nearly about $14.7 billion and made sales of nearly about $21.9 billion in the year 2020. Zara offers clothing, accessories, and shoes with an extended version of the textile industry for all ages and gender. There are nearly 3000 Zara stores available in 96 countries worldwide. However, it is important that the company needs to consider the competitive landscape with the ever-evolving industry and make a continuous adaption of innovative approaches to maintain its position in the fashion market. Task 1: The External and Internal Environment 1.1. Considering the microenvironmental, internal analysis for Zara where examines the business strategies and operations. With the consideration of its cost leadership strategy, Zara offers highly fashionable products. Here SWOT analysis is considered to measure the company's internal environment and that would also uncover the apparel retailer's strengths, weaknesses, opportunities, and threats. In this analysis Zara's unique abilities at the given advantage to capture a higher rate of fashion market share and also draw more consumer's attention and maximize revenue generation. Strengths: 4

The increasing number of stores: As per the report (Statista. 2023), Zara had 2003 stores across 96 countries in the early times of 2020 which has increased nearly to 3000 in the current year. This brand has roughly twice as many stores as Nike, which has the second-highest number of retail locations worldwide. One of Zara's key advantages is its largest and steadily growing number of stores. Speed of expansion: As per the report of Bhardwaj, and Fairhurst, (2017), Zara implements a fast fashion model which enables the brand to ensure a quick adaptation to changing fast fashion trends as per consumer preferences. Their ability in designing, producing as well as distributing new products within the week gives them a required competitive edge over the worldwide fashion retailers which might take months or years to introduce new collections. Weakness: The commitment of Zara to revising its service and range of collections every three weeks sets this brand apart from other existing fashion retailers. However, there are some weaknesses of Zara that also need to be covered. Dependence on Physical stores: The Covid-19 pandemic forced the brand to reduce the number of physical stores, so it is making an effort to do so. The company was able to bounce back from the pandemic's significant decline in sales. The sales from physical stores have been reduced which can be extended if the company increases its e-commerce presence. Ethical workplace standards: According to (Inditex Annual Report. 2018), Inditex works with 1520 suppliers belonging to different regions of the world where there are some significant gaps observed in its enforcement that need to be recovered for the sake of the company's growth. Opportunities: Zara has the ability to ensure quick capitalisation on the fashion trends which is considered to be one of the most important assets. The opportunities of Zara as its internal environmental analysis are discussed in the points below. Partnership and influencer marketing: According to Myyrä, (2020 ), Zara is collaborating with celebrities, high-profile designers, and influencers for creating the required buzz around the brand along with attracting new consumers. Partnership with other organizations and sustainable 5

suppliers also works as an opportunity for the brand to improvise more. As per (BizCommunity . 2023), the #DearSouthAfrica campaign involved nearly 60 micro-influencers which helped the brand to reach more than 8 million people. Here social media marketing is also another opportunity for the brand. Sustainability concern: According to (fibre2fashion . 2023), Young millennials and members of Generation Z are more likely than older generations to be interested in clothing with sustainable and eco-friendly labels. Together, these two groups, which make up half of the population, work together. The brand must therefore pay attention to and react to the expansion. Threats: An increasing number of competitors: A lot of brands, including H&M, Mango, Uniqlo, and Primark, are vying for market share in the fast-fashion industry, which is characterized by intense competition. Zara's competitive advantage may be weakened by the growing number of competitors who are adopting comparable business models and saturating the market. Pandemic threats: Inditex reported a 44% decline in revenue for the first quarter of 2020 due to the COVID-19 pandemic (Inditex report. 2020). The coronavirus caused 88% of Inditex's stores to close, which the company's report states was the main reason for the decline in sales. External analysis for the company Zara can be made through the consideration of Porter’s analysis. Competitive rivalry : ZARA's competition is fierce. Due to the rising request for clothing and other embellishments around the world, worldwide attire advertising is growing rapidly. Showcase esteem is expected to rise from $1.5 trillion in 2020 to around $2.25 trillion in 2025, concurring to (Zara.com . 2023). Among the many apparel retailers around the world, the biggest international competitors are Fast Retailing's Uniqlo, Handem, and Inditex's Zara (Inditex Annual Report 2020). The division of the attire industry, the solid nearness of both huge and little companies, and the huge number of brands creating comparable items all contribute to the 6

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furious competition within the industry. Based on quality and usefulness, companies like Zara are able to compete and motivate client loyalty. Bargaining power of the buyer ZARA buyers have moderate bargaining power. Customers of fashion retailers have limited direct negotiating leverage. However, customers do have some indirect negotiation power, which contributes to strong buyer power. For the purpose to attract new customers and hold them, the retailers must not only meet their needs but also differentiate themselves from their competitors. Customers have a wide range of options, and they are free to find what they're looking for thanks to the fierce competition and variety of brands available. Thanks to the availability of alternatives and accessibility to numerous supply points, customers can easily switch brands for free. Bargaining power for suppliers: This is considered low for Zara. In the fashion retail industry, the bargaining power of suppliers is negligible and insignificant. The majority of businesses in the clothing sector outsource their production process to countries such as China, India, and Vietnam as the markets are oversaturated ( Severin, 2020 ). Because it can switch and affordably replace other suppliers or pursue deeper integration, a brand has purchasing power. Customers of clothing suppliers are thus not segregated and are required to abide by industry regulations. Suppliers of textiles are unable for raising the price level and hold low input costs as they only receive a small portion of the profits. Threat from substitute: This is considered to be low for Zara. Clothing is a basic necessity because it keeps you warm and protects you. Since clothing is not a substitute product, the outlook for the profitability of the clothing industry is unaffected by substitute products. Without retail establishments, people would either have to make their own clothes from scratch or have them made to order, neither of which is convenient or typical. However, there are segments of the retail industry that vary in terms of the variety, calibre, and cost of their offerings. Clients can change between groups. For instance, a customer interested in high fashion but unable to afford it might opt to shop at a store like ZARA that provides comparable style at an affordable price. This is not, however, regarded as a replacement. 7

Threat from new entrants: This is considered low even for ZARA. The fashion retail sector is overrun with brands selling comparable goods, making it challenging for new entrants to stand out and draw customers. As a result, there is little threat from new market entrants. To survive, they need to market themselves in unique ways that provide a strong foundation. As these increase the hurdles to market entry, brand recognition, and product differentiation in the industry are important. Other roadblocks include investments in infrastructure, marketing, human resources, and supply chains. 1.2. According to (Zara.com. 2023), Zara is a well-known fast fashion brand having an impressive presence in the internal markets. This is the flagship brand of Inditex which also accounts for the wider part of the Company revenue. The company's popularity is embraced on the basis of various factors due to the main focus on the style, and quality along with the competitive advantage strategy. The growth of the brand and holding its market position is made with the implementation of strategic supply chain management as the strategic application of competitive advantage. Apart from being agile, Zara's supply chain as well as production system are considered to be distinctive and designed for the purpose to deliver better results at faster version. Pricing strategy is one of the main competitive advantage strategies implemented by Zara which helps the brand not only to hold its market position but also enhance its productivity and efficiency. Zara offers good quality clothes, shoes, and accessories which are also stylish and also not very costly. Zara also provides various offers and pricing discounts for the average middle-class consumers which helps the brand to maintain its competitive advantage in the fashion market where other fashion giants like H&M, Forever 21, Mango and Pull & Bear exist ( Hendelmann, 2022 ). Through providing quality products Zara has found to nail the price challenge and gain higher consumer loyalty. Apart from supply chain management and pricing strategy, Zara also implements the Fast Fashion model, Internal expansion strategy, the Brand image holding strategy, and better level of consumer service strategies. Through all of these implementations, the company is currently in a strong position for achieving a faster level of growth in the upcoming future. 8

Task 2: Strategy in the Global Environment 2.1. Spain is considered the home country for Zara, where as per the report ( Inditex Group Annual Report. 2022 ), the number of stores increased from 256 to 304 in the home country during 2022- 2023. Zara has been observed as a transnational fashion retailer where it introduced its first international store in La CoruÃ±a in the year of 1975 then its international expansion increased. Opening a store in Portugal in the year of 1988 is another example where the company already operates over five continents with over 1800 stores. Internation sales figures also increased to 70% of the total company turnover with Europe being its largest market ( Inditex Group Annual Report. 2022 ). The internationalization of Zara can be categorized and discussed through discussion over its rapid expansion into new markets along with its ability in adapting to local cultural differences. The strategy of the company for internationalization includes the following areas. Market research: Through the application of this strategy, Zara carries out the necessary market research to pinpoint the potential market and comprehend local consumer preferences and culture. Zara chooses a new market by conducting thorough market research and taking into account a wide range of variables, including the market's size, level of competition, economic development, and growth potential. Zara seeks out global market areas that are sizable enough to support its operations and where its vertical integration and fast fashion business model can give it a competitive edge ( Retailisation. 2023 ). Local adaption: This is another important internationalization strategy for Zara, when necessary to make its goods and shopping experiences more appealing to customers, a company adapts its store designs and product lines for regional and cultural differences. Partnership and franchising: This is another important strategy that Zara can implement with use of combining corporately owned retail locations with franchises to access new markets. This tactic also enables Zara to benefit from global expertise and maintain cost control as it expands internationally. 9

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2.2 On the basis of the research and discussion made on the previous segment, there are some recommendations Zara can follow for the distinctive strategies applied for entering the global market with more efficiency with achieving competitive advantage. Technological innovation: This is one important recommendation for Zara which needs to be improvised where the company needs to continue leveraging the technology for improving its supply chain efficiency and also to expand consumer experience. According to Choi, and Cheng, (2015), implementation of Radio Frequency Identification or shortly RFID technology can be proved to be helpful for Zara to streamline inventory management, improve operational efficiency and even also minimize stockouts. Sustainable practices: This is one of the important recommendations for Zara for a better version of global expansion. With an increasing demand for sustainable fashion and consumer awareness of environmentally sustainable fashion, Zara needs to prioritize the incorporation of environmentally friendly practices throughout its supply chain. Here Zara can adopt sustainable materials in use for clothing manufacturing, reduce wastage, implement recycling techniques, and also consider launching some sort of particular product lines focused on sustainability. E-commerce: This is another important recommendation for Zara’s internationalization strategic implication where Zara needs to invest more in e-commerce business as it helps to reach out to more customers at a global range and expand in new markets. Task 3: Corporate Strategy 3.1. Horizontal integration involves partnering and acquiring with other companies in the same fashion industry. According to (Zara.com .2023), Zara can consider collaborating and acquiring logistic companies or supplies for gaining more control over its supply chain which it also helps in reducing lead times. With this strategy, Zara can respond faster according to the changing market trends and consumers’ attitudes. Inditex, the Patent company of Zara has acquired textile 10

manufacturing organizations for ensuring faster production and also to ensure greater control over sustainability and quality ( Cui and Fan,2021 ). Vertical integration implies the integration of different stages under the supply chain. Zara follows a vertically integrated model by owning its manufacturing facilities, retail stores, and also distribution centers. This allows the company to have higher control over the whole value chain from design to production to retail resulting from faster turnaround times along with higher flexibility. Strategic alliances can also be considered to be advantageous for Zara as they can help the company to strengthen its supply chain. Through partnering with any technological companies or also the companies that deal with logistics, Zara is able to leverage their resources and expertise to improvise their operational efficiency. In this regard, Zara partnered with technological firms for implementing RFID in a better way and also to enable real-time inventory for efficient replenishment (RFID CARD. 2022). Outsourcing is another important area of discussion in this regard. This can also be proved beneficial for Zara where the relevant non-core activities like IT services, Logistics to specialized service providers help the company to be more proactive in its core competencies. This is crucial for the company to maintain particular quality control along with ensuring sustainable and ethical practices among its outsourcing partners. 3.2. For a better implementation of the above models and relevant framework, it can be recommended that Zara is recommended to enhance its control over the supply chain and reduce the cost for use in manufacturing by leveraging vertical integration. It is also recommended that Zara need to implement horizontal integration via acquisition and collaborations through which it can increase its profitability by expanding in market share by reaching out to more consumers. It also recommended that Zara needs to implement a strategic alliance framework in a better way not only through understanding the alliances but also optimize the process to improve supply chain visibility and drive cost savings. Through the consideration of these recommendations, 11

Zara was able to achieve great profitability with streamlined operations, enhancement in efficiency, and also increased presence in the global market environment. Task 4: Strategic Purpose 4.1. Zara is found to be highly concerned with an environmental strategy whereas its CSR strategies, providing bags to customers are 90% made of paper, Zara supports ecological agriculture and as a CSR strategy, it uses only organic cotton material in its products which are completely free of chemical agents, free of pesticides (fibre2fashion. 2023). Zara never sacrifices any animal for its manufacturing which is one of the significant strategies along with their use of only 5% biodiesel fuel for reducing the carbon footprint (fibre2fashion. 2023). For this CSR strategy, there are some theoretical models that Zara follows. Stakeholder theory is considered the first theoretical model which helps in assessing the extent to which CSR initiatives of Zara can be considered as the interest and concern of numerous stakeholders. This theoretical model also includes consumers, employees, suppliers, and local communities. Through this model, Zara can evaluate the responsiveness to address stakeholder’s concerns, and expectations along with the level of transparency and engagement required. Global reporting initiative is another significant theoretical model that can be used in evaluating the transparency and comprehensiveness of CSR reporting of Zara (Global Reporting Initiative. 2016). Assessing the alignment of the CSR strategy of Zara with Global reporting initiative guidelines and measuring the quality of disclosed data sources on social, environmental, and relevant Governmental aspects. The triple bottom line is one of the important theoretical models in this concern through which it would be easier to evaluate a company’s CSR activities and returns along with sustainable sourcing and environmental practices. 4.2. In using the theoretical framework discussed above there are some ethical issues that Zara faces that can be addressed to find out suitable recommendations. 12

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In considering stakeholders theory, Zara has been reported to face ethical issues like violation of supply chain regulations, and issues in labour rights specifically regarding the fair wages and current working conditions for the factory workers. For mitigating these ethical issues, Zara needs to engage with stakeholders for establishing transparent communication channels as that might help to address the issues and concerns. In triple bottom line theoretical application, Zara faces relevant ethical issues like unnecessary wastage, unsustainable sourcing practices, and pollution. The recommendation to abolish these issues is to adopt sustainable sourcing practices by prioritizing environmentally friendly materials to minimize wastage through recycling programs. Conclusion At the end of the report, the conclusion can be made where it can be said that in this report a comprehensive analysis of the chosen Company Zara has been made through a discussion and critical evaluation of its sustainability efforts, internal-external environment, growth trajectory, international expansion, CSR, corporate strategic implication and issues to be addressed. It has been observed that Zara is committed to environmental sustainability where it implements continuous efforts and strategies to mitigate any ethical and environmental concerns issued. Overall, it can be summarized that through more focus and practice of implementing sustainable practices, global market research, stakeholder engagement, and ethical decision-making, the company would be able to continue in thriving the global market range. 13

Reference Bhardwaj, V., and Fairhurst, A. (2017). Fast fashion: Response to changes in the fashion industry. The International Review of Retail, Distribution and Consumer Research, 27(1), 3-20. BizCommunity (2023) Zara’s #DearSouthAfrica micro-influencer campaign floods social media , Bizcommunity . Available at: https://www.bizcommunity.com/Article/196/179/195782.html (Accessed: 09 June 2023). Choi, T. M., and Cheng, T. C. E. (2015). Fashion supply chain management: Industry and business analysis. In Supply Chain Management and Advanced Planning (pp. 299-326). Springer, Cham. Cui, Y.C. and Fan, B.F., 2021. The corporate social responsibility strategy in fast fashion industry: case company Zara. https://www.theseus.fi/handle/10024/512245 fibre2fashion (2023) Zara Commitments , Zara, Zara Commitments, Zara Environmental Policies, Zara Transport Policy, Animal Welfare Policy, fibre2fashion . Available at: https://fashiongear.fibre2fashion.com/brand-story/zara/commitments.asp (Accessed: 09 June 2023). Global Reporting Initiative. (2016). GRI Standards. https://www.globalreporting.org/standards/ Hendelmann, V. (2022) Zara competitors: Ranking its 12 biggest rivals , productmint . Available at: https://productmint.com/zara-competitors/ (Accessed: 09 June 2023). Inditex Annual Report 2020. (2021). https://www.inditex.com/documents/10279/274103/Inditex+Annual+Report+2020.pdf/6b805f41 -5010-2857-7e97-eb8c5aa5fffc Inditex Group Annual Report 2022 (2023) Annual report 2022: Inditex , Inditex Group Annual Report 2022 . Available at: https://static.inditex.com/annual_report_2022/en/ (Accessed: 09 June 2023). Myyrä, T., 2020. Influencer Marketing in the Fashion Industry: The advantages and disadvantages of influencer marketing in fashion promotion. https://www.theseus.fi/handle/10024/342278 14

Retailisation (2023) How vertical integration helps fashion leaders grow , Retailisation . Available at: https://www.retailisation.com/insights/how-vertical-integration-helps-fashion-leaders-grow (Accessed: 09 June 2023). RFID Card (2022) Zara implements RFID technology in its store , RFID Card . Available at: https://www.rfidcard.com/zara-implements-rfid-technology-in-its-store/ (Accessed: 09 June 2023). Severin, G., 2020. Non-financial performance measurement in the fashion industry: Opening up the reports. http://dspace.unive.it/handle/10579/18066 Statista (2023) Number of zara stores 2023 , Statista . Available at: https://www.statista.com/statistics/674653/number-of-zara-stores-by-country/ (Accessed: 09 June 2023). Zara - Inditex Group." Inditex Annual Report 2018. https://www.inditex.com/documents/10279/186879/Inditex+Annual+Report+2018.pdf/09ae7588 -07bb-44dd-bf57-d5ad588b6f51 Zara Mission Statement 2021: Zara Mission & Vision Analysis. (2023, 6 June). Retrieved June 6, 2023, from https://mission-statement.com/zara/ Zara. (2020, July 27). Retrieved June 6, 2023, from https://www.forbes.com/companies/zara/? sh=739df3f87487 Zara.com (2023) Zara India: New collection online , ZARA India | New Collection Online . Available at: https://www.zara.com/in/ (Accessed: 09 June 2023). 15

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