|CEO||Óscar Pérez Marcote|
|Revenue||EUR 19.56 billion|
|Competitor||The Gap, H&M, Benetton|
Zara is one of the leading brands in fast fashion and it belongs to Inditex, one of the world’s largest fashion retailers. Starting with the first store in the Spanish coastal city of La Coruña, Zara is now selling in 202 markets, in which its retail stores are in 96 of them. The brand embraces the four core values of beauty, clarity, functionality, and sustainability in designing physical stores and e-commerce platforms. Zara designers continue to track customers’ references and introduce new styles according to the latest trends. The company has an extremely efficient business model and supply chain that Zara can originate a design and have the goods in-store within four or five weeks. Zara’s target markets are women, men, and youth, from infants to 45 years old. Now let’s go over a SWOT Analysis of the company to get a better understanding of the organization in 2020.
Zara Strengths 2020:
- An efficient supply chain is the bare bone of Zara’s operation and success.
Its 130,000 square-meter warehouse is very close to its headquarter in La Coruña. Production, both internal and external, flows through Zara’s distribution center and shipped directly to stores twice a week to reduce the need for storage and increase inventory turnover. Zara’s main distribution center is a 400,000 square-meter facility located in Arteixo that operates on a dual-shift basis. Most items are moved through the center within a few hours, and none has stayed overnight for more than three days. The short time cycle from designing to having finished goods in-store, which could be as low as four to five weeks, reduce the level of working capital and facilitate the continuous manufacture of new merchandise.
- Great fabrics sourcing strategy, with help from the parent company Inditex.
Zara purchased fabrics and other products from Europe and is expanding to the Far East, Hong Kong, and China in particular. 50% of the fabrics purchased are “gray” (undyed), then they will be updated later in the season to maximize flexibility. The gray fabrics would be funneled through Comditel, a subsidiary of Inditex, and they would manage the dyeing and finishing of the grey fabrics for Zara, according to the needs of the latest designs. By doing so, finishing fabrics only takes a week.
- Production lines are exclusively designed to suit the model of fast fashion Zara pursues.
40% of finished goods, the most fashionable items, are produced internally in 20 fully-owned factories located in and around the headquarter in Arteixo. Price-sensitive items are outsourced to Asia to take advantage of cheap labor. Zara’s factories are heavily automated and focus on the capital-intensive part of the production progress and the final inspection. Sewing, the more labor-intensive progress, are outsourced to other workshops in Galicia and northern Portugal. Production is made in small batches to ensure there is minimum inventory when the trends are gone.
Zara Weaknesses 2020:
- Zara’s product quality is mediocre since the brand policies emphasize rapidly changing trends and high fashion content.
Zara does so to encourage customers to quickly return to the store and purchase new items, however, this strategy may backfire with customers who appreciate a higher product quality.
- Limited production run and inventories strictly controlled may leave demand unsatisfied.
Zara wants to create a sense of freshness and scarcity around its offering, therefore the company designs the rapid product turnover model, with three-quarters of the merchandise on display is changed every three to four weeks. Customers who are slow to respond to the latest trend may find themselves stranded with unsuitable sizes or colors on an item that they want, and eventually, frustration will cause them to leave the brand.
- As Zara expands, the centralized distribution model might be subjected to diseconomies of scale, despite a historical success at scaling up the distribution system.
Experts pointed out that the system that works with 1000 stores might not be suitable for 2000 stores.
Zara Opportunities 2020:
- Expand the Collect, Reuse, Recycle program to different markets to minimize the environmental impact of thrown-away old apparel and footwear.
In the program, Zara collects used clothing and seeks ways to extend its useful life by either reuse or recycling. Collect boxes have been installed in a few test stores, then clothes are donated to people in need and other non-reusable items are recycled. This program can help Zara improve its image toward environment-conscious customers.
- Offer “local collection” tailored to local tastes.
Zara management believes a standardized portfolio across different markets is enough as tastes converged across nations. However, despite the globalization of fashion, Asian customers will have a slightly different reference than the ones in South America or Europe. Local offering also shows customers that their countries are important to Zara.
- Improve customer shopping experience on digital platforms by integrating physical and online channels.
Inditex Open Platform, launched in 2018, is where all Zara’s digital operation runs and it has shown efficacy in several stages. It is now 60% functional and is expected to be fully implemented by 2022.
Zara Threats 2020:
- New entrants to fast fashion are capturing Zara’s revenue and market share.
Online stores specialized in fashionable clothing for young people, such as ASOS and Missguided, use social media to catch up with the latest trends. They are able to speed up the design and manufacturing processes to churn out products for sale from concept within one to three weeks, beating Zara’s five-week turnaround cycle. Those new chains imitate Zara’s concept of small-batch production and agile supply chains to closely match supply and demand, minimizing surplus inventory that needed to go on sales.
- Imitation products, items that bear the resemblance of Zara design, could be a threat to Zara’s sales, especially in an emerging market where Zara is positioned as a high-end brand.
In some countries, prices are marked up as much as 131% compared to those in Spain, therefore consumers will search for an alternative.
- Rising labor wages in foreign factories where Zara outsources its price-sensitive items will put downward pressure on Zara’s profit margin.
Zara SWOT Analysis Conclusion 2020:
Zara has become a household name for fast turnaround and frequently refreshed apparel company, supported by an ultra-efficient supply chain and distribution network. Nevertheless, Zara is facing intense competition not only from old rivals, such as H&M or GAP but also from younger companies that imitate Zara’s business model of fast turnaround production and lean supply chain. Zara has lots of opportunities for future growth and fends off competitors by enhancing customer experience on its digital platforms and physical stores.
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Hanbury, M. (2017, 5 23). Zara is facing a massive threat that could jeopardize the business. Retrieved from Business Insider: https://www.businessinsider.com/fast-fashion-is-getting-faster-2017-5