Amancio Ortega and Rosalía Mera founded Zara in 1975 in Spain. Inditex was later founded in 1985 as a holding company of Zara and its manufacturing plants. It now remains the largest fashion retailer in the world and an important company that defined fast fashion both as a business model and an industry. This article analyzes and discusses the internal and external factors relevant to Zara using the SWOT framework.
Situational Analysis of Zara: A Discussion of Internal and External Factors Relevant to Its Business Using the SWOT Framework
The fast-fashion business model remains a core competitive advantage of Zara over traditional clothing and apparel brands including traditional high-end fashion brands and mid-range casualwear brands. However, it also has several advantages drawn from its business strategy and its unique competitive position in the industry.
Below are the specific strengths of Zara:
• Efficient Production Through Fast-Fashion: The fast-fashion model allows the company to mass produce fashion-forward products as fast as possible with less cost compared to the production processes of traditional haute couture brands. This allows the introduction of the latest fashion trends for mass consumption.
• Adherence to Penetration Pricing Strategy: Price is another strength of Zara. The company uses a penetration pricing strategy made possible through its fast-fashion model to compete against luxury fashion brands such as Gucci, Channel, and Louis Vuitton, among others, and their premium-priced products.
• Vertical Integration and In-House Production: The company also has a vertical integration strategy to take better control over its supply chain similar to how companies like Tesla vertically integrated their respective supply chains. Its in-house production capabilities are part of this supply chain strategy.
• Limited Production and Brand Loyalty: Zara does not spend too much on advertisements and other promotions. Its marketing strategy is focused on developing and producing limited quantities of products to create a sense of urgency among its target market and retain further its loyal customers.
The business strategy of Zara is not as well-rounded as other established clothing and apparel companies and their respective brands. Remember that it does not spend on promotional activities. Some of its strategies are also sources of its internal problems that limit its progress or reduce its capabilities to realize its full market and revenue potential.
Below are the specific weaknesses of Zara:
• Limited Online and E-Commerce Presence: It still depends on physical stores for most of its sales. Consumers are too used to visiting its stores to browse through its items. However, while it has an online store, its overall electronic commerce platform is not as robust nor as popular as its competitors like Shein.
• Missed Opportunities from Limited Promotion: The refusal to use consistent and extended promotional activities such as advertising, celebrity endorsements, and event sponsorships is hurting its capabilities to appeal to or reach potential customers both in existing and new geographical markets.
• Inherent Issues with the Fast-Fashion Model: Another weakness of Zara is its own fast-fashion model. This strategy has caused several issues to include unsustainable production that creates environmental problems, ethical concerns regarding the workplace, copyright infringement claims, and problems regarding product quality.
• Price Still High Relative to Other Brands: Its products might not be expensive but it is not cheap either. Other fast-fashion brands such as Shein and H&M, as well as casualwear brands like Uniqlo and Cotton On, have more affordable items. Unbranded items and products form lesser-known from countries like China are also cheaper.
The fact remains that Zara is the largest fashion retailer in the world. Its strengths prove that its business strategy is effective. The company can further reach new milestones if it explores and exploits opportunities that can help it retain its position in the clothing and apparel market, as well as expand its market share further
Below are the specific opportunities for Zara:
• Expanding Its Electronic Commerce Platform: The company will benefit from a more robust online storefront similar to fast-fashion brands like Shein or the smaller brands that use e-commerce retail platforms. There is a sizeable portion of customers that prefer shopping online. E-commerce also reduces distribution costs.
• Value-Adding Personalization of Shopping Experience: Artificial Intelligence and data analytics can also help it add further value for its customers by personalizing their shopping experience. AI and Big Data analytics can help it provide customized suggestions and also help in improving loyalty programs.
• Market Potential From A Sustainable Business Model: Fast fashion is considered unsustainable in its current state. Companies can still adopt sustainable practices to appeal to younger and more environmentally-aware consumers. These include producing products designed to last and the use of sustainable raw materials.
• Developing and Implementing Promotional Strategies: Another opportunity for Zara is the use of different promotional strategies and tactics to compete against other brands. These include digital advertising, the use of influencers or influencer marketing, exploitation of social media marketing, and celebrity endorsements, among others.
Zara operates in a highly competitive environment. Industry rivalry is intense due to different factors to include the presence of different brands with unique value propositions, lower barriers to entry that create a threat from new entrants, the threat that comes from substitute brands and products, and the bargaining power of consumers.
Below are the specific threats to Zara:
• Threat From Online-Enabled Brands and Entrants: Shein demonstrated that it can disrupt the clothing and apparel market when it was founded in 2008 and made its further push in the e-commerce space during the COVID-19 pandemic. Online-enabled brands demonstrate that they can sell products without physical stores.
• Presence of Counterfeits and Unbranded Products: Another threat to Zara is the presence of counterfeits or fake products sold in the black market and even on reputable electronic commerce platforms. There is also an abundance of unbranded clothing and apparel products that can be purchased offline and online.
• Disruptions in the Supply Chain and Distribution: Global crises such as the coronavirus pandemic and even international conflicts have shown that the operations and sales of companies that depend on sophistical global supply chain and distribution networks are vulnerable to disruptions.
• Impact of Economic Downturns and Market Slowdowns: Most consumers are sensitive to price and are compelled to choosing alternatives or substitutes. Instances of economic downturns or market slowdowns reduce the purchasing power of individuals and prompt them to switch to alternative or substitute brands.