SWOT ANALYSIS OF ZARA FASHION
While Inditex was officially founded in the year 1985, the story of ZARA had begun much earlier. ZARA had started operations long before Inditex was officially established. Its first store had opened in 1975 in A Coruna, Spain. Since then Inditex and ZARA, both have come a long way and expanded overseas and grown into large and global fashion brand with a huge retail network. As of 2018, ZARA is operational across 96 markets and 48 online markets. The number of online markets was only 46 in 2017. ZARA is now a success story and its fast fashion business model is now a major hit. However, there are many more things about ZARA that have turned it into success. Apart from the creative passion of hundreds of dress designers who known their customers inside out, there is a lot more outstanding about the fashion brand. As of 2017, ZARA had 2,251 stores operational across the world and its highest number of stores was in Spain (306), followed by China (183). ZARA continues to expand its global network and apart from great fashion, it has followed a great strategy and has adopted a sustainable model of growth. ZARA’s revenue touched 16.22 Billion Euros in 2017. It is the most profitable brand of Inditex. It s business philosophy rests on four core values: beauty, clarity, functionality and sustainability. These four values also define the environment inside its stores.
Learn more about ZARA and its strengths & weaknesses in this SWOT analysis.
|ZARA||2017||2018 (1st half)|
|Revenue||€16.6 Bn||€ 7.9 Bn|
|Stores (including ZARA kids)||2251||2238|
– Fast fashion cycles:-
‘ZARA’ is Inditex’s first as well as the most profitable brand. The reason that it has become a major hit in the world of fashion is because it could manage to defy conventional wisdom. ZARA’s fast fashion model and its astounding success is often discussed in the form of case studies in major business institutions. the fashion brand has adopted a unique model and also found a unique balance between demand and supply. While on the one hand, you will always find something new in its stores, on the other, there is no overstocking. The result is that the stocks always remain fresh and the brand creates a sense of urgency among its customers. Something you can see on the shelves today, might not remain available the next week. Unlike most fashion brands that have limited fashion cycles, ZARA is able to bring several fashion cycles with the help of a highly integrated supply chain and a highly skilled team of fashion designers.
– Strong supply and retail network:-
Inditex, the parent company of ZARA has adopted a integrated business model. Using IT and other model technologies, it has created a system that facilitates easy flow of communication and data. It makes information sharing and collaboration easier. Higher interconnectedness also means faster flow of raw materials and ideas as well as greater flexibility. Higher flexibility is a core feature of ZARA’s supply chain. Its high level of integration and flow of communication helps bring new designs to the market in as less as 15 days. Inditex factories are supplied by more than 1800 suppliers and through higher level of integration, it has controlled costs and brought higher efficiency to its business model. Apart from that, ZARA’s retail network has also expanded a lot in the recent years. Its number of retail stores has reached 2,251, as of Jan, 2018. Apart from that, as of Nov, 2018, ZARA’s commerce network is reaching 48 markets.
– Investment in technology and innovation:-
ZARA is making large investments in information technology, AI and other modern technologies to bring greater efficiency in its supply chain and retail network. Apart from the RFID technology which will enable better inventory management inside the stores, it has invested in IT. IT tools enable better information sharing as well as higher flexibility and enable the conversion of ideas into products faster. ZARA’s growth is also a result of its focus on innovation throughout its value chain.
– Affordable Pricing strategy:-
Another key strength of ZARA that has helped it to grow its customer base and revenue faster is its pricing strategy. ZARA is among the affordably priced brands by Inditex. It has released some higher priced brands too that cater to the higher end of the market. ZARA’s pricing strategy and its affordable designs are targeted at the youth and drive higher footfalls and conversion inside the ZARA stores. Infact, the pricing strategy of ZARA is the charm of its business strategy. People want high fashion and ZARA makes it available to them created from cheaper fabric but equally attractive. This strategy has been driving higher loyalty and popularity. Moreover, people can buy new fashion regularly, since one does not have to spend a fortune each time. Overall, ZARA has been able to create a win-win situation successfully for its customers and itself.
– Fast increasing sales:-
ZARA’s sales have grown fast driven by its excellently integrated offline and online retail channel. It has expanded fast globally in the recent years. ZARA’s total number of physical stores is now past 2100. the highest number of them are in Spain followed by China. Based on its pricing and customer service strategy as well as attractive designs which are the main drivers of its demand, it has acquired global fame and success which can make any other fashion brand jealous.
– Highest focus on customer service and customer experience :-
ZARA is also known for its customer service. The brand has strengthened its value proposition through exclusive focus on customer service and convenience. It has strategically opened its retail stores in areas that attract highest number of footfalls. These attractively designed retail stores are also equipped with technology to make shopping more convenient. ZARA trains its employees to provide better customer service. The brand-customer relationship is valuable for ZARA and by focusing on customer service, it has been able to create higher loyalty and retention rate. Using RFID technologies in its stores to track the location of its garments, ZARA makes the products its customers are looking for available to them instantly.
– Low presence in some fast growing markets:-
In several of the fast growing markets including India and Malaysia, the number of ZARA stores is low. Number of ZARA stores in India is just 20 (Jan, 2018), Malaysia 10, Thailand 11 and Newzealand has just one store. This is much less compared to the number of ZARA stores in USA, UK, China, Russia, Spain or several more European and American nations. India is an attractive market for fashion brands where expanding ZARA’s retail presence would be profitable.
– Less aggressive about marketing and sales :-
Compared to most of its rivals, ZARA has been less aggressive about marketing and promotions. Instead of trying to push sales by advertising heavily, it tried to pull customers by responding to their taste and needs. In this way, ZARA created strong recognition without marketing. However, this has also led to higher competitive pressure not just for ZARA but for the entire Inditex group. In the coming years, if the pressure continues, ZARA might be forced to invest in marketing to drive sales and to expand its customer base.
– AI for better customer experiences:-
While ZARA’s focus has always been to provide the best in class customer service to its customers, it can improve its customer service further by investing in AI, virtual reality and other similar technologies. Being customer oriented is highly beneficial for any brand in this era. However, these modern technologies can turn shopping into a much better experience.
– Investment in marketing :-
ZARA can grow its customer base and sales by investing in marketing and promotions. Till now it has been known to invest very small sums in marketing. However, with competitive pressure rising, investing in marketing can be good for ZARA and help it increase its sales and customer base further.
– Expansion of retail channels:-
ZARA can expand its retail channel to several corners of the world including the fast growing Asian markets like India. While it has an impressive presence in China, in other markets like India, Malaysia and Singapore, it still does not have an extensive retail presence. India can be a highly profitable market for any fashion brand. Apart from being the fastest developing country, it is also a large market with immense potential.
– Competitive threat:-
Competitive threat in the fashion industry is growing intense. It is creating pressures related to sales and marketing on ZARA. While, it has a strong brand image and supply chain as well as retail network, ZARA is facing intense competition from several brands.
– Regulatory threats:-
Legal and political regulation of the business industry has grown high. Around the world, governments and legal agencies are regulating businesses including those in the fashion industry. There is a large set of rules of regulations to be complied with in the fashion industry too. From labor to quality and other several areas, there are laws to be complied with. These laws differs from market to market and from nation to nation. High level of regulation can become a roadblock to fast growth.
– Rising cost of raw materials: –
Costs of raw materials have kept rising. It has managed a well integrated supply chain that caters to its needs for raw materials successfully. However, rising costs of raw materials and labor can raise the operational costs of the brand. This can negatively affect the revenue and profits of the brand.
ZARA is a celebrity fashion brand that enjoys high customer loyalty and popularity. Apart from an integrated value chain, focus on customer service and investment in technology is also a key strength of the brand. ZARA’s retail network has also grown fast in the recent years rising to past 2200. It has also extended its online presence to 48 online markets. ZARA is eyeing faster growth in the coming years and investing in new technologies to improve its customer experience. The brand’s fast fashion model has been hailed worldwide as effective. Its large group of designers are creating fashion day and night to keep the designs inside the stores up to date. Moreover, focus of ZARA is on the modern generation and latest trends. It reflects in its store designs as well as fashion trends. However, despite its strong image and large size, there are challenges ahead. ZARA must ready itself to face these challenges. Moreover, investing in modern technologies and increasing its investment in marketing will also help the brand grow faster and achieve better results. The good thing about ZARA is that rather than trying to create a business brand, it invested in building a customers’ brand- something that each of its customers could connect with and feel proud of. Customer satisfaction became a core focus of its business model and that’s how it was able to achieve astounding success and global recognition.
Inditex Annual Report 2017