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Zara was founded in 1975 by Amancio Ortega and Rosalia Mera, in A Coruña, a coastal city in Spain. Established as a fast fashion store, Zara’s success can be attributed to its quick response to consumers’ ever-changing desires and needs. After a successful first launch, Zara, although rooted in Spain for its HQ, grew quickly and started its international expansion into global markets, with a foray into Portugal in 1980 and the US market in 1989. As of today, it has 6,500 stores worldwide as well as a substantial online audience.
(Ledasma, 2013)
Zara belongs to Inditex, a distribution group that owns multiple world-famous brands, focusing on SPA brands or fast-fashion. Zara falls into the latter, amongst others such as Pull and Bear, Stradi-varius and Bershka. Due to its extreme popularity amongst the consumers of the fashion industry, Zara pulls an annual revenue of 18.9 billion USD a year. It is no wonder that it has made the Top 30 list on Interbrand’s list of best global brands in 2015. (Sucess Story, 2018).
Taking a closer look at the company, this report aims to examine the strengths and weaknesses of the company internally, as well as provide an analysis of its competition, thus providing recommen-dations tailored to the flaws uncovered in the analysis.
Big brands have always been facing pressure from the government or the people when they out-source their products to other countries for production, mostly due to cheaper costs, but at the ex-pense of local employment going down.
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Zara copes with this by having their products made exclu-sively in their factories in Spain, keeping their supply chain operations on shore, (Zara, 2018) such that it provides more Spainairds with jobs.
Zara posseses much economies of scale given its large size. It only needs one week to design, de-velop and produce a new product, an incredible speed as compared to smaller brands and in an in-dustry where a 6 month turnaround is average. (Ferdows, 2005) This EoS provides Zara with a high profit margin as it is able to mass produce products at a lower cost due to bulk advantage. However, by contrast, despite lowered production costs, one weak point of Zara is its price point.
Despite being able to mass produce at a cheaper rate as mentioned above, Zara’s products fall into the middle-range, above other giants such as H&M and Forever21. Its target audience is then com-promised as they lose out on the market segment of younger students that may not be able to afford their products. As with fast fashion as well, given the changing trends, consumers may prefer spending on cheaper products such that they may do so with more frequency instead of investing in a pricier Zara product. (Lutz, 2014).
One of Zara’s huge strengths is that they are a globally successful and widely available brand. In the age of globalisation where consumers are able to conveniently obtain what they so covet, even from far flung corners of the world, Zara’s global presence creates an overhanging omnipresence, which is one of the reasons why consumers do not associate it with any particular country, allowing it to relate to consumers from anywhere. (Juneja, 2018) In that respect, Zara naturally needs to be culturally sensitive. To its success, in 2015, it launched a Ramadan special collection to cater to the needs of their Muslim consumers. (Zilzar, 2015) Muslim women require a certain degree of modesty in their attire, and favour floral or batik patterns. Zara’s collection that launched on the first day of Ramadan, consisted of long-sleeved maxi dresses or full coverage jumpsuits in beautiful handprinted florals and silky chiffons. This cultural sensitivity al-lows Zara to appeal to a wider audience.
Online sales is a key feature of Zara that has brought about much benefit. Its online store launched in 2010 in Europe and the US, later expanding to cover a worldwide reach. In 2017, online sales grew 41% to 10% of net sales for the fiscal year, representing around 2.5 billion Euros, (BBC, 2018) testament to its success in this area of technology. In order to increase the quality of their customer service, Zara stores have implemented Radio Fre-quency Identification Technology, (RFID), which uses high-end systems to locate the desired prod-ucts in a flash, catering to the customers’ need for quick service. (AMG, 2015) This enables better customer service and thus happier customers.
Zara is dedicated to being environmentally friendly, with its mission statement aiming to contribute to “the sustainable development of society and that of the environment with which we interact”. (Zara, 2018) It is also interesting to note that Zara physical stores aim to save energy and create less waste, making sure to recycle. Its products also carry on in this vein, using ecological fabrics and organic materials such as cotton. Zara couriers also use biodiesel fuel, which helps to reduce carbon dioxide emissions by 500 tons per year. (Zara, 2018).
In 2011, it signed a dialog with Greenpeace for its Detox Campaign, becoming the biggest retailer in the world to raise awareness for this. (Greenpeace, 2012) Zara’s promotion and awareness of such campaigns only serve to cement its image as one that is responsible and dedicated to being en-vironmentally friendly, allowing them to tap into the market segment of those that seek sustainable goods. However, at the same time, this results in higher prices of goods and therefore, cutting out the seg-ment that has lower disposable income and does not care for environmentally-friendly goods.
Zara has rarely run into legal issues with regards to the various local market laws in the countries they operate in. Furthermore, they have and are focused on creating an ethical brand image, as seen in their other campaigns and commitments, such as their environmental focus, and dedication to sustainability. In order to create this image, compliance legally is an important investment and re-quirement for them. Zara ensures that the brand fully adheres to the law.
In 2017 alone, 341 Zara stores have closed down globally. Although the parent group, Inditex, claims that these are mostly due to reorganisation and absorptions, it is crucial to note that as Indi-tex CEO, Pablo Isla points out, 90% of these are absorptions - but what about the other 10%? (Del-gado, 2018) The following Porter’s Five analysis of Zara’s competitive environment aims to find out if external factors were the cause of these losses.
With the industry being highly saturated, it is not a surprise then, that many brands come into close competition with Zara. Despite being owned by the same parent group, brands such as Pull & Bear and Bershka, are a few of such competitors. In fact, due to the stores close proximity in physical location, with the stores often found within a few doors next to each other, it is not surprising that possible cannabalisation may occur. Strategetically, it is not advisable for Inditex to have placed the stores as such. Another association with Zara is inevitably Mango. Having similar price points and target market group, the two are often neck and neck with each other, making them direct rivals.
Zara and Mango have launched similar storefronts and designs consistently and also have similar views on being sustainable, given that Mango has created a line for sustainable fibres, (Mango, 2017) Committed, in 2017. Zara needs to create differentiation between themselves and Mango, for fear of being over-taken. Grazia magazine has also claimed that Mango is the new Zara given its bold collections and high-fashion takes, as compared to the classics Zara launches. (Grazia, 2017)
The fast fashion industry faces a constant threat of entry by new competitors. This is as the products do not have large differentiating factors (to be explored more in 3.5), and relies largely on brand and fame, as well as quality of goods and price. The low barriers of entry then allows for many entrants into the industry. Looking at Zara, comparative to its competitors, its brand name is well-known, giving it an advan-tage in the highly saturated fashion industry. However, house-hold names are a dime a dozen - H&M, Forever21, Esprit, to name a few. With new entrants each and every day, Zara needs to step up its game on brand indentification such that it can continue operating at an advantage.
This is one area in which Zara does not need to worry largely about, given that they are outsourcing to their own factories - this vertical integration business model gives them more bargaining power. Zara is also paying a premium to their suppliers for materials, but for a good cause that is advanta-geous to them - they pay extra for organic materials and sustainable cloth, which is offset to the consumers who purchase Zara products with the environment in mind.
Looking at the current consumers of Zara’s target market, consumers these days have increasing purchasing power, and they are demaning high or passable quality goods that match up with the price of what they are paying for. With fast and ever-changing trends in fashion, it is also important that they are able to obtain the articles they want as quick as possible (Wang, 2010), before the trend dies down. Zara fully caters to these fashion needs, given that they push out new lines every two weeks. The swift production and design to launch that Zara manages, captures the consumers on the spot.
Consumers are highly price sensitive - Zara’s goods are certainly of quality, but there is a good number of other retailers that can match the quality at much cheaper rates. Furthermore, Zara de-signs are often prey to copycat versions launched on the online retail market, such as by individual producers and sellers on Taobao or Alibaba. These goods may be direct substitutes to consumers that enjoy the designs but do not value the exact materials and production of Zara.
Zara currently appeals towards those who want instant gratification for fast trends. On the other hand, they are missing the market segment that prefers spending less in the long run, thus wanting to invest in high-quality pieces that are timeless. (Lutz, 2014) Zara could launch a line of staples and classics such as basic shirts, patent pumps, clean-cut blazers and more. They may price this at a higher price point to reflect an upgrade in quality as well - while marketing them as a line of articles every girl needs in her wardrobe to carry her through every situation in life.
Given that Zara has stakes and stores in so many different countries around the world, by involving more cultures around the world, there would be more alignment between their cultural inclination and Zara products. For example, the influence of traditional, ethnic clothing into fast fashion - man-darin collars, Chinese silk prints, Korean hanbok fastenings, all of these can be integrated in a trendy manner, thus helping to bring global consumers closer with the brand. When consumers feel personally invested into the brand or design, they will be more compelled to make the purchase. (Juneja, 2018)
Zara currently possesses a line for the younger set, producing bolder, and trendier pieces for the younger women. This line, TRF, could be enough competition to set off Mango’s loud, select, high-fashion pieces. However, their price point for the TRF line does not reflect their target audience, which are the youth, naturally with less purchasing power than their adult counterparts. Zara can lower the price of the products under this line, and the lowered profit margin may be offset by either the sales from their other lines, or by increased sales due to the lowered prices.
In order to create a larger disassociation with their primary rival brand, Mango, Zara can consider offering things that Mango does not, such as free returns on delivery orders, or made-to-order re-stocks for items that have sold out and remain popular. Zara can also emphasize that their products are made in Spain to support the local economy, whereas Mango products are largely outsourced to China. They may also capitalise on the impression that clothes made outside of China are of better quality.
Zara’s success can be attributed to their business acumen which correctly identified consumers’ needs such as that for instant gratification and fast fashion, thereby making their swift production lines their greatest strength. They have also constantly moved with the times and improved their technology and services to satisfy customers, including using state-of-the-art cutting edge devices in and out of stores. However, they are also at a risk of being overtaken by rivals in the highly compet-itive fashion industry, they need to step up to the plate and take measures to prevent this from oc-curing. This report has suggested four recommendations for them including the launch of new lines and lowering the price point, as well as how to create differentiation between them and other brands. Despite this, Zara still remains a worldwide brand, possessing a huge market share currently and will likely continue their line of success.
The Strengths & Weaknesses Of The Zara Company. (2024, Feb 02). Retrieved from https://studymoose.com/the-strengths-weaknesses-of-the-zara-company-essay
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