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Zara Overview
Whenever we talk about the fashion industry, Zara is a global brand with massive popularity in developed as well as developing countries. Originally, Zara is a Spanish fashion brand but the company has an extensive presence in all parts of the world. Besides, with a market capitalization of more than USD 76 billion, Zara is on the list of the 200 most valuable companies in the world by market capitalization.
Zara is certainly one of the most successful fashion brands in the world. However, to sustain its competitive advantage and thrive amid the increasing competition, the company needs to consistently optimize its internal capabilities. Having said that, this article presents Zara SWOT Analysis which delves deep into the examination of the internal strengths and weaknesses of the company. Moreover, SWOT analysis as an effective strategic analysis tool also looks into opportunities and threats for the company with respect to the concurrent external environment.
Besides, if you wish to understand SWOT Analysis in detail, you can go through our meticulous SWOT analysis guide. From what is SWOT analysis to the SWOT analysis template, this guide will definitely clear all your doubts. As of now, let us get started with the SWOT Analysis of Zara.
Table of Contents
A meticulous SWOT Analysis of Zara
Strengths of Zara
Premium product quality- Zara is known for its trendy designs and fashionable products. The company uses premium fabrics in its ready-to-wear products, Moreover, the company offers the products at reasonable prices than its competitors. The graph below shows that the share of premium fabric used by Zara is among the most premium apparel segment.
Strong image- Zara is perceived as a quality and most favored brand among adults and millennials. It was the most googled brand in the fashion category in 2021 in 37 countries (Thornhill, 2021).
Extensive presence- Zara has a high store count of around 7000 throughout the world. Moreover, the company’s products are available worldwide in more than 200 markets through online means. Zara caters to large consumer markets in almost all the top economies of the world.
Profitability- Despite heavy restrictions all over due to the COVID-19 pandemic, the company managed to increase its net sales and gross profit in 2021. According to its annual report, the net sales increased from $20402 million in 2020 to $27716 in 2021 whereas the gross profit grew from $11390 million to $15814 million. Though there has been an increase in the profits, the company also needs to address the issue of decline in the cash flows as there can be issues in maintaining equity which is important for running day-to-day operations.
Low cost of output- Most of Zara’s production is outsourced to factories in low-cost regions like India, China, Bangladesh, Vietnam, etc. and as a result, the company is able to save a lot on labor, the ultimate result of which is the production of items at a very low cost which provides the company the opportunity to enhance its profit making.
In-house operations- Around 65% of the manufacturing for the products is done in-house which enables the company to have control over the design, manufacturing, logistics, and distribution. Thus, the company is in a better situation to adapt to the change in customer preferences (Zhang, 2017).
Weaknesses of Zara
Issues in the supply chain- Zara has been involved in many controversies that can harm its reputation. It has been accused of promoting forced labor in the factories in Xinxiang and the employees in the factories of its parent company, Inditex has been accused of exploiting labor by employing them on a daily contract basis wherein they are not provided the job security (Bain, 2019). Further, Zara has been involved in providing poor working conditions to the workers in many emerging nations such as Brazil, India, and Bangladesh. To resolve these issues effectively, Zara will need a strategic change management mechanism.
Limited offline stores- Another weakness that can affect the company, in the long run, is the limited presence of offline stores, especially in developing countries like India which offer a huge market to the brand.
Opportunities for Zara
Low-cost products- Most of the products sold by Zara are targeted at high end customers which is evident from the Business Insider’s report which reveals that the company’s basic jeans start at $45 and the range of the products offered in the stores is also less compared to the other retailers, so the company should diversify into manufacturing of low-cost products and increasing the range of accessories. The brand can enhance its market penetration strategy by introducing low-cost products to cater to a larger market in developing nations.
A surge in people’s spending on apparel- The demand for clothing in many markets is an uprising, for example in the US, the demand for clothing and related accessories was 30.6% higher in Feb 2022 compared to the same period last year. This presents an excellent opportunity for the company to further enhance its market and be more dominant.
Threats for Zara
Competition- The major competitors for Zara include H&M, Shein, Prada, and many other highly popular luxury apparel and accessories manufacturers. In terms of EU cross-border transactions of fashion products in 2021, H&M outsmarted every other brand and occupied 2nd position while Zara was at the 8th position. However, in terms of overall sales, Zara is leading all the brands and it has recovered its pre-pandemic figures. Further, Zara has around 300 stores worldwide while H&M has more stores, around 5000. Moreover, Shein, the Chinese company dealing in fast fashion products has also gained immense popularity over the years and is valued at more than $100 billion and ships its products throughout the world.
Counterfeit products- The whole fashion industry is facing the problem of fake products in the market that have their label moreover as a result of the intense competition, many a time designs are copied by other brands. This is a serious threat for Zara as well because it can lose out on millions and billions of dollars. The brand will need to introduce strong measures against counterfeit products.
Shortage of cotton- Zara is facing a shortage of cotton because of the ban by various nations on cotton from Xinjiang due to the allegation that forced labor is used to extract cotton from this region. This can lead to production issues for the company as Xinjiang is the major producer of cotton.
To encapsulate, Zara is a high-end fashion brand and has an extensive presence throughout the world. The profits of the company have climbed in the last 1 year though there have been issues with the cash flows which need to be looked at on an immediate basis. The political tensions mounting between China and the western countries can have a large impact on the company as Xinjiang, the area majorly responsible for supplying cotton to the apparel manufacturers has been in the news for allegations levied by various governments related to the use of forced labor in the farms. Besides, for a better understanding of how external business factors influence the company, you can go through our PESTLE Analysis of Zara.
Recommended Readings
References
Bain, M. (2019). Zara’s sustainable sweatshirt raises troubling fashion ethics issues. qz.com. Retrieved 27 July 2022, from https://qz.com/quartzy/1752597/how-a-zara-shirt-raises-ethical-issues-in-sustainable-fashion/
Lectra. Retviews: the automated competitive analysis platform for fashion. www.lectra.com. Retrieved 27 July 2022, from https://www.lectra.com/en/products/retviews.
THORNHILL, T. (2021). What the world wants to wear: Fascinating maps show how Zara is the most popular fashion brand in 2021 (but it's Macy's that's No.1 in the USA and Next is top in the UK). www.dailymail.co.uk. Retrieved 27 July 2022, from https://www.dailymail.co.uk/travel/travel_news/article-10208761/What-world-wants-wear-Map-shows-Zara-everyones-favourite-fashion-brand-2021.html.
Zhang, Y. (2017). How does ZARA dominate the fashion industry again? Analysis on ZARA’s supply chain. medium.com. Retrieved 27 July 2022, from https://medium.com/@yiranz6/how-does-zara-dominate-the-fashion-industry-again-analysis-on-zaras-supply-chain-86a5e3be54d3.
