In-Depth SWOT Analysis of Zara | Strengths Weaknesses Opportunities & Threats
Zara Business Information
The Zara Group was incorporated in 1975 by Amancio Ortega, who holds the majority stake, and Rosalia Mera, who is also a shareholder. The company is based in Madrid, Spain, and employs over 152,854 people worldwide.
Zara brand is a sub-brand of Inditex, the world’s largest fashion distributor and retailer. Today, there are more than 2,240 Zara stores in 96 countries around the world, having a presence in most major markets.
Zara is a company that works in the fashion industry, specifically the quick fashion segment of the global fashion retailing industry. The fashion industry is a subset of the broader lifestyle and retail industries. The sector has a significant number of companies that are separated by subcategories.
Men’s/women’s/apparel children’s and accessories, as well as fashion, are among the subcategories. The industry’s size has grown as a result of firms’ efforts to develop newer categories of goods, which ultimately spread to newer consumer segments.
Zara is a great clothing brand. It has got a wide product line, offers fashionable designs at affordable prices, and has one of the best customer support services.
The brand also got a product portfolio of high-priced luxury items for the elite class.
The company has been successful in expanding into different countries through its store network, and they have also made good progress in opening new stores in different countries.
The total revenue for the Zara Group was up to €8.39 billion for the year ended 31st December 2009. The company also had a non-operating income of up to €184 million for the year ended 31st December 2009.
In 2019, the Zara brand was valued at approximately US$ 18.4 billion; in 2016, the brand was valued at approximately US$ 10.1 billion.
In terms of revenue, Zara reported global revenue that amounted to approximately 19.56 billion euros during the 2019 fiscal year.
SWOT Analysis of Zara
Zara Strength Analysis:
#1 Affordable Prices: Zara offers fashionable products at an affordable price range. It’s one of the key strengths of the company. The brand also got a product portfolio of high-priced luxury items for the elite class.
#2 Controlled Expansion: The company has expanded in recent years by opening new stores in different countries. The expansions are made in small numbers so that the brand maintains its exclusivity factor.
#3 High-End Product line and Innovative: Zara offers a range of high-end products and innovative designs in its stores. This has earned it a loyal customer base who visit its stores frequently for top-of-the-line products.
#4 Control over Supplies and Customers: Zara has successfully controlled supplies and customers by having a rigorous selection process for new clients. It also maintains regular communication with its customers through regular mailings and email services.
#5 Product line: Zara’s product range is extensive and covers a lot of categories. This is one of the company’s strengths as it ensures that there are products for different tastes. The customer base has been able to diversify on what they buy from the Zara store according to their needs, and they are happy with this arrangement.
Zara Weaknesses Analysis:
#1 Product Licensing: Zara has to compete with other companies that have got the franchise rights for the same product line of Zara clothing in different countries. This is one of its main weaknesses as it results in loss of earnings and is a headwind for investment plans for growth.
#2 Lack of Local Production: The company has almost no local production facilities in different countries. This is a reason for poor control over the supply chain and hence the risk of any delay in delivery.
#3 Limited Support to Smaller Communities: Zara believes that its main strength is its support to smaller communities, and it believes this to be the essence of its success. This has not been able to be translated into profits as Zara is not focusing on bringing value to customers who are based within the smaller communities.
#4 Limited Information on Products: Zara has got limited information on its products on its website. This is one of the company’s main weaknesses as it increases the uncertainty of returns to customers as they do not have enough information to make an informed decision regarding purchase.
#5 Low Capacity: Zara has low capacity in its manufacturing departments, and this is a reason for the frequent shortage of supply.
#6 Difficulties in New Markets: Zara has had difficulty entering new markets, which explains why they cannot expand their store numbers as desired by the company.
Zara Opportunities Analysis:
#1 Massive Millennial Population: Zara is one of the most popular brands in countries like Spain, France, and Italy. This massive millennial population is a future market for the company as it will only grow with time.
#2 Expanding to New Countries: Zara has been attempting to expand its operations in different countries. The expansion has occurred in small numbers with limited success as the stores have faced problems which resulted in poor performance of their store’s performance. The reasons for the poor performance include lack of necessary infrastructure, language issues, and the need for a large client base.
#3 Expansion to Smaller Communities: The company believes that its main strength is its support to smaller communities, and it believes this to be the essence of its success. This has not been able to be translated into profits as Zara is not focusing on bringing value to customers who are based within the smaller communities.
#4 Availability of Distribution Points: The company has limited access to available distribution points, which creates difficulty for the company in distributing its merchandise. This is one of the company’s main weaknesses as it increases the uncertainty of returns to customers as they do not have enough information to make an informed decision regarding purchase.
#5 Poor Cost Structure: Zara’s cost structures are very high, making it difficult for them to maintain their profitability, and this is one of the company’s main weaknesses. The long-term viability of Zara will depend on how well they can cut down their cost structure to meet the cost discipline that has become a standard in this industry.
#6 Slow Stock Turnover: Zara’s stock turnover is very slow compared to its competitors, which is one of the company’s main weaknesses. The long-term viability of Zara will depend on how well they can improve their stock turnover and meet the industry standards. This will be a very challenging task, and Zara will have to rely on its suppliers to maintain smooth operations.
#7 Lack of Sourcing Capability: The company has not received the necessary sourcing from its product makers, thus failing to meet its end-of-season supply needs. This is a weakness of the company as it results in low profits.
The long-term viability of Zara will depend on how well they can source products from different countries and meet the requirements of the industry. This will be a very challenging task, and Zara will have to rely on its suppliers to maintain smooth operations.
#8 Poor Growth Strategy: The growth strategy of Zara is poor, and this results in slow growth, thus negatively affecting the stores’ overall performance. This will be a very challenging task, and Zara will have to rely on the existing infrastructure in different countries.
#9 Poor Distribution Strategy: The distribution strategy of Zara is poor, and this results in slow expansion and poor performance by the stores, thus negatively affecting the stores’ overall performance. This will be a very challenging task, and Zara will have to rely on its suppliers to maintain smooth operations.
Zara Threats Analysis:
#1 Retail Sector: The retail sector is still subject to a lot of competition, making Zara’s expansion efforts vulnerable.
#2 Misleading Customers: The company misleads customers through the incorrect prices on their website, resulting in a loss of potential sales.
#3 Poor Expense Control: Zara’s store maintenance costs are very high, resulting in poor performance by the stores, which is a reason for the low selling performance.
#4 Failure to Meet Customer Expectations: Zara has failed to meet customer expectations and only focuses on meeting its internal objectives.
#5 Poor Product Quality: The company is accused of producing poor quality products, which results in poor customer experience.
#6Diversity: The company is diverse in its operations as it uses local manufacturers in producing locally. This creates challenges for the company in the consistency of its quality assurance which results in poor performance.
#7 Customer Experience: The company has been criticized for not having a proper customer care strategy, resulting in poor customer experience, thus affecting the stores’ overall performance. The customers face many problems with Zara, including poor quality products, slow delivery times, poorly maintained stores, and lack of proper customer service.
#8 Poor Satisfaction Levels: Zara’s product quality is poor, resulting in high dissatisfaction levels from customers. This negatively affects the stores’ overall performance.
#9 Reliance on Foreign Countries: The company is reliant on foreign countries such as China for production, which makes the company vulnerable to changes in standards of these countries.
#10 Low Employee Satisfaction Levels: The employee satisfaction levels are very low, which creates poor employee performance, resulting in poor customer experience.
#11 Over Exposed Brand: Zara is too dependent on its main product line, making it vulnerable to factors such as competition and economic conditions that affect fashion trends.
#12 Product Variety: Zara employs limited product variety, limiting the level of success it can achieve in the niche market it intends to operate in. A highly profitable business can only be achieved when the product variety aligns with the target market. Zara’s operational strategy cannot be considered an appropriate one if it does not take care of its competition.
#13 Uncertainty in the Market: Zara’s products are very dependent on the industry they intend to operate in, which is another weakness of the company. Many companies have failed due to this; for example, TJX (TJX Companies Inc. (TJX)) was forced to restate its earnings over the alleged discrepancies in the inventory levels. The suppliers of Zara are also likely to face a similar situation in the coming years as they have poor forecasting methods.
#14 Intensified competition: Zara has to compete with H&M, Forever 21, Inditex, Gap, and GAP INC(Gap). The intense competition makes it difficult for Zara to sustain profitability, which is a company’s weakness.
The long-term viability of Zara will depend on how well it can maintain its profitability to meet industry standards. This will be a very challenging task, and Zara will have to rely on its suppliers to maintain smooth operations.
#15 Imitation & counterfeit Zara products: Zara has a huge price gap compared to its competitor, which is one of the company’s strengths. The company achieves popularity due to its products and must be wary of imitations.