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Operational Analysis of Zara Fashion: Strengths, Weaknesses and Recommendations
A. Introduction
Zara, a fast-fashion retailer, is founded by Amancio Ortega and Rosalía Mera in Spain 1975. It is the world’s largest clothing retailer owned by Inditex. Zara operates in 2,238 stores across 96 markets and 48 online markets, reacting to the ever-changing business environment quickly. By having the core values of beauty, clarity, functionality, and sustainability, the company expanded through Porto, Portugal and globally. The headquarters of Zara is located at Arteixo, leading by the CEO Óscar Pèrez Marcotte. According to the accounting report of Zara (2018), they made $18.9 billion in revenue annually.
As previously mentioned, Zara could make responses promptly towards market demand. They often set up a new trendy collection to increase the loyalty of the customers. They are using pull strategies instead of using push strategies to reach customers. Moreover, in light of environmental factors, they recognize the urgency of water pollution which they committed to zero discharge of hazardous chemicals by 2020.
On the other hand, Inditex started launching online, raising the exposure of products in the future. Apart from the technological factors, Inditex plans to allocate more resources to flagship stores and at the same time closing the secondary stores. It shows that the quality outweighs the quantity in Inditex that could also expand the net space without cutting any labor supply.
According to Tan (2019), Inditex has promised that they would change the materials to be organic and sustainable, reused and organic such as cotton, linen and polyester in 100% and will use 80% of renewable energy to operating by 2025. As Inditex is the parent’s company of Zara, Zara must follow its regulations which they have developed a new environmentally friendly collection which call Join Life. Inditex also states that they would not use plastic bags and would change it into paper bags by 2020. These sustainable actions are in order to maintain the natural resources and avoid wasting any packaging.
Power/Interest Matrix helps consider the attitude of stakeholders at the start of a project or when setting out strategic objectives (Boddy, 2019). The axes show, in stakeholders, the high and low in interest and power stakeholders who need to keep informed, monitor, keep satisfies and manage closely. Customers have lots of substitute in the markets however customers are very important to the business as the business need people to consume so they should be kept satisfied. Shareholders, owner, suppliers. competitors and managers need to manage closely. Government just need to be monitor. Finally, employees, communities and leaders need to be kept informed.
B. Internal and external analysis
SWOT analysis
Strengths and weaknesses are the internal factors of the business situation. There are four strength and weakness but one would be interrupted in more depth. Fast fashion with sustainability, high economies of scale, good design advantages and loads of branches including 2242 around the world are the strengths. Large amount of turnover, hard to hire people, staff lack of motivation in large company and staffs are dependent are the weakness (Zara full account, 2019, p. 2). As Zara are sustainable, it would affect the company and the customers. According to Butler (2018), although there is not lots of customers to against fast fashion, being sustainability in fast fashion can increase the reputation of the company as cited in Barry (2018). Moreover, customers would be more willing to buy as the products are produced in a more ethical way. Although Zara need to be environmentally friendly, it would not decrease the various of product design and the profit it earns. It would not restrict the choices to the customers but also can be sustainable. Although Zara is still need to design lots of products to meet customers and the markets, it changes the materials which can be recycle to maintain sustainability.
Opportunities and threats are the two crucial external factors for helping and harming the accomplishment of the company’s objectives respectively. There are four opportunities including augmented reality (AR)-enabled shop, online development, recycling and expansion. Significant improvement of the company’s revenue has been made in Zara by launching the augmented reality (AR)-enabled shop in 120 stores worldwide. By clicking the detectors in the store, the customers could have a glimpse on models’ wearing. With the advanced technology, people crave for a brand-new experience in which Zara’s marketing mix is changed from the traditional 4 Ps strategies (Product, Place, Price, Promotion) to 4 Es strategies (experience, exchange, evangelism and every place strategies). As a result, engagement took place on wherever you walked through the shop or even at the door front. Zara is prestigious for its rapid response to the market. In terms of customers, Augmented reality facilitates them in the consumer buying decision process (information search, evaluation of alternatives, purchase decision and post purchase evaluation). For instance, AR could accelerate the buying decision in which customers could firm their alternatives by looking at how they appear on the screen but not trying them on in the real life. In terms of company, with AR, store visits would increase with a higher satisfaction rate on the products. AR is an invisible hand on boosting sales as both supply and demand would intentionally grow at the same time.
There are several threats encountered by the company which includes Brexit, global competition from direct substitutes, cultural divergence as well as disposal issues. In terms of economic, cultural and environmental development, these factors are harmful to the archive of the company’s objectives.
Porter’s Five Forces
When it comes to Porter’s Five Forces, what immediately springs to mind is the competitive environment which includes buyers’ power, suppliers’ power, threat of substitution, threat of new entry and competitive rivalry. The main driver of competitive rivalry is the number of and the capability of competitors in the market. Simply saying, if many competitors offer undifferentiated products and services, it will lower our power.
Besides the number of competitors, the quality difference will also affect the degree of competitive rivalry. If the competitors of Zara, such as H&M offer more high-quality clothing, it lowers our power obviously. Customers can easily switch to buy the products there. Moreover, customers also focus on other differences, for example, there is a 15% student discounts of H&M whereas there is no student discounts of Zara. This lowers Zara’s power. Although there is no perfect information in the world, customers may easily search for extra information in the Internet.
In line with quality and discount difference, assume that all customers are rational and maximize their profit, they will lower their cost, including the time cost. As a result, they will choose the fast fashion shop next to them rather than going to a shop which is so far away if the price and quality are more or less the same.
The last factor affecting the competitive rivalry is the customer loyalty. If Zara provides a better before-sale service and after-sale service, for instance, introducing to the customers with detailed explanation, it will probably strengthen their powers. Zara not only focuses on its employees with company initiatives on diversity, reverence and equal chances, but also focuses on their work-life balance and feelings. Therefore, employees will treat the customers well with high motivation. Also, in terms of buyers’ power, the number of buyers is also an important factor of the strength of buyers’ power. If a business has lower powerful buyers, they often able to dictate terms which increases their power.
In terms of number of buyers, Zara currently having 2131 stores within 96 markets. Zara also setting up 154 online markets which shows that Zara is a multinational companies operating in more than one country. Their market shares are having a significant high percentage of market share (1%). The more customers a business has the higher bargaining power the business have because of the fact that small amount of customers stop purchasing does not affect the business financial performance. Refer to Zara market shares and number of customers, it shows that Zara have high bargaining power to customer.
Regarding size of order, Zara customers do not do bulk buying because Zara customer are all normal citizens instead of large business. People tend to buy only dew piece of product per purchase. Therefore, Zara have greater bargaining power than customers do.
With regard to price sensibility, although Zara having high percentage of market shares, there are many competitions in the clothing industry. It could possible weaken Zara power against the customer. Clothing industry is a market that fluctuating and lots of unpredictable issues customers will possibly switch supplier or stop consuming anytime. The competitiveness in clothing industry strengthen customer bargaining power to Zara. When there are many choices ,customer will then choose the one. In terms of cost of switching, there are no cost for customer to switch supplier.There are low cost for customers to switch suppliers because there are plenty of choices. The only cost is can’t wear Zara’s product.
C. Critical analysis of CSR
In terms of the economic responsibilities in the Carroll’s corporate social responsibilities model, economic responsibilities(profit) is the foundation or the basement on which all the others are built. It is the only way to help society in the long-run basis. According to Drucker (1973), “Profit is not the primary goal, but rather an essential condition for the company’s continued existence and sustainability”. In accordance with the annual report of Zara (2019), their net profit margin is 13.19 percent which is much higher than the net profit margin of People Tree by more than eight percent which is five percent.
Legal factors are the responsibility to follow laws and not against it. People found that there were notes hidden in Zara product that notes “I made this item you are going to buy, but I didn’t get paid for it”, – which is written by the workers working Zara’s factory. It shows that Zara or Zara’s supplier are not paying workers wages for their work. But people tree did pay minimum wage for their workers which could maintain workers daily expenses.
In terms of ethical responsibilities, Zara promised that all its products will be entirely mohair-free by 2020. Although there were scandals of the inappropriate use of labor in their production, they promised a prohibition on child labor and forbiting on discrimination in the workplace. On the other side, People Tree is the pioneer of Fair Trade which concerns about the people, product as well as the environment.
Philanthropic responsibilities are people desire company to have. It shows how the company would whether give the resources which they have earned to the communities in a non-profit way and also need to be a good corporate citizen (Boddy, 2019). As mentioned above, Zara would collect the clothes which is for charity. It would donate to the non-profit organization such as Red Cross, Fabric Republic and Eden (Zara Official Website, 2019). Comparing to People Tree, they also have a charity but it is independent by People Tree and just for fair trade which means Zara is more considerate to the whole society more than People Tree (People Tree Foundation, 2019).
D. Conclusions and Recommendations
In the recommendation and conclusion, we can use electronic receipt to replace paper receipt. By developing a better Internet network, we can save more paper so that we can be sustainable and environmentally friendly. According to Isla (2019), the executive, they play a transformational role in sustainability in industry. Consequently, this meets its company’s internal value. Furthermore, it gains reputation and has a better branding effect by raising the awareness of being environmentally friendly and ethical that the society concerns a lot in modern society.
Diversification is a growth strategy which business try to enter a new market with new product. Zara can open a coffee shop market as their growth strategy. This strategy will help Zara to gain new customer. This strategy will improve Zara brand awareness because people who do not know Zara before may get a chance to know this brand because of the consumer from the coffee shop. It can also spread risk for Zara. If Zara’s clothing industry have some operation problems, Zara will still be able to make a profit in a coffee shop sector. However, there are some risks of using this strategy because Zara might face failure duel to the lack of experience of operating a coffee shop.
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