Phase 2 & 3 ZARA Clothing Industry Analysis
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Phase 2: ZARA Clothing Industry Analysis
Zara’s Benchmark Firms
Benchmarking is the reference point for measurements (Ammons, 2018). A benchmark is a standard applied as a reference for performance evaluation. Zara, therefore, uses various measures to evaluate its standards in different clothing production units (Ammons, 2018). Benchmark types used in Zara firm include; result benchmarking, product benchmarking, industry benchmarking, process benchmarking, competitive benchmarking, benchmarking center, strategic benchmarking, internal benchmarking, business process benchmarking, and best practice benchmarking (Ammons, 2018).
Zara uses company group benchmarking to evaluate various operational facets of the firm and compare them with similar firms’ measurements (Ammons, 2018). Also, Zara applies result benchmarking to compare its inter-firm qualitative data, where it analyses the data from various firm branches around the globe. Furthermore, Zara uses product benchmarking to evaluate consumers’ perceptions of its services and the goods it produces. With the consumer’s perception, Zara’s clothing firm can compare itself, for example, the products it provides and its competitors in the marketplace globally (Ammons, 2018).
Process benchmarking involves a discrete process against companies considered leaders in different strategies. Therefore, Zara uses this benchmark to gauge the discrete function of the organization’s thought leaders in producing outfit materials, helping it adapt and follow its route for correctly processing products (Ammons, 2018). Also, Strategic benchmarking Zara uses this benchmark to systematically evaluate the alternatives offered for their products’ production, management, or marketing processes. After considering the other options, they come up with the best choice to favor producing quality products in the competitive field.
Internal benchmarking is a benchmark against internal operations, like the business performance in various geographical divisions (Ammons, 2018). Zara applies this type of benchmark to analyze its internal processes, like its performance, in different geographical business divisions like the firm in China geographical area. When the firm gets that the version is unwanting or records a poor performance, it suggests the best performance strategy to deliver good products that incur higher income to the firm resulting in more significant profit earning. Regarding competitive benchmarking, Zara uses this benchmark to measure and study its competitor’s progress without cooperating with the competition (Ammons, 2018). When Zara does not cooperate with the competition, it is difficult for the competitors to copy its production strategy, hence becoming the leading production firm globally. Lastly, best practice study, this type of benchmark assists Zara company to work extra time to achieve more profit. This type of benchmark study stimulates the firm since employees are encouraged by rewarding them for making them motivated. When employees in Zara firm are motivated, they work together as a team leading to excellent production (Ammons, 2018).
Zara’s Key Success Factors in the Fashion Industry
A fundamental element of the marketing concept is the ability to respond to consumer requirements promptly (Oran, 2019). Therefore, it is significant to be proactive in markets like the fast-fashion company that Zara is functioning in, and time is a crucial factor in such industries. This type of market that Zara operates in is characterized by high-impulse purchases, low predictability, high volatility, and short lifecycles. Hence, it is significant for Zara to consistently have its products available for capable consumers to sell and earn an adequate profit. By providing high products at reasonable prices, Zara is among the leading fast-fashion firms globally.
Zara is successful because its suppliers are strategically designed to fulfill their conceptual idea of supplying trendy clothes at a reasonable price to a broader market (Camargo et al., 2020). About 45% of the firm’s suppliers are situated in either part of Europe or Spain. The flexibility of the company’s changing market is due to the local presence of manufacturing facilities located approximately a shorter distance from their headquarters and stores. With high integration with the industry’s suppliers, highly sensitive to the available products, and proactive response is produced mainly in Europe (Cohen et al., 2022). With increased integration with the industry’s suppliers, cost and lead time are minimized because the local presence makes it easier to introduce fresh and new merchandise numerous times every year. Situating the major production parts in a local set-up eases the product destination time as the product reaches the store at the right time, meeting the consumer requirement and resulting in a higher sell-through. The high sell-through avails capital for the firm, therefore, easier improvement and management of the Zara fashion design company.
The second reason for Zara’s success is the advancement of technology that allows Zara to bring distribution to designing time to approximately two weeks (Ruan et al., 2022). The time bridging between designing and distribution gives Zara a vital advantage over its retailer competitors; that takes approximately one month to design and distribute its products. In bridging the gap between distribution and planning time, most consumers get the products at the right time when they are on the verge of the products hence encouraging their morale in shopping with Zara.
The next factor contributing to Zara’s success is the practical and robust logistics system, resulting in new fashionable products arriving quickly at different stores globally (Sitaro, 2020). Due to the commitment by Zara company to satisfy the consumers. Therefore, the firm encourages the staff to consider paying more attention to consumers since their salaries correlate with commissioning realized from each sale. Because Zara’s store is its advertisement, it spends little on advertising its products (Mabe et al., 2018). Overall, Zara successfully controls all the critical business elements process and has become a renowned product brand worldwide (Murtaza et al., 2019).
Zara’s Trends
Around the 1980s, Zara disrupted the firm by outwardly reconfiguring the supply chain and creating a fast-fashion group that could instantly react to fashion trends by vertically integrating the supply chain (Norem & Pushparajah, 2022). Zara then created a new fast, affordable fashion category that allowed the industry to become a heavyweight in the competitive field. The trend assists in the distribution of the outfits as they are shortened by two weeks to retail from inspiration, Zara’s movement, as illustrated in figure 1 below (Norem & Pushparajah, 2022).
Figure SEQ Figure * ARABIC 1:Zara Distribution Channel
Zara’s apparel and textile sector internationalization increased as global competitors emerged (Rodríguez, 2018). Zara’s clothing and textile company’s distribution channel is highly concentrated (Shah et al., 2022) and characterized by fragmented outfit production, having a more significant number of medium-sized to small firms in Germany, France, Great Britain, and Italy (Medina-Jiménez, 2022). Consolidation of Zara’s sectors is done through strategic alliances (Lin et al., 2021), acquisitions (Valodka & Snieška, 2019), and mergers.
Zara delocalizes its primary clothing and textile industries in countries like China with low transportation, labor costs, and lead time (Evans & Smith, 2006). Furthermore, Zara’s re-evaluation business model in adapting to the consumers changing tastes and preferences (Wijdeveld, 2018), hence becoming vertically and flexibly organized, with limited vertical integration being dominant over complete integration. Adopting advanced technology increases productivity and competitiveness (Steuer et al., 2000). Also, Zara’s democratization of the fashion sector has contributed immensely to the shift of clothing democratic principles by providing the latest attractive prices for cloth designs (Aftab et al., 2018).
Covid-19 Effects on Retailers in the Zara Industry Sector
The pandemic lockdown that lasted for about three months posted £4.2bn in sales, which indicated 17% of Zara’s sales below the pre-pandemic levels and about 50% in 2020. The covid-19 pandemic led to temporary restrictions and stored closure from operating in primary markets like Brazil, Portugal, Italy, Germany, France, and United Kingdom. The covid-19 restriction denounced in 2019 led to Zara accruing a loss of about a quarter of a trading hour as lockdowns were announced in various parts of the world (Masud, 2022). Due to the operational regulation of the key markets, the company accrued a loss of £351m during the three-month pandemic lockdown. A statement by Chloe Collins, the consultancy apparel head of Global Data, Covid-19 impacted Inditex severely in quarter one because the third wave of the primary market, Europe, was hit highly by the third pandemic wave, leading to its profits falling by 70% to £946m. In Spain, when the head of state denounced a national lockdown on 14th march, retail sales dropped by a significant value of 16% that month, leading to greater losses.
The potential challenges in the Zara industry
New trend arrivals force retailers to adapt to their collection exercise, causing an effect that James (2011) illustrates as the bullwhip effect. Zara has an excellent method of handling the changing demand, allowing the industry to be a leading business firm in fashion retain organization resulting in widespread success. Most of Zara’s inventory strategies, decisions, and operations are based in Spain (headquarters), making the firm rely heavily on outsourced business. In every instance an order is made, the items are shipped to Spain for their final inventory stocking and design adjustment. Despite expanding into new markets, Zara still maintains all its operations in Spain (headquarters); hence, according to Berfield and Baigorri (2013), centralization is Zara’s competitive advantage source.
Zara’s greatest challenge in the industry is increased distribution chain cost associated with spreading operations outside the headquarters state (Berfield and Baigorri, 2013). China, as the facility’s location, will significantly impact a quality assessment by the cube, and the subsequent shipping of products to their respective stores requires expansion of the chain distribution. When the distribution chain is expanded, Zara’s designers’ ability to make quick changes to clothing designs due to composite coordination between marketers, buyers, designers, and planners in Spain and China is also affected (O’Shea, 2012).
The other challenge is increased labor costs for new facilities, acquisition of high-technology equipment, and rising costs for establishing new warehouses. When the company spends more profit capital on labor costs, the company’s management will be unstable as any capital to avail during an emergency issue will be lacking. High technology today requires more funds to maintain the digital appliances used for record-keeping and online sales through the sales channel, which requires a stable internet connection for the whole company. Purchasing a Wi-Fi connection for the entire company and some consumers as a subside can sometimes be expensive.
It is also worth mentioning language barriers and cultural issues are part of the challenges since Zara relies on continuous and direct collaboration and communication with the store managers. Other countries have different cultures, and when the Spanish industry is introduced in some countries, the company will have to be affected by that culture until the firm adapts to that country’s culture. An example is when a product has been shipped to Spain by the Chinese Zara management team; since the Chinese language is different from the Spanish language, the language barrier erupts in this case hence being a challenge.
Zara’s Future Projection Growth
The future growth of Zara company is supported by improvements made on their logistics platform with a clear innovation focus, advancements made to the online sales channel, and investments done in the stores. Therefore, the company should put its consumers at the center of the industry’s future growth, announcing the closure of approximately 1,000 stores globally to push sales related to e-commerce. Therefore, the company hopes conglomerated online sales represent a quarter of the total sales or more. By practicing this, Zara places its consumers as its utmost priority, providing the customers with the required online options and enhancing the consumer’s in-store experience with new technology and digital solutions. By keeping consumers at their hearts, the consumers get motivated and feel valued by the company; hence they keep coming back to shop with the company. The company grows financially when the consumers come back to shop with the company. It becomes stable because capital is used to carry out the company’s daily activities.
For Zara to maintain its leading position, it has to diversify its product lines and adapt continually to meet its consumers’ tastes and demands per their geographical location. This diversity, therefore, results in Zara’s operational cost increases due to an increasing order variability that tends to result in an associated higher cost of inventory (Lu, 2011). A good example is that fashion outfits are shipped to the headquarter (Spain) for quality valuation assessment when they are sent to China in their respective distribution stores. This example illustrates that for Zara to operate successfully, it has to deal with an expensive work effort across its supply chain through China and Spain as the headquarter. Unquestionably, Zara’s expansion to China did not take into contemplation an automated underground monorail absence reality connecting Spain to China (O’Shea, 2012); thus, the firm accrues considerable expenditures using logistics.
Despite Zara being a global corporation in fashion retail company, more of the business still rotates around Europe and Spain (SCM Globe, 2015). Therefore, according to its specific characteristics, the only best strategy to address Zara’s greatest challenge is to establish “centralized distribution centers” in various markets. For countries close to one another and the same regarding consumers’ tastes and preferences, Zara can establish a distribution center with a manufacturing firm in the two country’s territories. Moreover, Zara can establish another Cube in China where it addresses its significant matters: the shipping back and forth product needs between China and Spain because firm expansion is already a budgeted strategy in the industry. Due to centralized distribution centers, Zara must discover alternatives to reducing its operational costs associated with installing production facilities in China (Gallaugher, 2019). Hence, Zara must duplicate its Spanish Cube to various parts of the universe.
Providing an additional Cube in China by Zara would lead to excellent consumer demand support, thus meeting the unique needs required by the company, not only in Chinese but also in the whole Asian market. China being a region with low labor costs, the firm needs to take advantage of the increased production in the area and produce cheaply for low prices maintenance of goods (O’Shea, 2012). Keeping in mind that fashion taste and changes characterize the clothing company, establishing a Cube in China allows for reduced response time to changing consumers’ needs by the company.
Phase Zara’s competitor’s analysis
Zara Uniqlo H & M MANGO
Number of Stores Almost 10,000 stores 2,000 stores in 25 markets 4,800 stores operating in 75 markets globally 1,200 stores in 91 countries worldwide
Business Description It is the largest international fashion industry specializing in fast fashion and sells various accessories and clothing to perfumes. It maintains a carefully curated image as a classy and stylish brand with a higher price point. It is a clothing firm operating within the fast fashion company, and its business strategy is to offer functional clothes designed to inspire the globe on casual dressing. It focuses on the affordability of the products. Multinational clothing industry focusing mainly on the fast-fashion business model, selling clothes for teenagers, children, men, and women The company uses a production revenue model since it manufactures and designs its clothes. Its business model concentrates mainly on franchising, the firm’s main expansion plan.
Net Sales Highest net sales amounting to 20 billion $ 1.7 billion $1.9 billion $ 2.5 billion
Brand Valuation 13.2 billion euro 9.1 billion euro 7.6 billion euro 9.7 billion euro
Total Revenue 3.2 billion euro 930.1 billion yen 1.4 billion euro 2.1 billion euro
Market Share 2.0% 0.17% 0.19% 0.25%
Production Own production facilities. Hence controlling the production chain Outsourced from 690 suppliers Outsourced from 700 suppliers Outsourced from 880 suppliers
Financial performance return on equity of -0.11%, a return on asset of -$0.16%, with a net profit margin of -3.35%. Return on equity of 15.1% and return on asset of 8.85%. ROA 8.05%, ROE 23.15. Its profit was 67 million euros, with a 0.6 increase in basics.
Strategies Vertical scale integration strategy. Vertical integration allows for natural communication between Zara company segments like transportation, manufacture, and design, enabling Zara to develop more efficient distribution and supply channels for consumers.
Logistics trade-offs strategy. Since Zara mainly produces its products in Europe, it can avoid the vertical integration cost by generating major European sales.
Market collaboration strategy. The company collaborates with global ambassadors like Adam Scott, the professional golfer, as the golfer shares a common value with their brand, resulting in a commitment to creating a positive impact on individuals by contributing to society at large.
High dedication to innovation strategy. The firm focuses on development and research to constantly build on its brand’s technologies.
Cost leadership strategy. It focuses on work efficiency to expound the market share for H & M firm instead of setting higher prices to earn of great profit margin.
Price strategy. The company focuses on satisfying its buyer’s needs by providing high-quality fashion for lower prices and controlling labor and transport costs; the company prices its products at a low price of Rs 400 and a high price of Rs 8,000.
Multi-domestic hybrid strategy. It applies this strategy in addressing the specific issues in the country where the firm is located to help it survive the country’s issues and improve its products for consumers.
Globalized strategy. It uses this strategy to address concerns about the organization’s operation.
Taking X sales to be $ 10 and the total sales of all the competitors are $ 26.1, to get the market share, compute the total net sales for all the competitors such as adding $20 + $ 1.7 + $ 1.9 + $ 2.5 to give a whole deal of $ 26.1.
Zara’s SWOT Analysis
SWOT analysis provides detailed information about the firm’s opportunities, weaknesses, strengths, and threats in analyzing Zara’s performance.
STRENGTHS WEAKNESSES
It has a reputation for being stylish compared to other competitor firms like H & M.
The company produces high-quality products as compared to its competitors.
The company’s supply chain cost management is low.
Zara is fast and efficient in the production of goods as compared to other competitor firms.
It encourages global search within its geographical division.
It provides a solid online network to consumers.
It successfully utilizes influencer marketing techniques.
It comprises a larger team of skilled designers.
Clothes have a reputation for being desirable and stylish.
It can pick up the market and production trends as soon as they erupt and then displays the products on its shelves quickly compared to other companies.
It is expensive for fast fashion.
Sizing differs in different clothes.
It is vulnerable to supply chain issues.
Fast fashion has a negative reputation.
It was criticized for undesirable business practices.
OPPORTUNITIES THREATS
Global expansion, the industry needs to expand globally because some countries worldwide still lack Zara stores.
Athleisure is improving and becoming popular; therefore, the company needs to design a line of outfits for this athleisure purpose.
The firm utilizes digital marketing even more for various digital activities like online sales.
Zara should therefore move into the slow fashion industry to improve more on fashion.
Individuals are purchasing less since the global economy is recovering following the covid-19 pandemic.
The majority of individuals oppose fast fashion.
Customers increasingly check for suitable outfits they prefer and enjoy putting them on.
The fast fashion firm is more competitive.
Imposing the government’s sustainability goals can sometimes impact Zara’s operational ability.
Zara brand Competition Analysis
Zara stacks up against its competitors such as H & M, Mango, and Uniqlo in that its strategy offers more products that are available to consumers than its competitors that offer low product availability. As Zara’s competitor clothing retailers offer product sales to the public ranging from 1,000 to 5,000 various outfit clothing, Zara does more than that in production as it produces over 10,000 pieces yearly with over 10,000 stores. This unique characteristic related to Zara’s strategy has put it on the front line of appealing to a larger number of consumers with varied tastes. Zara’s ownership is by the textile giant Inditex which is its flagship brand; thus, its supply-chain ownership allows for various swift product turnover, enabling the company to design various products and have them sold in stores after two weeks to one month, which is not the case with its competitors taking too long to design and market their products approximately one-to-two months or even four months.
Zara boasts more stores than any of its competitors as it has most of its locations globally, differentiating it from its competitors that major on the home store rather than global stores. The company produces refined and stylish products similar to high-end designers’ and fashion brands’ styles at modest prices compared to its competitors offering higher-quality products. The future for retail marketing is to minimalize advertising but opt for high-quality social media content by carefully placing Instagram influencer posts; this is what Zara is famously practicing. Since successful individuals do not only wear clothes but show them off too, the best way for make individuals to buy a company’s clothes is to make them stylish, and Zara company is producing more stylish products than its competitors making Zara’s brand to be stronger as compared to its competitors. A strong brand is associated with more styles shorter lead time. When many consumers purchase purple scarves, they can only find them in large numbers in Zara as it produces more stylish products within a short time, like two weeks or so, compared to other competitors, delivered after two months. Hence with this, Zara’s brand is strong against its competitors’ brands.
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