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In this article, we’ll walk you through a SWOT analysis for Zara. Inditex, the world’s biggest fashion retailer owns the brand Zara. In 1975, Amancio Ortega, Inditex’s founder, opened the first Zara store in Spain. Since 1975, Zara has grown to be a dominant presence in the fashion industry.
Today, with 2,240 stores across 96 countries, Zara brought home €19.5 billion in 2019. Contributing 70% of Inditex’s revenue in 2019, Zara is Inditex’s crown jewel.
What makes Zara such a popular brand? Well, our SWOT analysis for Zara helps you learn why. Here’s what the SWOT analysis covers:
- Strength: Internal factors enabling Zara’s growth.
- Weakness: Internal factors hindering Zara’s progress.
- Opportunity: External factors aiding Zara’s rise.
- Threat: External factors pulling Zara down.
Reading this SWOT analysis helps you upgrade your business IQ and develop your problem-solving skills. Interested in getting smarter? Just five minutes will do it. Shall we start?
What are Zara’s major strengths?
- Pioneer Advantage: Fast-fashion focuses on designing, producing, and selling clothes as soon as they identify a trend. In traditional fashion, the process takes months; Zara does this in 3 weeks. As pioneers, Zara has the most evolved strategy and management practices in running the supply chain.
- Stores: Zara is selling in 202 markets and has stores in 96 of them. Totaling 2249 stores, Zara has the most number of fashion retail stores in the world. The number is almost twice the number of retail stores than Nike has, which has the second-highest number of retail stores.
- Supply Chain: Zara refreshes its online and retail collection two times a week. Zara’s 10 logistic centers deliver to any location in the world within 48 hours. Inditex also has an in-house team who design software to double the speed at which the company dispatches orders.
- Design Team: Inditex has a team of 700 trained designers who transform the customer’s desires to designs. The team of designers outputs 50,000 creatives a year. And, it takes them just 3 weeks to get the designs from the drawing board to the stores.
- Switch to Online: Inditex is investing $3 billion in bolstering its online sales. The investment focuses on developing an engaging online buying experience and integrating existing physical infrastructure. The company aims to generate a quarter of its revenue through online sales by 2022.
The reason Zara is so successful is that Zara has mastered the game of fast-fashion. But due to growing concerns about the environment and ethics, fast-fashion turns out to be a double-edged sword. We’ll cover this and more in our next section on Zara’s weaknesses.
What are some of Zara’s weaknesses?
What makes Zara unique in the world of fashion is its commitment to revise its collection every two weeks. This commitment gives Zara a place at the top of the industry. But the edge comes at a price. Here’s more:
- Fast-Fashion: Interestingly, the trend that helped propel Zara to the top is the cause of its most pressing weakness. With the focus on sustainability increasing among customers and policymakers Zara’s weakness is balancing sustainability with fast-fashion.
- Reliance on Physical Stores: The pandemic accelerated Zara’s plans to limit the number of physical stores. Online sales helped Zara climb out of a massive drop in sales because of COVID-19-related causes. However, even with online sales picking up, the sales are only at 89% of what it was in 2019.
- Expansion to US and Asia-Pacific: Zara has 99 stores in the US. This accounts for only 4.4% of Zara’s 2249 stores. However, the US is the biggest apparel market in the world. And the Asia-Pacific accounts for 38% of the apparel market share. Zara’s presence in both geographies is weak.
- Ethical Work Practices: Inditex works with 1520 suppliers across 7108 factories. Although Inditex deserves credit for creating a rigorous code of conduct, a large gap exists in enforcing the code. An issue, as reported by Buzzfeed, regarding the treatment of workers in Myanmar points to this gap.
- AI-Enabled Prediction: Currently, Inditex is working with AI and Big Data companies to create an AI-enabled system that predicts consumer behavior. However, the current system is still in its testing stage. When such a system goes online, Zara will have the unrivaled capability in predicting and fulfilling customer’s needs.
What are some opportunities for Zara?
One of the biggest advantages Zara has is its experience in capitalizing on fashion trends quickly. This advantage puts Zara in the right place to leverage opportunities on the horizon. Some of these opportunities are:
- Rapid Delivery Cycle: Customers visit Zara’s shops on an average of 17 times a year. This is because Zara responds to trends as soon as they emerge. Right now, Zara delivers a trend from start to finish in just 2 to 3 weeks. However, in the future, Zara could shorten the cycles even more.
- Personalization: Collecting data and segmenting the customer base after analyzing the data is becoming easier than ever before thanks to AI. This allows for providing personalized suggestions to customers. Zara should capitalize on this technology.
- Eco-Friendliness: According to the Sourcing General, more than 1/3rd of Millennials and Gen Z look for “sustainable” and “environment friendly” labels on clothes. Together, the two groups account for 50% of the population. So, Zara must listen and respond to this growing need.
- Resale: The re-sale market, currently valued at $28 billion today, is predicted to grow to $64 billion in 5 years. Integrating a re-sale strategy to their current platform would allow customers to purchase more with less wastage. This encourages consumerism while supporting sustainability.
- Influencer Marketing: Unbox Social says influencer marketing is the most effective strategy for promoting lifestyle brands. Zara’s success with the #DearSouthAfrica campaign involving 60 micro-influencers engaged 8 million people. This should be a model for the future.
What is the biggest threat to Zara?
Zara’s biggest competition in the traditional sense would be H&M. However, in the online space, Zara faces competition from multiple businesses. But competition is just one of the threats to Zara.
- Competition: China’s fast-fashion giant, Shein, is the world’s biggest fashion retailer with a purely online presence. During September, the Shein app saw 10.3 million downloads. Zara, with only 2 million downloads in the same period, must watch out for its rivals in the digital arena.
- Price War: Fast-fashion, Zara’s primary niche, brings the latest trends from the ramp to the customers quickly and at low costs. However, the industry is vulnerable to imitators waging price wars to leech off from Zara’s line.
- COVID-19: In the first quarter of 2020, Inditex reported a 44% drop in sales. Inditex’s report states the closure of 88% of its stores because of the Coronavirus lead as the central reason for the drop in sales.
- Government Regulations: Inditex has 13 factories in Spain. Due to the Spanish government’s lockdown measures, only 3 of the 13 factories operated in the early months of the pandemic. With Europe heading towards a second wave, the company can expect similar measures.
- Sustainability: The use-and-throw attitude people had towards fashion is changing. People are conscious of the impact of fashion on the environment and people. Thus, Zara would have to push towards making fast-fashion a sustainable business – economically and ecologically.
Zara SWOT Analysis: Conclusion
Recovering from the COVID-19 crisis and strengthening online presence is Zara’s current priority. Inditex’s financials show signs of recovery and the management is optimistic about boosting online sales. So, we could say Zara has things under control for now. But what about external factors?
Well, the pandemic has accelerated the growth of online shopping. In the immediate future, Zara must consolidate its footing in the digital and physical space. Zara has got many things right in its rise to the top of fashion retail. The question is – can Zara do the same online?
From this SWOT analysis for Zara, we hope you have seen how creativity and commitment to customers strengthens a brand in adversities. Here’s the takeaway – get in touch with your audience, build a strong relationship with them, and give them what they want.
SWOT analysis is the best way to learn from the successes of the business world. We’ve put together many of them. Look at our SWOT analysis library for more. In case you would like to learn what is a SWOT analysis, read our guide on how to do a SWOT analysis. You can also use SWOT analysis examples and our SWOT analysis template to get the hang of it.
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