Why Zara Succeeds: Analysis of Zara Business

Zara is one of the largest international fashion companies. It belongs to Inditex, one of the world’s biggest distribution groups (Inditex, 2010). Inditex was founded by Amancio Ortega, who is now the third richest man in the world. Inditex is made up of almost 10 companies which specialize in clothing. Zara’s estimated share of the total revenue of the Inditex group is 80% (Wlodzimierz, 2012). There are now over 6,500 shops in 88 different countries (Ruddick, 2014). Zara is noted for selling modern designs that the public needs with quality at affordable prices, CNN called it a ‘Spanish success story’ (SLIDESHARE). Zara’s popularity has continued to grow over the years, one of the main attractions of the company is it’s faster fashion cycles, instead of two or three it brings several cycles in a year (Pratap,2017). According to Pratap (2017), Zara is ‘subject to several forces in the international market’ such as PESTLE.

The most important political factors for any business are the financial regulations of that country (Pratap, 2017). This is because according to Allen (2001) ‘any activity undertaken by the business will not go unnoticed by the government’. Therefore it is important that businesses such as Zara are up to date with the regulations they must adhere to within that country. Zara operates through a ‘Vertical integration system’, meaning they own different factories, outlets, and transport systems. The management must be aware of the trade system of the country they operate in and be well aware of the import and export regulations as well as government policies to avoid fines (Kasi, 2016). For example, Zara faced fines back in 2015, over poor working conditions in Brazil (Butler, 2015). According to Butler, the fines were up to £25 million, the Brazilian labor ministry found evidence that 7,000 workers had been poorly treated since 2012. Therefore if the political environment is safe and peaceful the brands are happier this is because political disruption of the market can affect the economy. Zara has managed to overcome this by limiting its supply chain operations to its home country and neighboring nations, therefore minimized the political disruption threat (Pratap, 2017). The more stable a political situation of the host country, the better Zara will be able to form it’s business roots in a country.

Economic factors are also a huge part in the success of a business. Businesses such as Zara must be aware of the interest and exchange rates as well as the cost of importing and exporting goods (Kasi, 2016). This is because higher inflation rates mean the brand may not be affordable to the public as previous statistics of Zara show that sales in Spain in 2011 were 25% although in 2009 Inditex sales were 6.8% higher. Although this didn’t affect Zara due to its global presence, the capability to curb losses or slow profits is significant (Inditex, 2009). Therefore Zara should be familiar with economic growth, interest rates and taxation charges to avoid this (Kasi, 2016). Zara uses affordable pricing to help fight off effects of low economic activity because lower economic activity reduces the purchasing power of customers who may start to cut down on costs, this can take a heavy toll on sales (Pratap, 2017).

The social aspect of business also holds utmost importance, this is because ‘businesses cannot stand divorce from society’, therefore investing in society is a worthy thing to do (Pratap, 2017). Brands that divert their attention away from the cultural aspect of business and marketing, are at risk of losing customers. Zara does not enter any new market without doing its preliminary research this is because culture influences people’s buying decisions, people prefer buying items related to their culture (Pratap, 2017). It is of great interest for Zara to focus on population levels, as it will aid in deciding which population should be focused on in terms of producing clothes for example; higher birth rate is easy for companies like Zara to be able to produce according to population structure (Inditex, 2014).

Information technology has dramatically changed the lives of individuals and organizations. Now, accurate business planning, effective marketing, systematic management, and long-term business growth could not be achieved at an optimum level without technology (Butt, 2015). Zara has a global presence physically but with the help of the website Zara.com and social media the brand can have a virtual presence also (Kasi, 2016). Instagram, Facebook, Twitter can help the company to stay connected with its customers. Customers can also share photos wearing products this shows Zara has an interactive bond with the brand (Inditex, 2014). Zara partnered with Toyota back in 2014, for the application of JIT and Lean facilities across its manufacturing operations. This has enabled Zara to respond to customer demand quicker and coordinate logistic activities better. They have also implemented an RFID system for tracking inventory along its value chain meaning they can track inventory in other stores or on the Zara website and improve customer experience (Pratap, 2017).

The environment is also a key factor with regards to the success of a business. Organizations must use products that are socially accepted as being environmentally friendly. Any organization violating safety measures may face a tough time from their international market (Kasi, 2016). Sustainability is the most important concern of businesses globally. Inditex has pledged to make its stores 100% eco-efficient by 2020. They have also invested in sustainable wear ‘green to wear technologies’ making them eco-friendly (Pratap, 2017).

There are several laws that businesses must comply with, Inditex has implemented programs that guarantee living wages for its labor force and Zara is also focused on creating an ethical brand image (Pratap, 2017). Legal formats can affect a companies reputation plus its costs, if a company like Zara fulfills all legal obligation it will establish a high reputation in the mind of the consumer and is welcomed in the international market (Kasi,2016). As Zara is an international brand, they need to justify and fulfill all laws that govern the international market to be a successful brand (Inditex, 2014).

Microenvironment factors are factors close to a business that has a direct impact on its business operations and success (Tailor, 2017). One micro factor would be the suppliers, they control the success of the business when they are the only/ largest supplier of good consequently holding the power. The supplier's product is a core part of the buyers finished product and business (Allen, 2017). Inditex has over 1800 suppliers according to their website, stating ‘we only work with suppliers who comply with our requirements’ (Inditex, 2017). However, they have low power over suppliers because there are several suppliers in the apparel industry.

The macro environment is the general environment this includes government economic conditions and other fundamental factors that generally affect all organizations (Bateman & Snell, 2010). Macro environment factors can be split into four categories; firstly the political factors, within this industry workers rights and child labor laws are important to consider in order to create a legal and sustainable environment (Suttle, 2011). Zara have achieved this

SWOT refers to strengths, weaknesses, opportunities, and threat. This kind of analysis allows the management sector of a company to identify external and internal factors that will affect the future performance of the company (Hill, 2017). Zara’s strengths include a highly developed supply chain, this enables it to get new products to the market at a rapid rate, which encourages greater consumer acceptance and willingness to purchase cutting-edge designs (Rodrigo, 2016). Zara also has a large international presence, they have 2000 stores around the globe meaning they are a very recognizable brand which keeps customers visiting regularly and restocking their products. Zara does not outsource its products in the hope of reducing labor costs, instead, they utilize the cheap labor in countries like Portugal and Morocco meaning it is vertically integrated unlike its competitors (Bicknell, 2017). Its fast response to its customer's demand enables Zara to meet expectations resulting in them being successful. Zara’s design to stock cycle varies from 4 to 6 weeks compared to 6 months of traditional businesses within the same industry (Bicknell, 2017).

Zara’s weaknesses include the fact that it is required to produce a large number of products on a regular basis they don’t have opportunities to produce new innovative design at the higher end of the market (Rodrigo, 2017). Furthermore, they operate on a centralized distribution system, this being one of their biggest weaknesses. This is because if a technical problem occurs the whole system could collapse, whereas in other companies the distribution networks are decentralized meaning if one part of the network fails, it is easily repaired and doesn’t affect the rest of the system. As Zara controls production, suppliers, distribution systems they are prone to unpredicted problems (Rodrigo,2017). Another weakness would be the fact that Zara is part of the ‘fast fashion industry’ because of this it cannot be seen as a premium luxury brand as it is considered a great fashion imitator, it imitates runway fashion as opposed to predicting styles of the season (Hansen, 2012). One problem Zara could easily eliminate is the fact that they don’t invest anything in advertising their products. Due to the fact they operate on a 0 advertising policy unlike their rivals H&M and GAP which allows their rivals greater public exposure (Hansen, 2012). One of their biggest marketing moments was when Kate Middleton wore a dress from Zara the day after her wedding.

Opportunities for Zara include scope for global expansion, in places like Africa and Asia as Zara locate their stores in countries like Egypt, Morocco, Tunisia and Algeria whereas places like India, UAE, and Saudi Arabia, don’t have as many stores but are home to many rich people, therefore, there is a lot of room for expansion (Rodrigo,2017). When a company expands internationally it naturally provides opportunities for faster growth, so long as the company researches its market and know exactly what their customers are looking for, it leads to success (Burton, 2017). A further benefit of this for companies like Zara, according to Burton (2017) is that expanding internationally means completing transactions and converting from foreign currencies, this can have a positive impact it is located somewhere where the currency is valued more than the Euro or vice versa. Another area in which Zara could potentially expand would be their online marketing (Rodrigo,2017). E-commerce consists of purchasing and selling products or services through electronic systems such as the internet (Wills, 2015). According to Wills (2015), more than 60% of people are now purchasing goods online from the comfort of their own home, therefore E-commerce is expanding tremendously because of the range of benefits it brings to consumers and businesses. Zara’s rival company GAP doesn’t have a good online marketing channel therefore, there is room for Zara to take the spotlight. It could also expand to countries where the online shopping option isn’t available in order to give their products more exposure (Rodrigo,2017).