ZARA Competitor analysis:

Three main competitors of Zara pose the biggest threats. These are Mango, the Gap and
H&M. Almost any retailer can be a threat to Zara due to its wide range of merchandise
categories.

Gap is one of Zara’s main competitors as it also sells the same merchandise as Zara does at more
affordable prices and less trendy styles. The company also has a worldwide
presence.
H&M (Hennes and Mauritz) is one of Zara’s most threatening competitors.
H&M also has been quick to internationalize which allows it to gain sales in countries outside
its native Sweden. H&M also is more attentive when entering new markets and tends to enter
one country at a time, as opposed to Zara who multitasks globally. H&M builds distribution
centers in their international locations in order to cut down lead times and potential logistics
costs. Another threat to Zara is that H&M carries trendy clothing choices that they have
designed based on the melding of international apparel tastes. Mango, also a Spanish fashion
retailer is also known for its excellent business model and supply chain management.

Mango has a history comparable to Zara’s being a Spanish company with approximately the
same number of stores in the same number of countries worldwide, and a recent history of great
success. Like Zara, all the Mango stores are located in prime positions, whether in the main
shopping centers or premises located in city centers. Stores are of sufficient size to display its
collections. The products of Mango are also similar to Zara’s in style, pricing and quality.
However, Mango is very different from Zara in organizational strategy as Mango is based on
a franchising system, and in marketing strategy, relying heavily on advertising campaigns.

Michael Porter’s Five-Forces Model

The following is the Five-Forces Model for Fast-Fashion with further analysis relevant to
Zara:
Entry Barriers:

Since the apparel industry is quite mature, the average growth rate is quite low due to
relatively high saturation of market participant. Entry and exit barriers are relatively law for
distributors: however, manufacturers are experiencing quite high cost of entry and exit, since
huge capital investments have to be made. Since apparel does not require any special
conditions for storage due to its physical attributes, storage costs are low in comparison to
other industries e.g. food production. When it comes to quality of products, one could argue
that it does not vary too much, but it is rather brand which makes it worth, therefore high
promotion costs might deny potential participants. In addition, the fashion is changing fast,
therefore, lower quantities should be produced which in turn leads to diseconomies of scale.

The fast fashion industry is very vast, and it is not easy for the new players to enter the market.
According to Porter (2008) companies in the fashion industries must bear different types of costs
including marketing, manufacturing as well as distribution costs. These costs cannot be bear by
small players and they find it quite challenging to meet the production and related expenses.
Thus, threat of new entrant for Zara is low.

Threat of Substitutes – (high):

The threat of substitution in clothing sector is high because there are large numbers of clothing
and fashion items providers. These providers include luxurious retailers as well as departmental
stores along with discount fashion products retailers. The customers can easily switch from
expensive clothing of Zara to the brand providing high quality products at lower prices.
Customer’s Bargaining Power:
In case of clothing industry, the bargaining power of buyers is between moderate and high. The
customers can switch the clothing brand because of low switching costs (Porter, 2008).  Zara
attracts the customers towards its innovative and stylish products to make them loyal. However,
Zara’s competitors can attract the customers by producing stylish clothing. . 
Bargaining Power of Suppliers
The bargaining power of suppliers in case of fashion clothing sector is low for the reason that
there are a lot of suppliers that can provide raw material to the clothing companies. For example,
inexpensive raw material can be purchased by western companies from countries like India,
China and Pakistan. In addition, it is not easy for the suppliers to get competitive edge over
others for raw material like cloth and cotton. Thus, they have low bargaining power and this is a
plus point for Zara because it can purchase raw material at cheap prices.
Rivalry among the competitors:

Competition among existing firms (High) – the competition among existing firms in the clothing
industry is very fierce. Zara does not only compete with local Spanish brands such as Mango or
Springfield, it also competes with other European brands such as H&M, Topshop and United
Colors of Benetton. Zara also competes with international brands like Gap.

Assessing internal environment of Zara

Competency framework
The competencies of Zara can be assessed through:

 Tangible resources

Zara has a strong financial position in international market, is being supported by Inditex (parent
company of Zara) and earn huge revenues (Zara, 2017).  Zara has many different trademarks
worldwide.  As per Jimenez (2014) Zara has overwhelmed Louboutin in French court in recent
years for the trademark on red soles. This enabled the company to improve its sales from shoe
manufacturing. In addition, the logos as well as highly fashionable brands are tangible resources
that are useful for Zara in building and retaining strong brand personality.

 Intangible resources

The intangible resources of Zara include its designer’s team of more than 200 designers that
regularly revise information related with fashion trends and styles.  Moreover, the highly
proficient ITC systems are used by Zara to communicate and build relationships with customers,
suppliers as well as designers and other stakeholders (Mihm, 2010). In addition, the exclusive in-
store inventory model adopted by Zara is its competitive edge on rivals and the quick inventory
turnover also brings a sense of sophistication to consumers (Caro and Gallien, 2010).

 Capabilities

The time-compressed manufacturing procedure adopted by Zara is its core capability. New
designs are produced and offered to customers in only 4 weeks (Mihm, 2010). According to
Keane and te Velde (2008), the vertical integration model used by Zara is its key strength in
which it design and produce products with the help of its own designers, producers as well as
logistics. In addition, the cost-effective marketing strategies are used by Zara as it keeps
advertisement to a minimum level as compared with competitors. But, it has maintained strong
brand image in the market.

SWOT Analysis of ZARA

1. Strengths of Zara:

Starting off the SWOT Analysis of Zara, we have its Strengths. In this sub-section, we will learn
about the organization’s unique capabilities that give it an advantage in capturing more market
share, attracting more customers, and maximizing profits.
 
 Pioneer Advantage: The focal point of instant fashion is to design, produce and sell at a
fast rate. Conventionally, this procedure is lengthy; but for Zara, it is only a matter of 3
weeks. As pioneers, Zara has the most developed, strategic practices in supply network
management.
 Stores: Zara has outlets in 96 out of the 202 countries it sells in. Zara has the most

fashion retail stores in the world, with 2249 locations. The number of retail stores is
about double that of Nike, which has the second-highest number of retail stores.
 Supply Chain: Zara’s supply chain updates its online and retail collections twice a week.
Zara’s ten logistic centers deliver within 48 hours to any region on the planet. Inditex also
has an in-house software development team that is working to increase the company’s
order fulfilment speed.
 Team of Designers: Zara has a design team of 700 trained designers who turn customers’
desires into designs. Each year, the design team produces 50,000 pieces of work. It also
takes them only three weeks to get the designs from the drawing board to the shelves.
 Investing in Online Retail: Inditex is investing $3 billion to boost its online sales. The
money will go into creating a fun online shopping experience and integrating the current
physical infrastructure. By 2022, the corporation wants to generate a quarter of its income
from online sales.
 
Zara’s success can be attributed to her mastery of the fast-fashion game. Fast fashion, however,
is proving to be a double-edged sword as environmental and ethical issues mount. In our next
part on Zara’s weaknesses, we’ll go over this and more.

2. Weaknesses of Zara:

Zara’s commitment to revising its collection every three weeks sets it apart from other fashion
houses. Zara’s dedication has earned it a spot on the top of the industry. However, the advantage
comes at a cost. Here’s some more information on Zara’s weaknesses: 
 
 Instant-fashion Trends: Surprisingly, the movement that propelled Zara to the top is also
the source of its most serious flaw. Zara’s issue is to find a way of balancing
sustainability with instant fashion, which is becoming more popular among buyers and
policymakers.
 Physical Store Dependence: Zara’s efforts to reduce the number of physical stores were
pushed by the pandemic. Zara was able to recover from a large reduction in sales due to
COVID-19-related issues thanks to online sales. Even with the increase in online sales,
sales are still only 89% of what they were in 2019.
 Expansion to the US and Asia-Pacific: Zara has a total of 99 stores in the United States,
out of the total 2249 outlets, US stores only account for barely 4.4% of the total.
However, the United States is the world’s largest apparel market. In addition, Asia-
Pacific accounts for 38% of the global apparel market. Zara has a little presence in both
geographies.
 Ethical Workplace Standards: Inditex works with 1520 different suppliers across 7108
different plants. Although Inditex deserves respect for developing a strict code of
conduct, there is a significant gap in its enforcement. This gap is highlighted by an article
in Buzzfeed about the treatment of employees in Myanmar.
 Prediction Aided by AI Systems: Zara is actively working with AI and Big Data
companies to develop an AI-enabled market trend prediction system. On the other hand,
the current system is still being tested. Once such a system is in place, Zara will have an
unrivalled ability in forecasting and satisfy client wants.

3. Opportunities for Zara: 

Zara’s ability to quickly capitalize on fashion trends is one of its most significant assets. Zara is
in a good position to take advantage of upcoming changes because of this edge. These are some
of the opportunities:
 
 Rapid Cycle: Customers visit Zara’s stores an average of 17 times each year, indicating a
rapid delivery cycle. This is due to the company’s proclivity for reacting to trends as soon
as they emerge. Zara currently creates a trend from start to finish in about two to three
weeks. The brand should be able to continue these cycles even further in the future.
 Customization: Thanks to AI, collecting data and segmenting the client base after
evaluating it is easier than ever before. This enables clients to receive customized
recommendations. Zara should use this technology to its advantage.
 Sustainability: More than a third of Millennials and Gen Z look for “sustainable” and
“environmentally friendly” labels on clothing, according to the Sourcing General. The
two groups together account for half of the population. As a result, Zara must pay
attention to and respond to this expanding need.
 Reselling: The resale market, which is currently worth $28 billion, is expected to expand
to $64 billion in the next five years. Customers would be able to buy more with less
waste if they included a resale plan into their present platform. This promotes
consumerism while promoting environmental sustainability.
 Influential Marketing: Influential marketing is the most effective technique for promoting
lifestyle companies, according to Unbox Social. Zara’s #DearSouthAfrica campaign,
which involved 60 micro-influencers, reached an audience of 8 million people. This
should serve as a blueprint for the future.

4. Threats for Zara:

In the last segment of SWOT Analysis of Zara, we will delve into the problems the brand might
face. In the traditional sense, Zara’s largest competitor is H&M, on the other hand, the brand is
now also facing a slew of internet-based competitors. But these rivalries are only part of Zara’s
problems.
 
 Competition: Shein, the world’s largest apparel shop with an entirely online presence, is
China’s fast-fashion behemoth. The Shein app received 10.3 million downloads in
September while Zara got only 2 million downloads in the same period, spelling danger
for the brand’s future.
 War of Prices: Zara’s core niche is fast-fashion, which offers the latest runway trends to
clients swiftly and at a low cost. Imitators are conducting pricing wars to drain off Zara’s
line, but the sector is vulnerable.
 COVID-19 Pandemic: Inditex reported a 44% reduction in revenues in the first quarter of
2020. According to Inditex’s report, the closure of 88% of its outlets due to the
Coronavirus was the primary cause of the reduction in sales.
 Regulations And Restrictions: In Spain, Inditex has 13 factories. Only three of the 13
factories were operational in the early months of the epidemic due to the Spanish
government’s lockdown efforts. The company can expect similar restrictions as Europe
and India prepare for a Third wave.