Analysis of Zara: Current Business Challenges and Ways to Overcome Them

Zara is one of the largest and successful Spanish clothing and accessories retail brands. Zara specializes in men’s, women’s and kid’s clothing as well as accessories. It became popular for producing medium quality fashion clothing at affordable prices. The first Zara store was opened in 1975 as a family business based in Arteixo, Galicia in the northern part of Spain. It was first founded by Amancio Ortega as a flagship brand of the Inditex group which is the biggest fashion group in the world.

With Zara being the most internationalized of the seven retailers that Inditex owns, the fashion group also owns several brands like Massimo Dutti, Bershka, Oysho, Pull and Bear, Stradivarius and Uterqüe. Amancio Ortega wanted to name the store “Zorba” after the film “Zorba The Greek”, but after knowing that there is a bar with the same name, he rearranged the letters and name it “Zara”. During 1985, Amancio Ortega changed the way they design, distribution and manufacturing into “fast fashion” where designs are moved from runway quickly to the consumers to respond to the latest trend. In the next decade, Zara began to expand into global markets and now Zara has 2259 stores located in leading cities across 96 countries.

Factors impacting Zara

The political factor that affects Zara is the European trade agreements. Zara is a brand that is operated from Spain therefore, it falls under the range of the European Union. The benefits for the business to run in the European Union is that they can get extensive trade agreements and tax incentive, which they can import raw materials and export finished product within the European Union and around the world with a cheaper price and lesser effort.

The economic factors that are impacting Zara is the low cost of labour. Since Spain is a country with a low employment rate, Zara can utilize the low cost of labour to manufacture products so that Zara can get more profit and provide customers with affordable fashion clothing. Another factor is the relative affordability, Zara is a brand that most people can afford compared to other well-known fashion brands. This allows the business to expand in other countries for catering to the majority of people. Zara has gained acceptance from worldwide, the social factors that influence this are that Zara does preliminary research on its target market to produce products that are accepted by the target demographic.

Cultural trends are also a factor under social forces. People usually tend to buy things that have something to do with their culture therefore, Zara does its research on the new market and cultures before releasing products that go well with the local culture. With this innovative marketing, Zara can produce fashion clothing to make shoppers feel exclusive.

The last factor is technological. Technology has been revolutionized all around the world and Zara is also keeping up with it. As being one of the world’s largest fashion retailer, Zara has been using technology to find better ways to reach customers and coordinate its supply chain activities better. Besides that, Zara has also implemented an RFID system to track inventory that is available in stores around or on the website. With this, Zara can check their inventory efficiently and improve customers experience.

Major challenges

Despite the incredible results that Zara has, the major challenges that Zara faced was the cultural difference between Europe and Asia. Asian countries are growing in the e-commerce market and the Asian market is one of them that many international brands are competing in. Due to the lack of North American style in their culture, Zara is hard to persuade Asian customers to buy their products. The other challenge that Zara faced is the excess amount of money they need to pay. As Zara produce their clothes in a low-cost region, they are subject to fluctuations in worldwide exchange rates and this will have a negative impact on the cost management. This will also lead Zara to be hard to determine the gain or loss from the currency exchange rates as it is due to the market. Not only that, but it will also lead transportation costs to increase.

Aside from that, lack of advertisement will also cause Zara to not be known in certain areas. Zara’s main competitors like H&M, New Look and Asos are focusing more on marketing online. However, Zara has adopted another form of marketing strategy to not advertise in traditional media. Therefore, Zara might have pressure on their sales and marketing. The competition in the fashion industry is intense. If the company has a strong supply chain and retail network, it doesn’t mean that they have captured majority of the market or have no opportunities for growth.

Recommendations

The recommendation for Zara to overcome cultural differences is to have a management team in different continents such as Asia, Middle East and Europe. The management team in different regions can do research and surveys of different cultures to produce the latest products that be satisfied by the consumers. The demand forecasting data that is collected will be seen by the designers to start sketching new designs that suit the market. The management team can also use their analytical skills to come out with strategies to determine the best market for the company. This can help Zara to increase their sales and profit.

In addition, the recommendations to overcome the need to pay excess amount of money is to set their production centre that are high in efficiency and hire local employees to save cost. Another way to save costs is to set up distribution centres in local areas to save expenses on shipping cost and customs taxes.

Lastly, Zara can launch an online marketing campaign and create social networking websites like Facebook and Instagram to overcome the causes of lack of advertisement. By having its own website and social networking websites, Zara can inform their potential customer about the latest product and events that are happening in the store. Interactive websites can also keep people in touch without having to go to the store which can help Zara to improve their products according to customer’s feedback. This can not only let Zara to spend less on advertising, it can also maintain their brand image.

References

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4. Inditex Group. (2021). Annual report 2020. https://www.inditex.com/documents/10279/2020-Inditex-Annual-Report.pdf/0dcaf4e5-5df5-fd4a-3e4f-b7822c46b53f
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