ZARA is the biggest retailing clothing brand which originated from Spain in 1975 when Amancio Ortega started Zara as a part of Inditex group of companies. Today Zara is a fastest growing retail merchandise throughout the world. In fiscal 2012, Inditex reported total sales of $20.7 Billion; Zara represented 66% of total sales or €10.5 Billion ($13.6 Billion) with 120 stores world-wide. (Loeb, 2013). They own the shopping outlets in 400 cities of Europe, the Americas, Asia and Africa which brings in about 80% business to its parent company.

Competition in the Industry

The biggest competitors of Zara include the H&M, Benton and the Gap. Zara being the most reasonable and fashionable beats the sales of Gap and Benton however H&M being equally qualified stands on the same pedestal as Zara. But Zara’s supply chain model is super responsive. Other retailers typically spend months for the launching the latest collection but Zara responds to the constantly changing fashion needs and puts forward new clothing line every two weeks. Because of the limited stock for shorter period of time, Zara collects 80% of the full ticket price on its retail market. The market in general takes 60-70%. As a result the Inditex’s net margin was 10.5% in 2001, whereas Benetton’s was only 7%, H&M’’s was 9.5% and Gap had none. (Machuca, 2004)

Potential of New Entrants into the Industry

With the fast growing fashion industry and fiscal crisis, people are looking for economical goods. Zara addresses that problem by providing reasonable prices with high quality. However increase in euro rates will consequently increase the selling price for the customers and the company might lose the advantage of being the economical brand against its competitors. However due to the brand equity of the company and its shortest sales cycle, Zara has earned the reputation that would attract the customers anyhow because rather than defining a particular style, Zara appeals to a larger audience where trends change within a week or so.

Zara owes its fast growth to the diversification in style in both horizontal and vertical direction which forms new fashion statements.  Zara’s parent, Inditex, whose other retail chains include Massimo Dutti and Bershka, opened 448 new stores in 2005, while H&M inaugurated 145.  But some analysts have shown concern about its rapid evolution stating that its cost growth is exceeding its sales growth. (Tiplady, 2006) So the company probably has to invest in emerging markets to sustain its growth. However Zara invests in real estate business to buy prime locations for its outlets. So the risk for the company is comparatively low than its competitors because of its cash flow. (UK essays, 2013)

Power of Suppliers

In days of globalization, as the market continues to grow more liberal, the supplier’s power is weakened by low wage boundaries like China. Moreover, the monotony of the supplies from the suppliers further diminishes their power as they are now strongly dependent on the apparel industry for their operations. Zara provides its suppliers with licensed contracts so they are stuck with the requirements which leave little or no room for variation in designs which lessens their hold on the market.

The bargaining power of suppliers is quite strong since the cost to switch to another supplier is very high and the brands tend to establish a stable relationship with one supplier who has knowledge on standards of safety and quality. Therefore the suppliers enjoy arbitrage by setting the prices for the required material. Hence the power of suppliers is moderately high. (Steve, 2013)

Power of Customers

Zara spends about 0-0.3% of its budget on advertising. It relies on words that travel from mouth to mouth. It invests in R&D department to acknowledge the need and wants of the consumers and strive to put the collection from the sketch board to the shelves in 15 days.

The consumerism of fashion is quite unpredictable. Customers are free to buy whatever fancies them regardless of the fashion statements made by the brands. However considering the hype of the quality and prices available at Zara, the loyal customers still wait in line for every fashion frenzy. And the limited stock availability adds up to their excitement and only 10% of the stock remains unsold. However the company has to look after the prices so as not to lose their clientele. Suffice is to say the power of the consumer is moderate.

Threat of Substitute Products

Hennes & Mauritz (H&M) can compete with Zara in term of quality and affordability however it spends a lot in its advertising and might take an advantage of the economic crisis.  Its supply responsive chain is not as effective and successful as Inditex.

Conclusion

Zara as the largest and fastest growing retail brand has establishes a successful business model to survive successfully in this fast paced world. However to sustain its rapid progression it has to capitalize on its strength, take advantage of opportunities and take challenges put forward by economic culture of present. (Kimiagar, 2008)

Bibliography

•    Kimiagar, S. (2008, September 2). Zara operation management, A business case! Retrieved from http://shahinkimiagar.blogspot.com/2008/09/zara-operation-management-business-case.html
•    Loeb, W. (2013, October 14). Zara’s Secret To Success: The New Science Of Retailing. Forbes.
•    Machuca, K. F. (2004, November). Rapid-Fire Fulfillment. Harvard Business Review.
•    Tiplady, R. (2006, April 05). Zara: Taking the Lead in Fast-Fashion. Bloomberg Businees Week.
•    Essays, UK. (November 2013). Company Analysis For Zara Marketing Essay. Retrieved from https://www.ukessays.com/essays/marketing/company-analysis-for-zara-marketing-essay.php?cref=1
•    Steve, J. (2013, May). Zara’s Porters five forces analysis. Retrieved from Qessays: https://www.qessays.com/zaras-porters-five-forces-analysis/

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