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Analysis of Zara's market position. ZARA is the main success factor of Inditex's growth and plays the leading role of the group's sales and profit. For this reason, we will go into details with the regard to ZARAs success factors or rather its strategic

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1 ZARA SWOT analysis ZARA is the main success factor of Inditex's growth and plays the leading role of the group's sales and profit. For this reason, we will go into details with the regard to ZARA�s success factors or rather its strategic advantages, before we start to analyse ZARA�s issues concerning its supply chain and its possible opportunities and threats in the future. ZARA is not has not only a different market positioning as to its direct competitors (see figure 1.1) but also has a unique business model which is one of the world�s most successful. ZARA is positioned more fashionable compare to its competitors but surprisingly with a relatively low price behaviour. Unlike H&M or GAP chasing low production costs by outsourcing its complete production, ZARA produces nearly half its merchandise in-house. Rather than utilize its factory�s capacities to maximize their output, the company leaves some capacity left on purpose. Instead of take the benefits of economies of scale, the retail giant does manufacturing and distributing in small batches. Not relying on extern service providers, ZARA manages design, distributing and logistic operations by itself. It leaves even empty shelves in its retail shops allows occasional stock-outs and waives the advertising completely. In short, ZARA�s business model defies the past and current conventional practised supply chain operations. Even because of that some of Zara's practices concerning its supply chain activities seem to be questionable. 1.1 Strategic advantages (Strength) As already mentioned, Zara�s strategy seems first to be a disadvantage regarding to their competitors. Zara�s most interesting and at the same similar successful competitor is H&M. Both companies are European based, are leading fashion retails in the middle-low price segment and have a strong and global expansion strategy. The difference is that H&M outsources all of its production, spends more money on advertising and is price-orientated. However, the figures are clear: In April 2006, Zara overtook H&M by posting $8.15 billion in sales in 2005, compared to H&M's $7.87 billion.1 Due to this fact we have to be aware of ZARA�s competitive advantages over traditional operating retailers what makes this company so successful. ...read more.


1.3 Possibilities for failure (Threats) European production facilities Like Zara�s direct competition, the company has some threats for failures what can stop its future growth. If the European common currency becomes stronger concerning the US dollar, the production costs will increase generally for European manufacturers and thus Zara�s production costs. The increased costs will and must be covered by the customers what may decrease Zara�s sales because the new prices will be too high for a typical Zara�s customer. Another fact threatens Zara�s success is the quota elimination under the World Trade Organization agreement in 2005 on textiles and clothing expiring. Retailers using the outsource strategy will benefit from greater access to cheaper production opportunities. Zara will have its difficulties to counter a high euro impact and its competition lower prices for merchandise. Direct competition Zara's largest threat is of course its direct competition, especially when entering new global markets. Due to Zara�s broad field of merchandise offering almost every retailer can be a threat especially when offering only one certain category of products. Very quick and effective due to international expansion, allowing the company to gain successfully sales outside Sweden is Zara�s most threatening competitor H&M. They are also entering new markets more accurately and only one country at a time compare to Zara�s global multitasking actions. H&M tends to build up distribution centres in the entered regions in order to cut down lead times and logistical costs. Another H&M�s competitive advantage is that the company offers clothes based on the design of an average taste of global apparel fashion and cheaper than Zara does. H&M is also investing more in advertising making the competitor entering new markets more successful because the locals are already aware of the trade H&M and its offer. Cannibalization One of Zara�s already present threats is the issue of cannibalization. Zara is putting multiple stores carrying the same merchandise within the same location. This location strategy supposes to cover up all the city�s residents with the same products. ...read more.


Although, the Asian market has a big scope it has been also proven as a market of intense competition. Zara should be carefully with this expansion route. It needs a good worked out strategy if they want to achieve success because of the big competition that can squeeze the margins enormously. If Zara keeps on putting a huge effort on an aggressive expansion in Europe, it will barely provide the resources and the important focus to achieve great success in such a competitive market as Asia. For an entry into the Asian market Zara has to duplicate its business model and it into the Asian market, which means a huge investment as well as higher risks. Especially the human resources are playing a big role in Zara�s success. A lack of trained personal could be one of the biggest threats in Asian market. It is for sure that there is a huge competition in the Asian clothing market, but established brands as Zara can still claim a price for its clothes higher than the competition. An increased presence in the Europe market will strength the company�s cache and make it less difficult for the Zara to compete in the future in the Asian region. Expansion in North America To build up new facilities and networks is very expensive and takes a lot of time so it may not be very difficult to realize new manufacturing plants or distribution centres in America in the short term. So Zara should stay away from the US market unless the company can develop a better understanding of the market and have built up a strong supply chain strategy like they have in Europe. Zara will need to continue to ship product from its European distribution centre and concentrate on few stores in major fashion cities such as New York. Furthermore, Zara should keep analyzing the POS date coming from existing stores and use this insight to decide on the most appropriate business model due to the needs for distribution centres, transportation and production requirements for North America. Moreover, Zara should add an e-commerce feature to its website. ...read more.

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