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Swot & 5 forces analysis for Zara.

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Introduction

´╗┐Ans 1: Inditex is a global specialty retailer that designs, manufactures, and sells apparel, footwear, and accessories for women, men and children through its chains around the world. Zara is the largest and most internationalized of the six retailers that Inditex owns: (Zara, Massimo Dutti, Pull & Bear, Bershka, Stradivarius, and Oysho). Zara is one of the leading retail garments chain in Europe. Their main competitors are Gap and H&M, and together they form a group of speciality chains in the apparel industry. Zara has operated and adopted a different strategy as compared to Gap and H&M and the following points draw the difference between the players. 1. Vertical Integration: Traditionally the global apparel industry is highly labor intensive rather than capital intensive. Hence outsourcing production to developing countries with low labor rates to lower costs is a common trend amongst the big retailers. The same strategy is followed by Gap and H&M. In contrast, Zara has developed a successful diverse method of doing business in the fashion industry by working through the whole value chain. Zara manufactures 60% of its own products and is able to be flexible in the variety, amount, and frequency of the new styles they produce. In fact the whole line of most fashion sensitive products is produced internally (comprising around 50% of the total manufacturing) and in small batches for the most time-sensitive ones. ...read more.

Middle

Zara?s closes competitors are H&M and GAP. 2. The target group is almost the same as is the price range of the products with minor variations. 3. Zara has developed a business model which gives it competitive advantage over its rivals in terms of fulfilling the requirements of its target audience. 4. Zara has been consistently beating its competition in terms of percentage increase in Sales and Operating Profit Percent Increase(2004-05) GAP H&M Inditex Sales -1.78% 13.11% 23.29% Operating Profit 4.99% 17.57% 47.53% 1. In an industry which is very fast and with short product life cycles, Zara has established a niche for itself over its competitors. Threat of Substitutes: LOW 1. Clothes and garments are one of the essential consumer goods. There cannot be real substitutes for clothing products in general. 2. Zara has created a niche for itself- fast and trendy fashion at affordable prices which is very hard to substitute. 3. The target audience is fashion conscious youngsters and they cannot go on to designer clothes because of lack of affordability. Threat of New Entrants : LOW 1. The fashion clothing and apparel market is already dominated by Zara, GAP, H&M, departmental stores and other mass merchandisers. The average size of the revenue pie has already shrunk for the existing players and hence a new entrant would have to compete for the leftovers. 2. Zara is a part of the Inditex Group, and can benefit from the groups economies of scale. 3. ...read more.

Conclusion

It may also look to outsource some aspects of manufacturing keeping the most necessary manufacturing operations at hand by establish manufacturing set ups. To reduce lead times, manufacturing can be outsourced to Mexico which again provides labor cost arbitrage and hence cost savings. 1. Internet Retailing: The advent of internet has changed the way businesses are being operated. With increasing number of internet transactions, it bodes well for Zara to start retailing on the internet by going for an ecommerce portal. The portal should be country specific to leverage on the price differentiation advantage which Zara currently enjoys. Internet retail will lead to a lot of savings in terms of logistics and distribution and also in terms of setting up of infrastructure and excessive manpower. It will also give Zara an opportunity to conduct various experiments in various geographies and if successful implement them in the actual stores. 1. Diversification: Zara should look at diversifying its product portfolio. It has established strong expertise in distributions and operations and could leverage this for other product ranges. Zara could try to launch a shoes range, accessories range or cosmetics range and use the mixed model strategy. It would be easier to start it as a part of internet retailing and based on that could be developed further. Zara should look to focus heavily on advertising and marketing in the long as well as short run- to gain lost ground and get a stronger grip. ...read more.

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