Zara: Operational and Supply Chain Issues

Introduction

The current business report works on analysing the possible key issues faced by Zara in regards to business operations and supply chain. The business report hence works on analysing the existing business environment while assessing the companies for consumer and product range through a series of systematic intervention suggests festival porter's five force supply chain value chain and BCG matrix. Finally a conclusion will be made about the possible viability of Zara surviving in the fashion industry and overcoming the possible gaps.

PESTLE Analysis

Political: Zara is a Spanish brand enjoying benefits of operating business out of the European Union. In political context one of the biggest advantages of running a business in the European Union is the extensive trade agreement making it incredibly easy to import raw materials and export the finished product version European Union (Aftab et al. 2018). However it should be duly noted that Zara can send its merchandise all over the globe at low cost. The free trade policy of European Union is massively beneficial for Zara. Unfortunately the onset of Brexit may pose threat to the distribution cost and channels, adversely affecting the business in Zara

Economic: as previously stated Zara is a Spanish brand with high rates of unemployment being in Spain. The high rates of unemployment gives relatively low labour cost special in comparison to other countries in Europe such as France and Germany (Rashid and Barnes, 2017). Zara manufactures a good amount of product in Spain as the low labour cost help them in minimising cost and improve their profit margin. There remains no doubt that Zara is an affordable brand, this relative affordability of the brand in comparison to other high street fashion names allows Zara to thrive in poor countries. Instance despite the slow economy in Spain Zara continues to be one of the most popular clothing brands in the country. Indeed there are few expensive products in Zara however it is most important that Zara can cater to the needs of majority shoppers with the rest of clothing line up (Rashid and Barnes, 2017).

Sociocultural: despite being affordable than most of the brand Zara is a fashionable name for most consumers. Marketing experts can press the company for its hard work as our promises to deliver good quality, in affordable budget. Thanks to the brands clever marketing tactics it rather feels exclusive purchase for the buyers. The strong and positive brand presence allows Zara to gain healthy profit margins for the shareholders, while making the buyers feel that they are getting the real deal. The trends related to online shopping is getting a major boost in the current 21st century. However, Aggour et al. (2016) argued that online shopping may not be cut out for web and consumers are reluctant to order their garments online with the type of the button due to issues related to cloth material and size. This may emerge as a potential danger for Zara and the business needs to play closer attention to the performance on web-based platforms is consumer preferred modes of shopping are definitely changing (Rashid and Barnes, 2017).

Technological: the aspect of technology and big data usage needs to be stress upon for finding better ways to reach what appeals to the customers. Zara can make use of successful data analysis to power their business even further (Choi, 2017). Currently Zara lacks a strong technological backup to the business, making it extremely difficult to sustain in the competitive market

Legal: the issue pertaining to copyright it is a major problem. Zara love catching up to latest clothing trends and making and affordable and in that scenario the company is likely to run into some copyright issues (Aggour et al. 2016). Zara has already been accused of stealing design from high-end shopping brands and always manages to get out of legal troubles. However, fortune may not favour Zara all the time

Environmental: the fast fashion generates a large amount of waste, same holds true for Zara. As the consumers are evolving into conscious customers this could have a negative influence on the brand if it fails to take sustainability seriously (Aftab et al. 2018).

Porter’s 5 force:

Supply chain management:

Objective: Stable and sustainable mode of supply chain

Opportunity: To secure possible supply chain management tools and ensure collaborative programs for promising sustainability

Material issues:

Proximity sourcing

Labour practices and human rights in the supply chain

Safety and health concerns within the manufacturing units

Equal trading conditions

The business is conscious about the brand image; it works with an organization that maintains a certain stance in the labour market. Zara is strictly against child labour and underage employment. It additionally harbours a strong resentment against those supporting human trafficking. Hence, the company cuts off ties with organizations even indirectly related to these things.

Value chain:

The prime motive of value chain is to create a unique identity for the business and increase the possible profit margins for the business. Apart from that, it is equally for the business to remain unique and develop a possible competitive advantage within the industry. The table below would work on providing the much needed idea related to value chain formation.

Based on the above table, it can be conclusively stated, it is important to understand that; fashion industry is highly competitive in nature. The fast reply is of utmost prominence within the competitive dynamic fashion industry. Zara maintains a strategic advantage in the given case, as it works on providing better aspects of producing goods in smaller batches and testing them for good. It becomes equally important to understand the prospects of fashion, which can further help in planning future marketing prospect, while creating and maintaining a value for them in the market.

BCG:

Cash cows: fashion house at the products which bring about major inflow cash to the business organisation. Such products are useful in creating stronghold of the market and develop high level of demand within the market ensuring better rates of competition (Ci, Park and Kim, 2017). Such strong position helps the company in analysing the products for becoming a major source of revenue. Jeans, shoes and skirt are the major cash cow for Zara. The company is able to make its position by availing share of 42% with mean competitors such as Gucci and Armani (Aabed, 2017). Many consumers all over the globe know Zara due to their accessories and apparels

Star: this product help in generating enough revenue for the company to be profitable but still have a scope of expansion. The prime reason of future growth of star product is the scope of growth within the industry and consequently support high share within the market. Fashion Jersey, denim and unique collection of bags and accessories are star items in Zara with an estimated market share of 25% and 10% respectively (Aabed, 2017). Zara can work on retaining this position with the help of effective and efficient marketing strategies encompassing events such as product development and market penetration (Uriarte Elizaga, 2016).

Question mark: like any other business Zara is likely to have a product portfolio that brings low profit as compared to the star products or cash cows (Ci, Park and Kim, 2017). Coupled with the weak financial position of such business unit it harbours a potential for future growth however the situation remains highly uncertain. If the condition within the market is fairly stable and favourable these products can grab attention of the consumers coupled with the large market share to transform into a star item or cash cow. Pull and bear, Stradivarius are question mark products for Zara 6% of market share (Aabed, 2017). The kids section for Zara needs to be explored further for better profit margins

Dogs: there exist few products which are constantly underperforming while consuming more and generating minimum profit these are considered dog items. For Zara, dog items are the maternity wear and undergarments section as there are many competitors who are dominating the market and Zara fails to make a prominent place for itself (Uriarte Elizaga, 2016). Hence Zara need to invest more within this category to transform the dog items into a cash cow product or the company should work on shutting down its operation so that the fund could be rightly used somewhere else for ensuring better performance and positive profit margin

Conclusion

Based on the above studies it can be conclusively stated the challenges associated with the business in Zara is immense. The possible legal, environmental and technological boundaries are high enough. In similar regards, it is equally important to understand the fact; the competitive rivalry is likely to increase if there remains no scope of value creation for the business. The business strongly needs to rely on technology and make sure it rightly works as per the needs of the customers.

Reference list

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