Porter’s Five Forces Analysis of ZARA
Key Facts
| Name | ZARA |
| Industry | Apparel Retailer |
| Founded | 1974 |
| Headquarters | Arteixo, Spain |
| CEOs | Pablo Isla |
| Revenues | €27.72 billion (2021) |
| Profit | €3.25billion ( 2021) |
| Competitors | H&M, Zara, and Uniqlo |
Company Overview
ZARA founded in 1974,The clothing chain owns more than 3,000 locations or storesincluding kids’ and home departments. It is the main brand of the Inditex Group and has operations in 96 countries. When other shops spend six months to produce a new product and bring it to stores, Zara is famed for doing so in just two weeks. With 547 stores (including Zara Kids and Zara Home), Spain has the largest market, followed by China (229 outlets), France (145), Russia (144), and Italy (134). As of January 2019, there are 98 stores throughout the US.In addition to her ex-husband Amancio Ortega, Rosalia Mera co-founded Zara. She passed away in 2013 at the age of 69. With a net worth estimated at $6.1 billion at the time of her passing, she was the richest self-made woman in the entire world. According to World’s Most Valuable Brands, it is ranked No. 41. (2020).
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is a popular framework for examining business strategies in light of the industry in order to lessen rivalry and increase profits. It was developed in 1979 at Harvard Business School by Professor Michael E. Porter.
ZARA Rivalry among Existing Competitor
Zara is part of Industria De Diseno Textil SA group ,The principal activity of the group comprises the retail and on-line distribution of clothing, footwear, accessories and household textile products through various commercial concepts targeted at different sectors of the public.Zara, which includes the Zara Home segment, had the highest net sales of the Inditex Group worldwide in 2021, amounting to just under 20 billion euros. The clothing retailer Bershka recorded the second highest net sales figure in the group 2.17 billion euros. Inditex announced the closing of all Uterqüe physical stores in 2021, but it is expected to remain as a brand within Massimo Dutti.Overall group saw continuous growth from €23.30 billion in 2016 to €28.20 billion in 2019, but in 2020 due to COVID-19 impact , customer trend shifted to online that bring decline in revenue to €20.40 billion, and in year 2021 saw recovery from pandemic and revenue grows to €27.70 billion.
H&M: Fashion retailer Hennes & Mauritz AB offers items for men, women, and children. The business creates, creates, distributes, markets, and sells apparel, accessories, footwear, beauty goods, home furnishings, and more. Erling Persson established the business, which has its headquarters in Stockholm, Sweden, in 1947. The main market for H&M is Germany. More than 3 billion dollars were made from just that nation in 2020.
The group’s overall sales came to about 22.04 billion dollars in 2021. H&M’s largest market is in Europe, where external net sales in 2021 were more than three times higher than they were in North and South America. In a list of the top clothes shops worldwide, H&M placed fifth thanks to its sales. Inditex, the owner of the Zara brand and a rival in fast fashion to H&M, finished in third. Compared to H&M, Zara had a far higher brand value. H&M’s brand worth exceeded seven billion dollars in 2022.
Since the coronavirus pandemic, the number of H&M stores has decreased; there were about 4,800 locations worldwide in 2021, or about 200 fewer than the year before. The United States, China, and Germany are the three nations having the most retailers. The H&M Group is home to a variety of additional clothing and homegoods brands, including COS, & Other Stories, and Arket. H&M is the company with the most actual stores. It operates in 75 markets and has an internet presence in more than 50 nations.
Uniqlo: Fast Retailing, a major retailer, owns Uniqlo, which was established in 1984. Unique Clothing Wearhouse was the first establishment. In 21 countries, there are more over 2,000 Uniqlo stores, with 827 of them in Japan. In 2001, the first store outside of Japan opened. For the first time in 2018, Uniqlo’s international income outside of Japan topped that of Uniqlo Japan.
During the fiscal year 2021, the Japanese clothing company Uniqlo Co., Ltd. brought in about 843 billion Japanese yen. One of the biggest fast fashion shops in the nation, Uniqlo is a fully owned subsidiary of Fast Retailing Co., Ltd. With revenues over two trillion yen, Fast Retailing is the largest domestic business in Japan’s garment sector. Today, with its operations in Japan and abroad, Uniqlo is one of Asia’s leading clothing retailers, accounting for more than 80% of Fast Retailing’s total sales. The Uniqlo brand was estimated to be worth 9.6 billion dollars in 2022. In contrast, in 2018 the brand was valued at almost 8.1 billion dollars.
Zara Threat of New Entrants
Time to become establish:Top competitors in the retail sector have been around for a while, including Zara since 1974, H&M since 1947, and Uniqlo since 1984. Since then, they have established a difficult-to-copy supply chain specialization. Zara’s supply chain is global in scope, with 12 clusters of suppliers organising 97% of the total production. As a result, it has the flexibility to adjust its product line to any emerging trends and to match the number of garments produced with market demand, which has proven to be important in the years 2021 and 2020. The number of Zara stores open as of January 31, 2022, is as follows: Spain with 1,267 stores, followed by the rest of Europe with 3,200, the Americas with 757, the rest of the world with 1,253, and the entire world with 6,477.
Zara Bargaining Power of Suppliers
Number of Suppliers: Due to diverse and large base of suppliers , their influence reduce significantly, As per Sustainability report for FY 2021, ZARA suppliers numbers are 1,790 in 44 markets and factories declared by suppliers are 8,756.
Compliance & Audit: it is necessary to remain in approved supplier list to meet mandatory standers compliance and pass audit requirements, so it keep pressure on suppliers and reduce their power significantly. In 2021, 17,477 traceability, pre-assessment, social, special and environmental audits were conducted of suppliers and manufacturers.
Financial support: the Group makes supply chain financing program available toits suppliers in order to give them access to liquidity, program financing amounting to 2,277 million euro.
Zara Bargaining Power of Buyers
Zara’s collection has a strong pull on you because it is typically affordable and always fashionable. No matter how hard I work at expanding my horizons in terms of fashion and how far I take my “elevated” sartorial sensibilities, I always find myself drawn back to Zara. Its alternatives have been around for a while, but ZARA’s brand recognition makes them difficult to replace.
Collaborations: With several organizations, both nationally and globally, Inditex has a close working relationship. It continues to collaborate with representatives of civil society, governments, labour unions, academic institutions, and local and international organisations. For instance, ACCELERATING CIRCULARITY is a cooperative programme within the apparel industry that combines the efforts of multiple operators to promote circularity in the areas of trash collection, recycling, fibre manufacturing, and textile distribution. Working together since 2020 to satisfy the clothing requirements of refugees and internally displaced people is the UNITED NATIONS HIGH COMMISSIONER FOR REFUGEES (UNHCR), Inditex, and UNHCR. Similar to how Inditex has hundreds of partnerships that improve their reputation among customers and society.
Zara Threat of Substitute Products or Services
Brand Loyalty: Customers place a special value on the ZARA brand since it is a leader in fashion and an advocate of smart style. It is thus challenging to substitute. The Zara brand was estimated to be worth 13 billion dollars in 2022. In contrast, in 2019 the brand was valued at roughly 18.4 billion dollars.
Online Sales: Since internet shopping has become more popular in the retail sector due to the pandemic, operating physical chains of businesses like Zara and H&M has become more challenging. Zara had a drop in sales at the beginning of the pandemic, but after taking action to give its clients an online choice, online sales grew by 77% to 6.6 billion euros. Inditex aimed to have 25% of its revenues generated online by 2022. Although internet retailers like Amazon can enter the industry, it will be challenging to overcome brand loyalty at the expense of accessibility and availability.
References
- Forbes, Profile,see link here |ZARA
- Forbes, Profile, see link here |H&M – Hennes & Mauritz
- Forbes, Profile, see link here |Uniqlo
- Inditex Annual report 2021 see link here |Inditex
- H&M Group – Statistics & Facts see link here |Statista
- Zara’s brand value worldwide from 2016 to 2022(in million U.S. dollars) see link here |Statista
- Fast fashion: brand value comparison of H&M and Zara worldwide from 2010 to 2022(in million U.S. dollars) see link here |Statista
- H&M to open fewer stores in 2018 as it struggles to respond to the growth of e-commerce see link here |CNBC
- Net sales of the Inditex Group worldwide from 2013 to 2021, by brand(in million euros) see link here |Statista
- Inditex group financial result from 2016 to 2022 at |InditexGroup
- Zara’s parent company Inditex records 70 per cent drop in profit see link here |RetailDetail
- Key financial figures of the Inditex Group worldwide in first quarter 2019 and 2020(in million euros) see link here |Statista
- Inditex’s 2020 net profit falls 70% as pandemic keeps many shops closedsee link here |CNBC
- Suppliers of Zara see link here |Inditex
