SWOT Analysis, BCG Matrix, and Intensive Growth Strategies for Zara
In 2018, clothing sales in the UAE were valued at a total of $12.3 billion, an annual growth rate of at least 4.8 percent. Over the next five years, the apparel market is bound to see a stronger performance, as per Mack (2018). However, the coronavirus pandemic has resulted in an economic slowdown in virtually all markets. This paper analyzes Zara using SWOT, BCG matrix, and Ansoff matrix to offer strategies for growth after the pandemic.
SWOT Analysis
A SWOT analysis is an effective tool to determine a company’s internal strengths and weaknesses as well as analyze external factors that the company can pursue for future success.
Strengths
Zara has a strong brand name that has been developed through years of investment. This strong portfolio offers the company an advantage since most UAE consumers are aware of the brand. The company also benefits from a well-established distribution network with many stores in strategic places within the UAE. This distribution network is supported by a strong community of distributors and dealers who not only promote Zara’s products but also invest in strong sales teams to enhance sales. The company has a strong organizational network enabled by a highly skilled workforce developed through regular training. This is a huge strength for Zara since these employees are a crucial resource in the organization’s success.
Weaknesses
While the workforce in Zara is highly skilled, there is a high attrition rate among employees, and the company has to spend much more funds on developing new staff. Beyond this, Zara has not been accurate at predicting product demand, leading to high inventory costs as the company has to spend more money on in-house costs.
Opportunities
The organization stands to gain more market share by executing an online sales program. Compared to its competitors in the UAE, Zara has an opportunity to attract a more diverse consumer base by using their online channel and offering more product differentiation to attract younger buyers. The UAE economy has also been improving steadily with adequate spending power among citizens. Tax regimes in the country also favor the development of Zara. This means that the company is already established as a regular taxpayer giving them more tax benefits compared to new entrants in the clothing market.
Threats
The most urgent threat for Zara at the moment is the coronavirus pandemic. Economic disruptions, curfews, and lockdowns mean that the company will register lower sales, which can affect its profitability. The pandemic is also likely to slow down the economy, leading to decreased spending power among Zara’s buyers.
BCG Matrix
A BCG matrix enables a company to analyze the position of different products within its portfolio by exploring its current market share and future growth rate. The matrix divides products into cash cows, stars, dogs, and question marks.
Stars
Stars are profitable products that have a chance to provide more revenue for the company. These products have a high market growth rate with a high market share. Zara’s stars are fashion jerseys, fashion denim, bags, and Zara accessories. Zara TRF is also a star with a market share of 24% and high sales revenues. Continuous market penetration will enable more people to learn about these products to increase sales.
Cash cows
These products are also major sources of revenue for the organization since they have a large market share with a low growth rate. These products are also likely to sustain their market demand, making them the major source of cash. Shoes, skirts, jeans, and Trafaluc cloth range are the main cash cows for Zara. Zara maintains about 45% market share of these products with women products enhancing Zara’s cash cows. This is due to the increasing role of women in the workplace (McKinsey & Co., 2019). The kid’s segment is also a cash cow with a 21% market share (Adam, 2018).
Question Marks
Question marks still have a low market share but a high market growth rate. This indicates that they have the potential for future growth if adequate investment and product development are achieved. For Zara, such products are like Pull & Bear with a 9.3% market share and Bershka at 6.5 %.
Dogs
These are products that are regularly underperforming and consume more of the company than they return. Zara’s underwear and maternity wear are in this category since they face excessive competition from established brands.
Ansoff Matrix
Usman (2018) indicates that the fashion market is moving towards sustainable and eco-friendly value chains in line with global developments that enhance the need for sustainability. The Ansoff product/market extension grid is designed to determine the strategic direction of a company, either through increasing its product line or accessing new markets. Zara is diversifying its product range by coming up with innovative eco-friendly products for its current customers. In doing so, the company is providing more value for its customers who seek brands that are sustainable. Zara will, therefore, gain from having customer loyalty, leading to diversification since its investing in sustainable, eco-friendly products. Zara is also pursuing an e-commerce strategy to increase its market base. By pursuing the new market, Zara will achieve market extension at a very low risk since it will be easy to establish. This strategy will enhance the ability of the company to reach more tech-savvy consumers and youth.
Recommendations
After the pandemic, it is possible that people will be more frugal with their spending, at least until when the economy rebounds. However, the UAE still has exemplary spending power and presents a suitable opportunity for Zara to grow. By exploiting the online strategy, Zara has the opportunity to entice customers even at this time when they are in their houses by offering new catalogues and email marketing campaigns to reach a wider audience. This will guarantee that the company gets customers hooked on their products. By making customers aware of the wide product range, Zara can keep its current customers interested while attracting new ones.
On product diversification, Zara requires to enhance its marketing of sustainable products. Sustainability is especially regarded highly among young people since they are more conscious of their effects on the environment. However, pursuing such a strategy should follow lean supply chain strategies to ensure that the company does not spend too much on new technologies. Relying on their existing supply chains, the company can come up with a cost-effective strategy that allows it to produce products with new eco-friendly materials while keeping its production costs low. Advertising these products to the new online market is likely to enhance the company’s sales by bringing together product diversification and market extension with minimal risks.
References
Adam (2018). The strategic management analysis of Zara. Available at: http://www.academia.edu/5492552/The_Strategic_Management_Analysis_of_ZARA_Re lative_to_the_Case_in_Developing_Countries
Mack B. (2019). Revealed: The value of retail fashion in the UAE. Gulf Business. Available at https://gulfbusiness.com/revealed-value-retail-fashion-uae/
McKinsey & Company. (2019). A closer look at the fashion industry in Gulf Cooperation Council Markets. McKinsey & Company
Usman (2018) Fast fashion forward with the sense of sustainability. Khaleej Times.